Half-year Report

RNS Number : 1422F

Sainsbury(J) PLC

03 November 2022

 

3 November 2022 

J Sainsbury PLC

Interim Results for the 28 weeks ended 17 September 2022

Strategy delivering for customers, colleagues, communities and shareholders

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

"We really get how tough it is for millions of households right now. Customers are watching every penny and every pound and we know that they are relying on us to keep food prices as low as we can. We will have invested more than £500 million by March 2023 in keeping prices lower by cutting our costs at a faster rate than our competitors¹, meaning we have more firepower to battle inflation. Over the past year and a half we have consistently passed on less price inflation than our competitors and I am confident we have never been better value. Argos is also performing well in a market where customers are looking for reassurance that they are getting great value and availability. 

"We were the first supermarket to give our colleagues a second pay rise this year and have invested £150 million to support them and drive outstanding service. I want to thank all my colleagues for their hard work and dedication and for everything they are doing to deliver for our customers. Our strong results are testament to the outstanding commitment and contribution from every member of our team." 

Financial Highlights

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

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

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

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

· Underlying profit before tax of £340 million, down 8 per cent; Financial Services operating profit of £19 million, flat year-on-year, and finance costs 9 per cent lower. UPBT up 43 per cent versus H1 19/20

· Statutory profit before tax of £376 million, down 29 per cent, reflecting higher exceptional income in the prior year from settlement of legal disputes

· H1 net funds balance £361 million. Strong retail free cash flow of £759 million, up 37 per cent, reflecting higher grocery sales and more typical seasonal working capital inflows against last year's impact of Covid unwind. On track to deliver guidance of at least £500 million free cash flow in FY22/23

· Interim dividend of 3.9 pence

· Guidance unchanged: continue to expect FY22/23 underlying profit before tax of between £630 million and £690 million

Strategic highlights

· Food First: Strong grocery volume market share performance and only full choice supermarket to grow volume share versus pre-pandemic². As customer shopping habits return to normal, online sales are down, but we are gaining overall grocery market share as online customers return to shop in our stores³

o  Value: Consistently inflating behind the market⁴, driven by more than £500 million investment over two years to keep prices low. Continuing to strengthen value position versus competitors; value index versus Aldi has improved by 400 basis points in the past 12 months⁵

o  Our mix and basket size trends are proving more resilient than competitors and we are seeing less switching to Aldi and Lidl than all other full choice supermarkets⁶, reflecting the strength of our brand and customer base

o  Innovation: Launched over 600 new products and on track to launch 1,200 new products by the end of this year. Sales of new Summer Editions products exceeded expectations, over 70 per cent more products in our Autumn Editions range this year. Launching 300 new Christmas products, over 50 per cent of which are Taste the Difference. Taste the Difference is outperforming the market⁷ with H1 sales are up 14 per cent versus pre-pandemic, as customers choose to treat themselves at home

o  Service: £150 million annual investment in colleague pay and benefits to support colleagues with the cost of living and drive outstanding service. We have given hourly paid colleagues two pay rises this year, as well as free food during shifts and offered all colleagues improved discounts. We are making significant investments to enhance our stores, which are attracting more customers as shopping behaviours normalise post-pandemic, driving strong satisfaction scores in supermarkets ahead of competitors⁸

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

o  Argos delivered market outperformance⁹ and is more resilient than competitors. Argos sales grew 1.6 per cent in Q2. By focusing on investing in our brands and developing core capabilities, we have improved availability and range. Hot weather supported sales of seasonal and electronic goods over the Summer

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

o  Continued focus on building the Habitat brand with strong sales growth in Habitat Kids and improved customer satisfaction scores¹⁰

o  Over 10 million customers have downloaded the Nectar app; My Nectar Prices is helping customers save over £100 a year. We now expect Nectar360 to deliver incremental profits of at least £90 million by March 2026, up from previous guidance of £60-70 million

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

· Save to Invest: Strong delivery of structural cost savings. We expect to deliver over £1.3 billion of cost savings in the three years to FY23/24, doubling the run rate from the three years to FY19/20. This is helping mitigate higher than expected operating cost inflation.

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

H1 Financial Summary	2022/23	2021/22	YoY
Statutory performance
Group revenue (excl. VAT, inc. fuel)	£16,408m	£15,724m	4.4%
Profit before tax	£376m	£527m	(29%)
Profit after tax	£285m	£378m	(25%)
Basic earnings per share	12.3p	16.8p	(27%)
Business performance
Group sales (inc. VAT)	£18,338m	£17,528m	4.6%
Retail sales (inc. VAT, excl. fuel)	£14,674m	£14,871m	(1.3%)
Underlying profit before tax	£340m	£371m	(8%)
Underlying basic earnings per share	11.2p	12.2p	(8%)
Interim dividend per share	3.9p	3.2p	22%
Net debt (inc. lease liabilities)	£(6,165)m	£(6,345)m	+£180m
Non-lease net funds / (debt)	£361m	£(27)m	+£388m
Return on capital employed	7.7%	6.3%	140bps

Like-for-like sales performance	2021/22				2022/23 YoY
	Q1	Q2	Q3	Q4	Q1	Q2	H1
Like-for-like sales (excl. fuel)	1.6%	(1.4%)	(4.5%)	(5.6%)	(4.0%)	3.7%	(0.8%)
Like-for-like sales (incl. fuel)	8.4%	3.0%	0.6%	2.7%	2.9%	7.7%	4.9%
Total sales performance	2021/22				2022/23 YoY			2022/23 Yo3Y
	Q1	Q2	Q3	Q4	Q1	Q2	H1	Q1	Q2	H1
Grocery	0.8%	0.8%	(1.1%)	(1.6%)	(2.4%)	3.8%	0.2%	8.7%	10.1%	9.3%
Total General Merchandise	(1.4%)	(11.4%)	(16.0%)	(21.1%)	(11.2%)	1.2%	(6.1%)	(6.2%)	(3.6%)	(5.0%)
GM (Argos)	(3.7%)	(12.0%)	(16.1%)	(20.4%)	(10.5%)	1.6%	(5.5%)	(4.5%)	(0.9%)	(2.9%)
GM (Sainsbury's)	11.2%	(8.0%)	(15.7%)	(24.1%)	(14.6%)	(1.3%)	(9.1%)	(13.8%)	(15.5%)	(14.5%)
Clothing	57.6%	9.2%	(2.7%)	(9.3%)	(10.1%)	(0.2%)	(6.0%)	3.9%	0.8%	2.5%
Total Retail (excl. fuel)	1.6%	(1.7%)	(5.3%)	(6.2%)	(4.5%)	3.1%	(1.3%)	5.4%	6.7%	5.9%
Fuel	95.1%	36.1%	47.5%	80.1%	48.3%	29.1%	39.5%	26.9%	24.2%	25.8%
Total Retail (incl. fuel)	8.5%	2.7%	(0.1%)	2.2%	2.5%	7.2%	4.4%	8.9%	9.6%	9.2%

Outlook

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

We are well placed through the peak trading period and into next financial year to support customers as they manage further cost of living pressures. We are half way through a £1.3 billion cost saving programme that has doubled the run rate of previous years and we are confident in our competitive position in the face of macro challenges and operating cost inflation.

We continue to expect underlying profit before tax in FY22/23 to be between £630 million and £690 million and to generate retail free cash flow of at least £500 million.

Notes

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

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

A recorded copy of the webcast and Q&A call, alongside slides and a transcript of the presentation will be available at www.about.sainsburys.co.uk/investors/results-reports-and-presentations following the event.

Sainsbury's will issue its 2022/23 Third Quarter Trading Statement at 07:00 (GMT) on 11 January 2023. 

Enquiries

Investor Relations	Media
James Collins	Rebecca Reilly / Victoria Durman
[phone]	[phone]

Food First

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

Value

· We have consistently inflated prices behind competitors, both overall and on the best-selling items that are most important to customers¹¹. Our value position across the whole basket continues to improve versus competitors, including improving by 400 basis points versus Aldi in the last 12 months⁵. We announced our biggest ever September investment in food of £60 million as part of our commitment to invest £500 million by March 2023

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

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

· Our mix and basket size trends are proving more resilient than competitors and we are seeing less switching to the limited choice supermarkets than the other full choice supermarkets, reflecting our improving value position and the strength of our brand and customer base⁶

Quality and Innovation

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

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

· Taste the Difference sales are up by 14 per cent on a three-year basis. We launched 160 new Taste the Difference products, up 40 per cent year-on-year and we outperformed the market overall⁷ and at key events such as Easter and the Queen's Jubilee. We also launched 21 new Inspired to Cook products to help customers cook tasty food at home

· Customer satisfaction scores for quality remain ahead of our full choice supermarket competitors and we are the only full choice supermarket to improve on quality perception scores while maintaining price perception scores over a three-year period¹²

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

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

Service

· In September we announced a £25 million package to support colleagues with the cost of living. This included a second pay rise this year for 127,000 hourly-paid colleagues, raising the base rate to £10.25 per hour nationally and £11.30 per hour in London. The package also includes free food during shifts and increased discounts at Sainsbury's and Argos

· Investment in colleagues and our stores is supporting strong supermarket customer satisfaction scores. Customer satisfaction stores are ahead of competitors in availability, speed of checkout, quality and colleague availability¹³

· We are well positioned to serve our customers wherever and however they want to shop. As customer shopping habits normalise and people return to stores post-pandemic, we are growing overall market share with a higher proportion of online customers switching to our own stores versus competitors¹⁴. Supermarket sales grew 3 per cent¹⁵

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

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

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

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

Brands that Deliver

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

Argos

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

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

Habitat

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

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

· Customer satisfaction scores have improved; value perception is up 2.4 percentage points year-on-year and brand awareness is up 2.8 percentage points¹⁰

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

Tu

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

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

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

Nectar

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

· SmartShop usage continues to increase and helps to drive value for customers by enabling them to track their spend and benefit from My Nectar Prices, which offers personalised discounts where customers can save over £100 a year

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

· Nectar360 is now working with more than 700 suppliers and is tracking ahead of its previous target to deliver incremental profits of £60 million to £70 million. We now expect Nectar360 to deliver incremental profits of at least £90 million by March 2026

