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Sainsbury(J) PLC (SBRY)

  Print          Annual reports

Wednesday 28 April, 2021

Sainsbury(J) PLC

Final Results

RNS Number : 8092W
Sainsbury(J) PLC
28 April 2021
 

28 April 2021      J Sainsbury plc

Preliminary Results for the 52 weeks ended 6th March 2021

Delivering against our plan to put food back at the heart of Sainsbury's

Financial highlights

· Strong operating performance, with grocery sales up 7.8%, general merchandise sales up 8.3% and digital sales up 102%, offset on a statutory basis by materially reduced fuel sales; changes we have made through the pandemic are creating good momentum as we move into the new financial year

· Underlying profit before tax down 39% to £356 million, with benefits from strong sales growth (excluding fuel) more than offset by £485 million of direct COVID-19 costs. Statutory loss before tax of £261 million predominantly reflects one-off costs and impairments associated with strategic changes announced in November

· Strong Retail free cash flow of £784 million, with significant working capital inflow more than offsetting lower profits

· Upgrading four-year net debt reduction target from £750 million to at least £950 million despite short term expectation of some working capital reversal. Expect to generate average Retail cash flow of at least £500 million per year over the three years to March 2025

· Proposed final dividend of 7.4 pence, full year dividend 10.61 pence, reflecting strong cash generation and consistent with our commitment to protect shareholder income from the full impact of COVID-19 on profits

· Continue to expect underlying profit before tax in the financial year to March 2022 to exceed March 2020 level (£586 million); comfortable with consensus forecasts of around £620 million2

 

Strategic highlights

We have made good early progress with the plan we announced in November to put food back at the heart of Sainsbury's. We are changing at pace, making bold decisions and investing in the areas that matter to customers, underpinned by an accelerated cost saving programme. Throughout the pandemic we have remained focused on delivering against this plan and have built good momentum:

· Adapted at pace to COVID-19, prioritising customer and colleague safety, supporting communities and helping to feed the nation. Record customer satisfaction scores for friendliness and speed of checkout and rated best for customer safety throughout the pandemic3 

· Improved the value of our food ranges, lowering the prices of the products that matter most to customers and extending our Price Lock price commitment. Also launched Sainsbury's Quality, Aldi Price Match and customers are responding by spending more with us, more often

· Changing our ways of working and our supplier relationships; will triple our levels of new product innovation to 1,900 products in the year ahead

· Profitably grown Groceries Online from eight per cent of grocery sales in 2019/20 to 17 per cent in 2020/21 and gained more market share than key competitors4. Argos digital sales increased by 68 per cent, while also improving profitability

· 7.4 million digital Nectar users, up from 4.5 million last year

· Financial Services returned to profit in H2; remain committed to doubling profit contribution and returns by March 20245

· Building on our existing Net Zero by 2040 commitment, announced new target to reduce our absolute greenhouse gas emissions by 30 per cent by 2030, signing up to Science Based Targets. Principal Partner of COP26, the UN Climate Change Conference taking place in November this year

· Made a strong start to the transformation of Argos, which will improve product availability and deliver a lower cost to serve

· Transformed the reach of Habitat, making it our leading furniture and home brand

 

1  Excluding the Special dividend announced in November 2020 of 7.3 pence, as this relates to 2019/20.

2  Analyst consensus published on our website as at 9 February 2021

3  Sainsbury's came first in a supermarket safety survey conducted by the UK's leading consumer champion. This is corroborated by Sainsbury's own internal data

4  Nielsen panel market share data, 4 weekly report, FY18/19 vs FY20/21

 

 

Financial summary   

  2020/21   2019/20   Variance

Statutory performance

Group revenue (excl. VAT, inc. fuel)

£29,048m

£28,993m

0.2%

(Loss)/profit before tax

£(261)m

£255m

N/A

(Loss)/profit after tax

£(280)m

£152m

N/A

Basic (loss)/earnings per share

(13.0)p

5.8p

N/A





Business performance

Group sales (inc. VAT)

£32,285m

£32,394m

(0.3)%

Retail sales (inc. VAT, excl. fuel)

£28,837m

£26,868m

7.3%

Digital sales

£12.1bn

£6.0bn

102%

Underlying profit before tax

£356m

£586m

(39)%

Underlying basic earnings per share

11.7p

19.8p

(41)%

Interim dividend per share

3.2p

3.3p

(3)%

Proposed Final dividend per share

7.4p

-

N/A

Special dividend per share 5

-

7.3p

N/A

Proposed Full-year dividend per share 6

10.6p

10.6p

-

Net debt (including perpetual securities)

£6,469m

£6,947m

Down £478m

Non-lease net debt

£640m

£1,179m

Down £539m

Return on capital employed

5.5%

7.4%

(190)bps

 

5  On a Group contribution basis by FY23/24

6  Special dividend in 2020/21 paid in lieu of final dividend for 2019/20 following the deferral of dividend decision. The total dividend paid in respect of each year is equal at 10.6p per share, with a final dividend of 7.4p paid in 20/21

Simon Roberts, Chief Executive of J Sainsbury plc, said

"Above all else, I want to recognise the extraordinary job that my colleagues have done over the last 12 months. Their efforts have been nothing short of heroic as our entire team went above and beyond every day for our customers and communities. I am enormously grateful to the whole team for the way they have risen to the huge challenges this year and so selflessly looked after our customers and each other.

