Half-year Report

RNS Number : 2860R

Sainsbury(J) PLC

04 November 2021

4 November 2021

J Sainsbury plc

Interim Results for the 28 weeks ended 18 September 2021

Strong performance with market share gains as we put food back at the heart of Sainsbury's

Financial Highlights

· Grocery sales grew by 0.8 per cent versus H1 20/21 and 9.1 per cent versus H1 19/20 and we gained market share, driven by improved value, innovation and service, supported by customers continuing to eat at home more

· General Merchandise sales reduced by 5.8 per cent versus H1 20/21, as expected against strong lockdown and seasonal sales comparatives, but grew 1.1 per cent versus H1 19/20

· Strong digital sales of £5.8 billion, consistent with H1 20/21 at 39 per cent of retail sales

· Statutory Group sales (excluding VAT) up 5.3 per cent, with fuel sales up 62.7 per cent

· Underlying profit before tax of £371 million, up 23 per cent versus H1 20/21¹. Up 56 per cent versus H1 19/20, reflecting higher grocery sales and effective cost reduction programmes, particularly at Argos

· Statutory profit before tax of £541 million reflects significantly lower restructuring and impairment costs versus H1 20/21 and £181 million of exceptional income from settling legal disputes

· Strong retail free cash flow of £554 million¹. On track to meet free cash flow and net debt reduction targets

· Interim dividend of 3.2 pence

· We continue to expect to report underlying profit before tax of at least £660 million in the financial year to March 2022

Strategic highlights

· Food First: Good progress against the plan we set out last November to put food back at the heart of Sainsbury's

o Value: Significantly improved versus competitors, driving sales, market share and switching gains

o Innovation: On track to triple the number of new products this year; new lines very popular with customers

o Customer Service: Maintained strong customer satisfaction scores with supermarket scores ahead of key competitors². Investing to improve our Groceries Online customer offer and improve productivity, attracting more customers and gaining market share; sales are up 13 per cent this year and 128 per cent over the past two years

· Brands that Deliver: Nectar, Argos, Habitat, Tu and Sainsbury's Bank are clearly focused on supporting the core food business and delivering for customers and shareholders

o Continuing to transform Argos, significantly reducing the cost base and improving the customer offer

o Relaunched the iconic Habitat brand and introduced Habitat Kids

o Tu clothing sales grew strongly, helped by increased full price sales. Clothing online sales remain strong

o Grown digital Nectar to over 8 million customers and launched My Nectar Prices, currently offering customers approximately 95 million personalised discounts and promotions every week

o Financial Services returned to profit; strong capital position

· Save to invest: Three-year structural cost reduction programme on track to reduce retail operating costs to sales ratio of at least 200 basis points

· Plan for Better: Ahead of our trajectory to become net zero in our own operations no later than 2040 and accelerated this commitment to 2035 ahead of the COP26 summit in Glasgow, where we are a Principal Partner

H1 Financial summary	2021/22	2020/21	2019/20	% change v 20/21	% change v 19/20
Statutory performance
Group revenue (excl. VAT, inc. fuel)	£15,724m	£14,934m	£15,097m	5.3%	4.2%
Profit / (Loss) before tax	£541m	£(137)m	£9m	N/A	N/A
Profit / (Loss) after tax	£389m	£(179)m	£(38)m	N/A	N/A
Basic earnings / (loss) per share	17.3p	(8.3)p	(2.2)p	N/A	N/A

Business performance¹
Group sales (inc. VAT)	£17,528m	£16,557m	£16,856m	5.9%	4.0%
Retail sales (inc. VAT, excl. fuel)	£14,871m	£14,836m	£13,857m	0.2%	7.3%
Digital sales	£5.8bn	£5.8bn	£2.7bn	0%	108%
Underlying profit before tax	£371m	£301m	£238m	23%	56%
Underlying basic earnings per share	12.2p	10.1p	7.9p	21%	54%
Interim dividend per share	3.2p	3.2p	3.3p	0%	(3.0)%
Net debt (including lease liabilities)	£(6,345)m	£(6,168)m	£(6,778)m	Up £177m	Down £433m
Non-lease net debt	£(27)m	£(267)m	£(1,008)m	Down £240m	Down £981m
Return on capital employed	6.3%	7.9%	7.1%	(160)bps	(80)bps

Simon Roberts, Chief Executive of J Sainsbury plc, said :

"We are making good progress delivering our plan to put food back at the heart of Sainsbury's. We have grown market share through improving value for customers, tripling our rate of food innovation and delivering customer satisfaction ahead of our key competitors.

"Whilst customers are returning to many pre-pandemic shopping habits, online sales have remained very strong and we continue to grow market share. At the same time, our plan to transform Argos is on track, delivering significantly improved profitability.

"I'm really proud of my colleagues for the outstanding job they continue to do for our customers in such exceptional circumstances. Our teams have worked tirelessly over the past eighteen months and to say thank you we are closing all Sainsbury's and Argos stores on Boxing Day this year to give colleagues an extra day to spend with friends and family.

"We are proud to be the Principal Supermarket Partner of COP26 and are accelerating our carbon reduction ambitions and will now reach net zero in our own operations by 2035.

"Our industry faces labour and supply chain challenges. However our scale, advanced cost saving programme, logistics operations and strong supplier relationships put us in a good position as we head into Christmas. I would like to thank all my colleagues and all our suppliers for their hard work, commitment and dedication in the weeks ahead to ensure we deliver the best possible Christmas for our customers."

Outlook

The business performed well through the first half, benefiting from higher in-home grocery consumption and outperforming grocery competitors, while general merchandise sales declined, as expected, against an exceptionally strong period last year. Against further strong comparatives in the second half of the year we continue to expect customer behaviour to normalise and grocery growth to moderate and we will continue to invest to further improve our value position. We are well placed to deal with a backdrop of global supply challenges and a tight labour market, with scale, strong supplier relationships and a well-developed and accelerating cost saving programme. We continue to expect to report underlying profit before tax of at least £660 million in the financial year to March 2022 and reduce non-lease net debt by at least £950 million³ by March 2023, generating average retail free cash flow of at least £500 million per year over the three years to March 2025.

Like-for-like sales performance¹

		2020/21								2021/22
		Q1		Q2		Q3		Q4		Q1		Q2		H1
Like-for-like sales (exc. fuel)		8.2%		5.1%		8.6%		11.3%		1.6%		(1.4)%		0.3%
Like-for-like sales (inc. fuel)		(2.3)%		(0.5)%		3.2%		3.2%		8.4%		3.0%		6.1%

Total sales performance
	2020/21								2021/22 YoY						2021/22 Yo2Y
	Q1		Q2		Q3		Q4		Q1		Q2		H1		Q1	Q2	H1
Grocery	10.5%		5.1%		7.4%		7.1%		0.8%		0.8%		0.8%		11.3%	6.0%	9.1%
General Merchandise	7.2%		7.6%		6.0%		17.6%		(1.4)%		(11.4)%		(5.8)%		5.6%	(4.7)%	1.1%
GM (Argos)	10.7%		10.9%		8.4%		18.1%		(3.7)%		(12.0)%		(7.3)%		6.7%	(2.4)%	2.7%
GM (Sainsbury's Supermarkets)	(9.3)%		(6.9)%		(5.4)%		14.8%		11.2%		(8.0)%		2.4%		0.9%	(14.4)%	(5.9)%
Clothing	(26.7)%		(7.5)%		0.4%		4.2%		57.6%		9.2%		33.6%		15.5%	1.0%	9.1%
Total Retail (excl. fuel)	8.5%		5.2%		6.8%		9.2%		1.6%		(1.7)%		0.2%		10.3%	3.4%	7.3%
Fuel	(56.1)%		(29.3)%		(29.0)%		(38.5)%		95.1%		36.1%		62.7%		(14.4)%	(3.8)%	(9.9)%
Total Retail (inc. fuel)	(2.1)%		(0.4)%		1.7%		1.6%		8.5%		2.7%		6.0%		6.2%	2.2%	4.5%

Notes

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

A webcast presentation will be available to view on our website at 7:30 (GMT). The webcast can be accessed at the following link: https://webcasts.sainsburys.co.uk/sainsbury165

Following the release of the webcast, a Q&A conference call will be held at 9:30 (GMT). This will be available to listen to on our website at the following link: https://webcasts.sainsburys.co.uk/sainsbury164

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 2021/22 Third Quarter Trading Statement at 07:00 (GMT) on 12 January 2022.

ENDS

Enquiries

Investor Relations

Media

James Collins

Rebecca Reilly

+44 (0) 7801 813 074

+44 (0) 20 7695 7295

Food First

We are putting food back at the heart of Sainsbury's. We have accelerated our cost saving programme and simplified our operations to invest in lowering prices, speeding up innovation and improving service. This is delivering results - customers are buying more with us more often, switching to us from our competitors and we are increasing sales and market share, enabling us to invest further in our food offer.

Market share gains and improving customer satisfaction

·We grew grocery sales by 0.8 per cent and increased volume market share⁴

·We maintained strong customer satisfaction scores despite supply chain challenges and our supermarket customer service scores are ahead of our key competitors²

·We were named the safest retailer during the pandemic by the UK's leading consumer champion

Improving real and perceived value for money

·We are matching Sainsbury's quality with Aldi prices on nearly 300 of our most popular products and this is driving a halo benefit, with customers doing more of their shopping at Sainsbury's

·We have invested most in key fresh food areas such as meat, fish, poultry, fruit and vegetables, focusing on the products customers buy most often and delivering market outperformance⁵

·Our value index versus Aldi has improved by 400 basis points⁶

·The growth in the number of secondary customers choosing to shop at Sainsbury's is ahead of our key competitors⁷

·Our core Price Lock commitment continues to deliver great value and our Autumn campaign is one of our biggest ever, with over 2,500 products held in price for at least eight weeks

Increasing the speed of innovation

·We launched almost 650 new products this half and are on track to triple the number of new food products by the end of the year

·To help make Christmas special for our customers, this year we will launch around 300 innovative new Christmas products including Taste the Difference Maple & Marmalade Gammon and by Sainsbury's Pigs in Snowy Blanket Dragon Sushi Rolls

·Our Summer Editions range, including new barbecue and salad ranges, proved to be particularly popular. Building on this success, we are offering customers almost 50 new products in our first ever Autumn Editions range, featuring on-trend flavours such as truffle and pumpkin

·To Help Everyone Eat Better we are launching a number of delicious, healthy and sustainable ranges as well as introducing new lines in our own-brand Plant Pioneers range including innovative plant-based alternatives to fish and our first SO Organic British veg box

·We are working with new partners such as Carluccio's and Coco di Mama to offer customers a wider range of food to go products and we will continue to explore new partnerships that bring new products and services to our customers

Growing Groceries Online capacity and extending routes to market

·With more customers returning to shopping in our stores, online grocery demand has reduced from peak levels. However, demand remains around double pre-pandemic levels and we are the biggest online market share winner, becoming the second largest online grocery retailer⁸

·Investment in online has driven a strong performance relative to our competitors. Sales are up 13 per cent year-on-year and 128 per cent on a two-year basis. Groceries Online accounted for 17 per cent of grocery sales this half versus 15 per cent this time a year ago and 8 per cent two years ago

·We are improving online fulfilment productivity, with picking rates and basket size higher than two years ago

·We successfully relaunched same day Click & Collect and home delivery, giving customers more options and greater convenience for shopping online

·We are growing our On Demand grocery offer, delivering over 70,000 average weekly orders from around 440 stores in as little as 30 minutes through Chop Chop, Deliveroo and Uber Eats

Expanding physical points of distribution and adapting supermarket formats

·Our Convenience business grew 4.9 per cent with a strong recovery of our most urban stores although sales remain below pre-pandemic levels

·This year we aim to open around 25 convenience stores

·We plan to open four supermarkets in this financial year and are adapting our existing estate by offering new food services in our food counter spaces. Introducing self-serve patisserie has increased sales and reduced costs

Brands that Deliver

Nectar, Argos, Habitat, Tu and Sainsbury's Bank support our core food business, delivering for our customers and contributing strong, sustainable and profitable growth.

Nectar

·8.2 million customers are now registered with the Nectar digital app and we are on track to reach 10 million next year

·We launched My Nectar Prices, becoming the first UK grocer to offer customers personalised digital rewards

·We continue to grow our Nectar360 business and invested to strengthen the platform. 170 of our Nectar360 customers have signed up to our insights platform to understand shoppers better

·We expect Nectar group profit contribution to increase by £60-70 million by FY 25/26, driven by growth in digital media

Argos

·Argos sales were down 7.3 per cent year-on-year but were up 2.7 per cent on two years. In line with the market, recent performance has been impacted by supply challenges, unseasonal weather and lower demand for home office equipment and technology in the second quarter. Our consumer electronics and home and furniture categories performed well

·83 per cent of sales are generated online, up from 61 per cent two years ago

·We opened 37 Argos stores within Sainsbury's and more than half of Argos stores are in Sainsbury's supermarkets, making it easier for customers to shop for general merchandise

Habitat

·Habitat is now our main home and furniture brand and is available in 610 Sainsbury's stores and online via the Argos and Habitat websites. This has helped us grow our overall furniture market share over the past two years⁹

·We launched a new Habitat brand commitment - 'make your home a happy habitat' to help reposition the brand as affordable and accessible for all. In September we launched Habitat's first furniture range for kids

·Our clothing business remains strong, with sales up year-on-year and year-on-two years, despite competitors reopening. We have reduced promotions and grown full-price sales

·Online sales are up 70 per cent on a two-year basis

·With COVID-19 restrictions lifting, customers have been updating their wardrobes, with Womenswear and Seasonal performing particularly strongly

Financial Services

·We continue to make progress strengthening and simplifying our Financial Services business in line with our strategy and we remain comfortable with consensus profit forecasts for the division¹⁰

·Sainsbury's Bank offers rewards to loyal Sainsbury's and Argos customers and over 77 per cent of Bank customers have a Nectar card

·We are focused on offering digital-led services. 66 per cent of Car and Home insurance customers now use our online servicing capability and 96 per cent of Argos Storecard sales are through digital channels

·Following the re-launch of our Credit Card app in 2020, the number of active customers using it has increased by 39 per cent to 64 per cent, with the app becoming our primary credit card payment channel

Save to Invest

·We have made good progress on the cost saving programme we outlined last November and remain on track to deliver a reduction in our retail operating costs to sales ratio of at least 200 basis points

·Savings during the half were predominantly driven by key structural changes to the in-store operating model, online operating model and supporting customers to shop digitally in store

·We are making significant progress with our Argos Transformation Programme and are on track to lower our costs by £105 million. We closed 36 standalone Argos stores during the half and opened 37 Argos stores in Sainsbury's

·We opened our second Argos Local Fulfilment Centre in Leeds which will help give customers quicker access to more products

·Integrating Argos and Habitat logistics and supply chains with Sainsbury's will reduce costs by £250-300 million and improve overall efficiency. We closed one distribution centre in the half and will close another by the Spring of 2022

·We are making progress with the rollout of our new Integrated Transport Planning System which is designed to maximise vehicle usage, reduce CO₂ emissions and ensure our drivers work as safely and efficiently as possible