Financial Services

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

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

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

· We launched our Digital Savings platform, significantly improving the customer experience

· Sainsbury's Bank paid its first dividend of £50 million to the Group in H1

Save to Invest  

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

· We expect to deliver over £1.3 billion of cost savings in the three years to FY23/24, doubling the run rate from the three years to FY19/20. Halfway through this programme, we have delivered £730 million of savings. Cost inflation is considerably higher than we had anticipated, but our strong programme of cost savings is helping us to mitigate the impact of inflation and invest in low prices for customers and in colleague pay ahead of key competitors

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

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

· We have opened 11 Local Fulfilment Centres and as a result, our customers are benefitting from improved availability and faster delivery. We are on track to make a total saving of £105 million by the end of March 2024 for the overall Argos transformation programme

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

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

· The transformation of our café, bakery and hot food counters is on track to save over £160 million over the three years to FY22/23. We have so far closed 312 food counters and 260 cafés. We have opened two further 'The Restaurant Hub' food halls and we now have 50 Starbucks cafés in Sainsbury's stores. By working with third parties we can deliver for customers and support our own cost saving programme 

· We are making good progress with the integration of Sainsbury's, Argos and Habitat supply chain and logistics networks, which will save at least £250 million over the programme

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

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

Plan for Better

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

Better for You

Healthy and sustainable diets

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

· We have reintroduced £2 top-up coupons to buy fruit and vegetables, to accompany the Government-funded NHS Healthy Start scheme every week over the next six months in England. This could help feed more than half a million pregnant women and children in need of support

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

Better for the Planet

Carbon

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

· Coming together with other retailers, we collectively invested £9 million in the Responsible Commodities Facility (RCF) to provide financial incentives to farmers in Brazil who commit to 100 per cent deforestation and conversion-free (DCF) soy cultivation

· We launched our new innovation investment programme, in partnership with Williams Advanced Engineering, and are pledging to invest £5 million to help support small businesses pioneering sustainable technologies

Food Waste

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

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

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

Plastic and Recycling

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

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

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

Better for Everyone

Human Rights

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

Diversity and Inclusion

· We launched the 'Thrive with Sainsbury's' programme, which supports Black founder-led brands to create food and drink products and committed £1 million to help these businesses grow and to mentor participating founders

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

Animal Health and Welfare

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

¹⁵ Including Argos stores in Sainsbury's sales

Financial Review for the 28 weeks to 17 September 2022

In the 28 weeks to 17 September 2022, the Group generated profit before tax of £ 376 million (HY 2021/22: £527 million) and an underlying profit before tax of £340 million (HY 2021/22: £371 million).

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

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

Summary income statement1	28 weeks to	28 weeks to		52 weeks to
	17 September	18 September	Change	05 March
	2022	2021		2022
	£m	£m	%	£m
Group sales (including VAT)	18,338	17,528	4.6	33,355
Retail sales (including VAT)	18,084	17,315	4.4	32,924
Retail sales (excluding fuel, including VAT)	14,674	14,871	(1.3)	28,095
Group sales (excluding VAT)	16,408	15,724	4.4	29,895
Retail sales (excluding VAT)	16,154	15,511	4.1	29,463
Underlying operating profit
Retail	477	523	(9)	1,001
Financial services	19	19	-	38
Total underlying operating profit	496	542	(8)	1,039
Underlying net finance costs2	(156)	(171)	9	(309)
Underlying profit before tax	340	371	(8)	730
Items excluded from underlying results3	36	156	(77)	124
Profit before tax	376	527	(29)	854
Income tax expense	(91)	(149)	39	(177)
Profit for the financial period	285	378	(25)	677
Underlying basic earnings per share	11.2p	12.2p	(8)	25.4p
Underlying diluted earnings per share	11.1p	11.6p	(4)	24.5p
Basic earnings per share	12.3p	16.8p	(27)	29.8p
Diluted earnings per share	12.1p	16.1p	(25)	28.8p
Dividend per share	3.9p	3.2p	22	3.2p

1  Prior year restated - refer to note 2 of the financial statements

2  Refer to APMs and note 7 of the financial statements

3  Refer to APMs and note 3 of the financial statements

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

Group sales

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

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

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

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

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

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

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

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

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

Space

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

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

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

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

Retail underlying operating profit

Retail underlying operating profit decreased by 8.7 per cent to £477 million (HY 2021/22: £523 million) and retail underlying operating margin decreased by 42 basis points year-on-year to 2.95 per cent (HY 2021/22: 3.37 per cent). This decline in profit reflects our investment in value, reduced volumes as we annualise COVID-19 restrictions and higher levels of operating cost inflation, offset by both higher fuel sales and our ongoing Save to Invest Programme.

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

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

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

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

3  Retail underlying operating profit before underlying depreciation and amortisation of £610 million.

4  Retail underlying EBITDA divided by retail sales excluding VAT.

In 2022/23, we now expect a depreciation and amortisation charge of around £1,150 million, including around £500 million right of use asset depreciation.

Financial Services

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

1  Net interest receivable divided by average interest-bearing assets.

2  Bad debt expense divided by average net lending.

3  Total capital divided by risk-weighted assets.

4  Total Capital Ratio excludes profits still subject to formal verification, inclusion of these profits would increase the capital ratio by 0.4%. In addition, the Bank issued a tender to repurchase and extinguish £120m of its existing Tier 2 on 30th August. This was executed and replaced with a new issuance on 12th September, the Total Capital Ratio prior to the new issuance was 15.9%, the figures shown includes this re-issuance as it is a material adjustment between 31 August and 17th September.

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

Financial Services underlying operating profit of £19 million was flat year-on-year (H1 21/22: profit of £19 million). This was driven by an increase in credit demand and recovery in Travel Money, offset by higher impairments and increased costs. Higher impairments reflect both a revision in economic assumptions on inflation and unemployment, as well as the normalisation of low arrears levels in the prior year.

Financial Services total income of £226 million increased by 23 per cent (H1 21/22: £183 million), driven primarily by a recovery of credit demand with unsecured lending balances up 11 per cent year-on-year, and a rebound in Travel Money as foreign travel resumed. Net Interest margin has increased 90bps, with net interest income up 14 per cent due to a higher unsecured mix, improving yields and a focus on managing the cost of funding. Fee income has shown recovery post COVID within Credit Card and ATMs, with higher retail spend and the demand for cash returning.

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

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

A £50m dividend was paid from Sainsbury's Bank to the Group for the first time in April 2022. The Bank remains well capitalised with a Total Capital ratio of 17.3%.

Underlying net finance costs

Underlying net finance costs reduced by 9 per cent to £156 million (HY 2021/22: £171 million). These costs include £17 million of net non-lease interest cost (HY 2021/22: £22 million). The reduction of net non-lease interest is driven by interest income from higher cash balances. In addition, the net underlying interest costs on lease liabilities have reduced to £139 million (HY 2021/22: £149 million), mainly due to lower interest rates on new leases.

We now expect underlying net finance costs in 2022/23 of £290 million - £300 million, lower than previously guided, including around £260 million of lease interest.

Items excluded from underlying results

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

Items excluded from underlying results1	28 weeks to	28 weeks to
	17 September	18 September
	2022	2021
	£m	£m
Restructuring and integration programmes	(33)	(47)
Income recognised in relation to legal disputes	30	181
IAS 19 pension income	35	6
Property, finance and acquisition adjustments	4	16
Items excluded from underlying results	36	156

1  Prior year restated - see note 2 of the financial statements

-  Restructuring and integrations costs of £33 million (2021/22: £47 million) includes £33 million (2021/22: £37 million) relating to the programme announced in November 2020. Cash costs in the half were £33 million (2021/22: £81 million) and we expect full year cash costs of around £60 million.

-  We continue to expect that we will incur one off costs from these infrastructure, operating model and structure changes of £900 million to £1 billion, with cash costs of around £300 million, with the majority in the period to March 2024. To date charges of £673 million and cash costs of £181 million have been incurred. In line with IFRIC 21 "Levies", business rates are now recognised as a periodic cost as incurred and as such we expect approximately £40 million of business rates associated with leased properties in the restructuring programme to be recognised after the year ending March 2024.

-  Income recognised in relation to legal disputes of £30 million (2021/22: £181 million) primarily relates to settlements for overcharges from payment card processing fees and is shown net of legal fees. No net cash was received in the half (2021/22: £27 million).

-  IAS 19 Pension income of £35 million (2021/22: £6 million) comprises pension finance income of £30 million, a settlement credit of £8 million relating to a gain on payments made to members exiting the scheme relative to the liabilities extinguished, and scheme expenses of £3 million. The higher pensions finance income is driven by both an increased pensions surplus and higher interest rates.

-  Other movements of £4 million income (2020/21: £16 million) relate to property profits, acquisition adjustments and non-underlying financing costs. The positive value is driven by a gain on energy derivatives driven by higher energy prices.

Taxation

The tax charge was £91 million (HY 2021/22: £149 million). The underlying tax rate was 23.5 per cent (HY 2021/22: 26.4 per cent) and the effective tax rate was 24.2 per cent (HY 2021/22: 28.3 per cent).

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

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

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

Earnings per share

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

Dividends

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

Net debt and retail cash flows

As at 17 September 2022, net debt was £6,165 million (18 September 2021: £6,345 million), a decrease of £180 million. Excluding the impact of lease liabilities on net debt, Sainsbury's reduced non-lease net debt by £388 million, moving to a net funds position of £361 million (18 September 2021: net debt of £27 million).

Net debt includes lease liabilities under IFRS 16 which grew to £6,526 million (HY 2021/22: £6,318 million) as a result of exercising purchase options on a further eight leased supermarkets held by property investment pools in which the Group holds an interest in the second half of 2021/22 (taking the total to 21 stores in 2021/22). Group net debt includes the impact of capital injections to and dividends received from Sainsbury's Bank, but excludes the net debt of Financial Services. Financial Services' net debt balances are excluded because they are required as part of the business as usual operations of the bank, as opposed to specific forms of financing for the Group.

Having exceeded our £950 million net debt reduction target at last year end, a year ahead of plan, we continue to expect to generate average retail free cash flow of at least £500 million per year over the three years to March 2025⁵.