 "We have put our colleagues and customers first every step of the way and, as a result, delivered industry-leading safety in our stores and record levels of customer satisfaction. In a year like no other, our industry has stepped up and worked tirelessly across food supply chains to feed the nation and we are very proud of the part Sainsbury's has played. I also want to especially recognise our suppliers for all their support and partnership throughout this year in keeping goods flowing for our customers. They have done a fantastic job.

"This year's financial results have been heavily influenced by the pandemic. Food and Argos sales are significantly higher, but the cost of keeping colleagues and customers safe during the pandemic has been high. Our full-year direct COVID-19 costs were £485 million, leading to a 39 per cent decrease in full-year underlying profit. We are pleased to propose a full-year dividend which is in line with last year, protecting shareholder income from the full impact of COVID-19 on profits.

"We have a bold three-year plan to put food back at the heart of Sainsbury's and drive improved performance. We are transforming the way we work and I am encouraged by how all of our teams have responded and the early momentum and performance towards our plan.

"We have accelerated our digital transformation this year as we focus on serving customers however they want to shop with us. We have more than doubled our online grocery sales and have done this while improving profitability. Argos digital sales grew almost 70 per cent and our Argos transformation plan is on track to improve customer availability while reducing our costs.

"Like our customers, we are all looking forward to things feeling more normal over the coming months and getting excited about a summer of celebration, but we are also cautious about the economic outlook. While there is much that we cannot predict in the year ahead, we are absolutely focused on delivering for our customers and shareholders."

Our response to COVID-19

Throughout the pandemic, we prioritised: keeping our colleagues and customers safe, supporting our communities, particularly the most vulnerable and helping to feed the nation. We have:

· Invested £485 million, particularly to help keep our colleagues and customers safe and we have outperformed our main competitors in customer satisfaction for supermarket shopping overall7

· Delivered over 12 million online orders for elderly and vulnerable customers, prioritising them from day one

· Paid all colleagues that were required to shield in full for each shielding period and supported colleagues who needed to self-isolate

· Increased the hourly rate of pay for Sainsbury's and Argos store colleagues to £9.50 and awarded three special recognition payments for their extraordinary efforts, a total investment of more than £100 million in our frontline colleagues

· Raised £35 million for good causes, including donations to Comic Relief and FareShare and the creation of an additional £1 million local community fund for stores in January this year

· Supported suppliers in distress with vital cash flow and started paying nearly 1,500 small businesses earlier

· Forgone business rates relief on all Sainsbury's stores

 

7  Competitor Benchmark Survey 12-week trended data to 06/03/21

 

Like-for-like sales growth

 

2019/20

 

2020/21


Q3

Q4

Q1

Q2

H1

Q3

Q4

H2

FY

Like-for-like sales (excl. fuel)

(0.7)%

1.3%

8.2%

5.1%

6.9%

8.6%

11.3%

9.5%

8.1%

Like-for-like sales (inc. fuel)

(1.1)%

1.3%

(2.3)%

(0.5)%

(1.6)%

3.2%

3.2%

3.2%

0.7%

 

Total sales growth 

2019/20

2020/21


Q3

Q4

Q1

Q2

H1

Q3

Q4

H2

FY

Grocery

0.4%

2.0%

10.5%

5.1%

8.2%

7.4%

7.1%

7.3%

7.8%

General Merchandise

(3.9)%

(1.3)%

7.2%

7.6%

7.4%

6.0%

17.6%

9.2%

8.3%

  Of which GM (Argos)


0.4%

10.7%

10.9%

10.8%

8.4%

18.1%

11.1%

10.9%

  Of which GM (Sainsbury's Supermarkets)


(8.1)%

(9.3)%

(6.9)%

(8.2)%

(5.4)%

14.8%

0.3%

(3.8)%

Clothing

4.4%

2.5%

(26.7)%

(7.5)%

(18.3)%

0.4%

4.2%

1.5%

(8.5)%

Total Retail (excl. fuel)

(0.7)%

1.3%

8.5%

5.2%

7.1%

6.8%

9.2%

7.6%

7.3%

Total Retail (inc. fuel)

(0.9)%

1.9%

(2.1)%

(0.4)%

(1.4)%

1.7%

1.6%

1.7%

0.1%

 

Outlook

We have carried good underlying trading momentum into the new financial year and started the year strongly. However, we have tough comparables ahead as customer behaviour normalises and we are prudent about prospects for the year. We continue to expect underlying profit before tax (UPBT) in the financial year to March 2022 to exceed that reported in the year to March 2020 (£586 million) and we are comfortable with consensus forecasts of around £620 million8. Within this we expect Financial Services to return to a full year profit.

Reflecting a strong cash performance in the year and our strengthening confidence in underlying cash generation, we now expect to reduce net debt by at least £950 million over the four years to March 2023, against previous guidance of £750 million. We expect to generate average Retail cash flow of at least £500 million per year over the three years to March 2025.

Dividend

The Board has proposed a final dividend of 7.4 pence per share. This brings the full year dividend to 10.6 pence per share, which is in line with last year (when treating the Special dividend announced in November 2020 of 7.3 pence as part of 2019/20), despite lower underlying profits. This diverges from our policy of a dividend covered 1.9x by underlying earnings, reflecting strong underlying cash generation and consistent with the commitment the Board made in November to protect shareholder income from the full impact of COVID-19 on profits.