·We are rationalising our property estate and closed one underperforming supermarket and 10 convenience stores

·Closing our food counters is generating cost savings and reducing food waste. A good proportion of counter sales have transferred to the aisles and we have converted the space in 312 of 477 stores to offer customers products tailored to their local area

Plan for Better

Better for You

Healthy and sustainable diets

·We announced a new brand commitment, Helping Everyone Eat Better, to raise awareness and drive behaviour change

·Over 97,000 colleagues engaged in the launch and took part in a campaign to cook a healthy, sustainable meal

·We aim to achieve 83 per cent of Healthy and Better for You sales by tonnage by 2025. We continue to reformulate our own-brand products to reduce sugar and salt, as well as increasing the number of healthier and plant-based choices

·Over 500,000 customers took part in Nectar's 'The Great Big Fruit And Veg Challenge'. The challenge incentivises shoppers to increase the amount of fruit and vegetables they eat, one plate at a time

Better for the Planet

·We are proud to be the Principal Supermarket Partner of COP26, the United Nations Climate Change Conference, currently taking place in Glasgow

Carbon

·We are ahead of trajectory on our Net Zero target and have accelerated our target for Scopes 1 and 2 greenhouse gas emission reduction from 2040 to Net Zero by 2035

·We have committed to reducing our Scope 3 emissions by 30 per cent by 2030

·We are working with our suppliers to understand how they are delivering against their own Scope 1 and 2 targets. We expect them to set their own net zero ambitions and work towards science based targets. We asked 400 of our key suppliers, who are significant contributors to our highest emission hotspot areas, to disclose their carbon reduction targets through industry disclosures, CDP and Higg

·By the end of 2021 we will be sourcing 100 per cent electricity from renewable sources and all of our supermarkets will have 100 per cent LED lighting installed

Plastic

·To encourage our customers to recycle, we have rolled out a flexible plastic recycling scheme to all supermarkets

·To support meeting our target to reduce plastic packaging by 50 per cent by 2025, we have: replaced plastic with pulp trays for all our own-brand eggs, removing 237 tonnes; removed 17 tonnes of plastic wrap from tea boxes and are continuing to reduce the weight of our own-brand water packaging

·Together with the support of Prevented Ocean Plastic, we are turning plastic collected from the coast into packaging for our strawberry and fresh fish range, preventing 297 tonnes of plastic from entering the ocean each year

Food waste

·We have partnered with Neighbourly to manage our back of store food donation programme. This will help to connect our stores with local partners who will redistribute food to those in need. This half we have seen a 157 per cent increase in the redistribution of food for human consumption

·We will complete the roll-out of Neighbourly into all supermarkets by the end of 2021, supporting our target to reduce food waste by 50 per cent by 2030 target

Better for Everyone

·We want to treat people fairly throughout our business and supply chains and we remain committed to championing human rights. This year we published our fifth Modern Slavery Statement, which can be found on our corporate website

·In September we launched our new £1 million Helping Everyone Eat Better Community Grant Scheme. Our colleagues will nominate partner organisations who are tackling food insecurity for grants of £500 - part of our commitment to leave a measurable positive impact on the communities we serve and source from

·94 per cent of colleagues on an apprenticeship scheme successfully completed their programme over the past half year, ahead of the national rate

·We are committed to diverse representation in leadership positions, with stretching targets taking us to 2024

·We partnered with Show Racism the Red Card, supporting them through a donation which will provide new educational resources to every school in England, Scotland and Wales for the first time in its 25-year history

·We announced our enhanced Family Leave policy to support those taking maternity, paternity or adoption leave

¹ The Group's alternative performance measures are defined and reconciled on pages 54-60. These APMs should be considered in addition to, and are not intended to be a substitute for, IFRS measurements. As they are not defined by International Financial Reporting Standards, they may not be directly comparable with other companies' APMs

² Service Management Group Competitor Benchmark Survey, Q2 2021/22

³ Excluding the £242m beneficial impact to net debt of the July 2021 conversion of Perpetual Securities

⁴ NielsenIQ Panel YoY volume growth, 28 weeks to 18 September 2021.Total FMCG (excluding Kiosk & Tobacco), Market Universe: Total Outlets

⁵ NielsenIQ Panel volume growth Yo2Y. Meat, Fish and Poultry and Produce categories. 28 weeks to 18 September 2021 vs 28 weeks to 21 September 2019. Market Universe: Total Outlets

⁶ Value Reality. Mar-Sep 2021 vs Mar 2020-Mar 2021; Edge by Ascential; internal modelling. Price index data vs Aldi unavailable in weeks 4-26 of 20/21

⁷ Secondary Shoppers - Contribution to Volume Growth. Nielsen Panel, Total FMCG (excluding Kiosk & Tobacco), 12wks to September 2021. Market Universe: Total Outlets

⁸ Nielsen panel data, value share of top 5 competitors between FY 18/19 and H1 21/22

⁹ GfK Homewares Total Category Report

¹⁰ Current analyst consensus for Financial Services Underlying Operating Profit: FY21/22 £26m, FY22/23 £43m, FY23/24 £49m

Financial Review for the 28 weeks to 18 September 2021

In the 28 weeks to 18 September 2021, the Group generated profit before tax of £541 million (HY 2020/21: loss before tax of £137 million; HY 2019/20: profit before tax of £9 million) and an underlying profit before tax of £371 million (HY 2020/21: £301 million; HY 2019/20: £238 million). COVID-19 caused significant distortions to trading, operating costs and business rates assumptions in HY 2020/21. Therefore in some cases commentary has been provided versus the pre-COVID-19 HY 2019/20.

A number of Alternative Performance Measures ('APMs') have been adopted by the Directors to provide additional information on the underlying performance of the Group. These measures are intended to supplement, rather than replace the measures provided under IFRS. Please see pages 54 to 60 for further information.

Summary income statement	28 weeks to	28 weeks to		52 weeks to
	18 September	19 September	Change	6 March
	2021	2020		2021
	£m	£m	%	£m

Group sales (including VAT)	17,528	16,557	5.9	32,285
Retail sales (including VAT)	17,315	16,338	6.0	31,854
Retail sales (excluding fuel, including VAT)	14,871	14,836	0.2	28,837

Group sales (excluding VAT)	15,724	14,934	5.3	29,048
Retail sales (excluding VAT)	15,511	14,715	5.4	28,617


Underlying operating profit
Retail	523	555	(6)	730
Financial services	19	(55)	N/A	(21)
Total underlying operating profit	542	500	8	709

Underlying net finance costs¹	(171)	(199)	14	(353)
Underlying profit before tax	371	301	23	356
Items excluded from underlying results²	170	(438)	N/A	(617)
Profit/(Loss) before tax	541	(137)	N/A	(261)
Income tax expense	(152)	(42)	(265)	(19)
Profit/(Loss) for the financial period	389	(179)	N/A	(280)

Underlying basic earnings per share	12.2p	10.1p	21	11.7p
Underlying diluted earnings per share	11.6p	9.8p	18	11.4p
Basic earnings/(loss) per share	17.3p	(8.3)p	N/A	(13.0)p
Diluted earnings/(loss) per share	16.6p	(8.3)p	N/A	(13.0)p
Dividend per share	3.2p	3.2p	-	10.6p

1 Refer to APMs and note 7 of the financial statements

2 Refer to APMs and note 3 of the financial statements

Through the first half grocery sales remained elevated in line with last year reflecting the ongoing impact of COVID-19 on in-home consumption.

COVID-19 costs have been significantly lower this year despite the continued elevated sales, which together with ongoing delivery of our cost programme has resulted in strong profit delivery. The prior year results were published before the decision to forgo business rates relief in Sainsbury's. Had this decision been taken prior to publication, the impact of additional business rates on the prior half year would have been to reduce retail operating profits by £204m.

Group sales

Group sales including VAT increased by 5.9 per cent year-on-year whilst Retail sales (including VAT, including fuel) increased by 6.0 per cent year-on-year, driven by a significant recovery in Fuel sales. Retail sales (including VAT, excluding fuel) increased by 0.2 per cent.

Total sales performance by category	28 weeks to	28 weeks to	28 weeks to	YoY	Yo2Y
	18 September	19 September	21 September	Change	Change
	2021	2020	2019
	£bn	£bn	£bn	%	%
Grocery	11.3	11.2	10.3	0.8%	9.1%
General Merchandise	3.1	3.2	3.0	(5.8)%	1.1%
Clothing	0.5	0.4	0.5	33.6%	9.1%
Retail (exc. fuel)	14.9	14.8	13.9	0.2%	7.3%
Fuel sales	2.4	1.5	2.7	62.7%	(9.9)%
Retail (inc. fuel)	17.3	16.3	16.6	6.0%	4.5%

Grocery sales remained high with the COVID-19 pandemic continuing to move eating occasions in-home. In line with the reduction of government restrictions during the period, this trend was more pronounced in Q1, with sales moderating in Q2 across the Summer. Sales were supported by our Sainsbury's Quality, Aldi Price Match programme and we saw improved base prices against all tracked competitors in the half.

General Merchandise sales declined, reflecting annualisation of very high demand for home office and home entertainment products during the first COVID-19 lockdown when many competitor stores were closed. Clothing recovered strongly from a year of suppressed demand with no full range promotions run in the half and growth driven by full price sales.

Fuel sales increased by 62.7 per cent, driven by increased demand as traffic volumes recovered although they remained 9.9 per cent below pre-COVID-19 levels.

Total sales performance by channel	28 weeks to	28 weeks to
	18 September 2021	19 September 2020
Total Sales fulfilled by Supermarket stores	(0.5)%	11.8%
Supermarkets (inc Argos stores in Sainsbury's)	(3.0)%	3.2%
Groceries Online	12.8%	102.2%
Convenience	4.9%	(8.0)%

Overall sales served from our Supermarkets fell by 0.5 per cent after rising 11.8 per cent in the prior year. Within this, Supermarket sales including Argos stores in Sainsbury's fell by 3.0 per cent. Groceries Online sales increased by 12.8 per cent, with sales moderating during the half as we began to annualise large increases in the prior year. Convenience sales grew by 4.9 per cent, driven by the recovery of sales in urban sites most impacted by reduced footfall in the previous year.

Retail like-for-like sales performance	28 weeks to	28 weeks to
	18 September	19 September
	2021	2020
Like-for-like sales (exc. fuel)	0.3%	6.9%
Like-for-like sales (inc. fuel)	6.1%	(1.6)%

Retail like-for-like ('LFL') sales excluding fuel were broadly flat, with groceries growth offset by General Merchandise declines.

Space

In the first half of 2021/22, Sainsbury's opened one new Supermarket and closed one (2020/21 no openings or closures). We opened eight new Convenience stores and 10 were closed (2020/21 opened five convenience stores and closed two). During the period we opened 37 new Argos stores in Sainsbury's and closed 36 standalone Argos stores (2020/21 opened four and closed 14). This now brings the total number of Argos stores in Sainsbury's to 373, over half the store estate. In total Argos had 738 stores and 280 collection points at the end of the period.

Store numbers and retailing space
	As at	New stores	Disposals / closures	Extensions / refurbishments / downsizes	As at
	6 March				18 September
	2021				2021

Supermarkets	598	1	(1)	39	598
Supermarkets area '000 sq. ft.	20,822	17	(6)	(33)	20,800

Convenience	813	8	(10)	-	811
Convenience area '000 sq. ft.	1,929	18	(24)	-	1,923
Sainsbury's total store numbers	1,411	9	(11)	39	1,409

Argos stores	401	-	(36)	-	365
Argos stores in Sainsbury's	336	37	-	-	373
Argos total store numbers	737	37	(36)	-	738
Argos collection points	306	-	(26)	-	280
Habitat	3	-	-	-	3

In 2021/22, we expect to open four supermarkets and around 25 new convenience stores, and to close around 5 supermarkets and around 25 convenience stores.

In 2021/22, we expect to open around 70 Argos stores inside Sainsbury's, and close around 70 Argos standalone stores.

In the UK, the standalone Argos store estate will reduce to around 100 stores by March 2024, while we expect to have 430-460 Argos stores inside Sainsbury's supermarkets as well as 450-500 collection points leveraging our nationwide Sainsbury's store estate.

Retail underlying operating profit

Retail underlying operating profit decreased by 5.7 per cent to £523 million (HY 2020/21: £555 million) and retail underlying operating margin decreased by 40 basis points year-on-year to 3.37 per cent (HY 2020/21: 3.77 per cent). The reduction from last year was driven by business rates relief which was reflected in the half year accounts before we subsequently decided to forgo this relief. Had this decision been taken prior to publication, the prior year's profits would have been £204 million lower, worth 139 basis points to retail underlying operating margin. The year-on-year impact of this was largely offset by a reduction in COVID-19 costs, the recovery of fuel sales, and benefits from the cost saving programme.

Retail underlying operating profit was up 19.7% vs two years ago (HY 2019/20: £437 million), reflecting both sales growth and retail underlying operating margin expansion of 42bps. This margin growth reflects the early success of our Save to Invest programme, having been achieved despite further investment in lower prices.

The Argos Transformation programme continued to deliver savings as we integrate the two businesses and reduce occupancy and store operational costs. Within the Sainsbury's business, savings were generated from further expansion of self check-out as well as efficiencies in the Online operating model following last year's focus on rapidly expanding capacity.

Retail underlying operating profit
	28 weeks to	28 weeks to	28 weeks to	YoY	Yo2Y
	18 September	19 September	21 September
	2021	2020	2019	Change	Change
Retail underlying operating profit (£m)¹	523	555	437	(5.7)%	19.7%
Retail underlying operating margin (%)²	3.37	3.77	2.95	(40)bps	42bps

Retail underlying EBITDA (£m)³	1,141	1,190	1,073	(4.1)%	6.3%
Retail underlying EBITDA margin (%)⁴	7.36	8.08	7.25	(72)bps	11bps

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 £618 million.

4 Retail underlying EBITDA divided by retail sales excluding VAT.

In 2021/22, we expect a depreciation and amortisation charge of around £1.2 billion, including around £500 million right of use asset depreciation.

Financial Services

Financial Services results
6 months to 31 August 2021
	2021	2020	Change

Underlying revenue (£m)	213	219	(3)%
Interest and fees payable (£m)	(30)	(54)	(44)%
Total income (£m)	183	165	11%
Underlying operating profit/(loss) (£m)	19	(55)	N/A

Active customers (m) - Bank	1.8	2.0	(10)%
Active customers (m) - AFS	2.1	2.3	(9)%
Cost:income ratio (%)	72.0	77.0	(500) bps
Net interest margin (%)¹	4.3	3.1	120 bps
Bad debt as a percentage of lending (%)²	1.3	2.7	140 bps
Tier 1 capital ratio (%)³	17.4	14.9	250 bps
Total capital ratio (%)⁴	20.1	17.8	230 bps
Customer lending (£bn)⁵	5.0	6.2	(19)%
Customer deposits (£bn)	(4.6)	(5.4)	(15)%

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

2 Bad debt expense divided by average net lending.

3 Common equity Tier 1 capital divided by risk-weighted assets.

4 Total capital divided by risk-weighted assets.

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

Underlying operating profit of £19 million has returned to pre-COVID-19 levels (HY 2019/20: £20 million) which has been aided by management action on funding and operating costs. We have seen an increase in consumer spending, but unsecured balances remain subdued as a result of higher levels of customer repayments and lower credit demand. We have also seen increased trading in our fee-based products as lockdown restrictions were removed, but these remain below pre-COVID-19 levels.

