Sainsbury's to forgo business rates relief

RNS Number : 3632H

Sainsbury(J) PLC

03 December 2020

 

3 December 2020

J Sainsbury plc

Sainsbury's to forgo business rates relief

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF REGULATION (EU) NO 596/2014 (MAR)

Having considered this issue, particularly since the announcement of a second national lockdown in England, the Board of J Sainsbury plc has chosen to forgo the business rates relief on Sainsbury's stores granted by the UK Government and the Devolved Administrations since March.

Sainsbury's welcomed the Chancellor's announcement in March that all retail, hospitality and leisure businesses in England would be given a business rates holiday for 12 months. At that time and at the time of our preliminary results in April, we had limited visibility of the nature and extent of the financial impact on the business of COVID-19. Our base case assumption for the 2020/21 financial year was that the costs of protecting customers and colleagues and the negative impacts of COVID-19 on financial services profits, fuel, general merchandise and clothing sales would be broadly offset by stronger grocery sales and around £450 million of business rates relief.  

Since then:

· Sainsbury's has played a vital role in helping to feed the nation through the pandemic, prioritising the elderly, disabled and vulnerable and working hard to protect customers and colleagues from COVID-19. We have hired 56,000 people, paid 13,000 colleagues to self-isolate for 12 weeks and made nearly nine million grocery deliveries to elderly, disabled and vulnerable customers. We have not taken any furlough payments or any other form of government support. Since March we have also committed to donate £10 million to charities and local communities

· In the first half of our financial year, we spent £290 million keeping our colleagues and customers safe, partially offset by £230 million of business rates relief. In addition to these incremental costs, we reported significant fuel and clothing sales declines and the impact of COVID-19 on our financial services business resulted in a first half financial services loss of £55 million

· Argos standalone stores were classed as non-essential retail and therefore closed in line with government guidance

However, lockdown restrictions have remained in place for longer than originally expected and throughout the pandemic all Sainsbury's stores have been deemed essential retail. Almost all have been open and trading strongly, with the exception of a small number of convenience stores.  As a result of this, Sainsbury's sales and profits have been stronger than originally expected, particularly since the start of the second national lockdown in England and we have therefore taken the decision to forego the business rates relief on all Sainsbury's stores.

Simon Roberts, CEO, said:

"We have been proud to play our part in feeding the nation in this extraordinary year and every one of our colleagues has gone above and beyond to support each other, our customers and our communities. While we have incurred significant costs in keeping colleagues and customers safe, food and other essential retailers have benefited from being able to open throughout. With regional restrictions likely to remain in place for some time, we believe it is now fair and right to forgo the business rates relief that we have been given on all Sainsbury's stores. We are very mindful that non-essential retailers and many other businesses have been forced to close again in the second lockdown and we hope that this goes some way towards helping them.

 "We remain focused on delivering the plan we set out at our half year results. We continue to urge government to review the business rates system to create more of a level playing field between physical and online retailers."

Financial Impact

· Including business rates payments within underlying profit before tax ¹   (UPBT), we now expect UPBT of at least £270 million for the financial year to March 2021. This includes the assumption that we will now forgo approximately £410 million of business rates relief

· Reflecting the strategy update published in November, we continue to expect UPBT in the financial year to March 2022 to exceed the £586 million reported in the year to March 2020, despite now forgoing business rates relief of approximately £30 million

· We additionally continue to expect to generate average retail free cash flow of £500 million per year over the three years to March 2025 

· In the event that the business delivers profits and cash generation at least in line with its current expectations, the Board believes that shareholders should not bear the full short-term financial impact this year of the business making the right decisions for customers and colleagues through the COVID-19 pandemic. Therefore, when considering free cash flow allocation this year the Board will prioritise payment of dividends to shareholders over net debt reduction

· As a consequence, while we expect to make good progress towards our target of at least £750 million net debt reduction in the three years to March 2022, we now expect to achieve this target by March 2023

· We will agree with government an appropriate way to forgo the business rates relief as repayment is not required by law

¹ Final accounting treatment remains subject to review

ENDS

Tim Fallowfield, Company Secretary and Corporate Services Director, was responsible for the disclosure of this announcement for the purposes of MAR.

Enquiries

Investor Relations	Media
James Collins	Rebecca Reilly
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