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 07:30 (BST). The webcast can be accessed at the following link: https://webcasts.sainsburys.co.uk/sainsbury161

Following the release of the webcast, a Q&A conference call will be held at 09:30 (BST). This will be available to listen to on our website at the following link: https://webcasts.sainsburys.co.uk/sainsbury160

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 First Quarter Trading Statement at 07:00 (BST) on 6 July 2021. 

8  Analyst consensus published on our website as at 9 February 2021

ENDS

Enquiries

 

Investor Relations

 

Media

James Collins

Rebecca Reilly

 +44 ( 0) 7801 813 074

+44 (0) 20 7695 7295

 

Strategy Review: Driven by our passion for food, together we serve and help every customer

In November we set out a plan to transform our business over the next three years. We are clear on our priorities. We are putting food back at the heart of Sainsbury's, building on the changes we have made as we have adapted our business during the pandemic. We are raising our ambitions and speeding up the pace of change, simplifying our operations and accelerating our cost savings programmes so we can invest more in food quality, choice, innovation and consistently lower prices for our customers. Our portfolio brands are supporting our core food business, delivering for customers and shareholders in their own right. As we look forward, we will pursue partnerships or outsource where faster and where they will make a positive impact for our customers.

We are reducing complexity, aiming to reduce our retail operating costs to sales ratio by at least 200 basis points and are focused on robust profit delivery and consistent dependable cash flow. By delivering for our customers we will drive stronger financial outcomes.

Food First

Our clear priority is to build on our strong brand heritage and reputation for quality, range and innovation while lowering prices and offering more consistent value. We will offer high quality, great value food wherever and however customers want to shop with us. This is what putting food back at the heart of Sainsbury's means. Collaborating and simplifying how we work with suppliers will create buying benefits, drive innovation and lower our cost to serve.

We are making good early progress against our plan, building on a year in which grocery sales grew 7.8 per cent and we grew our volume market share9.

We are investing in value and have improved our price position relative to competitors on the products that matter most to customers. We are seeing a good customer response and price perception has improved. Where we have invested in price across key meat, fish and poultry products, volumes have grown by 15 per cent10. To help customers feel confident they are getting good value, we launched our bold Sainsbury's Quality, Aldi Price Match campaign on around 250 great quality, entry level and everyday products. The campaign complements our biggest ever Price Lock commitment on largely branded products. We increased the number of products on Price Lock in January to over 2,500 everyday items and held these prices for over eight weeks.

We have been selective in introducing new entry price point products under our owned brands, including Stamford Street ready meals and Mary Ann's yoghurts, bringing customers a greater choice of products and price points. We also launched our Imperfectly Tasty range, offering more choice and reducing food waste.

We have put foundations in place to deliver a faster and stronger pipeline of innovative product development. We have committed to tripling the number of new products and increasing their speed to market by at least 30 per cent. Working closely with our suppliers, we plan to launch 1,900 new products and improve almost 2,000 more in the next 12 months.

With customers making the most of being at home, we had our biggest ever Valentine's Day, Shrove Tuesday, Mother's Day and Easter. Customers treated themselves and our Taste the Difference sales grew 12.8 per cent as a result, while SO Organic grew 11.1 per cent. Innovative seasonal products that performed particularly well included oysters for Valentine's Day, Taste the Difference Chateaubriand and whole salmon at Easter, which we sold in the aisle for the first time following the closure of our meat, fish and deli counters.

We have invested in Groceries Online this year to support its outstanding growth through unprecedented customer demand for home delivery and Click & Collect. We have grown sales by 120 per cent and we are now able to fulfil more than 850,000 online orders a week. We have gained significant market share in the year to become the UK's second largest online grocery retailer. 17 per cent of our grocery sales are now online, compared with eight per cent in 2019/20. Our Groceries Online business is increasingly profitable, with profit contribution four times higher than last year and we doubled the online profit contribution margin versus last year. In-store pick rates are now back to pre-pandemic levels and new Saver Slots are enabling delivery efficiencies. We have rapidly rolled out super-fast grocery deliveries. We have rolled out Chop Chop to 17 cities and towns and extended our partnerships with Uber Eats and Deliveroo to over 200 stores. We have rolled out SmartShop self-scan to over 1,200 stores and it now accounts for 30 per cent of sales in stores with handsets, helping to increase customer satisfaction scores for ease and speed of checkout by nearly 13 per cent year-on-year.

We have a strong and well-located store portfolio. We have opened one new supermarket and invested in 273 supermarkets across the year with new initiatives such as fresh fruit and vegetable 'Food Markets' and improved general merchandise and clothing sections. Our Beauty Transformation programme is performing well and we are outperforming the Beauty market11. We offer customers an expanded range of beauty products in 236 supermarkets. Sushi remains popular with customers and we now have Sushi Gourmet counters in 145 stores. We will open between 25-30 convenience stores per year over the next three years, including 18 'Neighbourhood Hub' convenience stores. These are larger format convenience stores that offer a broader range of locally tailored products and services across food, beauty, clothing, seasonal and general merchandise. We now have five of these stores open and trading. They are very popular with customers and are delivering high returns. Reflecting our strategy to flex the size and format of our stores to suit local needs, we also opened one new 'On the Go' store in Leicester Square in London this year.

Brands that Deliver

We are refocusing the role of our portfolio brands to ensure that they contribute positively in their own right. Argos, Habitat, Tu, Nectar and Sainsbury's Bank are all delivering for their customers and we are on track to drive strong, sustainable profitable growth to support our core food business.