Financial Services total income of £183 million has improved year-on-year (HY 2020/21: £165 million) but remains below pre-COVID-19 levels (HY 2019/20: £227 million). Net Interest Income recovery is reflective of action to reduce interest payable through reduced savings rates, but remains down on two years ago due to the significant reduction in customer balances. Fee income has increased due to the increase in activity post lockdown, with ATMs and Card fees both recovering. Travel Money remains subdued but is higher than last year.

The number of Bank active customers reduced by 10 per cent year-on-year to 1.8 million as new business demand has not recovered enough to offset the normal levels of attrition in the book. Argos Financial Services customers decreased 9 per cent to 2.1 million, largely due to lower new account volumes from lower Retail sales.

The Financial Services cost:income ratio decreased 500 basis points to 72.0 per cent (HY 2020/21: 77.0 per cent) and is reflective of the material rise in income and ongoing cost management.

Net interest margin increased by 120 basis points year-on-year to 4.3 per cent (HY 2020/21: 3.1 per cent) driven by the continued reduction in savings rates, improvements in unsecured asset margins and a lower mix of secured lending (following our decision to cease new mortgage lending in 2019).

Bad debt expense as a percentage of lending decreased 140 basis points year-on-year to 1.3 per cent (HY 2020/21: 2.7 per cent), reflecting the significant COVID-19 provision posted last year with underlying trends stable.

The capital position is strong with CET1 capital ratio increasing by 250 basis points since August 2020 to 17.4 per cent (HY 2020/21: 14.9 per cent) as a result of the contraction in balances and improved profit performance.

We expect financial services to continue to deliver profit in the second half of 2021/22 as more normal levels of consumer demand return.

Underlying net finance costs

Underlying net finance costs reduced by 14 per cent to £171 million (HY 2020/21: £199 million). These costs include £22 million of net non-lease interest (HY 2020/21: £37 million). The reduction of net non-lease interest is driven by the repayment of the £250 million bilateral loan and redemption of the £250 million perpetual subordinated capital securities, both in July 2020, and the redemption of the perpetual convertible bonds in July 2021. In addition, the net underlying interest costs on lease liabilities have reduced to £149 million (HY 2020/21: £162 million), mainly due to lower interest rates on new leases.

We now expect underlying net finance costs in 2021/22 of £320 million - £330 million, including around £280 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 results	28 weeks to	28 weeks to
	18 September	19 September
	2021	2020
	£m	£m
Restructuring and integration programmes	(32)	(266)
Impairment charges	-	(214)
Restructuring, impairment and integration	(32)	(480)

Income recognised in relation to legal disputes	181	42
IAS 19 pension income	6	8
Property, finance and acquisition adjustments	15	(8)
Items excluded from underlying results	170	(438)

- Restructuring, impairment and integrations costs of £32 million (2020/21: £480 million) includes £22 million (2020/21: £473 million) relating to the programme announced in November 2020 for the structural integration of Sainsbury's and Argos. We still expect that we will incur one off costs from these infrastructure, operating model and structure changes of £900 million to £1 billion in the period to March 2024 with £75 million to £100 million in the current year. We expect cash costs from this programme of around £300 million in total, with around £125 million in the current year.

- Income recognised in relation to legal disputes of £181 million (2020/21: £42 million) primarily relates to two settlements for overcharges from payment card processing fees. £75 million of cash was received in prior financial years and held as deferred income, £27 million was received during the half, £67 million is a current receivable and £13 million relates to a provision release. The prior year relates to ATM business rates reimbursement.

- IAS 19 Pension income of £6 million (2020/21: £8 million) comprises pension finance income of £8 million and scheme expenses of £2 million.

- Other movements of £15 million income (2020/21: cost of £8 million) relate to property profits, acquisition adjustments and non-underlying financing costs. The positive movement year on year is driven by a gain on energy derivatives driven by higher energy prices.

Taxation

The tax charge was £152 million (HY 2020/21: £42 million). The underlying tax rate was 26.4 per cent (HY 2020/21: 27.6 per cent) and the effective tax rate was 28.1 per cent (HY 2020/21: negative 30.7 per cent).

The underlying tax rate is lower than the prior year. The tax charge is adversely impacted by a similar value of tax adjusting items as for 2020/21, however due to the increased 2021/22 half year profit, these adjustments have a smaller impact on the rate than in the prior year.

The effective tax rate is higher than the prior year but this is distorted by the fact there was an accounting loss before tax for HY 2020/21 which also resulted in a tax charge, rather than an expected tax credit. This was largely a result of the amount of non-deductible expenses, particularly in respect of non-underlying items, the de-recognition of previously recognised deferred tax assets on capital losses and prior year adjustments.

The 2021/22 effective tax rate of 28.1 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 the future tax rate change, combined with the impact of non-deductible expenses, particularly in respect of non-deductible capital expenditure, the de-recognition of previously recognised deferred tax assets on capital losses, and prior year adjustments.

We expect an underlying tax rate in 2021/22 of around 25 per cent.

Earnings per share

Underlying basic earnings per share increased to 12.2 pence (HY 2020/21: 10.1 pence) driven by an increase in underlying earnings. Basic earnings per share increased to 17.3 pence (HY 2020/21: negative 8.3 pence). Underlying diluted earnings per share increased to 11.6 pence (HY 2020/21: 9.8 pence) and diluted earnings per share increased to 16.6 pence (HY 2020/21: negative 8.3 pence).

During the half the remaining £248 million of perpetual convertible bonds matured. Of these, £242 million were redeemed by conversion to shares, resulting in the creation of 91 million new shares, an increase of 4.1 per cent on the opening balance of shares.

Dividends

The Board has recommended an interim dividend of 3.2 pence per share (2020/21: 3.2 pence) reflecting 30 per cent of the 2020/21 full year dividend per share. This will be paid on 17 December 2021 to shareholders on the Register of Members at the close of business on 12 November 2021. 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 26 November 2021.

Sainsbury's plans to maintain a full-year dividend covered 1.9 times by our full-year underlying earnings.

Net debt and retail cash flows

As at 18 September 2021, net debt was £6,345 million (19 September 2020: £6,168 million), an increase of £177 million (2020/21: £610 million reduction). Excluding the impact of lease liabilities on net debt, Sainsbury's reduced non-lease net debt by £240 million.

Net debt includes lease liabilities under IFRS 16 which grew to £6,318 million (HY 2020/21: £5,901 million) as we served notice to purchase 13 stores when their leases end in 2023/24. In the half, £248 million of perpetual convertible bonds were redeemed leaving no remaining balance (HY 2020/21: £248 million). Of these, £242 million were converted to shares as noted above, and are included in the summary cash flow statement within other non-cash and interest movements. Group net debt includes the impact of capital injections to 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.

We remain on track to meet our target of at least £950 million non-lease net debt reduction in the four years to March 2023, before the beneficial impact of the perpetual convertible bond, and to generate average retail free cash flow of at least £500 million per year over the three years to March 2025.

Summary cash flow statement¹	Retail	Retail	Retail
	28 weeks to	28 weeks to	52 weeks to
	18 September	19 September	6 March
	2021	2020	2021
	£m	£m	£m
Retail underlying operating profit	523	555	730
Adjustments for:
Retail underlying depreciation and amortisation²	618	635	1,179
Share based payments and other	26	15	26
Retail exceptional operating cash flows (excluding pensions)²	(30)	3	(12)
Adjusted retail operating cash flow before changes in working capital³	1,137	1,208	1,922
Decrease in underlying working capital²	135	571	453
Net interest paid²	(177)	(213)	(372)
Pension cash contributions	(39)	(60)	(101)
Corporation tax paid	-	(88)	(94)
Adjusted net cash generated from/(used in) operating activities²	1,056	1,418	1,809
Cash capital expenditure²	(298)	(290)	(568)
Repayments of lease liabilities	(242)	(223)	(499)
Initial direct costs on right-of-use assets	(1)	(3)	(7)
Proceeds from disposal of property, plant and equipment	39	19	27
Dividends and distributions received	-	22	22
Retail free cash flow	554	943	784
Dividends paid on ordinary shares	(165)	-	(232)
Repayment of borrowings²	(231)	(519)	(539)
Other²	(30)	(26)	(13)
Net increase/(decrease) in cash and cash equivalents	128	398	0
Decrease in Debt	473	742	1,038
Other non-cash and net interest movements⁴	(477)	(361)	(560)
Movement in net debt	124	779	478

Opening net debt	(6,469)	(6,947)	(6,947)
Closing net debt	(6,345)	(6,168)	(6,469)
of which
Lease Liabilities	(6,318)	(5,901)	(5,829)
Net Debt Excluding Lease Liabilities	(27)	(267)	(640)

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 59 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 and the impact of the perpetual security conversion.

Adjusted retail operating cash flow before changes in working capital was £1,137 million (HY 2020/21: £1,208 million) and underlying working capital decreased by £135 million since the year end (HY 2020/21: £571 million). Working capital typically decreases between year end and half year, driven by seasonality and the phasing of payables. HY 2020/21 saw a more pronounced effect due to the initial impact of COVID-19 trading patterns, whilst this year has seen a lower than usual decrease due to a partial reversal of this as guided at year end.

No corporation tax was paid in the half (HY 2020/21: £88 million). This reflects payments made in the prior year before the decision to forgo business rates relief which subsequently impacted taxable profits. Pensions contributions of £39 million (HY 2020/21: £60 million) were down on the prior year in line with the asset backed contribution structure established in July 2019 as previously guided. Proceeds from disposals of £39 million (HY 2020/21: £19 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 decreased by £389 million year-on-year to £554 million (HY 2020/21: £943 million) reflecting the material change in working capital pattern noted above, as well as timings of business rates payments in the prior year.

Sainsbury's paid dividends of £165 million in the half, after having not paid a final dividend in the prior year due to COVID-19 uncertainty (HY 2020/21: £0 million). This was subsequently paid as a special dividend in December 2020.

As at 18 September 2021 Sainsbury's has drawn debt facilities of £0.59 billion (HY 2020/21 £1.08 billion including the Perpetual securities). The Group holds undrawn committed credit facilities of £1.45 billion and undrawn uncommitted facilities of £195 million.

Capital expenditure

Core retail cash capital expenditure was £298 million (HY 2020/21: £290 million).

We expect annual core retail cash capital expenditure (excluding Financial Services) to be around £700 million to £750 million in the 3 years to March 2024.

Financial ratios

Key financial ratios	52 weeks to	52 weeks to	52 weeks to
	18 September	19 September	6 March
	2021	2020	2021
Return on capital employed (%)¹	6.3	7.9	5.5
Net debt to EBITDA²	3.3 times	2.7 times	3.4 times
Fixed charge cover³	2.3 times	2.8 times	2.2 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 £6,345 million includes lease obligations under IFRS 16, divided by Group underlying EBITDA of £1,932 million, calculated for a 52-week period to 18 September 2021.

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) is a 52 week measure and so is still impacted by the H2 2020/21 decision to forgo Business rates relief. Adjusted for the phasing impact of £204 million relating to business rates, ROCE would have been 8.0 per cent. Our medium term net debt to EBITDA leverage target remains less than 3.0 times.

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 Trustee has started the next triennial valuation which is due as at 30 September 2021; the Company will share the outcome when discussions have completed in 2022.

At 18 September 2021, the net defined benefit surplus under IAS19 for the Group was £1,087 million (excluding deferred tax). The £343 million increase from 6 March 2021 was primarily driven by higher than expected asset returns, partially offset by a decrease in yields and increased future inflation expectations.

For 2021/22, total pension scheme cash contributions are expected to be £76 million.

Retirement benefit obligations
	Sainsbury's	Argos	Group	Group
	as at	as at	as at	as at
	18 September	18 September	18 September	6 March
	2021	2021	2021	2021
	£m	£m	£m	£m
Present value of funded obligations	(9,352)	(1,488)	(10,840)	(10,218)
Fair value of plan assets	10,394	1,574	11,968	11,000
Pension surplus/(deficit)	1,042	86	1,128	782
Present value of unfunded obligations	(23)	(18)	(41)	(38)
Retirement benefit obligations	1,019	68	1,087	744
Deferred income tax liability	(311)	(56)	(367)	(192)
Net retirement benefit obligations	708	12	720	552

Group income statement (unaudited)

for the 28 weeks to 18 September 2021

		28 weeks to 18 September 2021			28 weeks to 19 September 2020
		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	15,724	-	15,724	14,934	-	14,934
Cost of sales		(14,476)	(14)	(14,490)	(13,644)	(298)	(13,942)
Gross profit/(loss)		1,248	(14)	1,234	1,290	(298)	992
Administrative expenses		(725)	(31)	(756)	(801)	(154)	(955)
Other income		19	184	203	11	(5)	6
Operating profit/(loss)		542	139	681	500	(457)	43
Finance income	7	-	36	36	2	14	16
Finance costs	7	(171)	(5)	(176)	(201)	5	(196)
Profit/(loss) before tax		371	170	541	301	(438)	(137)
Income tax (expense)/credit	8	(98)	(54)	(152)	(83)	41	(42)
Profit/(loss) for the financial period		273	116	389	218	(397)	(179)

Earnings/(loss) per share	9			pence			pence
Basic earnings/(loss)				17.3			(8.3)
Diluted earnings/(loss)				16.6			(8.3)

		52 weeks to 6 March 2021
		Before non-underlying items	Non-underlying items (Note 3)	Total
	Note	£m	£m	£m
Revenue	4	29,048	-	29,048
Cost of sales		(26,871)	(412)	(27,283)
Gross profit/(loss)		2,177	(412)	1,765
Administrative expenses		(1,480)	(238)	(1,718)
Other income		12	1	13
Operating profit/(loss)		709	(649)	60
Finance income	7	3	29	32
Finance costs	7	(356)	3	(353)
Profit/(loss) before tax		356	(617)	(261)
Income tax (expense)/credit	8	(105)	86	(19)
Profit/(loss) for the financial period		251	(531)	(280)

Loss per share	9			pence
Basic loss				(13.0)
Diluted loss				(13.0)

The notes on pages 22 to 50 form an integral part of these Condensed Consolidated Interim Financial Statements.