Summary cash flow statement 1	Retail	Retail	Retail
	28 weeks to	28 weeks to	52 weeks to
	17 September	18 September	5 March
	2022	2021	2022
	£m	£m	£m
Retail underlying operating profit	477	523	1001
Adjustments for:
Retail underlying depreciation and amortisation2	610	618	1,144
Share based payments and other	34	26	54
Retail exceptional operating cash flows (excluding pensions)2	(33)	(30)	(3)
Adjusted retail operating cash flow before changes in working capital3	1,088	1,137	2,196
Decrease/(increase) in working capital2	360	135	(185)
Net interest paid2	(161)	(177)	(323)
Pension cash contributions	(23)	(39)	(71)
Corporation tax paid	(32)	-	(23)
Adjusted net cash generated from operating activities2	1,232	1,056	1,594
Cash capital expenditure2	(297)	(298)	(645)
Repayments of lease liabilities	(245)	(242)	(491)
Initial direct costs on right-of-use assets	(9)	(1)	(3)
Proceeds from disposal of property, plant and equipment	28	39	46
Dividends and distributions received	50	-	2
Retail free cash flow	759	554	503
Dividends paid on ordinary shares	(229)	(165)	(238)
Repayment of borrowings2	(22)	(231)	(256)
Other2	(23)	(30)	(27)
Net increase/(decrease) in cash and cash equivalents	485	128	(18)
Decrease in Debt	267	473	747
Conversion of perpetual convertible-bond	-	-	240
Other non-cash and net interest movements4	(158)	(477)	(1,259)
Movement in net debt	594	124	(290)
Opening net debt	(6,759)	(6,469)	(6,469)
Closing net debt	(6,165)	(6,345)	(6,759)
of which
Lease Liabilities	(6,526)	(6,318)	(6,618)
Net Funds / (Net Debt) Excluding Lease Liabilities	361	(27)	(141)

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

2  Refer to the Alternative Performance Measures on pages 57 to 63 for reconciliation.

3  Excludes working capital and pension contributions.

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

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

Adjusted retail operating cash flow before changes in working capital was £1,088 million (HY 2021/22: £1,137 million) and working capital decreased by £360 million since the year end (HY 2021/22: £135 million). Working capital typically decreases between year end and half year, driven by seasonality and the phasing of payables. HY 2021/22 saw a more subdued effect due to the unwind of COVID-19 trading patterns, whilst this year sees a return to a more normal phasing, supported by strong Q2 sales growth.

Corporation tax of £32 million was paid in the half, with no payments made in the prior half year, reflecting payments made in 2020/21 before the decision to forgo business rates relief which subsequently impacted taxable profits in that year. Pensions contributions of £23 million (HY 2021/22: £39 million) are down on last year with the Sainsbury's scheme now fully funded and contributions stopped. Proceeds from disposals of £28 million (HY 2021/22: £39 million) represents disposal of non-trading sites and we do not expect any material further proceeds in the second half of the year.

Retail free cash flow increased by £205 million year-on-year to £759 million (HY 2021/22: £554 million) reflecting the material change in working capital pattern noted above, as well as a £50 million dividend received from Sainsbury's Bank given their strong capital position.

Sainsbury's paid dividends of £229 million in the half (HY 2021/22: £165 million).

As at 17 September 2022 Sainsbury's has drawn debt facilities of £545 million (HY 2021/22 £592 million). The Group holds undrawn committed credit facilities of £1,394 million and undrawn uncommitted facilities of £195 million.

Capital expenditure

Retail cash capital expenditure was £297 million (HY 2021/22: £298 million).

We expect annual retail cash capital expenditure (excluding Financial Services) to be around £700 million to £750 million over the three years to March 2025.

Financial ratios

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

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

2  Net debt of £6,165 million includes lease obligations under IFRS 16, divided by Group underlying EBITDA of £2,158 million, calculated for a 52-week period to 17 September 2022.

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

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

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

Defined benefit pensions

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

The Scheme was subject to a triennial actuarial valuation as at 30 September 2021, which has now completed. There was an actuarial surplus of £130 million (Sainsbury's section: a surplus of £231 million, Argos section: a deficit of £101 million), from a deficit of £538 million in 2018. The asset backed contributions (ABC) structure established by Sainsbury's in July 2019 continues to deliver as planned. Under the ABC, properties with a value of £1.35 billion were transferred into a property holding company, a wholly owned subsidiary of the Group, and leased to other Group entities. Rental receipts facilitate payments of interest and capital on loan notes issued to a Scottish Limited Partnership, in which the Scheme holds an interest. The Scheme's interest in the Partnership entitles it to annual distributions over up to 20 years.

These were approximately £58 million per year until 2030, and subsequently approximately £28 million a year for the remaining period (increasing by 2% a year). The distributions are made through three payment streams: 1) Payments to the Sainsbury's section 2) Payments to the Argos section 3) Switching payment stream, paid to either the Sainsbury's section or Argos section.

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

As the Sainsbury's section reached its funding target in December 2021, stream 1 (£15 million a year) was permanently switched off and stream 3 (currently £24 million a year) switched to the Argos section from March 2022. Stream 3 payments will continue until 2038 or until both sections have reached their funding targets, if earlier. The Argos section also continues to receive the stream 2 payments of £20 million a year.

At 17 September 2022, the net defined benefit surplus under IAS19 for the Group was £1,455 million (excluding deferred tax). The £828 million decrease from 5 March 2022 was driven by remeasurement losses resulting from the net impact of rising interest rates on both plan assets and liabilities.

For 2022/23, total pension scheme cash contributions are expected to be £53 million.

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

Post Balance Sheet Events

Borrowings

Subsequent to the balance sheet date, an unsecured term facility for £575m was entered into in October 2022, with an ultimate maturity date of 30 November 2024. As at the date of signing the term facility was undrawn.

Retirement benefit obligations

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

The Group's pension Scheme adopts a collateral sufficiency framework which ensures sufficient high quality liquid assets are maintained in order to meet liquidity requirements, even in times of market stress. The scale and speed of the increase in interest rate expectations since the 'mini budget', and volatility within the markets, resulted in the Group deciding to put in place a loan facility to the Scheme of £500m on 18th October. The purpose of this facility was to further enhance the pensions Scheme's resilience in the event of unexpected substantial further rises in interest rates. This facility will remain in place for 3 months and as at the date of signing has not been drawn.

Group income statement (unaudited)

for the 28 weeks to 17 September 2022

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

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

Refer to note 2 for details of prior year restatement.

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

for the 28 weeks to 17 September 2022

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

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

Refer to note 2 for details of prior year restatement.

Group balance sheet (unaudited)

at 17 September 2022

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

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

Refer to note 2 for details of prior year restatement.

Group cash flow statement (unaudited)

for the 28 weeks to 17 September 2022

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

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

Refer to note 2 for details of prior year restatement.

Group statement of changes in equity (unaudited)

for the 28 weeks to 17 September 2022

	Called up share capital	Share premium account	Merger reserve	Capital redemption and other reserves	Retained earnings	Total equity before perpetual securities	Perpetual convertible bonds	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 6 March 2022	668	1,406	568	1,089	4,692	8,423	-	8,423
Profit for the period	-	-	-	-	285	285	-	285
Other comprehensive income/(loss)	-	-	-	189	(886)	(697)	-	(697)
Tax relating to other comprehensive income/(loss)	-	-	-	(34)	222	188	-	188
Total comprehensive income/(loss) for the period ended 17 September 2022	-	-	-	155	(379)	(224)	-	(224)
Cash flow hedges gains and losses transferred to inventory	-	-	-	(56)	-	(56)	-	(56)
Transactions with owners:
Dividends	-	-	-	-	(229)	(229)	-	(229)
Share-based payment	-	-	-	-	37	37	-	37
Purchase of own shares	-	-	-	-	(25)	(25)	-	(25)
Allotted in respect of share option schemes	2	2	-	-	(2)	2	-	2
Other adjustments	-	-	-	1	2	3	-	3
Tax on items charged to equity	-	-	-	-	(2)	(2 )	-	(2)
At 17 September 2022	670	1,408	568	1,189	4,094	7,929	-	7,929

	Called up share capital	Share premium account	Merger reserve	Capital redemption and other reserves	Retained earnings	Total equity before perpetual securities	Perpetual convertible bonds	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 7 March 2021 (as previously reported)	637	1,173	568	847	3,131	6,356	248	6,604
Opening balance adjustment	-	-	-	-	97	97	-	97
At 7 March 2021 (restated)	637	1,173	568	847	3,228	6,453	248	6,701
Profit for the period (restated)	-	-	-	-	378	378		378
Other comprehensive income	-	-	-	111	298	409	-	409
Tax relating to other comprehensive income	-	-	-	(42)	(141)	(183)	-	(183)
Total comprehensive income for the period ended 18 September 2021 (restated)	-	-	-	69	535	604	-	604
Cash flow hedges gains and losses transferred to inventory	-	-	-	24	-	24	-	24
Transactions with owners:
Dividends	-	-	-	-	(165)	(165)	-	(165)
Conversion of perpetual convertible bonds	26	216	-	-	(2)	240	(240)	-
Repayment of perpetual convertible bonds	-	-	-	-	-	-	(8)	(8)
Share-based payment	-	-	-	-	28	28	-	28
Purchase of own shares	-	-	-	-	(41)	(41)	-	(41)
Allotted in respect of share option schemes	3	9	-	-	(1)	11	-	11
Other adjustments	-	-	-	16	(16)	-	-	-
Tax on items charged to equity	-	-	-	-	8	8	-	8
At 18 September 2021 (restated)	666	1,398	568	956	3,574	7,162	-	7,162

Group statement of changes in equity ( unaudited)

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

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

Refer to note 2 for details of prior year restatement.

Notes to the Condensed Consolidated Interim Financial Statements (unaudited)

1.  General information

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

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

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

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

2.  Basis of preparation and accounting policies

2.1  Basis of preparation

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

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

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

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

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

Prior period restatement

Business rates within property provisions

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

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

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

2.  Basis of preparation and accounting policies

Income statement

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

Balance sheet

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

Cash flow statement

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

2.  Basis of preparation and accounting policies

2.2  Going concern 

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

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

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

The Revolving Credit Facility is split into two Facilities, a £300 million Facility (A) and a £1,094 million Facility (B). Facility A has a final maturity of April 2025 and Facility B has a final maturity of October 2024. As at 17 September 2022, both Facility (A) and Facility (B) were undrawn.