Nectar supports our plan by rewarding customers for their loyalty. It is performing ahead of target with 7.4 million downloads of the app to date. Over 150,000 customers signed up to our new partnership with British Airways in the first seven weeks. We also continue to make good progress with Nectar360, our marketing services business. We launched a retail media platform that helps brands and advertising agencies reach and engage shoppers more effectively on our Groceries Online website, delivering a more personalised experience for customers and stronger returns for brands.

Argos digital sales grew 68 per cent in the year, with 90 per cent of sales starting online. Argos's strength in digital and our leading Fast Track delivery has helped us adapt quickly to the changes in the way people wanted to shop through the pandemic. While standalone Argos stores were closed for much of the year during lockdowns, home delivery sales increased significantly and collection from Sainsbury's stores was popular. Over the year we welcomed over three million new customers to Argos and sales were boosted by particularly strong growth in home and office furniture, garden essentials and home entertainment, including games consoles such as the new PlayStation 5 and Xbox.

 

We are making good progress transforming Argos, focusing on improving customer availability while reducing our costs. We have closed 170 standalone Argos stores as well as the six Argos stores in Homebase stores, as part of our plan to reduce the number to around 100 over the next three years12, reducing our operating costs by £105 million by March 2024. We have opened 30 new Argos stores in Sainsbury's stores, 35 collection points and one new standalone store. This is part of our plan to reach 430-460 Argos stores in Sainsbury's and reach 450-500 collection points by March 2024. As at 6 March 2021, Argos had 737 stores, of which 336 are stores in Sainsbury's. Customers can also pick up products from 306 collection points in Sainsbury's stores. We have also started work on our first Local Fulfilment Centre (LFC) in Bristol, which will open in June. This is the first of 32 LFCs that will become our new distribution network, offering customers improved availability and quicker delivery and collection options.

 

We have made great progress integrating Habitat with Argos and Sainsbury's. We launched Habitat as our main home and furniture brand and we have adapted our home and furniture ranges, increasing customer choice and making prices more accessible. We now have one global team that sources products for Sainsbury's, Habitat and Argos, maximising our scale positions with suppliers and driving efficiencies within our own business. We are also using the same website infrastructure for Habitat and Argos, ensuring a consistent shopping experience for customers while reducing costs. Habitat had three stores which were closed for lockdown at year end but re-opened on 12 April.

While Tu clothing sales were down 18.3 per cent in the first half of the year, they recovered in the second half, increasing by 1.5 per cent and we continue to gain clothing market share. Tu online performed strongly throughout the year, with sales up 65 per cent and full price sales up 15 per cent as customers stocked up on pyjamas, loungewear and childrenswear.

 

We continue to make good progress reshaping, strengthening and simplifying our Financial Services business. This has helped us to mitigate the impact of COVID-19. In line with our guidance at Interims, the Bank returned to profit in the second half of the year with an underlying operating profit of £34 million, to deliver a Financial Services underlying operating loss of £21 million for the full year. The underlying loss reflects the changed economic environment driven by COVID-19 where we have seen significantly reduced demand across consumer credit, combined with increased bad debt provisions and less activity in our fee-based products, particularly Travel Money.

Over 90 per cent of product sales now start online and we continue to improve customers' ability to self-serve online. We are making good strategic progress to be a simple, mobile-led Financial Services business for loyal Sainsbury's and Argos customers. We remain committed to doubling profit contribution and returns in our Financial Services business in the next five years to March 2024.13 The Bank has a strong balance sheet and a significant surplus capital position.

 9  Nielsen panel volume growth, total FMCG 52 weeks to 6 March 2021

10  LFL volume growth of Q3 invested SKUs, pre vs post-investment, 8 weeks of post-launch data

11  Nielsen IQ EPOS Data

12  Excluding Republic of Ireland

13  On a Group contribution basis by FY23/24

Save to Invest

We will deliver a step change in efficiency by transforming our approach to costs, simplifying our organisation and delivering a structural reduction in our operating cost base. We are accelerating our cost saving plans to unlock new opportunities in order to fund the improvement of our food offer and to ensure we can meet the growth in customers shopping across a broad range of channels.

We are on track with our plan to reduce our retail operating costs to sales ratio by at least 200 basis points, delivering major structural cost savings to support investment in our core customer offer and deliver improved financial returns.

 

Transforming our approach to costs and radically simplifying our organisation is delivering results at pace.  We have achieved this by reducing the number of Argos standalone stores, closing our meat, fish and deli counters, simplifying our store management structures, reducing 500 roles in our Store Support Centres and cutting office space. We are also consulting with colleagues on plans to close our Online Fulfilment Centre in Bromley-by-Bow to drive online efficiency and profitability.  

 

In addition, we are accelerating the integration of the Sainsbury's, Argos and Habitat supply chain and logistics networks and creating an operating model which will save £150 million over the next three years and deliver working capital benefits.

 

Our property rationalisation programme is progressing well and our Argos transformation programme, which includes the changes we are making to our Argos store estate, will reduce our cost to serve by £105 million.

 

We are proud of our strong relationships with suppliers and are working closely with them to drive value and simplify processes. This means we can buy better and lower our cost to serve.

 

Net Zero

We have committed to investing £1 billion over twenty years towards becoming a Net Zero business across our own operations by 2040, aligned to the highest ambitions of the Paris Climate Change Agreement. We are implementing a programme of change, focusing on reducing carbon emissions, food waste, plastic packaging and water usage and increasing recycling, biodiversity and healthy and sustainable eating.