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

for the 28 weeks to 18 September 2021

		28 weeks to 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	Note	£m	£m	£m
Profit/(loss) for the financial period		389	(179)	(280)

Items that will not be reclassified subsequently to the income statement
Remeasurement on defined benefit pension schemes	18	298	(175)	(482)
Movements on financial assets at fair value through other comprehensive income		40	28	55
Cash flow hedges fair value movements - inventory hedges		53	-	(60)
Current tax relating to items not reclassified		-	23	44
Deferred tax relating to items not reclassified		(165)	(24)	9
		226	(148)	(434)
Items that may be reclassified subsequently to the income statement
Currency translation differences		2	-	(5)
Movements on financial assets at fair value through other comprehensive income		(2)	1	2
Cash flow hedges fair value movements - non-inventory hedges		14	6	(1)
Items reclassified from cash flow hedge reserve		4	-	13
Deferred tax on items that may be reclassified		(18)	(2)	10
		-	5	19
Total other comprehensive income/(loss) for the financial period (net of tax)		226	(143)	(415)
Total comprehensive income/(loss) for the financial period		615	(322)	(695)

The notes on pages 22 to 50 form an integral part of these Condensed Consolidated Interim Financial Statements.

Group balance sheet (unaudited)

at 18 September 2021

		18 September 2021	6 March 2021*	19 September 2020*
	Note	£m	£m	£m
Non-current assets
Property, plant and equipment	11	8,417	8,587	8,759
Right-of-use assets	12	5,222	4,747	4,796
Intangible assets	13	1,001	914	858
Investments in joint ventures and associates		5	5	5
Financial assets at fair value through other comprehensive income	14a	640	754	863
Trade and other receivables		39	50	52
Amounts due from Financial Services customers and banks	14d	2,049	2,280	2,812
Derivative financial assets	14c	44	8	4
Net retirement benefit surplus	18	1,087	744	1,012
		18,504	18,089	19,161
Current assets
Inventories		1,682	1,625	1,635
Trade and other receivables		740	725	748
Amounts due from Financial Services customers and banks	14d	2,973	3,127	3,380
Financial assets at fair value through other comprehensive income	14a	112	90	61
Derivative financial assets	14c	20	5	28
Cash and cash equivalents	17	1,636	1,575	2,068
		7,163	7,147	7,920
Assets held for sale		9	24	2
		7,172	7,171	7,922
Total assets		25,676	25,260	27,083
Current liabilities
Trade and other payables		(4,563)	(4,488)	(4,702)
Amounts due to Financial Services customers and banks	14a	(4,970)	(6,086)	(5,906)
Borrowings	16	(261)	(356)	(872)
Lease liabilities	12	(558)	(524)	(538)
Derivative financial liabilities	14c	(33)	(93)	(38)
Taxes payable		(174)	(59)	(29)
Provisions		(113)	(209)	(136)
		(10,672)	(11,815)	(12,221)
Net current liabilities		(3,500)	(4,644)	(4,299)
Non-current liabilities
Other payables		(21)	(20)	(1)
Amounts due to Financial Services customers and banks	14a	(644)	(203)	(904)
Borrowings	16	(722)	(748)	(772)
Lease liabilities	12	(5,764)	(5,310)	(5,369)
Derivative financial liabilities	14c	(18)	(44)	(60)
Deferred income tax liability		(490)	(255)	(328)
Provisions		(269)	(261)	(241)
		(7,928)	(6,841)	(7,675)
Total liabilities		(18,600)	(18,656)	(19,896)
Net assets		7,076	6,604	7,187
Equity
Called up share capital		666	637	635
Share premium		1,398	1,173	1,163
Merger reserve		568	568	568
Capital redemption reserve		680	680	680
Other reserves		276	167	194
Retained earnings		3,488	3,131	3,699
Total equity before perpetual securities		7,076	6,356	6,939
Perpetual convertible bonds		-	248	248
Total equity		7,076	6,604	7,187

_{* The comparative balance sheets have been restated. Refer to note 2 for further information.}

The notes on pages 22 to 50 form an integral part of these Condensed Consolidated Interim Financial Statements.

Group cash flow statement (unaudited)

for the 28 weeks to 18 September 2021

		28 weeks to	28 weeks to	52 weeks to
		18 September	19 September	6 March
		2021	2020	2021
	Note	£m	£m	£m
Cash flows from operating activities
Profit/(Loss) before tax		541	(137)	(261)
Net finance costs		140	180	321
Operating profit		681	43	60
Adjustments for:
Depreciation expense	11,12	581	596	1,113
Amortisation expense	13	78	65	136
Net impairment loss on property, plant and equipment, right-of-use assets, intangible assets	11,12,13	1	292	321
Non-cash adjustments arising from acquisitions		-	(1)	(1)
Financial Services impairment losses on loans and advances		35	39	85
(Profit)/loss on sale of properties and early termination of leases	17	(22)	7	(17)
Share-based payments expense		28	16	29
Defined benefit scheme expenses	18	2	3	13
Cash contributions to benefit schemes	18	(39)	(60)	(101)
Operating cash flows before changes in working capital		1,345	1,000	1,638
Changes in working capital
(Increase)/decrease in inventories	17	(57)	97	117
Decrease in financial assets at fair value through other comprehensive income	17	130	159	267
(Increase)/decrease in trade and other receivables	17	(6)	58	62
Decrease in amounts due from Financial Services customers and other deposits	17	350	1,173	1,912
Increase in trade and other payables	17	95	409	321
(Decrease) in amounts due to Financial Services customers and other deposits	17	(675)	(1,284)	(1,805)
(Decrease)/increase in provisions and other liabilities	17	(91)	180	273
Cash generated from operations		1,091	1,792	2,785
Interest paid		(178)	(193)	(349)
Corporation tax paid		-	(88)	(93)
Net cash generated from operating activities		913	1,511	2,343

Cash flows from investing activities
Purchase of property, plant and equipment		(154)	(257)	(423)
Initial direct costs on new leases		(1)	(3)	(7)
Purchase of intangible assets		(165)	(44)	(172)
Proceeds from disposal of property, plant and equipment		39	19	27
Dividends and distributions received		-	22	22
Net cash used in investing activities		(281)	(263)	(553)

Cash flows from financing activities
Proceeds from issuance of ordinary shares		11	4	17
Proceeds from short term borrowings		-	660	660
Repayment of borrowings		(223)	(269)	(289)
Repayment of short term borrowings		-	(660)	(660)
Repayment of perpetual capital securities		(8)	(250)	(250)
Purchase of own shares		(41)	(30)	(30)
Repayment of capital element of lease obligations		(243)	(224)	(501)
Dividends paid on ordinary shares	10	(165)	-	(232)
Dividends paid on perpetual securities		(4)	(20)	(23)
Net cash used in financing activities		(673)	(789)	(1,308)

Net (decrease)/increase in cash and cash equivalents		(41)	459	482

Opening cash and cash equivalents		1,476	994	994
Closing cash and cash equivalents	17	1,435	1,453	1,476

The notes on pages 22 to 50 form an integral part of these Condensed Consolidated Interim Financial Statements.

Group statement of changes in equity (unaudited)

for the 28 weeks to 18 September 2021

	Called up share capital	Share premium account	Merger reserve	Capital redemption and other reserves	Retained earnings	Total equity before perpetual securities	Perpetual capital securities	Perpetual convertible bonds	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 7 March 2021	637	1,173	568	847	3,131	6,356	-	248	6,604
Profit for the period	-	-	-	-	389	389	-	-	389
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	-	-	-	69	546	615	-	-	615

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	666	1,398	568	956	3,488	7,076	-	-	7,076

	Called up share capital	Share premium account	Merger reserve	Capital redemption and other reserves	Retained earnings	Total equity before perpetual securities	Perpetual capital securities	Perpetual convertible bonds	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 8 March 2020	634	1,159	568	848	4,068	7,277	248	248	7,773
(Loss)/profit for the period	-	-	-	-	(183)	(183)	-	4	(179)
Other comprehensive income/(loss)	-	-	-	35	(175)	(140)	-	-	(140)
Tax relating to other comprehensive income/(loss)	-	-	-	(9)	6	(3)	-	-	(3)
Total comprehensive income/(loss) for the period ended 19 September 2020	-	-	-	26	(352)	(326)	-	4	(322)

Transactions with owners:
Distribution to holders of perpetual securities	-	-	-	-	-	-	-	(4)	(4)
Share-based payment	-	-	-	-	16	16	-	-	16
Purchase of own shares	-	-	-	-	(30)	(30)	-	-	(30)
Allotted in respect of share option schemes	1	4	-	-	(1)	4	-	-	4
Redemption of perpetual capital securities	-	-	-	-	(2)	(2)	(248)	-	(250)
Tax on items charged to equity	-	-	-	-	-	-	-	-	-
At 19 September 2020	635	1,163	568	874	3,699	6,939	-	248	7,187

	Called up share capital	Share premium account	Merger reserve	Capital redemption and other reserves	Retained earnings	Total equity before perpetual securities	Perpetual capital securities	Perpetual convertible bonds	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m

At 8 March 2020	634	1,159	568	848	4,068	7,277	248	248	7,773
(Loss)/profit for the period	-	-	-	-	(287)	(287)	-	7	(280)
Other comprehensive income/(loss)	-	-	-	4	(482)	(478)	-	-	(478)
Tax relating to other comprehensive income/(loss)	-	-	-	(4)	67	63	-	-	63
Total comprehensive loss for the period ended 6 March 2021	-	-	-	-	(702)	(702)	-	7	(695)

Cash flow hedges gains and losses transferred to inventory	-	-	-	(1)	-	(1)	-	-	(1)

Transactions with owners:
Dividends	-	-	-	-	(232)	(232)	-	-	(232)
Distribution to holders of perpetual securities	-	-	-	-	-	-	-	(7)	(7)
Share-based payment	-	-	-	-	29	29	-	-	29
Purchase of own shares	-	-	-	-	(30)	(30)	-	-	(30)
Allotted in respect of share option schemes	3	14	-	-	-	17	-	-	17
Redemption of perpetual capital securities	-	-	-	-	(2)	(2)	(248)	-	(250)
Tax on items charged to equity	-	-	-	-	-	-	-	-	-
At 6 March 2021	637	1,173	568	847	3,131	6,356	-	248	6,604

The notes on pages 22 to 50 form an integral part of these Condensed Consolidated Interim Financial Statements.

Notes to the Condensed Consolidated Interim Financial Statements (unaudited)

1. General information

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

The Condensed Consolidated Interim Financial Statements are unaudited but have been reviewed by the auditors whose report is set out on page 53. 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 2021 have been filed with the Registrar of Companies. The Independent Auditors' report on the Annual Report and Financial Statements 2021 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.

The financial period represents the 28 weeks to 18 September 2021 (comparative financial period 28 weeks to 19 September 2020; prior financial year 52 weeks to 6 March 2021). 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 2021, which were prepared in accordance with International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union, and also in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

The annual financial statements of the Group for the period to 5 March 2022 will be prepared in accordance with UK adopted international accounting standards. This change in basis of preparation is required by UK Company Law for the purposes of financial reporting as a result of the UK's exit from the EU on 31 January 2020 and the cessation of the transition period on 31 December 2020. This change does not constitute a change in accounting policy but rather a change in framework which is required to ground the use of IFRS in Company Law. There is no impact on recognition, measurement or disclosure between the two frameworks in the period reported.

Sainsbury's Bank plc and its subsidiaries have been consolidated for the six months to 31 August 2021 (19 September 2020: six months to 31 August 2020; 6 March 2021: twelve months to 28 February 2021). Adjustments have been made for the effects of significant transactions or events that occurred between this date and the Group's balance sheet date.

Balance sheet restatements

Notional cash pooling

The consolidated financial statements include a prior year restatement in relation to notional cash pooling arrangements where the intention to net settle cannot be clearly demonstrated, and therefore do not meet the requirements for offsetting in accordance with IAS 32: 'Financial Instruments: Presentation'. Prior period comparatives have been restated in accordance with IAS 8: 'Accounting Policies, Changes in Accounting Policies and Errors' by grossing up cash and overdrafts (reported within current borrowings) as follows:

Balance sheet at	Increase in cash	Increase in current borrowings
	£m	£m
6 March 2021	98	(98)
19 September 2020	615	(615)
7 March 2020	59	(59)

There is no impact on net assets, net debt, profit, basic and diluted earnings per share, the cash flow statement nor any other financial ratios and KPIs. Furthermore, as the adjustment affects two financial statement line items by equal and opposite amounts with no change in net assets, it is not considered to have a material affect on the overall balance sheet position reported as at 7 March 2020. As a result the Group has concluded that the presentation of a full restated balance sheet as at 7 March 2020 is not required.

Fixed assets and intangible assets presentation

Consistent with the Annual Report and Financial Statements 2021, the prior year has been restated to reflect reclassifications between property, plant and equipment and intangible assets of £38 million. These related to work in progress originally capitalised into intangibles that should have been recognised within property, plant & equipment. The impact on comparatives is an increase in property, plant and equipment of £38 million and a decrease in intangible assets of £38 million, with no change in net assets, profit, cash flow nor basic and diluted earnings per share.

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 4 March 2023.

In assessing the Group's ability to continue as a going concern, the Directors have considered the Group's most recent corporate planning process. This includes an annual review which considers profitability, the Group's cash flows, committed funding and liquidity positions and forecasted future funding requirements over three years, with a further two years of indicative movements. The most recent corporate plan was prepared in October 2021 and was reviewed by the Operating Board and ultimately by the PLC Board with involvement throughout from both the Chief Financial Officer and Chief Executive.

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

The Revolving Credit Facility is split into two Facilities, a £300 million Facility (A) and a £1,150 million Facility (B). Facility A has a final maturity of April 2025 and Facility B has a final maturity of October 2024. As at 18 September 2021, the Revolving Credit Facility (both Facility A and Facility B) was undrawn. In addition, the Group maintains uncommitted facilities of £195 million to provide additional capacity to fund short term working capital requirements. The uncommitted facilities were undrawn at 18 September 2021.

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 include modelling the ongoing impact of COVID-19, recognising the degree of uncertainty that continues to exist, the impact of any regulatory fines, failure to deliver planned cost savings and the impact of the UK's withdrawal from the EU on the Group's Northern Ireland operations where trade flows have proved more difficult.

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 bonuses and dividend payments.

As a consequence of the work performed, the Directors considered it appropriate to adopt the going concern basis in preparing the 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 6 March 2021 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 7 March 2021 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 9 'Financial Instruments', IAS 39 'Financial Instruments: Recognition and Measurement' and IFRS 7 'Financial Instruments: Disclosures' on the Interest Rate Benchmark Reform - Phase 2.

- Amendment to IFRS 16 'Leases' with regards to the exemption granted in the 'COVID-19-related rent concessions'.

The Group early adopted the Interest Rate Benchmark Reform Phase 2 amendments in the financial year ended 6 March 2021. The Group has elected not to apply the exemption granted in the 'COVID-19-related rent concessions' as the Group has not received material COVID-19-related rent concessions as a lessee.

The accounting policies have remained unchanged from those disclosed in the Annual Report for the year ended 6 March 2021.

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 54 to 60, and should be considered in addition to, and are not intended to be a substitute for, IFRS measurements. As they are not defined by International Financial Reporting Standards, they may not be directly comparable with other companies' APMs.

3. Profit before non-underlying items

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.

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

The most significant non-underlying items in the current year relate to income received in relation to the settlement of legal disputes over interchange fees, and costs associated with restructuring programmes. More details on each are included further below.