Additionally, an unsecured term facility for £575m was entered into in October 2022, with an ultimate maturity date of 30 November 2024.

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

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

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

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

2.3  Accounting judgements and estimates

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

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

2.4  New standards, interpretations and amendments adopted by the Group

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

-  Amendments to IFRS 3 'Business Combinations' - Reference to the Conceptual Framework

-  Amendments to IAS 16 'Property, Plant and Equipment' - Proceeds before Intended Use

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

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

2.  Basis of preparation and accounting policies continued

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

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

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

2.5  Alternative performance measures (APMs)

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

3.  Profit before non-underlying items

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

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

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

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

Income recognised in relation to legal disputes

During the prior period agreements were reached in relation to overcharges from payment card processing fees, which largely reflect inter-bank "interchange fees". This led to net income of £167 million being recognised. During the current period a further agreement has been reached resulting in net income of £30 million being recognised.

Net cash of £30 million was received subsequent to the interim balance sheet date and thus has not been included within the cashflow statement.

3 .  Profit before non-underlying items

Restructuring programmes

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

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

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

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

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

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

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

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

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

The restructuring programme is a multi-year activity which began in the financial period ended 6 March 2021. Total cumulative costs including impairment costs to 17 September 2022 are £673 million. Total expected costs are still in the range of £900 million to £1 billion, with total expected cash outflows of around £300 million.

Property, finance, pension and acquisition adjustments

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

· Defined benefit pension interest and expenses comprises pension finance income of £30 million, settlement credit of £8 million and scheme expenses of £(3) million (see note 18). Although a recurring item, the Group has chosen to exclude net retirement benefit income and costs from underlying profit as, following closure of the defined benefit scheme to future accrual, it is not part of the ongoing operating activities of the Group and its exclusion is consistent with how the Directors assess the performance of the business.

3.  Profit before non-underlying items

· Non-underlying finance and fair value movements for the financial period comprised £23 million for the Group. These include fair value remeasurements on derivatives not in a hedging relationship. The fair value movements are driven by external market factors and can significantly fluctuate year-on-year. They are therefore excluded to ensure consistency between periods. Included within cost of sales is £28 million of income in relation to favourable movements on long-term, fixed price power purchase arrangements (PPAs) with independent producers. These are accounted for as derivative financial instruments, however are not designated in hedging relationships, therefore gains and losses are recognised in the income statement. Increases in electricity forward prices in the period have led to gains on the related derivative financial instruments. In the interim period comparative, this income was classified as finance income, however for the full year comparative this income was reclassified to cost of sales as this better reflects the nature of the costs associated with the financial instruments and thus the gains recognised. This reclassification has no impact on the carrying value of the derivatives, underlying profit before tax, or statutory profit before tax, and therefore the prior interim period comparatives have not been restated. Non-underlying finance and fair value movements also includes lease interest on impaired non-trading sites, including site closures. Lease interest on impaired, non-trading sites is excluded as they do not contribute to the operating activities of the Group. The remaining movements of £(5) million within finance income and costs are analysed further in note 7.

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

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

Comparative information

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

3.  Profit before non-underlying items

52 weeks to 5 March 2022
	Cost of sales	Administrative expenses	Other income	Net finance income/ (costs)	Total adjustments before tax	Tax	Total adjustments
	£m	£m	£m	£m	£m	£m	£m
Income recognised in relation to legal disputes	-	13	167	-	180	(35)	145
Restructuring and integration
Restructuring programmes	(69)	(35)	12	-	(92)	17	(75)
Financial Services transition and other	-	(11)	-	-	(11)	2	(9)
Total restructuring and integration	(69)	(46)	12	-	(103)	19	(84)
Software as a service accounting adjustment	-	(21)	-	-	(21)	4	(17)
Property, finance, pension and acquisition adjustments
ATM business rates reimbursement	2	-	-	-	2	-	2
Profit on disposal of properties	-	-	7	-	7	-	7
Non-underlying finance and fair value movements	76	-	-	(8)	68	(13)	55
IAS 19 pension (expenses) / income	-	(4)	-	15	11	(2)	9
Acquisition adjustments	-	(20)	-	-	(20)	4	(16)
Total property, finance, pension and acquisition adjustments	78	(24)	7	7	68	(11)	57
Tax adjustments
Over provision in prior years	-	-	-	-	-	(2)	(2)
Revaluation of deferred tax balances	-	-	-	-	-	9	9
Other tax adjustments	-	-	-	-	-	(7)	(7)
Total adjustments	9	(78)	186	7	124	(23)	101

Financial Services transition and other

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

Software as a service accounting adjustment

In the second half of the prior year, the Group revised its accounting policy in relation to upfront configuration and customisation costs incurred in implementing software as a service (SaaS) arrangement. This was in response to the IFRS Interpretations Committee (IFRIC) agenda decision clarifying its interpretation of how current accounting standards apply to these types of arrangements. Costs capitalised prior to the period ended 5 March 2022 totalling £21 million were written off in the prior year as a non-underlying expense. In addition, £14 million of prior year spend that would have been capitalised to intangible assets under the Group's previous accounting policy was recognised within prepayments (£6 million) and underlying profit (£8 million). Had the change in accounting policy been implemented in the first half of the prior year, £7 million of first half spend that would have been capitalised to intangible assets under the Group's previous accounting policy would have been recognised within prepayments (£3 million) and underlying profit (£4 million).

Cash flow statement

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

		28 weeks to 17 September 2022	28 weeks to 18 September 2021	52 weeks to 5 March 2022
		£m	£m	£m
Cash flows from operating activities
IAS 19 pension expenses		(3)	(2)	(7)
Financial Services transition and other		-	(11)	(13)
Restructuring programmes		(33)	(70)	(114)
ATM Rates reimbursement		-	13	14
Net income recognised in relation to legal disputes		-	27	93
Cash used in operating activities		(36)	(43)	(27)
Cash flows from investing activities
Proceeds from property disposals1		28	39	46
Cash generated from investing activities		28	39	46
Net cash flows		(8)	(4)	19

¹ £26 million of the current period proceeds from property disposals are a result of restructuring programmes.

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

4.  Revenue

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

5.  Segment reporting

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

· Retail - Food;

· Retail - General Merchandise & Clothing;

· Financial Services (Sainsbury's Bank plc and Argos Financial Services entities)

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

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

a.  Income statement and balance sheet

	Retail	Financial Services	Group
28 weeks to 17 September 2022	£m	£m	£m
Segment revenue
Retail sales to external customers	16,154	-	16,154
Financial Services to external customers	-	254	254
Revenue	16,154	254	16,408
Underlying operating profit	477	19	496
Underlying finance income	5	-	5
Underlying finance costs	(161)	-	(161)
Underlying profit before tax	321	19	340
Non-underlying income (note 3)			36
Profit before tax			376
Income tax expense (note 8)			(91)
Profit for the financial period			285
Assets	20,078	7,013	27,091
Investment in joint ventures and associates	3	-	3
Segment assets	20,081	7,013	27,094
Segment liabilities	(13,042)	(6,123)	(19,165)

a.  Income statement and balance sheet

	Retail (restated)	Financial Services	Group (restated)
28 weeks to 18 September 2021	£m	£m	£m
Segment revenue
Retail sales to external customers	15,511	-	15,511
Financial Services to external customers	-	213	213
Revenue	15,511	213	15,724
Underlying operating profit	523	19	542
Underlying finance costs	(171)	-	(171)
Underlying profit before tax	352	19	371
Non-underlying expense (note 3)			156
Profit before tax			527
Income tax expense (note 8)			(149)
Profit for the financial period			378
Assets	18,847	6,824	25,671
Investment in joint ventures and associates	5	-	5
Segment assets	18,852	6,824	25,676
Segment liabilities	(12,601)	(5,913)	(18,514)

	Retail	Financial Services	Group
52 weeks to 5 March 2022	£m	£m	£m
Segment revenue
Retail sales to external customers	29,463	-	29,463
Financial Services to external customers	-	432	432
Revenue	29,463	432	29,895
Underlying operating profit	1,001	38	1,039
Underlying finance income	3	-	3
Underlying finance costs	(312)	-	(312)
Underlying profit before tax	692	38	730
Non-underlying expense (note 3)			124
Profit before tax			854
Income tax expense (note 8)			(177)
Profit for the financial period			677
Assets	20,368	6,541	26,909
Investment in joint ventures and associates	3	-	3
Segment assets	20,371	6,541	26,912
Segment liabilities	(12,870)	(5,619)	(18,489)

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

b.  Segmented cash flow statement

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

b.  Segmented cash flow statement

		52 weeks to 5 March 2022
	APM	Retail	Financial Services	Group
	reference
		£m	£m	£m
Profit before tax		833	21	854
Net finance income/(costs)		304	(2)	302
Operating profit		1,137	19	1,156
Adjustments for:
Depreciation and amortisation expense		1,197	23	1,220
Net impairment charge on property, plant and equipment, right-of-use assets and intangible assets		8	1	9
Financial Services impairment losses on loans and advances		-	19	19
Profit on sale of properties and early termination of leases		(6)	-	(6)
Non-underlying fair value movements		(76)	-	(76)
Share-based payments expense		53	5	58
Non-cash defined benefit scheme expenses		4	-	4
Cash contributions to defined benefit scheme		(71)	-	(71)
Operating cash flows before changes in working capital		2,246	67	2,313
Movements in working capital		(306)	(646)	(952)
Cash generated/(used) from operations		1,940	(579)	1,361
Interest paid	a	(319)	(10)	(329)
Corporation tax paid		(23)	-	(23)
Net cash generated/(used) from operating activities		1,598	(589)	1,009
Cash flows from investing activities
Purchase of property, plant and equipment		(416)	-	(416)
Initial direct costs on new leases		(3)	-	(3)
Purchase of intangible assets		(229)	(49)	(278)
Proceeds from disposal of property, plant and equipment		46	-	46
Dividends and distributions received	e	2	-	2
Net cash used in investing activities		(600)	(49)	(649)
Cash flows from financing activities
Proceeds from issuance of ordinary shares	d	21	-	21
Repayment of borrowings	c	(248)	-	(248)
Repayment of perpetual capital securities	c	(8)	-	(8)
Purchase of own shares	d	(48)	-	(48)
Repayment of capital element of obligations under lease liabilities	b	(491)	(2)	(493)
Dividends paid on ordinary shares		(238)	-	(238)
Dividends paid on perpetual securities	a	(4)	-	(4)
Net cash used in financing activities		(1,016)	(2)	(1,018)
Net decrease in cash and cash equivalents		(18)	(640)	(658)