This year we have taken our ambitious plan further with the addition of a Scope 3 target, which covers indirect emissions that occur throughout our value chain. 

We worked with the Carbon Trust to define an ambitious Scope 3 target which requires the reduction of absolute greenhouse gas (GHG) emissions by 30 per cent by 2030, to align to a well below 2°C scenario. The baseline is 26,663,081 tC02e (2018/19). We have also committed to working closely with our supplier base to help them develop and then meet their own targets. 

The impact of the pandemic on our emissions has been substantial. We have seen a reduction of energy usage due to the closure of cafes, counters and all of our office space. We have seen more fuel usage due to the rise of online shopping and an increase in the number of products going through our supply chain. Overall, we have reduced our absolute GHG emissions within our operations to 819,862 tCO2e, a reduction of three per cent year-on-year and 14 per cent from our 2018/19 baseline, keeping us on course for our headline target.

We committed to reduce our use of plastic packaging by 50 per cent by 2025. COVID-19 has had a significant impact on our usage this year due to an increase in sales volume which has led to an increase in plastic packaging used overall. To keep customers and colleagues safe we also re-introduced plastic bags for our Groceries Online orders during the height of the pandemic. Therefore progress made in plastic weight reductions this year has been outweighed by the challenges of the pandemic. Year-on-year the tonnage has increased by 3,496 tonnes to 117,959 tonnes, which puts us behind our target trajectory. Overall there has been a 1.7 per cent reduction in our food plastic packaging from our 2018 baseline.  We have a strong plan for the year ahead.

We know that food that is better for us is also better for the planet. This is why we have committed to develop and deliver healthy, sustainable diets for all. In November 2020, we reported on the volume of 'healthy' sales relative to total sales. Moving forward, we believe reporting the tonnage of healthy sales relative to total sales is a more credible way to reflect the weight of plate from healthy choices, similar to the approach of the Eatwell Guide, and therefore this is how we will be defining a future target. Our current position is 55.3 per cent healthy sales tonnage, remaining the same year-on-year. 

We continue to reformulate and innovate to launch healthier products. We have been trialling influencing customer behaviour by incentivising customers with better value fruit and vegetables and additional Nectar points, including our discounted 60 pence fruit and vegetable campaign and The Great Big Fruit & Veg Challenge.

We have committed to reducing food waste by 50 per cent across the whole value chain by 2030. This year we reduced the food waste we send to anaerobic digestion in our own operations by over 5,000 tonnes, a reduction of 16 per cent year-on-year, which puts us ahead of our target trajectory.

Financial Review of the year results for the 52 weeks to 6 March 2021

In the 52 weeks to 6 March 2021 the Group generated a loss before tax of £(261) million (2019/20: £255 million profit) and underlying profit before tax of £356 million (2019/20: £586 million)

 

Summary income statement1

52 weeks to

52 weeks to



06 March

07 March

Change


2021

2020



£m

£m

%





Underlying Group sales (including VAT)

32,285

32,394

(0.3)

Underlying Retail sales (including VAT)

31,854

31,825

0.1

Underlying Retail sales (excluding fuel, including VAT)

28,837

26,868

7.3





Underlying Group sales (excluding VAT)

29,048

28,993

0.2

Underlying Retail sales (excluding VAT)

28,617

28,424

0.7









Underlying operating profit/(loss)




Retail

730

938

(22)

Financial services

(21)

48

N/A

Total underlying operating profit

709

986

(28)





Underlying net finance costs2

(353)

(400)

12

Underlying profit before tax

356

586

(39)

Items excluded from underlying results

(617)

(331)

(86)

(Loss)/Profit before tax

(261)

255

N/A

Income tax expense

(19)

(103)

82

(Loss)/Profit for the financial period

(280)

152

284





Underlying basic earnings per share

11.7p

19.8p

(41)

Basic loss/(earnings) per share

(13.0)p

5.8p

N/A

Interim Dividend per share

3.2p

3.3p

(3)

Final Dividend per share

7.4p

-

N/A

Special Dividend per share3

-

7.3p

N/A

Total Dividend per share3

10.6p

10.6p

-

 

1  Please note a number of Alternative Performance Measures ('APMs') have been adopted by the Directors to provide additional information on the underlying performance of the Group. These measures are intended to supplement, rather than replace the measures provided under IFRS. Please see Note 3 on page 26 for further information.

2  Net finance costs including perpetual securities coupons before non-underlying finance movements.

3  Special dividend paid in lieu of final dividend for 2019/20 following the deferral of dividend decision. The total dividend paid in respect of each year is equal at 10.6p per share

 

In a year shaped by the COVID-19 pandemic, the business demonstrated its flexibility in responding to changing customer demand and lockdown regulations. Groceries Online capacity was rapidly expanded to help feed the nation, whilst Argos operated as an online first proposition for large parts of the year, leveraging the Sainsbury's estate for convenient customer collection.

COVID-19 resulted in £485 million of direct incremental retail costs. These costs resulted from areas such as paying vulnerable colleagues who were isolating, absence costs, protecting customers & colleagues, increasing marshalling in stores and recognising the exceptional effort of colleagues with special recognition payments. However, both the strong sales performance and continued savings delivery helped to mitigate the impact on our underlying profitability despite the decision to forgo business rates relief in Sainsbury's.

Group sales

Group sales (including VAT, including fuel) decreased by 0.3 per cent year-on-year. Retail sales (including VAT, excluding fuel) increased by 7.3 per cent, driven by strong Grocery and General Merchandise demand through the Covid-19 pandemic. This was offset by a 39.1 per cent decline in fuel sales and 24.3 per cent decline in Financial Services sales.