The Group has also chosen to exclude the following items from underlying profit:

·Financial Services transition - multi-year costs incurred in transitioning to a new, more flexible banking platform as part of the previously announced New Bank Programme. These costs of integration do not reflect the business's trading performance and so are adjusted to ensure consistency between periods. The programme is expected to end this financial year.

·Profit or loss on disposal of non-trading properties - these are excluded from underlying profit as such profit is not related to the ongoing operating activities of the Group.

·Perpetual securities coupons - these are accounted for as equity in line with IAS 32 'Financial instruments: Presentation', however are accrued on a straight-line basis and included as an expense within underlying profit as they are included by management when assessing Group borrowings. These are now £nil following the redemption of the perpetual convertible bond during the year.

· Non-underlying finance 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 and expenses include the financing element and scheme expenses of the Group's defined benefit scheme. 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.

·Acquisition adjustments - these reflect the adjustments arising from acquisitions, predominantly the fair value unwind of acquired intangibles, such as brands and customer relationships. The Group would not normally recognise these as assets outside of a business combination. Therefore the unwind is classified as non-underlying.

The Group has not included any additional costs incurred, or credits received, directly in relation to the impacts of COVID-19, within non-underlying items. Whilst some items (such as additional expenses incurred protecting colleagues and customers) are discrete and can be separately quantified, others, such as incremental food sales, cannot be reliably disaggregated from the Group's underlying performance. The Group has therefore concluded that presenting some movements as underlying and others as non-underlying would give an imbalanced view that is not easily comparable to past and subsequent periods.

28 weeks to 18 September 2021
	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	168	-	181	(34)	147

Restructuring and integration
Restructuring programmes	(14)	(21)	13	-	(22)	2	(20)
Financial Services transition and other	-	(10)	-	-	(10)	2	(8)
Total restructuring and integration	(14)	(31)	13	-	(32)	4	(28)

Property, finance, pension and acquisition adjustments
Profit on disposal of properties	-	-	3	-	3	-	3
Non-underlying finance movements	-	-	-	23	23	(4)	19
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	31	21	(3)	18

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	(14)	(31)	184	31	170	(54)	116

Income recognised in relation to legal disputes

The Group has a number of ongoing legal cases in relation to overcharges from payment card processing fees, which largely reflect inter-bank "interchange fees". Agreements have been reached for two of these during the year, leading to net income of £168 million to be recognised during the current period.

Of the £168 million, cash of £75 million was received in a prior year and held as deferred income. Net cash of £27 million was received during the current financial period, with the remainder expected to be received later this financial year.

In addition, a provision for a legal claim totalling £13 million has been released as it was assessed during the financial period that a pay-out is no longer considered probable.

Restructuring programmes

Costs have been recognised during the period in relation to the restructuring programmes announced in the prior year as follows:

	28 weeks to 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Write downs of property, plant and equipment	-	9	26
Write downs of leased assets	1	66	72
Write downs of intangible assets	-	3	3
Closure provisions (a)	(10)	151	240
Accelerated depreciation of assets (b)	20	-	27
Redundancy provisions (c)	21	30	61
Consultancy costs	8	-	10
Gain on lease terminations (d)	(5)	-	(16)
Profit on disposal of properties (e)	(13)	-	-
Restructuring programmes	22	259	423
Impairment of non-financial assets (f)	-	214	220
Total restructuring and impairment costs	22	473	643

a) Closure provisions relate to onerous contract costs, dilapidations and strip out costs on leased sites. These provisions have been re-assessed in the current period based on revised closure dates and settlement of lease exits.

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

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

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

e) 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.

f) Impairments recognised as part of the prior year full impairment review undertaken as a result of store rationalisation, changes in channel mix, and changes in customer borrowing and cash usage behaviour.

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 to 18 September 2021 are £(665) million split between £(643) million in the prior year and £(22) million in the current period as per the above table. Total expected costs are still in the range of £900 million to £1 billion to March 2024, with total expected cash outflows of around £300 million.

Financial Services transition and other

These comprise Financial Services transition costs of £(10) million and were incurred in transitioning to new banking platforms as part of the previously announced New Bank Programme. These principally comprise contractor and service provider costs relating to the migration of data and other services to the Bank's new infrastructure and operating model. The programme is expected to end this financial year.

Property, finance, pension and acquisition adjustments

·Profit on disposal of properties for the financial period comprised £(3) million for the Group.

·Non-underlying finance movements for the financial period comprised £23 million income for the Group. These are presented separately in note 7.

·Defined benefit pension interest and expenses comprises pension finance income of £8 million and scheme expenses of £(2) million (see note 18).

·Acquisition adjustments of £(11) million reflect the unwind of non-cash fair value adjustments arising from Home Retail Group and Nectar UK acquisitions and are recognised as follows:

	28 weeks to 18 September 2021			28 weeks to 19 September 2020			52 weeks to 6 March 2021
	Argos	Nectar	Total Group	Argos	Nectar	Total Group	Argos	Nectar	Total Group
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Cost of sales	-	-	-	1	-	1	1	-	1
Depreciation	1	-	1	1	-	1	4	-	4
Amortisation	(10)	(2)	(12)	(10)	(3)	(13)	(18)	(6)	(24)
	(9)	(2)	(11)	(8)	(3)	(11)	(13)	(6)	(19)

Comparative information

28 weeks to 19 September 2020
	Cost of sales	Administrative expenses	Other income	Net finance income/	Total adjustments before tax	Tax	Total adjustments
	Cost of sales	Administrative expenses	Other income	(costs)	Total adjustments before tax	Tax	Total adjustments
	£m	£m	£m	£m	£m	£m	£m
Restructuring programmes	(244)	(15)	-	-	(259)	45	(214)
Impairment of non-financial assets	(96)	(118)	-	-	(214)	37	(177)
Financial Services transition	-	(7)	-	-	(7)	-	(7)
Total restructuring, impairment and integration	(340)	(140)	-	-	(480)	82	(398)

Property, finance, pension and acquisition adjustments
ATM business rates reimbursement	42	-	-	-	42	(8)	34
Loss on disposal of properties	-	-	(5)	-	(5)	1	(4)
Perpetual securities coupons	-	-	-	10	10	-	10
Non-underlying finance movements	-	-	-	(2)	(2)	-	(2)
IAS 19 pension interest and expenses	-	(3)	-	11	8	(2)	6
Acquisition adjustments	-	(11)	-	-	(11)	2	(9)
Total property, finance, pension and acquisition adjustments	42	(14)	(5)	19	42	(7)	35

Tax adjustments
Under provision in prior years	-	-	-	-	-	-	-
Revaluation of deferred tax balances	-	-	-	-	-	(34)	(34)

Total adjustments	(298)	(154)	(5)	19	(438)	41	(397)

52 weeks to 6 March 2021
	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
Restructuring programmes	(342)	(81)	-	-	(423)	76	(347)
Impairment of non-financial assets	(112)	(108)	-	-	(220)	33	(187)
Financial Services transition and other	-	(17)	-	-	(17)	3	(14)
Total restructuring, impairment and integration	(454)	(206)	-	-	(660)	112	(548)

Property, finance, pension and acquisition adjustments
ATM business rates reimbursement	42	-	-	-	42	(8)	34
Profit on disposal of properties	-	-	1	-	1	7	8
Perpetual securities coupons	-	-	-	14	14	-	14
Non-underlying finance movements	-	-	-	(1)	(1)	-	(1)
IAS 19 pension (expenses)/income	-	(13)	-	19	6	(1)	5
Acquisition adjustments	-	(19)	-	-	(19)	4	(15)
Total property, finance, pension and acquisition adjustments	42	(32)	1	32	43	2	45

Tax adjustments
Derecognition of capital losses	-	-	-	-	-	(28)	(28)

Total adjustments	(412)	(238)	1	32	(617)	86	(531)

Cash flow statement

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

	28 weeks to 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Cash flows from operating activities
IAS 19 pension expenses	(2)	(3)	(7)
Financial Services transition and other	(11)	(7)	(15)
Restructuring programmes	(70)	(9)	(39)
ATM Rates reimbursement	13	12	27
Income recognised in relation to legal disputes	27	-	-
Cash used in operating activities	(43)	(7)	(34)

Cash flows from investing activities
Proceeds from property disposals¹	39	19	27
Cash generated from investing activities	39	19	27

Net cash flows	(4)	12	(7)

¹ £18 million of the current period proceeds from property disposals are a result of restructuring programmes.

ATM business rates reimbursement

£13 million of cash was received in the financial period from the Valuation Office in relation to income recognised in the prior year following the Supreme Court's ruling that ATMs outside stores should not be assessed for additional business rates on top of normal store rates.

4. Revenue

	28 weeks to 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Grocery, General Merchandise and Clothing (GM&C)	13,475	13,464	26,103
Fuel	2,036	1,251	2,514
Total retail sales	15,511	14,715	28,617

Financial Services interest receivable (using effective interest rate method)	161	176	344
Financial Services fees and commission	52	43	87
Total Financial Services income	213	219	431

Total revenue	15,724	14,934	29,048

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 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 income (note 3)			170
Profit before tax			541
Income tax expense (note 8)			(152)
Profit for the financial period			389

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	(12,687)	(5,913)	(18,600)

	Retail	Financial Services	Group
28 weeks to 19 September 2020	£m	£m	£m
Segment revenue
Retail sales to external customers	14,715	-	14,715
Financial Services to external customers	-	219	219
Revenue	14,715	219	14,934

Underlying operating profit/(loss)	555	(55)	500
Underlying finance income	2	-	2
Underlying finance costs	(201)	-	(201)
Underlying profit/(loss) before tax	356	(55)	301
Non-underlying expense (note 3)			(438)
Loss before tax			(137)
Income tax expense (note 8)			(42)
Loss for the financial period			(179)

Assets (restated)	19,027	8,051	27,078
Investment in joint ventures and associates	5	-	5
Segment assets (restated)	19,032	8,051	27,083
Segment liabilities (restated)	(12,748)	(7,148)	(19,896)

	Retail	Financial Services	Group
52 weeks to 6 March 2021	£m	£m	£m
Segment revenue
Retail sales to external customers	28,617	-	28,617
Financial Services to external customers	-	431	431
Revenue	28,617	431	29,048

Underlying operating profit/(loss)	730	(21)	709
Underlying finance income	3	-	3
Underlying finance costs	(356)	-	(356)
Underlying profit/(loss) before tax	377	(21)	356
Non-underlying expense (note 3)			(617)
Loss before tax			(261)
Income tax expense (note 8)			(19)
Loss for the financial period			(280)

Assets (restated)	17,735	7,520	25,255
Investment in joint ventures and associates	5	-	5
Segment assets (restated)	17,740	7,520	25,260
Segment liabilities (restated)	(12,038)	(6,618)	(18,656)

Refer to note 2 for details of the prior year restatements.

b. Segmented cash flow statement

		28 weeks to 18 September 2021			28 weeks to 19 September 2020
	APM	Retail	Financial Services	Group	Retail	Financial Services	Group
	reference	Retail	Financial Services	Group	Retail	Financial Services	Group

		£m	£m	£m	£m	£m	£m

Profit/(loss) before tax		534	7	541	31	(168)	(137)
Net finance costs		140	-	140	180	-	180
Operating profit		674	7	681	211	(168)	43
Adjustments for:
Depreciation and amortisation expense		649	10	659	647	14	661
Net impairment charge on property, plant and equipment, right-of-use assets and intangible assets		1	-	1	187	105	292
Non-cash adjustments arising from acquisitions		-	-	-	(1)	-	(1)
Financial Services impairment losses on loans and advances		-	35	35	-	39	39
(Profit)/loss on sale of properties and early termination of leases		(22)	-	(22)	5	2	7
Share-based payments expense		27	1	28	14	2	16
Non-cash defined benefit scheme expenses		2	-	2	3	-	3
Cash contributions to defined benefit scheme		(39)	-	(39)	(60)	-	(60)
Operating cash flows before changes in working capital		1,292	53	1,345	1,006	(6)	1,000
Movements in working capital		(59)	(195)	(254)	713	79	792
Cash generated from operations		1,233	(142)	1,091	1,719	73	1,792
Interest paid	a	(173)	(5)	(178)	(193)	-	(193)
Corporation tax paid		-	-	-	(88)	-	(88)
Net cash generated/(used) from operating activities		1,060	(147)	913	1,438	73	1,511

Cash flows from investing activities
Purchase of property, plant and equipment		(154)	-	(154)	(257)	-	(257)
Initial direct costs on new leases		(1)	-	(1)	(3)	-	(3)
Purchase of intangible assets		(144)	(21)	(165)	(33)	(11)	(44)
Proceeds from disposal of property, plant and equipment		39	-	39	19	-	19
Dividends and distributions received	e	-	-	-	22	-	22
Net cash used in investing activities		(260)	(21)	(281)	(252)	(11)	(263)

Cash flows from financing activities
Proceeds from issuance of ordinary shares	d	11	-	11	4	-	4
Proceeds from short-term borrowings	c	-	-	-	660	-	660
Repayment of borrowings	c	(223)	-	(223)	(269)	-	(269)
Repayment of short-term borrowings	c	-	-	-	(660)	-	(660)
Repayment of perpetual capital securities	c	(8)	-	(8)	(250)	-	(250)
Purchase of own shares	d	(41)	-	(41)	(30)	-	(30)
Repayment of capital element of obligations under lease liabilities	b	(242)	(1)	(243)	(223)	(1)	(224)
Dividends paid on ordinary shares		(165)	-	(165)	-	-	-
Dividends paid on perpetual securities	a	(4)	-	(4)	(20)	-	(20)
Net cash used in financing activities		(672)	(1)	(673)	(788)	(1)	(789)

Net increase/(decrease) in cash and cash equivalents		128	(169)	(41)	398	61	459

			52 weeks to 6 March 2021
	APM reference	Retail		Financial Services	Group
		£m		£m	£m

Loss before tax		(114)		(147)	(261)
Net finance costs		321		-	321
Share of post-tax loss/(profit) from joint ventures and associates		-		-	-
Operating profit		207		(147)	60
Adjustments for:
Depreciation and amortisation expense		1,226		23	1,249
Net impairment charge on property, plant and equipment, right-of-use asset, investment property and intangible assets		216		105	321
Non-cash adjustments arising from acquisitions		(1)		-	(1)
Financial Services impairment losses on loans and advances		-		85	85
(Profit)/loss on sale of properties and early termination of leases		(19)		2	(17)
Share-based payments expense		26		3	29
Non-cash defined benefit scheme expenses		13		-	13
Cash contributions to defined benefit scheme		(101)		-	(101)
Operating cash flows before changes in working capital		1,567		71	1,638
Changes in working capital
Decrease/(increase) in working capital		708		439	1,147
Cash generated from operations		2,275		510	2,785
Interest paid	a	(349)		-	(349)
Corporation tax paid/(received)		(94)		1	(93)
Net cash generated/(used) from operating activities		1,832		511	2,343

Cash flows from investing activities
Purchase of property, plant and equipment excluding strategic capital expenditure		(423)		-	(423)
Initial direct costs on new leases		(7)		-	(7)
Purchase of intangible assets		(145)		(27)	(172)
Proceeds from disposal of property, plant and equipment		27		-	27
Interest received	a	-		-	-
Dividends and distributions received	e	22		-	22
Net cash used in investing activities		(526)		(27)	(553)