6.  Supplier arrangements

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

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

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

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

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

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

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

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

6.  Supplier arrangements

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

		28 weeks to 17 September 2022	28 weeks to 18 September 2021	52 weeks to 5 March 2022
		£m	£m	£m
Within inventory		(4)	(5)	(4)
Within current trade receivables
Supplier arrangements due		33	30	39
Accrued supplier arrangements		47	49	37
Within current trade payables
Supplier arrangements due		25	23	47
Accrued supplier arrangements		1	2	2
Deferred income due		(1)	(1)	-
Total supplier arrangements		101	98	121

7.  Finance income and finance costs

	28 weeks to 17 September 2022			28 weeks to 18 September 2021 (restated)			52 weeks to 5 March 2022
	Underlying	Non-Underlying	Total	Underlying	Non-Underlying	Total	Underlying	Non-Underlying	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Interest on bank deposits and other financial assets	4	-	4	-	-	-	1	-	1
Fair value measurements	-	-	-	-	28	28	-	2	2
IAS 19 pension financing income	-	30	30	-	8	8	-	15	15
Finance income on net investment in leases	1	-	1	-	-	-	2	-	2
Finance Income	5	30	35	-	36	36	3	17	20
Secured borrowings	(20)	-	(20)	(22)	-	(22)	(40)	-	(40)
Unsecured borrowings	(1)	-	(1)	(1)	-	(1)	(2)	-	(2)
Lease liabilities	(140)	(5)	(145)	(149)	(4)	(153)	(271)	(10)	(281)
Provisions - amortisation of discount	-	-	-	-	-	-	(1)	-	(1)
Interest capitalised - qualifying assets	-	-	-	1	-	1	2	-	2
Finance costs	(161)	(5)	(166)	(171)	(4)	(175)	(312)	(10)	(322)

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

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

8.  Income tax expense

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

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

8.  Income tax expense

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

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

Finance Act 2020 included legislation restricting the amount of chargeable gains that a company can relieve with its carried-forward capital losses from previous accounting periods. Broadly, from 1 April 2020 a company is only able to offset up to 50 per cent of chargeable gains using carried forward capital losses. The Group has considered the expected impact of the tax law in respect of the utilisation of carried-forward tax losses. Accordingly, approximately £197 million of the Group's carried forward unrestricted capital losses (5 March 2022: £194 million) have not been recognised as at 17 September 2022.

9.  Earnings per share

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

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

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

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

Refer to note 2 for details of prior year restatement.

10.  Dividends

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

An interim dividend of 3.9 pence per share (18 September 2021: 3.2 pence per share), has been approved by the Board of Directors for the financial year ending 4 March 2023, resulting in an interim dividend of £90 million (18 September 2021: £74 million). The interim dividend was approved by the Board on 2 November 2022 and as such has not been included as a liability at 17 September 2022.

11.  Property, plant and equipment

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

The net book value of property, plant and equipment comprises land & buildings of £6,794 million (5 March 2022: £6,776 million; 18 September 2021: £6,831 million); and fixtures & fittings of £1,478 million (5 March 2022: £1,626 million; 18 September 2021: £1,586 million).

At 17 September 2022, capital commitments contracted, but not provided for by the Group, amounted to £159 million (5 March 2022: £108 million; 18 September 2021: £165 million).

At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. The Group has considered whether there have been any indicators of impairment during the 28 weeks ended 17 September 2022 and subsequently recognised an impairment of £2 million in relation to Argos stores (5 March 2022: £6 million in relation to in-store cafe assets; 18 September 2021: £nil).

12.  Leases

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

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

Included within the above are land and buildings with a net book value of £5,164 million (5 March 2022: £5,266 million; 18 September 2021: £4,916 million), and equipment with a net book value of £292 million (5 March 2022: £294 million; 18 September 2021: £306 million).

At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. The Group has considered whether there have been any indicators of impairment during the 28 weeks ended 17 September 2022 and subsequently recognised an impairment of £13 million in relation to Argos stores (5 March 2022: £3 million in relation to in-store cafe assets; 18 September 2021: £1 million in relation to in-store cafe assets).

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

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

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

Income statement disclosures

The following are the amounts recognised in profit or loss:

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

Maturity analysis

		28 weeks to 17 September 2022	52 weeks to 5 March 2022	28 weeks to 18 September 2021
		£m	£m	£m
Contractual undiscounted cash flows
Less than one year		1,775	773	826
One to two years		707	1,683	1,303
Two to three years		655	627	649
Three to four years		611	575	594
Four to five years		570	542	564
Total less than five years		4,318	4,200	3,936
Five to ten years		2,533	2,416	2,443
Ten to fifteen years		2,016	2,005	2,065
More than fifteen years		3,215	3,338	3,500
Total undiscounted lease liability		12,082	11,959	11,944
Lease liabilities included in the statement of financial position	6,528		6,621	6,322
Current		1,536	526	558
Non-current		4,992	6,095	5,764

13.  Intangible assets

	28 weeks to 17 September 2022	52 weeks to 5 March 2022	28 weeks to 18 September 2021
	£m	£m	£m
Net book value
At the beginning of the period	1,006	914	914
Additions	106	278	165
Disposals	-	(35)	-
Amortisation charge	(86)	(151)	(78)
Impairment charge	(5)	-	-
At the end of the period	1,021	1,006	1,001

The net book value of goodwill and intangible assets predominantly comprises goodwill of £366 million (5 March 2022: £366 million; 18 September 2021: £366 million), software assets of £584 million (5 March 2022: £556 million; 18 September 2021: £541 million), acquired brands of £70 million (5 March 2022: £82 million; 18 September 2021: £91 million) and customer relationships of £1 million (5 March 2022: £2 million; 18 September 2021: £3 million).

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

14.  Financial instruments

a.  Financial assets and liabilities by category

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

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

b.  Carrying amount versus fair value

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

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

c.  Fair value measurements recognised in the balance sheet

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

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

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

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

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

Level 3 Financial assets

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

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

Of the commodity derivative financial assets, as at 17 September 2022, £123 million is designated in a cash flow hedge relationship (5 March 2022: £99 million; 18 September 2021: £nil); and £109 million is not in a hedge relationship (5 March 2022: £81 million; 18 September 2021: £35 million).

Level 3 other financial assets

Other financial assets categorised as Level 3 in the prior year of £367 million relate to the Group's beneficial interest in a property investment pool. Given the Group has reached an agreement on an acquisition price for the properties within this investment pool during the period (see note 12 for further details), these financial assets have been reclassified to Level 2.

Level 3 derivative financial assets - power purchase agreement

The Group has entered into several long-term fixed-price power purchase agreements with independent producers. Included within derivative financial instruments is a net asset of £232 million relating to these agreements at 17 September 2022 (at 18 September 2021: £35 million; at 6 March 2022: £180 million). The Group values its power purchase agreements as the net present value of the estimated future usage at the contracted fixed price less the market implied forward energy price discounted back at the prevailing swap rate. The Group also makes an assumption regarding expected energy output based on the historical performance and the producer's estimate of expected electricity output. The sensitivity of this balance to changes of 20 per cent in the assumed rate of energy output and 20 per cent in the implied forward energy prices holding other assumptions constant is shown below:

Not in a hedge relationship
	17 September 2022								5 March 2022
	Change in volume +/- 20.0%	Change in electricity forward price +/- 20.0%							Change in volume +/- 20.0%	Change in electricity forward price  +/- 20.0%
	£m	£m							£m	£m
Derivative financial instruments	29(29)	22/(22)							23/(23)	16/(16)
								18 September 2021
							Change in volume +/- 20.0%			Change in electricity forward price  +/- 20.0%
							£m			£m
Derivative financial instruments							7/(7)			14/(14)

Designated in a cash flow hedge relationship

17 September 2022

5 March 2022

Change in volume +/- 20.0%

Change in electricity forward price +/- 20.0%

Change in volume +/- 20.0%

Change in electricity forward price  +/- 20.0%

£m

£m

£m

£m

Derivative financial instruments

35/(35)

24/(24)

32/(32)

20/(20)

18 September 2021

Change in volume +/- 20.0%

Change in electricity forward price  +/- 20.0%

£m

£m

Derivative financial instruments

N/A

N/A

d.  Financial Services expected credit loss (ECL)

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

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

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

	At 17 September 2022
5-year average	Base	Upside	Downside	Severe Downside
Unemployment rate	4.9	4.1	5.8	7.4
Consumer price growth	5.4	5.0	5.8	6.4
GDP	1.2	1.6	0.8	0.3
Mortgage debt as a percentage of household income	98.9	96.5	101.5	104.8
Real household disposable income	0.5	1.1	(0.2)	(1.0)
Probability weighting	45	35	15	5

	At 5 March 2022
5-year average	Base	Upside	Downside	Severe  Downside
Unemployment rate	4.0	3.9	4.7	6.2
Consumer price growth	2.7	2.8	2.6	2.5
GDP	1.8	2.2	1.5	1.0
Mortgage debt as a percentage of household income	102.8	101.7	104.3	105.9
Real household disposable income	1.0	1.3	0.7	0.4
Probability weighting	45	35	15	5

	At 18 September 2021
5-year average	Base	Upside	Downside	Severe  Downside
Unemployment rate	4.6	4.2	5.7	7.5
Consumer price growth	2.2	2.3	2.1	1.9
GDP	3.2	3.7	2.8	2.3
Mortgage debt as a percentage of household income	102.1	101.1	103.3	104.3
Real household disposable income	2.2	2.3	1.9	1.6
Probability weighting	40	30	25	5

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

ECL sensitivity

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

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

Our ECL models have been upgraded to cope with much of the anticipated economic forecasts arising from the COVID-19 pandemic, and as a result the associated post model adjustment (PMA) held as at 5 March 2022 of £10 million has been partially reduced accordingly (PMA at 18 September 2021 was £33 million).  However, other world events have severely impacted the UK's economic outlook with a high inflation cost-of-living crisis and recession on the horizon requiring introduction of a new economic PMA. The aggregate amount of economic PMA now held at 17 September 2022 is £8 million.