 

Total sales performance by category

52 weeks to

52 weeks to



06 March 2021

07 March 2020

Change


£bn

£bn

%

Grocery

  21.1

  19.5

  7.8

General Merchandise

  6.9

  6.4

  8.3

Clothing

  0.9

  1.0

(8.5)

Retail (exc. fuel)

  28.8

  26.9

  7.3

Fuel sales

  3.0

  4.9

(39.1)

Retail (inc. fuel)

  31.9

  31.8

  0.1

 

The COVID-19 pandemic had a significant impact on sales in the year. Grocery sales grew by 7.8 per cent year-on-year as eating occasions moved in-home. Sales were strongest in quarter one, benefitting from stock-piling during the first national lockdown, but remained strongly positive throughout the year.

 

Clothing sales declined in the first half but recovered well in the second half. Online sales were particularly strong, growing by 64.6 per cent for the full year, helping to partially offset an in-store decline of 16.0 per cent.

 

General Merchandise sales grew 8.3 per cent, supported by the availability of Argos stores and collection points in Sainsbury's which limited the impact of store closures during lockdowns. Strong Argos sales were offset by decline in Sainsbury's general merchandise sales, particularly in the first half when customers and stores focussed on food replenishment.  Growth was driven by increased customer demand in areas like home entertainment, home office and garden furniture.

 

Fuel sales decreased by 39.1 per cent, reflecting significantly reduced demand through the year and the impact of the lower oil price on the sales price.

 

Total sales performance by channel


52 weeks to

52 weeks to



06 March 2021

07 March 2020

Supermarkets (inc Argos stores in Sainsbury's)


2.5%

(0.1)%

Convenience


(9.4)%

1.3%

Groceries Online


119.6%

7.6%

 

Supermarket sales, excluding Groceries Online, grew by 2.5 per cent, including sales from Argos store in Sainsbury's. Convenience sales fell by 9.4 per cent as many urban sites were impacted by reduced footfall, whilst neighbourhood locations benefited from customers shopping locally. Groceries Online sales grew by 119.6 per cent. Responding to the increased demand we rapidly grew capacity to help feed the nation through the COVID-19 pandemic, prioritising elderly and vulnerable customers. We increased order slots to over 850,000 per week by the end of the year and Click & Collect orders grew by over 850 per cent in the year.

 

Retail like-for-like sales performance


52 weeks to

52 weeks to



06 March 2021

07 March 2020

Like-for-like sales (exc. fuel)


8.1%

(0.6)%

Like-for-like sales (inc. fuel)


0.7%

(0.5)%





 

Retail like-for-like ('LFL') sales, excluding fuel, increased by 8.1 per cent (2019/20: 0.6 per cent decrease), due to increased demand and supported by successful sales transfer to online both for grocery and Argos. The impact of stores temporarily closed due to COVID-19 have been included within LFL sales, with only permanently closed sites treated as not LFL.

 

Space

In 2020/21, Sainsbury's opened 1 new supermarket and closed 11 (2019/20: opened 2 new supermarkets and closed 2). There were 15 new Convenience stores opened in the year and 9 were closed (2019/20: 14 opened and 27 stores closed).

 

During the period 30 new Argos stores in Sainsbury's were opened. 170 standalone Argos stores and the 6 Argos in Homebase stores were closed, in line with the update given in our interim results. The number of Argos collection points in Sainsbury's stores increased from 281 to 306. As at 6 March 2021, Argos had 737 stores including 336 stores in Sainsbury's. Habitat had 3 stores which were closed for lockdown at year end, but re-opened on April 12th.

 

Store numbers and retailing space






As at

New stores

Disposals / closures

Extensions / refurbishments / downsizes

As at


07 March

06 March


2020

2021







Supermarkets

608

1

(11)

-

598

Supermarkets area '000 sq. ft.

21,167

18

(193)

(170)

20,822







Convenience

807

15

(9)

-

813

Convenience area '000 sq. ft.

1,898

44

(18)

5

1,929

Sainsbury's total store numbers

1,415

16

(20)

-

1,411







Argos stores

570

1

(170)

-

401

Argos stores in Sainsbury's

306

30

-

-

336

Argos in Homebase

6

-

(6)

-

-

Argos total store numbers

882

31

(176)

-

737

Argos collection points

281

35

(10)

-

306

Habitat

16

-

(13)

-

3

 

In FY 2021/22, we expect to open 4 supermarkets and around 25 new convenience stores, and to close around 5 supermarkets and around 25 convenience stores.

 

In FY 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.

 

Retail underlying operating profit

Retail underlying operating profit decreased by 22.2 per cent to £730 million (2019/20: £938 million). Retail underlying operating margin reduced by 75 basis points year-on-year to 2.55 per cent (2019/20: 3.30 per cent). The reduction was driven by £485m of COVID-19 costs, partially offset by strong sales, whilst savings programmes more than offset underlying inflation in the business.

 

We invested significantly in our estate to ensure the safety of our customers and colleagues during the pandemic. We implemented protective measures in store such as checkout screens, personal protective equipment and increased cleaning. We supported our colleagues through absence caused by COVID-19 and saw an overall increase in labour hours as a result of social distancing, marshalling and the increase in online demand. We also incurred additional costs due to the pandemic within our Groceries Online channel from lower picking speeds as a result of social distancing measures and the reintroduction of bags as a COVID-19 precaution. We made three special recognition payments to our colleagues, awarded for their exceptional efforts responding to the pandemic.