Cash flows from financing activities
Proceeds from issuance of ordinary shares	d	17		-	17
Proceeds from short-term borrowings	c	660		-	660
Repayment of borrowings	c	(289)		-	(289)
Repayment of short-term borrowings	c	(660)		-	(660)
Repayment upon maturity of convertible bonds	c	-		-	-
Repayment of perpetual capital securities	c	(250)		-	(250)
Purchase of own shares	d	(30)		-	(30)
Repayment of capital element of obligations under lease liabilities	b	(499)		(2)	(501)
Dividends paid on ordinary shares		(232)		-	(232)
Dividends paid on perpetual securities	a	(23)		-	(23)
Net cash used in financing activities		(1,306)		(2)	(1,308)

Net increase in cash and cash equivalents		-		482	482

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 year 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 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m

Fixed amounts	103	89	236
Supplier rebates	33	32	55
Marketing and advertising income	45	34	83
Total supplier arrangements	181	155	374

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

	28 weeks to 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Within inventory	(5)	(7)	(5)

Within current trade receivables
Supplier arrangements due	30	32	49
Accrued supplier arrangements	49	45	37

Within current trade payables
Supplier arrangements due	23	8	32
Accrued supplier arrangements	2	3	5
Deferred income due	(1)	(1)	(2)
Total supplier arrangements	98	80	116

7. Finance income and finance costs

	28 weeks to 18 September 2021			28 weeks to 19 September 2020			52 weeks to 6 March 2021
	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	-	-	-	1	-	1	1	-	1
Fair value measurements	-	28	28	-	3	3	-	10	10
IAS 19 pension financing income	-	8	8	-	11	11	-	19	19
Finance income on net investment in leases	-	-	-	1	-	1	2	-	2
Finance Income	-	36	36	2	14	16	3	29	32



Secured borrowings	(22)	-	(22)	(29)	-	(29)	(49)	-	(49)
Unsecured borrowings	(1)	-	(1)	(1)	-	(1)	(1)	-	(1)
Lease liabilities	(149)	(4)	(153)	(163)	(5)	(168)	(295)	(10)	(305)
Provisions - amortisation of discount	-	(1)	(1)	-	-	-	(1)	(1)	(2)
Interest capitalised - qualifying assets	1	-	1	2	-	2	4	-	4
Perpetual securities coupon	-	-	-	(10)	10	-	(14)	14	-
Finance costs	(171)	(5)	(176)	(201)	5	(196)	(356)	3	(353)

Fair value remeasurements relate to net fair value movements on derivative financial instruments not designated in a hedging relationship.

8. Income tax expense

	28 weeks to 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Current year UK tax	85	(5)	16
Current year overseas tax	3	2	6
Over-provision in prior years	4	8	(12)
Total current tax expense	92	5	10

Origination and reversal of temporary differences	30	(2)	(46)
Under provision in prior years	3	5	27
Adjustment from changes in tax rates	31	(1)	-
Derecognition of capital losses	(4)	35	28
Total deferred tax expense	60	37	9

Total income tax expense in income statement	152	42	19

Analysed as:
Underlying tax	98	83	105
Non-underlying tax	54	(41)	(86)
Total income tax expense in income statement	152	42	19

Underlying tax rate	26.4%	27.6%	29.5%
Effective tax rate	28.1%	(30.7)%	(7.3)%

Tax charged within the 28 weeks ended 18 September 2021 has been calculated by applying the effective rate of tax which is expected to apply to the Group for the period ending 5 March 2022 using rates substantively enacted by 18 September 2021 as required by IAS 34 'Interim Financial Reporting'.

The effective tax rate of 28.1 per cent (28 weeks to 19 September 2020: (30.7) 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 the future tax rate change, combined with the impact of non-deductible expenses, particularly in respect of non-deductible capital expenditure, the de-recognition of previously recognised deferred tax assets on capital losses, and prior year adjustments.

A reduction in the main rate of corporation tax from 19 per cent to 17 per cent, intended to apply from 1 April 2020, was substantively enacted in a prior period and its effect was reflected in the Group's balance sheet as at 7 March 2020. A change to the corporation tax rate, so that it remained at 19 per cent rather than reducing to 17 per cent from 1 April 2020, was announced in the 2020 Budget and substantively enacted on 17 March 2020, and was reflected in the Group's balance sheet as at 6 March 2021. Furthermore, an increase in the UK corporation rate from 19 per cent to 25 per cent (effective 1 April 2023) was substantively enacted on 24 May 2021. This will increase the Group's future current tax charge accordingly. Deferred tax on temporary differences and tax losses as at the balance sheet date is calculated at the substantively enacted rates at which the temporary differences and tax losses are expected to reverse.

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 £124 million of the Group's carried forward unrestricted capital losses (6 March 2021: £162 million) have not been recognised as at 18 September 2021.

9. Earnings/(Loss) 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.

	18 September 2021	19 September 2020	6 March 2021
	million	million	million
Weighted average number of shares in issue	2,245.4	2,211.7	2,210.0
Weighted average number of dilutive share options	34.8	18.7	21.7
Weighted average number of dilutive subordinated perpetual convertible bonds	69.3	86.7	88.4
Total number of shares for calculating diluted earnings per share	2,349.5	2,317.1	2,320.1

	£m	£m	£m
Profit/(loss) for the financial period (net of tax)	389	(179)	(280)
Less profit attributable to:
Holders of perpetual convertible bonds	-	(4)	(7)
Profit/(loss) for the financial period attributable to ordinary shareholders	389	(183)	(287)

Diluted earnings/(loss) for calculating diluted earnings/(loss) per share	389	(183)	(287)

Profit/(loss) for the financial period attributable to ordinary shareholders of the parent	389	(183)	(287)
Adjusted for non-underlying items (note 3)	(170)	438	617
Tax on non-underlying items	54	(41)	(86)
Add back coupons on perpetual securities (net of tax)	-	10	14
Underlying profit after tax attributable to ordinary shareholders of the parent	273	224	258
Add coupon on subordinated perpetual convertible bonds (net of tax)	-	3	6
Diluted underlying profit after tax attributable to ordinary shareholders of the parent	273	227	264

	Pence per share	Pence per share	Pence per share
Basic earnings/(loss)	17.3	(8.3)	(13.0)
Diluted earnings/(loss)¹	16.6	(8.3)	(13.0)
Underlying basic earnings	12.2	10.1	11.7
Underlying diluted earnings	11.6	9.8	11.4

1 Basic and diluted loss per share are the same in the 28 weeks to 19 September 2020 and 52 weeks to 6 March 2021 as the dilutive share options and their respective earnings adjustments are anti-dilutive.

10. Dividends

	28 weeks to 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
Amounts recognised as distributions to ordinary shareholders in the year:
Dividend per share (pence)	7.4	-	10.5
Total dividend charge (£m)	165	-	232

An interim dividend of 3.2 pence per share (19 September 2020: 3.2 pence per share), has been approved by the Board of Directors for the financial year ending 5 March 2022, resulting in an interim dividend of £74 million (19 September 2020: £71 million). The interim dividend was approved by the Board on 3 November 2021 and as such has not been included as a liability at 18 September 2021.

In the prior year the Board chose in April 2020, due to limited visibility at the time on the potential impact of COVID-19 on the business, to defer dividend payment decisions and did not pay a final dividend for the 2019/20 financial year. Subsequently, the Board chose to pay a special dividend in lieu of a final dividend for the 2019/20 financial year that was approved by the Board of Directors on 4 November 2020.

11. Property, plant and equipment

	28 weeks to 18 September 2021	52 weeks to 6 March 2021	28 weeks to 19 September 2020 (restated)
	£m	£m	£m
Net book value
At the beginning of the period	8,587	8,949	8,949
Additions	151	419	230
Disposals	-	(40)	(20)
Depreciation charge	(321)	(629)	(331)
Impairment charge	-	(88)	(69)
Transfer to assets held for sale	-	(24)	-
At the end of the period	8,417	8,587	8,759

The net book value of property, plant and equipment comprises land & buildings of £6,831 million (6 March 2021: £6,862 million; 19 September 2020: £6,938 million); and fixtures & fittings of £1,586 million (6 March 2021: £1,725 million; 19 September 2020: £1,821 million).

At 18 September 2021, capital commitments contracted, but not provided for by the Group, amounted to £165 million (6 March 2021: £112 million; 19 September 2020: £113 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 18 September 2021 and concluded that there are none.

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

12. Leases

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

	28 weeks to 18 September 2021	52 weeks to 6 March 2021	28 weeks to 19 September 2020
	£m	£m	£m
At the beginning of the period	4,747	4,826	4,826
New leases and modifications	736	542	363
Impairment charge	(1)	(137)	(128)
Depreciation charge	(260)	(484)	(265)
At the end of the period	5,222	4,747	4,796

Included within the above are land and buildings with a net book value of £4,916 million (6 March 2021: £4,414 million; 19 September 2020: £4,496 million), and equipment with a net book value of £306 million (6 March 2021: £333 million; 19 September 2020: £300 million).

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

	28 weeks to 18 September 2021	52 weeks to 6 March 2021	28 weeks to 19 September 2020
	£m	£m	£m
At the beginning of the period	5,834	5,774	5,774
New leases and modifications	731	561	357
Interest expense	153	305	168
Payments	(396)	(806)	(392)
At the end of the period	6,322	5,834	5,907


Current	558	524	538
Non-current	5,764	5,310	5,369

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. This year includes the impact of exercising purchase options on 13 leased supermarkets held by a property investment pool in which the Group holds an interest. The purchase options were not included within the lease liabilities at inception of the lease as the Group was not reasonably certain to exercise them. Following the exercise of the options, the respective lease liabilities have been remeasured to include the assumed purchase price, leading to an increase in lease liabilities with a corresponding increase to the right-of-use asset. The purchases will be completed in the financial year ended 2 March 2024 when the existing leases end.

The purchase price is subject to negotiation and at the half-year had not yet been agreed. Therefore to remeasure the lease liability, the purchase price has been estimated based on up to date property valuations carried out by independent valuers not connected with the Group. The lease liabilities (and right-of-use assets) may be subsequently adjusted as the property valuations change, and when purchase prices are agreed. This is not considered a significant estimate in line with IAS 1 "Presentation of financial statements".

Guarantee in relation to property pool

When the properties are sold by the property investment pool in the financial year ended 2 March 2024, the proceeds will be used to settle bonds issued by the structure. The Group has previously issued a financial guarantee in relation to this, which is triggered if there is a shortfall in the property proceeds and the bonds cannot be fully repaid. The guarantee is up to £300 million.

The current property valuations indicate that there is significant headroom and therefore no shortfall.

In the event of a delay in the property negotiations, meaning the bond repayment is due before the properties have been sold, the guarantee will be called upon in full. In such an event, once the properties are sold, Sainsbury's will recover the guarantee payment in full from the property proceeds.

Income statement disclosures

The following are the amounts recognised in profit or loss:

	28 weeks to 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Depreciation of right-of-use assets	(260)	(265)	(484)
Impairment of right-of-use assets	(1)	(128)	(137)
Interest on lease liabilities	(153)	(168)	(305)
Variable lease payments not included in the measurement of lease liabilities	(1)	(1)	(1)
Finance income from sub-leasing of right-of-use assets	-	1	2
Operating sublet income	29	17	42
Expenses relating to short term leases	(18)	(19)	(33)
Expenses relating to leases of low value assets	(1)	(1)	(2)
Total amount recognised in profit or loss	(405)	(564)	(918)

Total cash outflow for leases (excluding sublease income)	(416)	(412)	(841)

Maturity analysis

	28 weeks to 18 September 2021	52 weeks to 6 March 2021	28 weeks to 19 September 2020
	£m	£m	£m
Contractual undiscounted cash flows
Less than one year	826	748	857
One to two years	1,303	716	809
Two to three years	649	643	707
Three to four years	594	594	632
Four to five years	564	547	590
Total less than five years	3,936	3,248	3,595
Five to ten years	2,443	2,420	2,496
Ten to fifteen years	2,065	2,078	2,144
More than fifteen years	3,500	3,706	3,678
Total undiscounted lease liability	11,944	11,452	11,913
Lease liabilities included in the statement of financial position	6,322	5,834	5,907
Current	558	524	538
Non-current	5,764	5,310	5,369

13. Intangible assets

	28 weeks to 18 September 2021	52 weeks to 6 March 2021	28 weeks to 19 September 2020 (restated)
	£m	£m	£m
Net book value
At the beginning of the period	914	974	974
Additions	165	172	64
Disposals	-	-	(20)
Amortisation charge	(78)	(136)	(65)
Impairment charge	-	(96)	(95)
At the end of the period	1,001	914	858

The net book value of goodwill and intangible assets predominantly comprises goodwill of £366 million (6 March 2021: £366 million; 19 September 2020: £367 million), software assets of £541 million (6 March 2021: £442 million; 19 September 2020: £374 million), acquired brands of £91 million (6 March 2021: £102 million; 19 September 2020: £111 million) and customer relationships of £3 million (6 March 2021: £4 million; 19 September 2020: £6 million).