15.  Analysis of net (debt)/funds

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

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

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

		Cash Movements		Non-Cash Movements
	6 March 2022	Cash flows excluding interest	Net interest (received) / paid	Accrued Interest	Other non-cash movements	Changes in fair value	17 September 2022
	£m	£m	£m	£m	£m	£m	£m
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

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

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

		Cash Movements		Non-Cash Movements
	7 March 2021	Cash flows excluding interest	Net interest (received) / paid	Accrued Interest	Other non-cash movements	Changes in fair value	18 September 2021
	£m	£m	£m	£m	£m	£m	£m
Retail
Net derivative financial instruments	(14)	-	5	(6)	6	8	(1)
Borrowings (excluding overdrafts)	(826)	223	15	(14)	-	-	(602)
Lease liabilities	(5,829)	242	153	(153)	(731)	-	(6,318)
Arising from financing activities	(6,669)	465	173	(173)	(725)	8	(6,921)
Financial assets at fair value through other comprehensive income	1	-	-	-	-	-	1
Cash and cash equivalents	546	230	-	-	-	-	776
Bank overdrafts	(99)	(102)	-	-	-	-	(201)
Retail net debt (excluding perpetual securities)	(6,221)	593	173	(173)	(725)	8	(6,345)
Financial Services
Net derivative financial instruments	-	-	-	-	-	1	1
Borrowings (excluding overdrafts)	(179)	-	5	(5)	(1)		(180)
Lease liabilities	(5)	1	-	-	-	-	(4)
Arising from financing activities	(184)	1	5	(5)	(1)	1	(183)
Financial assets at fair value through other comprehensive income	537	(130)	-	-	-	(2)	405
Cash and cash equivalents	1,029	(169)	-	-	-	-	860
Financial services net funds	1,382	(298)	5	(5)	(1)	(1)	1,082
Group
Net derivative financial instruments	(14)	-	5	(6)	6	9	-
Borrowings (excluding overdrafts)	(1,005)	223	20	(19)	(1)	-	(782)
Lease liabilities	(5,834)	243	153	(153)	(731)	-	(6,322)
Arising from financing activities	(6,853)	466	178	(178)	(726)	9	(7,104)
Financial assets at fair value through other comprehensive income	538	(130)	-	-	-	(2)	406
Cash and cash equivalents	1,575	61	-	-	-	-	1,636
Bank overdrafts	(99)	(102)	-	-	-	-	(201)
Group net debt (excluding perpetual securities) (restated)	(4,839)	295	178	(178)	(726)	7	(5,263)
Retail net debt (excluding perpetual securities)	(6,221)	593	173	(173)	(725)	8	(6,345)
Perpetual convertible bonds	(248)	8	-	-	240	-	-
Retail net debt (including perpetual securities)	(6,469)	601	173	(173)	(485)	8	(6,345)
Of which:
Leases	(5,829)						(6,318)
Net debt excluding lease liabilities	(640)						(27)

		Cash Movements		Non-Cash Movements
	7 March 2021	Cash flows excluding interest	Net interest (received) / paid	Accrued Interest	Other non-cash movements	Changes in fair value	5 March 2022
	£m	£m	£m	£m	£m	£m	£m
Retail
Net derivative financial instruments	(14)	-	10	(10)	11	8	5
Borrowings (excluding overdrafts)	(826)	248	28	(25)	-	-	(575)
Lease liabilities	(5,829)	491	281	(281)	(1,280)	-	(6,618)
Arising from financing activities	(6,669)	739	319	(316)	(1,269)	8	(7,188)
Financial assets at fair value through other comprehensive income	1	-	-	-	-	(1)	-
Cash and cash equivalents	546	(110)	-	-	-	-	436
Bank overdrafts	(99)	92	-	-	-	-	(7)
Retail net debt (excluding perpetual securities)	(6,221)	721	319	(316)	(1,269)	7	(6,759)
Financial Services
Net derivative financial instruments	-	-	-	-	-	4	4
Borrowings (excluding overdrafts)	(179)	-	10	(11)	-	1	(179)
Lease liabilities	(5)	2	-	-	-	-	(3)
Arising from financing activities	(184)	2	10	(11)	-	5	(178)
Financial assets at fair value through other comprehensive income	537	(115)	-	-	-	(4)	418
Cash and cash equivalents	1,029	(640)	-	-	-	-	389
Financial services net funds	1,382	(753)	10	(11)	-	1	629
Group
Net derivative financial instruments	(14)	-	10	(10)	11	12	9
Borrowings (excluding overdrafts)	(1,005)	248	38	(36)	-	1	(754)
Lease liabilities	(5,834)	493	281	(281)	(1,280)	-	(6,621)
Arising from financing activities	(6,853)	741	329	(327)	(1,269)	13	(7,366)
Financial assets at fair value through other comprehensive income	538	(115)	-	-	-	(5)	418
Cash and cash equivalents	1,575	(750)	-	-	-	-	825
Bank overdrafts	(99)	92	-	-	-	-	(7)
Group net debt (excluding perpetual securities) (restated)	(4,839)	(32)	329	(327)	(1,269)	8	(6,130)
Retail net debt (excluding perpetual securities)	(6,221)	721	319	(316)	(1,269)	7	(6,759)
Perpetual convertible bonds	(248)	8	-	-	240	-	-
Retail net debt (including perpetual securities)	(6,469)	729	319	(316)	(1,029)	7	(6,759)
Of which:
Leases	(5,829)						(6,618)
Net debt excluding lease liabilities	(640)						(141)

Reconciliation of net cash flow to movement in Retail net debt

		28 weeks to 17 September 2022			28 weeks to 18 September 2021	52 weeks to 5 March 2022
				£m	£m	£m
Opening net debt				(6,759)	(6,469)	(6,469)
Cash flow movements
Net increase/(decrease) in cash and cash equivalents (including overdrafts)				759	(41)	(658)
Elimination of Financial Services movement in cash and cash equivalents				(274)	169	640
Repayment of perpetual capital securities				-	8	8
Repayment of Retail borrowings				22	223	248
Repayment of Retail lease obligations				245	242	491
Net interest paid on components of Retail net debt				161	173	319
Changes in net debt resulting from cash flow				913	774	1,048
Non-cash movements
Accrued interest				(165)	(173)	(316)
Retail fair value and other non-cash movements				(154)	(477)	(1,022)
Changes in net debt resulting from non-cash movements				(319)	(650)	(1,338)
Movement in net debt				594	124	(290)
Closing net debt				(6,165)	(6,345)	(6,759)

16.  Borrowings

	28 weeks to 17 September 2022			52 weeks to 5 March 2022
	Current	Non-current	Total	Current	Non-current	Total
	£m	£m	£m	£m	£m	£m
Loan due 2031	46	512	558	44	531	575
Bank overdrafts	3	-	3	7	-	7
Sainsbury's Bank Tier 2 Capital	3	175	178	3	176	179
Total borrowings	52	687	739	54	707	761

				28 weeks to 18 September 2021
				Current	Non-current	Total
				£m	£m	£m
Loan due 2031				57	545	602
Bank overdrafts				201	-	201
Sainsbury's Bank Tier 2 Capital				3	177	180
Total borrowings				261	722	983

Available facilities

The Revolving Credit Facility is split into two Facilities, a £300 million Facility (A) and a £1,094 million Facility (B). Facility A has a final maturity of April 2025 and Facility B has a final maturity of October 2024. As at 17 September 2022, the Revolving Credit Facility was undrawn (5 March 2022: nil; 18 September 2021: nil).

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

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

Subsequent to the balance sheet date, an unsecured term facility for £575m was entered into. Refer to note 21 for further details.

Sainsbury's Bank Tier 2 Capital

The Bank issued £120m of fixed rate reset callable subordinated Tier 2 notes on 12 September 2022. These notes pay interest on the principal amount at a rate of 10.5 per cent per annum, payable in equal instalments semi-annually in arrears, until 12 March 2028 at which time the interest rate will reset. The Bank has the option to redeem these notes on 12 March 2028.

This was issued in conjunction with the repurchase and extinguishment of £120m of the existing £175m subordinated Tier 2 notes that were issued on 23 November 2017. Subsequently on 19 October 2022, the Bank announced its intention to redeem the remaining £55m in full on the call date 23 November 2022.

17.  Cash and cash equivalents

Cash and cash equivalents comprise the following:

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

Of the above balance, £16 million (5 March 2022: £18 million; 18 September 2021: £19 million) was restricted as at the period-end. Of the £16 million (5 March 2022: £18 million; 18 September 2021: £19 million) restricted cash, £15 million (5 March 2022: £15 million; 18 September 2021: £16 million) is held as a reserve deposit with the Bank of England in accordance with statutory requirements. This deposit is not available for use in day-to-day operations. A further £1 million (5 March 2022: £3 million; 18 September 2021: £2 million) is restricted for insurance purposes.