 

We were able to more than offset cost inflation with savings programmes. This was partly driven by improvements to our central operating model, which delivered efficiencies within a number of areas, including Logistics and Distribution through the introduction of a single freight management system. Changes to our store estate continue to bring our businesses together, lowering costs and providing a better integrated customer offer. We also achieved in store efficiencies through initiatives such as SmartShop and the Stock Replenishment App for colleagues. These investments in technology provide a more convenient shopping experience for our customers whilst simultaneously lowering our cost to serve. In line with our commitment to reduce operating costs as a percentage of sales by 200 basis points to fuel investment in the customer proposition, we expect to accelerate cost saving programmes in 2021/22 through the Argos store transformation, continued delivery of our supply chain & logistics savings and further actions across the cost-base.

 

Retail underlying operating profit






52 weeks to

52 weeks to


Change at


06 March

07 March


constant fuel


2021

2020

Change

prices

Retail underlying operating profit (£m)

730

938

(22.2)%


Retail underlying operating margin (%)1

2.55

3.30

(75)bps

(78)bps






Retail underlying EBITDA (£m)2

1,909

2,135

(10.6)%


Retail underlying EBITDA margin (%)3

6.67

7.51

(84)bps

(91)bps

 

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

Retail underlying operating profit before underlying depreciation and amortisation of £1,179 million. Following the adoption of IFRS16, EBITDA and EBITDAR are broadly consistent measures and so we are now disclosing EBITDA only in this table. Non IFRS 16 rental expense was £5 million in 2020/21 and £10 million in the prior year.

Retail underlying EBITDA divided by underlying retail sales excluding VAT.

 

In 2021/22, Sainsbury's expects a depreciation and amortisation charge of around £1,200 million, including around £500 million right of use asset depreciation.

Financial Services

 

Financial Services results




12 months to 28 February 2021





2021

2020

Change





Underlying revenue (£m)

431

569

(24)%

Interest and fees payable (£m)

(90)

(125)

(28)%

Total income (£m)

341

444

(23)%

Underlying operating (loss)/profit (£m)

(21)

48

(144)%





Cost:income ratio (%)

74

71

300bps

Active customers (m) - Bank

1.8

2.1

(14)%

Active customers (m) - AFS

2.2

2.2

-

Net interest margin (%)1

3.5

3.4

10bps

Bad debt as a percentage of lending (%)2

1.8

1.1

70bps

Tier 1 capital ratio (%)3

17.6

14.1

350bps

Total capital ratio (%)4

20.2

17.0

320bps

Customer lending (£bn)5

5.4

7.4

(27)%

Customer deposits (£bn)

(5.1)

(6.3)

(19)%

 

Net interest receivable divided by average interest-bearing assets.

2  Bad debt expense divided by average net lending.

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

4  Total capital divided by risk-weighted assets.

5  Amounts due from customers at the Balance Sheet date in respect of loans, mortgages, credit cards and store cards net of provisions. The prior year comparative is as at the Year End balance sheet date.

 

In line with guidance at the interim results, the Bank returned to profit in the second half of the year with an underlying operating profit of £34 million, to deliver a Financial Services underlying operating loss of £21 million for the full year. The underlying loss reflects the changed economic environment driven by COVID-19 where we have seen significantly reduced demand across consumer credit, and less activity in our fee-based products, particularly Travel Money. In the first half, we made a significant provision in anticipation of future credit losses. This has remained sufficient to cover our current projections for credit losses, resulting in reduced costs in the second half. In addition, our return to profit has been aided by management action taken during the year, particularly funding and costs, as well as the benefit of a one off debt sale.

 

Financial Services total income of £341 million has declined year-on-year (2019/20: £444 million). The fall in interest income reflects a significant contraction in lending balances of 27 per cent due to lower consumer demand, a tightening of credit appetite for new customers and more customers repaying their balances early. Fee income has dropped markedly due to the closure of Travel Money Bureaux for most of the year, and a decline in ATM income due to lower cash usage, particularly during lockdown.

The Financial Services cost:income ratio increased 300 basis points to 74 per cent (2019/20: 71 per cent) and is reflective of the material drop in income in the year. We have reduced costs by £49 million for the full year (16 per cent), with cost savings being delivered through management actions including reducing headcount, digitising and improving customer journeys together with reducing fraud costs due to enhanced fraud detection controls.

 

Net interest margin increased by 10 basis points year-on-year to 3.5 per cent (2019/20: 3.4 per cent) with significant reduction in savings rates offsetting changes in customer behaviour, particularly in terms of spend and retention.

 

Bad debt expense as a percentage of lending increased by 70 basis points year-on-year to 1.8 per cent (2019/20: 1.1 per cent), mainly to account for the expected future unemployment increases partly offset by a lower underlying impairment charge as a result of balance sheet contraction. Arrears levels are lower than the prior year.

 

The number of Bank active customers reduced by 14 per cent year-on-year to 1.8 million due to higher customer repayments and lower acquisition of new business, particularly on Cards and Loans, whilst Argos Financial Services customers remain flat at 2.2 million.

 

The Bank offered payment holidays across all of its lending products to support customers who were impacted by COVID-19. Over 71,000 payment holidays were granted at a value of £455m, and to date 90% have returned to normal payment schedules or fully repaid the loan after the expiry of their payment holiday. 