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

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 18 September 2021
Cash and cash equivalents	1,636	-	-	1,636
Trade and other receivables	589	-	-	589
Amounts due from Financial Services customers and banks	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)

	Amortised cost	Fair value through OCI	Fair value through profit or loss	Total
	£m	£m	£m	£m
At 6 March 2021 (restated)
Cash and cash equivalents	1,575	-	-	1,575
Trade and other receivables	609	-	-	609
Amounts due from Financial Services customers	5,407	-	-	5,407
Financial assets at fair value through other comprehensive income	-	844	-	844
Trade and other payables	(4,102)	-	-	(4,102)
Current borrowings	(356)	-	-	(356)
Non-current borrowings	(748)	-	-	(748)
Amounts due to Financial Services customers and banks	(6,289)	-	-	(6,289)
Derivative financial instruments	-	-	(124)	(124)
Lease liabilities	(5,834)	-	-	(5,834)
	(9,738)	844	(124)	(9,018)

	Amortised cost	Fair value through OCI	Fair value through profit or loss	Total
	£m	£m	£m	£m
At 19 September 2020 (restated)
Cash and cash equivalents	1,957	-	111	2,068
Trade and other receivables	453	-	190	643
Amounts due from Financial Services customers	6,192	-	-	6,192
Financial assets at fair value through other comprehensive income	-	924	-	924
Trade and other payables	(4,332)	-	-	(4,332)
Current borrowings	(872)	-	-	(872)
Non-current borrowings	(772)	-	-	(772)
Amounts due to Financial Services customers and banks	(6,810)	-	-	(6,810)
Derivative financial instruments	-	-	(66)	(66)
Lease liabilities	(5,907)	-	-	(5,907)
	(10,091)	924	235	(8,932)

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

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 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 due 2023	(180)	(181)
Amounts due to Financial Services customers and banks	(5,614)	(5,617)

	Carrying amount	Fair value
At 6 March 2021	£m	£m
Financial assets
Amounts due from Financial Services customers and banks	5,407	5,418

Financial liabilities
Loans due 2031	(627)	(761)
Bank loans due 2021	(199)	(199)
Tier 2 Capital due 2023	(179)	(183)
Amounts due to Financial Services customers and banks	(6,289)	(6,298)

	Carrying amount	Fair value
At 19 September 2020	£m	£m
Financial assets
Amounts due from Financial Services customers	6,192	6,235

Financial liabilities
Loans due 2031	(649)	(791)
Bank loans due 2021	(200)	(200)
Tier 2 Capital due 2023	(180)	(179)
Amounts due to Financial Services customers and banks	(6,810)	(6,820)

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 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 1	Level 2	Level 3	Total
At 6 March 2021	£m	£m	£m	£m
Financial instruments at fair value through other comprehensive income
Interest bearing financial assets	-	1	-	1
Other financial assets	-	15	291	306
Investment securities	537	-	-	537

Derivative financial assets	-	7	6	13

Derivative financial liabilities	-	(137)	-	(137)

	Level 1	Level 2	Level 3	Total
At 19 September 2020	£m	£m	£m	£m
Financial instruments at fair value through other comprehensive income
Interest bearing financial assets	-	1	-	1
Other financial assets	-	14	265	279
Investment securities	644	-	-	644

Derivative financial assets	-	30	2	32

Derivative financial liabilities	-	(98)	-	(98)

Level 3 Financial assets

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

	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

	Financial instruments at FVTOCI	Commodity derivatives	Total
	£m	£m	£m
At 8 March 2020	237	(3)	234
In finance income in the Group income statement	-	9	9
In other comprehensive income	54	-	54
At 6 March 2021	291	6	297

	Financial instruments at FVTOCI	Commodity derivatives	Total
	£m	£m	£m
At 8 March 2020	237	(3)	234
In finance income in the Group income statement	-	5	5
In other comprehensive income	28	-	28
At 19 September 2020	265	2	267

Level 3 other financial assets

Other level 3 financial assets relate to the Group's beneficial interest in a property investment pool. The net present value of the Group's interest in the various freehold reversions owned by the property investment pool has been derived by assuming a property growth rate of zero per cent per annum (6 March 2021: zero per cent ; 19 September 2020: zero per cent) and a discount rate of seven per cent (6 March 2021: seven per cent; 19 September 2020: eight per cent). The sensitivity of this balance to changes of one per cent in the assumed rate of property rental growth and one per cent in the discount rate holding other assumptions constant is shown below:

	18 September 2021		6 March 2021
	Change in discount rate	Change in growth rate	Change in discount rate	Change in growth rate
	+/- 1.0%	+/- 1.0%	+/- 1.0%	+/- 1.0%
	£m	£m	£m	£m
Financial assets	(6)/6	8/(8)	(6)/6	9/(9)

	19 September 2020
	Change in discount rate	Change in growth rate
	+/- 1.0%	+/- 1.0%
	£m	£m
Financial assets	(7)/7	10/(10)

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 £35 million relating to these agreements at 18 September 2021 (at 19 September 2020: £2 million; at 6 March 2021: £6 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:

18 September 2021

6 March 2021

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

Derivative financial instruments

7/(7)

14/(14)

1/(1)

7/(7)

19 September 2020

Change in

volume

+/- 20.0%

Change in

electricity forward price

+/- 20.0%

£m

Derivative financial instruments

0/(1)

6/(8)

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:

	18 September	6 March	19 September
	2021	2021	2020
	£m	£m	£m
Non-current
Loans and advances to customers	2,100	2,332	2,890
Impairment of loans and advances	(51)	(52)	(78)
	2,049	2,280	2,812

Current
Loans and advances to customers¹	3,094	3,338	3,608
Impairment of loans and advances	(192)	(211)	(228)
	2,902	3,127	3,380

Loan commitment provisions	(16)	(16)	(22)
Total impairment provisions for loans and advances to customers and loan commitments	(259)	(279)	(328)
Impairment provisions as a percentage of loans and advances to customers	5.0%	4.9%	5.1%

¹Excludes £71 million of amounts due from banks as at 18 September 2021 (6 March 2021: £nil; 19 September 2020: £nil).

The ECL models utilise four scenarios including a 'base case' scenario considered to be the most likely outcome together with an upside, downside and severe downside scenario. The base case has been assigned a probability weighting of 40% with the upside, downside and severe downside scenarios weighted 30%, 25%, 5% respectively.

The weighted economic measures from the scenarios are as follows:

	As 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

	As at 6 March 2021
5-year average	Base	Upside	Downside	Severe Downside
Unemployment rate	5.2	4.5	6.4	8.2
Consumer price growth	1.8	1.9	1.7	1.6
GDP	3.1	4.0	2.7	2.3
Mortgage debt as a percentage of household income	101.6	100.6	102.0	102.4
Real household disposable income	1.9	2.2	1.7	1.4
Probability weighting	40	30	25	5

Due to the unique nature of the COVID-19 pandemic and the UK government actions to support businesses and employees, the ECL models did not respond appropriately to updated economic forecasts as at 19 September 2020. The multiple economic scenarios applied to the modelled outputs at that time reflected an assessment of economic uncertainty prior to COVID-19, with the expected increased credit losses resulting from COVID-19 calculated separately under a range of scenarios which were then risk weighted and applied as an overlay to the IFRS 9 models. Since then the Group has worked to revise its ECL models so as to respond more appropriately to economics scenarios as impacted by COVID-19, incorporating at 18 September 2021 and 6 March 2021 those detailed above. The Group has not presented the scenarios included in the models at 19 September 2020 due to a lack of comparability given the approach at that time.

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
	18 September 2021 £m	6 March 2021 £m
Closing ECL allowance	259	279
Base scenario	(3)	(1)
Upside scenario	(9)	(14)
Downside scenario	12	13
Severe Downside scenario	30	29

The COVID-19 pandemic continues to have a significant impact on the global economy with the full impact unlikely to be known for some time, with the Coronavirus Job Retention Scheme and other Government support distorting historic data upon which ECL models have been developed.

The forecasted level of unemployment has reduced since the year end, however significant arrears emergence has yet to be observed in the lending portfolio. Therefore, the Group continues to hold a post model adjustment (PMA) for the potential impact of COVID-19 and the inherent uncertainty in arrears emergence. The PMA for COVID-19 is £33 million (£40 million at 6 March 2021) with the reduction relating to improvements made to the models to improve their responsiveness to extreme economic shifts and to reflect the overall improvement in the economic environment.

15. Analysis of net debt

The Group's definition of net debt includes the capital injections to Sainsbury's Bank, but excludes the net debt of Sainsbury's Bank and its subsidiaries (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
	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 (restated)	546	230	-	-	-	-	776
Bank overdrafts (restated)	(99)	(102)	-	-	-	-	(201)
Retail net debt (excluding perpetual securities) (restated)	(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 debt	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 (restated)	1,575	61	-	-	-	-	1,636
Bank overdrafts (restated)	(99)	(102)	-	-	-	-	(201)
Group net debt (excluding perpetual securities)	(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)

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.

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

		Cash Movements		Non-Cash Movements
	8 March 2020	Cash flows excluding interest	Net interest (received) / paid	Accrued Interest	Other non-cash movements	Changes in fair value	19 September 2020
	£m	£m	£m	£m	£m	£m	£m
Retail
Net derivative financial instruments	(15)	-	3	(3)	2	(3)	(16)
Borrowings (excluding overdrafts)	(1,116)	269	22	(24)	-	-	(849)
Lease liabilities	(5,768)	223	168	(168)	(356)	-	(5,901)
Arising from financing activities	(6,899)	492	193	(195)	(354)	(3)	(6,766)

Financial assets at fair value through other comprehensive income	1	-	-	-	-	-	1
Cash and cash equivalents (restated)	506	954	-	-	-	-	1,460
Bank overdrafts (restated)	(59)	(556)	-	-	-	-	(615)
Retail net debt (excluding perpetual securities) (restated)	(6,451)	890	193	(195)	(354)	(3)	(5,920)

Financial Services
Net derivative financial instruments	4	-	-	-	-	(6)	(2)
Bank overdrafts	-	-	-	-	-	-	-
Borrowings (excluding overdrafts)	(180)	-	-	-	-		(180)
Lease liabilities	(6)	1	-	-	(1)	-	(6)
Arising from financing activities	(182)	1	-	-	(1)	(6)	(188)

Financial assets at fair value through other comprehensive income	802	(159)	-	-	-	1	644
Cash and cash equivalents	547	61	-	-	-	-	608
Financial services net debt	1,167	(97)	-	-	(1)	(5)	1,064

Group
Net derivative financial instruments	(11)	-	3	(3)	2	(9)	(18)
Borrowings (excluding overdrafts)	(1,296)	269	22	(24)	-	-	(1,029)
Lease liabilities	(5,774)	224	168	(168)	(357)	-	(5,907)
Arising from financing activities	(7,081)	493	193	(195)	(355)	(9)	(6,954)

Financial assets at fair value through other comprehensive income	803	(159)	-	-	-	1	645
Cash and cash equivalents (restated)	1,053	1,015	-	-	-	-	2,068
Bank overdrafts (restated)	(59)	(556)	-	-	-	-	(615)
Group net debt (excluding perpetual securities) (restated)	(5,284)	793	193	(195)	(355)	(8)	(4,856)

Retail net debt (excluding perpetual securities)	(6,451)	890	193	(195)	(354)	(3)	(5,920)
Perpetual capital securities	(248)	250	-	-	(2)	-	-
Perpetual convertible bonds	(248)	-	-	-	-	-	(248)
Retail net debt (including perpetual securities)	(6,947)	1,140	193	(195)	(356)	(3)	(6,168)

Of which:
Leases	(5,768)						(5,901)
Net debt excluding lease liabilities	(1,179)						(267)

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

		Cash Movements		Non-Cash Movements
	8 March 2020	Cash flows excluding interest	Net interest (received) / paid	Accrued Interest	Other non-cash movements	Changes in fair value	6 March 2021
	£m	£m	£m	£m	£m	£m	£m
Retail
Net derivative financial instruments	(15)	-	6	(5)	5	(5)	(14)
Borrowings (excluding overdrafts)	(1,116)	289	38	(37)	-	-	(826)
Lease liabilities	(5,768)	499	305	(305)	(560)	-	(5,829)
Arising from financing activities	(6,899)	788	349	(347)	(555)	(5)	(6,669)

Financial assets at fair value through other comprehensive income	1	-	-	-	-	-	1
Cash and cash equivalents (restated)	506	40	-	-	-	-	546
Bank overdrafts (restated)	(59)	(40)	-	-	-	-	(99)
Retail net debt (excluding perpetual securities) (restated)	(6,451)	788	349	(347)	(555)	(5)	(6,221)

Financial Services
Net derivative financial instruments	4	-	-	-	-	(4)	-
Bank overdrafts	-	-	-	-	-	-	-
Borrowings (excluding overdrafts)	(180)	-	-	-	-	1	(179)
Lease liabilities	(6)	2	-	-	(1)	-	(5)
Arising from financing activities	(182)	2	-	-	(1)	(3)	(184)

Financial assets at fair value through other comprehensive income	802	(267)	-	-	-	2	537
Cash and cash equivalents	547	482	-	-	-	-	1,029
Financial services net debt	1,167	217	-	-	(1)	(1)	1,382


Group
Net derivative financial instruments	(11)	-	6	(5)	5	(9)	(14)
Borrowings (excluding overdrafts)	(1,296)	289	38	(37)	-	1	(1,005)
Lease liabilities	(5,774)	501	305	(305)	(561)	-	(5,834)
Arising from financing activities	(7,081)	790	349	(347)	(556)	(8)	(6,853)

Financial assets at fair value through other comprehensive income	803	(267)	-	-	-	2	538
Cash and cash equivalents (restated)	1,053	522	-	-	-	-	1,575
Bank overdrafts (restated)	(59)	(40)	-	-	-	-	(99)
Group net debt (excluding perpetual securities) (restated)	(5,284)	1,005	349	(347)	(556)	(6)	(4,839)

Retail net debt (excluding perpetual securities)	(6,451)	788	349	(347)	(555)	(5)	(6,221)
Perpetual capital securities	(248)	250	-	-	(2)	-	-
Perpetual convertible bonds	(248)	-	-	-	-	-	(248)
Retail net debt (including perpetual securities)	(6,947)	1,038	349	(347)	(557)	(5)	(6,469)

Of which:
Leases	(5,768)						(5,829)
Net debt excluding lease liabilities	(1,179)						(640)

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

Reconciliation of net cash flow to movement in net debt

	28 weeks to 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Opening net debt	(6,469)	(6,947)	(6,947)

Cash flow movements
Net (decrease)/increase in cash and cash equivalents (including overdrafts)	(41)	459	482
Elimination of Financial Services movement in cash and cash equivalents	169	(61)	(482)
Repayment of perpetual capital securities	8	250	250
Repayment of Retail borrowings	223	269	289
Repayment of Retail lease obligations	242	223	499
Net interest paid on components of Retail net debt	173	193	349
Changes in net debt resulting from cash flow	774	1,333	1,387

Non-cash movements
Accrued interest	(173)	(195)	(347)
Retail fair value and other non-cash movements	(477)	(359)	(562)
Changes in net debt resulting from non-cash movements	(650)	(554)	(909)

Movement in net debt	124	779	478

Closing net debt	(6,345)	(6,168)	(6,469)

16. Borrowings

	28 weeks to 18 September 2021			52 weeks to 6 March 2021
	Current	Non-current	Total	Current	Non-current	Total
	£m	£m	£m	£m	£m	£m
Loan due 2031	57	545	602	55	572	627
Bank overdrafts (restated)	201	-	201	99	-	99
Bank loans due 2021	-	-	-	199	-	199
Sainsbury's Bank Tier 2 Capital due 2023	3	177	180	3	176	179
Total borrowings (restated)	261	722	983	356	748	1,104

	28 weeks to 19 September 2020
	Current	Non-current	Total
	£m	£m	£m
Loan due 2031	53	596	649
Bank overdrafts (restated)	615	-	615
Bank loans due 2021	200	-	200
Sainsbury's Bank Tier 2 Capital due 2023	4	176	180
Total borrowings (restated)	872	772	1,644

The bank loan due 2021 was repaid in full on 9 August 2021.

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

Available facilities

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 18 September 2021 (6 March 2021: nil; 19 September 2020: nil).

17. Cash and cash equivalents

Cash and cash equivalents comprise the following:

	28 weeks to 18 September 2021	52 weeks to 6 March 2021	28 weeks to 19 September 2020
		restated	restated
	£m	£m	£m
Cash in hand and bank balances	508	325	1,076
Money market funds and deposits	579	398	580
Deposits at central banks	549	852	412
Cash and bank balances as reported in the Group balance sheet	1,636	1,575	2,068

Bank overdrafts (within current borrowings)	(201)	(99)	(615)
Net cash and cash equivalents as reported in the Group cash flow statement	1,435	1,476	1,453

Of the above balance, £19 million (6 March 2021: £20 million; 19 September 2020: £22 million) was restricted as at the period-end. Of the £19 million (6 March 2021: £20 million; 19 September 2020: £22 million) restricted cash, £16 million (6 March 2021: £17 million; 19 September 2020: £17 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 £2 million (6 March 2021: £3 million; 19 September 2020: £2 million) is restricted for insurance purposes.