Reconciliation of cash flow items

Working capital

	Inventories	Financial assets at fair value through OCI	Trade and other receivables	Amounts due from Financial Services customers	Trade and other payables	Amounts due to Financial Services customers	Provisions
	£m	£m	£m	£m	£m	£m	£m
At 17 September 2022	1,891	771	803	5,288	(4,994)	(5,732)	(231)
At 5 March 2022	1,797	800	748	5,189	(4,570)	(5,259)	(271)
Balance sheet movement	(94)	29	(55)	(99)	424	473	(40)
Fair value movements	-	(7)	-	(35)	-	-	-
Hedge adjustment to inventory	7	-	-	-	-	-	-
Reclassification to other lines in the cash flow statement	-	-	4	-	24	-	-
Financial Services ECL impairments	-	-	-	(23)	-	-	-
Movement in capital accruals	-	-	-	-	3	-	-
Other	-	-	-	(1)	(13)	(1)	(1)
Movement shown in cash flow statement	(87)	22	(51)	(158)	438	472	(41)

	Inventories	Financial assets at fair value through OCI	Trade and other receivables	Amounts due from Financial Services customers	Trade and other payables	Amounts due to Financial Services customers	Provisions
	£m	£m	£m	£m	£m	£m	£m
At 18 September 2021 (restated)	1,682	752	779	5,022	(4,584)	(5,614)	(276)
At 6 March 2021	1,625	844	775	5,407	(4,508)	(6,289)	(470)
Balance sheet movement	(57)	92	(4)	385	76	(675)	(194)
Fair value movements	-	38	-	-	-	-	-
Reclassification to other lines in the cash flow statement	-	-	-	-	15	-	-
Financial Services ECL impairments	-	-	-	(35)	-	-	-
Movement in capital accruals	-	-	-	-	4	-	-
Business rates adjustment	-	-	-	-	-	-	106
Other	-	-	(2)	-	-	-	12
Movement shown in cash flow statement	(57)	130	(6)	350	95	(675)	(76)

	Inventories	Financial assets at fair value through OCI	Trade and other receivables	Amounts due from Financial Services customers	Trade and other payables	Amounts due to Financial Services customers	Provisions
	£m	£m	£m	£m	£m	£m	£m
At 5 March 2022	1,797	800	748	5,189	(4,570)	(5,259)	(271)
At 6 March 2021	1,625	844	775	5,407	(4,508)	(6,289)	(349)
Balance sheet movement	(172)	44	27	218	62	(1,030)	(78)
Fair value movements	-	71	-	(38)	-	-	-
Hedge adjustments	(7)	-	-	-	-	-	-
Interest in working capital	-	-	-	-	(6)	-	-
Transfer of SaaS spend to prepayments	-	-	9	-	-	-	-
Reclassification to other lines in the cash flow statement	-	-	-	-	(28)	-	-
Financial Services ECL impairments	-	-	-	(19)	-	-	-
Movement in capital accruals	-	-	-	-	1	-	-
Amortisation of discount	-	-	-	-	-	-	(1)
Other	-	-	(3)	-	(1)	-	(1)
Movement shown in cash flow statement	(179)	115	33	161	28	(1,030)	(80)

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

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

18.  Retirement benefit obligations

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

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

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

Triennial valuation

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

The Trustee completed a triennial actuarial valuation as at 30 September 2021, resulting in an actuarial surplus of £130 million (Sainsbury's section was a surplus of £231 million, Argos section was a deficit of £101 million), from a deficit of £538 million in 2018. The asset backed contributions (ABC) structure established by Sainsbury's in July 2019 continues to deliver as planned. Under the ABC, properties with a value of £1.35 billion were transferred into a property holding company, a wholly owned subsidiary of the Group, and leased to other Group entities. Rental receipts facilitate payments of interest and capital on loan notes issued to a Scottish Limited Partnership, in which the Scheme holds an interest. The Scheme's interest in the Partnership entitles it to annual distributions over up to 20 years.

The distributions were approximately £58 million per year until 2030, and subsequently approximately £28 million a year for the remaining period (increasing by 2% a year). The distributions are made through three payment streams:

1.  Payments to the Sainsbury's section

2.  Payments to the Argos section

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

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

As the Sainsbury's section reached its funding target in December 2021, stream 1 (£15 million a year) was permanently switched off and stream 3 (currently £24 million a year) switched to the Argos section from March 2022. Stream 3 payments will continue until 2038 or until both sections have reached their funding targets, if earlier. The Argos section also continues to receive the stream 2 payments of £20 million a year.

The amounts recognised in the balance sheet are as follows:

	17 September 2022			5 March 2022
	Sainsbury's	Argos	Group	Sainsbury's	Argos	Group
	£m	£m	£m	£m	£m	£m
Present value of funded obligations	(5,836)	(922)	(6,758)	(8,060)	(1,313)	(9,373)
Fair value of plan assets	7,176	1,064	8,240	10,158	1,535	11,693
Retirement benefit surplus	1,340	142	1,482	2,098	222	2,320
Present value of unfunded obligations	(15)	(12)	(27)	(20)	(17)	(37)
Retirement benefit surplus	1,325	130	1,455	2,078	205	2,283

				18 September 2021
				Sainsbury's	Argos	Group
				£m	£m	£m
Present value of funded obligations				(9,352)	(1,488)	(10,840)
Fair value of plan assets				10,394	1,574	11,968
Retirement benefit surplus				1,042	86	1,128
Present value of unfunded obligations				(23)	(18)	(41)
Retirement benefit surplus				1,019	68	1,087

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

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

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

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

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

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

Cash contributions

Cash contributions for the full year are expected to be approximately £53 million.

Valuation of pension assets

The Pension Scheme has circa £2 billion of private market assets, split between private debt, private equity and property. These assets are held as they are expected to deliver a greater risk/return profile vs public market equivalents over the long term. The assets are illiquid (likely to be realised over 5+ years) but the Pension Scheme holds sufficient liquid assets (cash, gilts and other liquid securities) to be confident that it can meet its pension and collateral obligations over time.

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

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

The roll-forward has reduced the valuation of illiquid assets by £15 million. A 1% increase/decrease in the indices used would have caused a £18 million increase/decrease in the adjustment.

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

Sensitivities

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

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

19.  Related party transactions

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

Transactions with joint ventures and associates

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

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

Balances arising from transactions with joint ventures and associates

	17 September 2022	18 September 2021	5 March 2022
	£m	£m	£m
Other payables	(1)	(1)	(1)

20.  Contingent liabilities

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

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

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

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

21.  Post balance sheet events

Retirement benefit obligations

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

The Group's pension Scheme adopts a collateral sufficiency framework which ensures sufficient high quality liquid assets are maintained in order to meet liquidity requirements, even in times of market stress. The scale and speed of the increase in interest rate expectations since the 'mini budget', and volatility within the markets, resulted in the Group deciding to put in place a loan facility to the Scheme of £500m on 18th October. The purpose of this facility was to further enhance the pensions Scheme's resilience in the event of unexpected substantial further rises in interest rates. This facility will remain in place for 3 months and as at the date of signing has not been drawn.

Borrowings

Subsequent to the balance sheet date, an unsecured term facility for £575m was entered into in October 2022, with an ultimate maturity date of 30 November 2024. As at the date of signing the term facility was undrawn.

Principal risks and uncertainties

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

· Business continuity, operational resilience and major incidents response

· Business strategy and change

· Colleague engagement, retention and capability

· Customer

· Data security

· Environment and sustainability

· Financial and treasury

· Health and safety

· Political and regulatory environment

· Product safety and sourcing

· Sainsbury's Bank

· Trading environment and competitive landscape

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

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

Statement of Directors' responsibilities

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

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

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

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

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

By order of the Board

Simon Roberts

Chief Executive

2 November 2022

Kevin O'Byrne

Chief Financial Officer

2 November 2022

INDEPENDENT REVIEW REPORT TO J SAINSBURY PLC

Conclusion

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

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

Basis for Conclusion

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

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

Conclusions Relating to Going Concern

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

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

Responsibilities of the directors

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

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

Auditor's Responsibilities for the review of the financial information

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

Use of our report

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

Ernst & Young LLP

London

2 November 2022

Alternative performance measures (APMs)

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

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

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

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

APM	Closest equivalent IFRS measure	Definition		Purpose	Reconciliation
Income statement - Revenue
Retail sales	Revenue	Group sales less Financial Services revenue.		Shows the annual rate of growth in the Group's Retail business sales.	A reconciliation of the measure is provided in note 4 of the financial statements.
Like-for-like sales	No direct equivalent	Year-on-year growth in sales including VAT, excluding fuel, excluding Financial Services, for stores that have been open for more than one year. The relocation of Argos stores into Sainsbury's supermarkets are classified as new space, while the host supermarket is classified like-for-like.		The measure is used widely in the retail industry as an indicator of current trading performance and is useful when comparing growth between retailers that have different profiles of expansion, disposals and closures.	The reported retail like-for-like sales decline of 0.8 per cent is based on a combination of Sainsbury's like-for-like sales and Argos like-for-like sales for the 28 weeks to 17 September 2022. See movements below: 28 weeks to 17 September 2022 28 weeks to 18 September 2021 Retail like-for-like (exc. Fuel, inc. VAT) (0.8)% 0.3% Underlying net new space impact (0.5)% (0.1)% Retail sales (decline)/growth (exc. Fuel, inc. VAT) (1.3)% 0.2% Fuel impact 5.7% 5.8% Total retail sales growth (inc. fuel, inc. VAT) 4.4% 6.0% VAT impact (0.3)% (0.6)% Total retail sales growth 4.1% 5.4%

APM	Closest equivalent IFRS measure	Definition	Purpose		Reconciliation
Income statement - Profit
Retail underlying operating profit	Profit before tax	Underlying earnings before interest, tax, Financial Services operating profit and Sainsbury's underlying share of post-tax profit from joint ventures and associates.		This is the lowest level at which the retail segment can be viewed from a management perspective, with finance costs managed for the Group as a whole.	28 weeks to 17 September 2022 28 weeks to 18 September 2021 (restated) 52 weeks to 5 March 2022 £m £m £m Group PBT (note 5a) 376 527 854 Less Group non-underlying items (note 3) (36) (156) (124) Group UPBT 340 371 730 Financial Services underlying operating profit (19) (19) (38) Retail underlying profit before tax 321 352 692 Net underlying finance costs 156 171 309 Retail underlying operating profit 477 523 1,001 Retail sales (note 5a) 16,154 15,511 29,463 Retail underlying operating margin 2.95% 3.37% 3.40%
Underlying profit before tax	Profit before tax	Underlying results exclude items recognised in reported profit or loss before tax which, if included, could distort comparability between periods. In determining which items to exclude from underlying profit, the Group considers items which are significant either by virtue of their size and/or nature, or that are non-recurring.		In order to provide shareholders with additional insight into the underlying performance of the business, this adjusted measure of profit is provided to supplement the reported IFRS numbers, and reflects how the business measures performance internally.	Underlying profit before tax is bridged to statutory profit before tax in the income statement and note 3 of the financial statements. The adjusted items are as described in note 3 of the financial statements
Underlying basic earnings per share	Basic earnings per share	Earnings per share using underlying profit as described above.		This is a key measure to evaluate the performance of the business and returns generated for investors.	A reconciliation of the measure is provided in note 9 of the financial statements.
Retail underlying EBITDA	No direct equivalent	Retail underlying operating profit as above, before underlying depreciation, and amortisation.		EBITDA is used to review the retail segment's profit generation and the sustainability of ongoing capital reinvestment and finance costs.	28 weeks to 17 September 2022 28 weeks to 18 September 2021 £m £m Retail underlying operating profit 477 523 Add: Retail depreciation and amortisation expense 634 649 Less: Non-underlying depreciation and amortisation (24) (31) Retail underlying EBITDA 1,087 1,141 Retail sales (note 5a) 16,154 15,511 Retail underlying EBITDA margin 6.73% 7.36%

APM	Closest equivalent IFRS measure	Definition	Purpose	Reconciliation
Underlying net finance costs	Finance income less finance costs	Net finance costs before any non-underlying items as defined above that are recognised within finance income / expenses.	This provides shareholders with additional insight into the underlying net finance costs of the Group by excluding non-recurring one-off items.	A reconciliation of this measure is included in note 7 of the financial statements. The adjusted items are as follows: · Non-underlying finance and fair value movements - these include fair value remeasurements on derivatives not in a hedging relationship and lease interest on impaired non-trading sites, including site closures. The fair value movements are driven by external market factors and can significantly fluctuate year-on-year. They are therefore excluded to ensure consistency between periods. Lease interest on impaired, non-trading sites is excluded as they do not contribute to the operating activities of the Group. · IAS 19 pension interest. Although a recurring item, the Group has chosen to exclude net retirement benefit income and costs from underlying profit as, following closure of the defined benefit scheme to future accrual, it is not part of the ongoing operating activities of the Group and its exclusion is consistent with how the Directors assess the performance of the business.
Underlying tax rate	Effective tax rate	Tax on underlying items, divided by underlying profit before tax.	Provides an indication of the tax rate across the Group before the impact of non-underlying items.	The tax on non-underlying items is included in note 3 of the financial statements

APM			Closest equivalent IFRS measure	Definition	Purpose	Reconciliation
Cash flows and net debt
Retail cash flow items in Financial Review		No direct equivalent		N/A	To help the reader understand cash flows of the business a summarised cash flow statement is included within the Financial Review. As part of this a number of line items have been combined. The cash flow in note 5 of the financial statements includes a reference to show what has been combined in these line items.	28 weeks to 17 September 2022 28 weeks to 18 September 2021 52 weeks to 5 March 2022 Ref £m £m £m Net interest paid a (161) (177) (323) Repayment of lease liabilities b (245) (242) (491) Repayment of borrowings c (22) (231) (256) Other d (23) (30) (27) Dividends and distributions received e 50 - 2
Retail free cash flow	Net cash generated from operating activities			Net cash generated from retail operations, after perpetual security coupons and cash capital expenditure but before strategic capital expenditure, and including payments of lease obligations, cash flows from joint ventures and associates and Sainsbury's Bank capital injections.	This measures cash generation, working capital efficiency and capital expenditure of the retail business	28 weeks to 17 September 2022 28 weeks to 18 September 2021 52 weeks to 5 March 2022 £m £m £m Cash generated from retail operations 1,425 1,233 1,940 Net interest paid (ref (a) above) (161) (177) (323) Corporation Tax (32) - (23) Retail purchase of property, plant and equipment (201) (154) (416) Retail purchase of intangibles assets (96) (144) (229) Retail proceeds from disposal of property, plant and equipment 28 39 46 Initial direct costs on right-of-use assets (9) (1) (3) Repayments of obligations under leases (245) (242) (491) Dividends and distributions received 50 - 2 Retail free cash flow 759 554 503

APM	Closest equivalent IFRS measure	Definition	Purpose	Reconciliation
Underlying working capital movements	No direct equivalent	Removes working capital and cash movements relating to non-underlying items.	To provide a reconciliation of the working capital movement in the financial statements to the underlying working capital movement in the financial review.	28 weeks to 17 September 2022 28 weeks to 18 September 2021 (restated) 52 weeks to 5 March 2022 £m £m £m Retail working capital movements per cash flow (note 5) 318 (44) (306) Adjustments for: Retail non-underlying impairment charges (note 5) 20 1 8 Non-underlying restructuring and impairment charges (note 3) (33) (37) (92) Accelerated depreciation (note 3) 12 20 33 Bank impairment charges (note 3) - - 7 Gains on early termination of leases (note 3) (1) (5) (9) Profit on disposal of properties within restructuring programme (note 3) (11) (13) (12) ATM income (note 3) - - 2 Income recognised in relation to legal disputes (note 3) 30 181 180 Property related transactions (note 3) (8) - - Other - 2 1 Non-underlying working capital movements before cash movements 9 149 118 Non-underlying cash movements: Restructuring (note 3) 33 70 114 Bank restructuring - - (4) ATM income (note 3) - (13) (14) Net income recognised in relation to legal disputes (note 3) - (27) (93) Retail non-underlying operating cash flows (excluding pensions) 33 30 3 Total adjustments for non-underlying working capital 42 179 121 Underlying working capital movements 360 135 (185)

APM	Closest equivalent IFRS measure	Definition	Purpose	Reconciliation
Adjusted net cash generated from retail operations (per financial review)	Cash generated from operations	This presents retail operating cash flows adjusted for movements in working capital, less net interest paid (including distributions on perpetual securities) and pension cash contributions.	This enables management to assess the cash generated from its core retail operations.	28 weeks to 17 September 2022 28 weeks to 18 September 2021 52 weeks to 5 March 2022 £m £m £m Retail cash generated from operating activities (note 5) 1,232 1,060 1,598 Perpetual security coupons - (4) (4) Adjusted net cash generated from operating activities 1,232 1,056 1,594
Core retail capital expenditure	No direct equivalent	Capital expenditure excluding Sainsbury's Bank.	This allows management to assess core retail capital expenditure in the period in order to review the strategic business performance.	28 weeks to 17 September 2022 28 weeks to 18 September 2021 52 weeks to 5 March 2022 £m £m £m Purchase of property, plant and equipment (201) (154) (416) Purchase of intangibles (96) (144) (229) Cash capital expenditure (297) (298) (645)
Net debt	Borrowings, cash, derivatives, financial assets at FVTOCI, lease liabilities	Net debt includes the capital injections into Sainsbury's Bank, but excludes the net debt of Sainsbury's Bank and its subsidiaries. It is calculated as: financial assets at fair value through other comprehensive income (excluding equity investments) + net derivatives to hedge borrowings + net cash and cash equivalents + loans + lease obligations + perpetual securities.	This shows the overall strength of the balance sheet alongside the liquidity and its indebtedness and whether the Group can cover its debt commitments.	A reconciliation of the measure is provided in note 15 of the financial statements. In addition, to aid comparison to the balance sheet, reconciliations between financial assets at FVTOCI and derivatives per the balance sheet and Group net debt (i.e. including Financial Services) is included below: 28 weeks to 17 September 2022 28 weeks to 18 September 2021 52 weeks to 5 March 2022 £m £m £m Financial instruments at FVTOCI per balance sheet 771 752 800 Less: equity related securities (376) (346) (382) Financial instruments at FVTOCI included in net debt 395 406 418 Net derivatives per balance sheet 490 13 259 Less: derivatives not used to hedge borrowings (484) (13) (250) Derivatives included in net debt 6 - 9

APM	Closest equivalent IFRS measure	Definition	Purpose	Reconciliation
Other
Net debt/ underlying EBITDA	No direct equivalent	Net debt divided by Group underlying EBITDA.	This helps management measure the ratio of the business's debt to operational cash flow.	Net debt as provided in note 15. Group underlying EBITDA is reconciled within the fixed charge cover analysis below.
Return on capital employed	No direct equivalent	Return on capital employed is calculated as return divided by average capital employed. Return is defined as 52 week rolling underlying profit before interest and tax. Capital employed is defined as Group net assets excluding pension deficit/surplus, less net debt (excluding perpetual securities). The average is calculated on a 14 point basis. 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.	This represents the total capital that the Group has utilised in order to generate profits. Management use this to assess the performance of the business.	52 weeks to 52 weeks to 52 weeks to 17 September 18 September 5 March 2022 2021 (restated) 2022 £m £m £m Underlying profit before tax 699 426 730 Add: Underlying net interest 294 325 309 Return 993 751 1,039 Capital employed is reconciled as follows: 52 weeks to 52 weeks to 52 weeks to 17 September 18 September 5 March 2022 2021 (restated) 2022 £m £m £m Group net assets 7,929 7,162 8,423 Less: Pension surplus (note 18) (1,455) (1,087) (2,283) Deferred tax on pension surplus 454 367 640 Less: net debt  (note 15) 6,165 6,345 6,759 Effect of in-year averaging (228) (792) (1,127) Capital employed 12,865 11,995 12,412 Return on capital employed 7.7% 6.3% 8.4%
Fixed charge cover	No direct equivalent	Group underlying EBITDA divided by rent (representing capital and interest repayments on leases) and underlying net finance costs, where interest on perpetual securities is treated as an underlying finance cost. All items are calculated on a 52 week rolling basis.	This helps assess the Group's ability to satisfy fixed financing expenses from performance of the business.	24 weeks to 5 March 2022 28 weeks to 17 September 2022 52 weeks to 17 September 2022 52 weeks to 5 March 2022 £m £m £m £m Group underlying operating profit 497 496 993 1,039 Add: Group depreciation and amortisation expense 561 650 1,211 1,220 Less: Non-underlying depreciation and amortisation expense (22) (24) (46) (53) Group underlying EBITDA 1,036 1,122 2,158 2,206 Repayment of capital element of lease obligations (250) (246) (496) (493) Underlying finance income 3 5 8 3 Underlying finance costs (141) (161) (302) (312) Fixed charges (388) (402) (790) (802) Fixed charge cover 2.7 2.8 2.7 2.8

 

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