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

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
At 18 September 2021	1,682	752	779	5,022	(4,584)	(5,614)	(382)
At 6 March 2021	1,625	844	775	5,407	(4,508)	(6,289)	(470)
Balance sheet movement	(57)	92	(4)	385	76	(675)	(88)
Fair value movements	-	38	-	-	-	-	-
Reclassification to other lines in the cash flow statement	-	-	-	-	15	-	-
Amortisation of discounts	-	-	-	-	-	-	(1)
Financial Services ECL impairments	-	-	-	(35)	-	-	-
Movement in capital accruals	-	-	-	-	4	-	-
Other	-	-	(2)	-	-	-	(2)
Movement shown in cash flow statement	(57)	130	(6)	350	95	(675)	(91)

	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
At 19 September 2020	1,635	924	800	6,192	(4,703)	(6,810)	(377)
At 7 March 2020	1,732	1,054	854	7,404	(4,286)	(8,094)	(197)
Balance sheet movement	97	130	54	1,212	417	(1,284)	180
Fair value movements	-	29	-	-	-	-	-
Reclassification to other lines in the cash flow statement	-	-	-	-	(31)	-	-
Financial Services ECL impairments	-	-	-	(39)	-	-	-
Dividends received from JVs	-	-	(18)	-	-	-	-
Movement in capital accruals	-	-	-	-	31	-	-
Other	-	-	22	-	(8)	-	-
Movement shown in cash flow statement	97	159	58	1,173	409	(1,284)	180

	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
At 6 March 2021	1,625	844	775	5,407	(4,508)	(6,289)	(470)
At 7 March 2020	1,732	1,054	854	7,404	(4,286)	(8,094)	(197)
Balance sheet movement	107	210	79	1,997	222	(1,805)	273
Fair value movements	-	57	-	-	-	-	-
Hedge adjustment to inventory	10	-	-	-	-	-	-
Reclassification to other lines in the cash flow statement	-	-	-	-	80	-	-
Dividends received from JVs	-	-	(18)	-	-	-	-
Financial Services ECL impairments	-	-	-	(85)	-	-	-
Movement in capital accruals	-	-	-	-	8	-	-
Other	-	-	1	-	11	-	-
Movement shown in cash flow statement	117	267	62	1,912	321	(1,805)	273

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

	28 weeks to 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
(Profit)/loss on disposal of properties (note 3)	(3)	5	(1)
Non underlying gain on early termination of leases (note 3)	(5)	-	(16)
Profit on disposal of properties within restructuring programmes (note 3)	(13)	-	-
Underlying gain on early termination of leases	(1)	-	-
Financial services loss on disposal of property, plant and equipment (note 5b)	-	2	-
(Profit)/loss on sale of properties and early termination of leases	(22)	7	(17)

18. Retirement benefit obligations

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

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

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

The amounts recognised in the balance sheet are as follows:

	18 September 2021			6 March 2021
	Sainsbury's	Argos	Group	Sainsbury's	Argos	Group
	£m	£m	£m	£m	£m	£m
Present value of funded obligations	(9,352)	(1,488)	(10,840)	(8,808)	(1,410)	(10,218)
Fair value of plan assets	10,394	1,574	11,968	9,596	1,404	11,000
Retirement benefit surplus/(deficit)	1,042	86	1,128	788	(6)	782
Present value of unfunded obligations	(23)	(18)	(41)	(21)	(17)	(38)
Retirement benefit surplus/(deficit)	1,019	68	1,087	767	(23)	744

	19 September 2020
	Sainsbury's	Argos	Group
	£m	£m	£m
Present value of funded obligations	(9,043)	(1,457)	(10,500)
Fair value of plan assets	10,072	1,478	11,550
Retirement benefit surplus	1,029	21	1,050
Present value of unfunded obligations	(21)	(17)	(38)
Retirement benefit surplus	1,008	4	1,012

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

	18 September	6 March	19 September
	2021	2021	2020
	%	%	%
Discount rate	1.75	1.95	1.60
Inflation rate - RPI	3.40	3.15	2.90
Inflation rate - CPI	2.70	2.45	1.90
Future pension increases	2.25 - 3.30	2.15 - 3.10	1.80 - 2.85

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

	18 September 2021	6 March 2021	19 September 2020
	£m	£m	£m
Excluded from underlying profit before tax:
Interest cost on pension liabilities	(106)	(163)	(88)
Interest income on plan assets	114	182	99
Total included in finance income/(costs)	8	19	11
Defined benefit pension scheme expenses	(2)	(7)	(3)
Past service cost	-	(6)	-
Total excluded from underlying profit before tax	6	6	8
Total income statement credit	6	6	8

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

	18 September 2021	6 March 2021	19 September 2020
	£m	£m	£m
The movements in the Groups net defined benefit obligations are as follows:
As at the beginning of the period	744	1,119	1,119
Net interest income	8	19	11
Remeasurement gains/(losses)	298	(482)	(175)
Pension scheme expenses	(2)	(7)	(3)
Contributions by employer	39	101	60
Past service charge	-	(6)	-
As at the end of the period	1,087	744	1,012

Cash contributions

Cash contributions for the full year are expected to be approximately £76 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	Return
Global equity USD return	2.91%
Global High Yield Debt USD return	1.30%
US loans USD return	0.94%
UK REITS GBP return	9.08%

The roll-forward has increased the valuation of illiquid assets by £33 million. A 1% increase/decrease in the indices used would have caused a £8 million increase/decrease in the adjustment.

Sensitivities

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

	Sainsbury's	Argos	Total
	£m	£m	£m
An increase of 0.5% in the discount rate would decrease the present value of funded obligations by	(836)	(146)	(982)
A decrease of 0.5% in the discount rate would increase the present value of funded obligations by	957	168	1,125
An increase of 0.5% in the inflation rate would increase the present value of funded obligations by	542	131	673
A decrease of 0.5% in the inflation rate would decrease the present value of funded obligations by	(579)	(129)	(708)
An increase of 0.5% in the inflation rate for future pension increases would increase the present value of funded obligations by	316	104	420
A decrease of 0.5% in the inflation rate for future pension increases would increase the present value of funded obligations by	(395)	(107)	(502)
An increase of one year to the life expectancy would increase the present value of funded obligations by	368	57	425

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 2021.

Transactions with joint ventures and associates

For the 28 weeks to 18 September 2021, the Group entered into various transactions with joint ventures and associates as set out below:

	28 weeks to 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Services and loans provided to joint ventures
Dividends and distributions received	-	4	4
Rental expenses paid	(3)	(3)	(6)

Balances arising from transactions with joint ventures and associates

18 September

2021

19 September 2020

6 March

2021

£m

Other payables

(1)

(2)

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 8,500 equal pay claims from circa 4,430 claimants, in which the claimants are alleging that their work within Sainsbury's stores is 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 may be served.

Typically, claims of this nature can take many years to be determined. Given that the claims against the Group are still at a relatively early stage and the outcome of such claims is highly uncertain at this stage, the Group cannot make any assessment of the likelihood nor quantum of any outcome. No provision has therefore been recognised on the Group's balance sheet. There are substantial factual and legal defences to these claims and the Group intends to defend them vigorously.

Principal risks and uncertainties

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

· Business continuity, operational resilience and major incidents response

· Business strategy and change

· Colleague engagement, retention and capability

· Customer

· Data security

· Environment and sustainability

· Financial and treasury

· Health and safety

· Political and regulatory environment

· Product safety and sourcing

· Sainsbury's Bank

· Trading environment and competitive landscape

The Group expanded the Environment and sustainability Principal Risk to include climate-related risks, which reflects how these are monitored and reported within the business. These were previously referenced across a number of the Group's principal risks. As such, the gross and net position of this risk have regressed.

The Group continues to monitor and respond to any potential disruption in its supply chains in response to the impact of COVID-19 globally and Brexit.

Aside from the Environment and sustainability Principal Risk, the others remain unchanged from those reported in the Group's Annual Report and Financial Statements 2021. For more information on these risks, please refer to pages 32 to 43 of the J Sainsbury plc Annual Report and Financial Statements 2021, 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 2021.

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

3 November 2021

Kevin O'Byrne

Chief Financial Officer

3 November 2021

INDEPENDENT REVIEW REPORT TO J SAINSBURY PLC

Introduction

We have been engaged by the J Sainsbury plc (the Company) to review the condensed set of financial statements in the interim financial report for the 28 week period ended 18 September 2021 which comprises of 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 18 September 2021 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 and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. 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 will be 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".

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.

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 conclusion is 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 and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Ernst & Young LLP

London

3 November 2021

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 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 impact on sales of stores which were temporarily closed due to COVID-19 have been included within LFL sales. Only permanently closed sites and those temporarily closed for non COVID-19 related reasons are treated as non LFL.

The measure is used widely in the retail industry as an indicator of current trading performance and is useful when comparing growth between retailers that have different profiles of expansion, disposals and closures.

The reported retail like-for-like sales growth of 0.3 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 18 September 2021. See movements below:	28 weeks to 18 September 2021	28 weeks to 19 September 2020
Retail like-for-like (exc. Fuel, inc. VAT)	0.3%	6.9%
Underlying net new space impact	(0.1)%	0.2%
Retail sales growth (exc. Fuel, inc. VAT)	0.2%	7.1%
Fuel impact	5.8%	(8.5)%
Total retail sales growth (inc. fuel, inc. VAT)	6.0%	(1.4)%
VAT impact	(0.6)%	0.8%
Total retail sales growth per note 4	5.4%	(0.6)%

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 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Group PBT (note 5a)	541	(137)	(261)
(Less)/Add back Group non-underlying items (note 3)	(170)	438	617
Group UPBT	371	301	356
Financial Services underlying operating loss/(profit)	(19)	55	21
Retail underlying profit before tax	352	356	377
Net underlying finance costs	171	199	353
Retail underlying operating profit	523	555	730

Retail sales (note 5a)	15,511	14,715	28,617
Retail underlying operating margin	3.37%	3.77%	2.55%

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 18 September 2021	28 weeks to 19 September 2020
	£m	£m
Retail underlying operating profit	523	555
Add: Retail depreciation and amortisation expense	649	647
Less: Non-underlying depreciation and amortisation	(31)	(12)
Retail underlying EBITDA	1,141	1,190

Retail sales (note 5a)	15,511	14,715
Retail underlying EBITDA margin	7.36%	8.08%

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:

· Perpetual securities coupons - these are accounted for as equity in line with IAS 32 'Financial instruments: Presentation', however are accrued on a straight-line basis and included as an expense within underlying profit as they are included by management when assessing Group borrowings. These are now £nil following the redemption of the perpetual convertible bond during the year.

· 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 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	Ref	£m	£m	£m
Net interest paid	a	(177)	(213)	(372)
Repayment of lease liabilities	b	(242)	(223)	(499)
Repayment of borrowings	c	(231)	(519)	(539)
Other	d	(30)	(26)	(13)
Dividends and distributions received	e	-	22	22

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 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Cash generated from retail operations	1,233	1,719	2,275
Net interest paid (ref (a) above)	(177)	(213)	(372)
Corporation Tax	-	(88)	(94)
Retail purchase of property, plant and equipment	(154)	(257)	(423)
Retail purchase of intangibles assets	(144)	(33)	(145)
Retail proceeds from disposal of property, plant and equipment	39	19	27
Initial direct costs on right-of-use assets	(1)	(3)	(7)
Repayments of obligations under leases	(242)	(223)	(499)
Dividends and distributions received	-	22	22
Retail free cash flow	554	943	784

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 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Retail working capital movements per cash flow (note 5)	(59)	713	708

Adjustments for:
Retail non-underlying impairment charges (note 5)	1	187	216
Non-underlying restructuring and impairment charges (note 3)	(22)	(473)	(643)
Accelerated depreciation (note 3)	20	-	27
Less: Bank impairment charges (note 3)	-	105	105
Gains on early termination of leases (note 3)	(5)	-	(16)
Profit on disposal of properties within restructuring programme (note 3)	(13)	-	-
ATM income (note 3)	-	42	42
Income recognised in relation to legal disputes (note 3)	181	-	-
Other	2	-	2
Non-underlying working capital movements before cash movements	164	(139)	(267)

Non-underlying cash movements:
Restructuring (note 3)	70	9	39
ATM income (note 3)	(13)	(12)	(27)
Income recognised in relation to legal disputes (note 3)	(27)	-	-
Retail non-underlying operating cash flows (excluding pensions)	30	(3)	12

Total adjustments for non-underlying working capital	194	(142)	(255)

Underlying working capital movements	135	571	453

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 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Retail cash generated from operating activities (note 5)	1,060	1,438	1,832
Perpetual security coupons	(4)	(20)	(23)
Adjusted net cash generated from operating activities	1,056	1,418	1,809

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 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Purchase of property, plant and equipment	(154)	(257)	(423)
Purchase of intangibles	(144)	(33)	(145)
Cash capital expenditure	(298)	(290)	(568)

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 18 September 2021	28 weeks to 19 September 2020	52 weeks to 6 March 2021
	£m	£m	£m
Financial instruments at FVTOCI per balance sheet	752	924	844
Less: equity related securities	(346)	(279)	(306)
Financial instruments at FVTOCI included in net debt	406	645	538
Net derivatives per balance sheet	13	(66)	(124)
Less: derivatives not used to hedge borrowings	(13)	48	110
Derivatives included in net debt	-	(18)	(14)

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
	18 September	19 September	6 March
	2021	2020	2021
	£m	£m	£m
Underlying profit before tax	426	649	356
Add: Underlying net interest	325	380	353
Return	751	1,029	709
Capital employed is reconciled as follows:
	52 weeks to	52 weeks to	52 weeks to
	18 September	19 September	6 March
	2021	2020	2021
	£m	£m	£m
Group net assets	7,076	7,187	6,604
Less: Pension surplus (note 18)	(1,087)	(1,012)	(744)
Deferred tax on pension surplus	367	192	192
Less: net debt (ex-perpetual securities) (note 15)	6,345	5,920	6,221
Effect of in-year averaging	(792)	708	546
Capital employed	11,909	12,995	12,819

Return on capital employed	6.3%	7.9%	5.5%

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 6 March 2021	28 weeks to 18 September 2021	52 weeks to 18 September 2021	52 weeks to 6 March 2021
	£m	£m	£m	£m
Group underlying operating profit	209	542	751	709
Add: Group depreciation and amortisation expense	588	659	1,247	1,249
Less: Non-underlying depreciation and amortisation expense	(35)	(31)	(66)	(47)
Group underlying EBITDA			1,932	1,911
Repayment of capital element of lease obligations	(277)	(243)	(520)	(501)
Underlying finance income	1	-	1	3
Underlying finance costs	(155)	(171)	(326)	(356)
Fixed charges			(845)	(854)
Fixed charge cover			2.3	2.2

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