 

The capital position is strong with the CET 1 capital ratio increasing by 350 basis points since February 2020 to 17.6 per cent (2019/20: 14.1 per cent) with the capital released as a result of the contraction in balances more than offsetting the loss. Customer deposits decreased by 19 per cent to £5.1 billion, reflecting the reduced funding required due to the decline in lending and the strategic decision to cease mortgage new business.

 

We have made good progress with our Financial Services transformation plan and have streamlined our product offering.  We still expect to double the profit contribution of our Financial Services business in the 5 years to 2023/24, despite the challenges of the current environment. We expect lending balances will recover as we follow our strategy and the market normalises. We have a significant capital surplus and strong liquidity and we remain confident that Financial Services will not require capital injections from the Group. We expect Financial Services will return to full year profit in 2021/22.

 

Underlying net finance costs

Underlying net finance costs reduced by 12 per cent to £353 million (2019/20: £400 million). These costs include £60 million of net non-lease interest (2019/20: £77 million). The reduction of net non-lease interest is driven by the repayment of the £450 million Convertible Bond in November 2019, and the redemption of the £250 million perpetual subordinated capital securities in July 2020. The interest costs on lease liabilities have reduced to £293 million (2019/20: £323 million) due to lower interest rates on new leases.

 

Sainsbury's expects underlying net finance costs in 2021/22 of between £340 million - £350 million, including around £290 million - £300 million lease interest.

 

Items excluded from underlying results

In order to provide shareholders with insight into the underlying performance of the business, items recognised in reported profit or loss before tax which, by virtue of their size and or nature, do not reflect the Group's underlying performance are excluded from the Group's underlying results and shown in the table below.

 

 Items excluded from underlying results

52 weeks to

52 weeks to


06 March 2021

07 March 2020


£m

£m

Restructuring programmes

(423)

(202)

Impairment charges

(220)

(126)

Financial Services transition and other

(17)

(29)

ATM business rates reimbursement

42

-

IAS 19 pension income

6

19

Property, finance and acquisition adjustments

(5)

7

Items excluded from underlying results

(617)

(331)

 

-  An updated plan was announced in November 2020 in which it was communicated that the structural integration of Sainsbury's and Argos would be accelerated, as well as further streamlining the Argos business model. The closure of around 420 Argos stores was announced as well as plans to simplify the logistics network and other areas of the business. Restructuring programme costs of £423 million have therefore been recognised that relate to store closures and asset write downs.

The Group concluded that the combination of COVID-19 and the accelerated integration programme was an impairment indicator, following which impairment charges of £220 million were recognised in addition to the closure costs above.  £105 million relates to Financial Services and £115 million in relation to Retail assets.

-  2019/20 restructuring charges of £202 million and impairment of £126 million primarily relate to store closures and asset write downs announced at our Capital Markets Day in September 2019.

Financial Services transition and other costs of £17 million (2019/20: £29 million) were predominantly the previously announced costs incurred in transitioning to a new banking platform and write-downs of ATMs.

-  ATM income of £42 million (2019/20: £nil) arises following the Supreme Court's ruling that ATMs outside stores should not be assessed for additional business rates on top of normal store rates. By year end £27 million had been received in cash.

-  IAS 19 Pension income of £6 million (2019/20: £19 million) comprises pension finance income of £19 million and scheme expenses of £13 million.

-  Other movements of £5 million cost (2019/20: income of £7 million) relate to property profits and acquisition adjustments.

-  Cash outflows relating to restructuring programmes, impairment and financial services transition were £54 million, lower than previously guided due to the timing of dilapidations payments relating to the property strategy announcements. Total cash outflows were £61 million. This was offset by £54m of cash inflows driven by the ATM business rates reimbursement and property disposal proceeds.

 

Including costs taken this year, we still expect that we will incur one off costs from these infrastructure, operating model and structure changes announced in November 2020 of £900 million to £1 billion in the period to March 2024 (approximately £300 million cash). We expect to incur the remaining costs evenly over the next 3 years, including £125m of restructuring cash costs in 2021/22.

 

Taxation

The tax charge was £19 million (2019/20: £103 million). The underlying tax rate was 29.5 per cent (2019/20: 25.4 per cent) and the effective tax rate is (7.3) per cent (2019/20: 40.4 per cent).

 

The underlying tax rate is higher than the prior year. The underlying tax rate is adversely impacted by a year on year reduction in the underlying profit before tax, which increases the relative weighting of non-deductible property charges which were flat year on year.

 

The effective tax rate is lower than the prior year but is distorted by the fact there is an accounting loss before tax for 2020/21. The factors driving the effective tax rate in 2020/21 are the impact of non-tax deductible non-underlying costs, including the impairment of fixed assets and the partial derecognition of capital losses which are partially offset by the tax impact of property disposals.

 

Sainsbury's expects an underlying tax rate in 2021/22 of around 25 per cent.

 

Earnings per share

Underlying basic earnings per share decreased to 11.7 pence (2019/20: 19.8 pence) driven by the decrease in underlying earnings. Basic loss per share was (13.0) pence (2019/20: 5.8 pence earning per share).

 

Dividends

As guided when Sainsbury's announced its decision to forgo business rates relief in December 2020, the Board believes shareholders should not bear the full short-term impact of the effect of COVID-19 on the business and so have proposed a final dividend of 7.4 pence per share. This brings the full year dividend to 10.6p per share, which is flat year on year (when treating the Special Dividend announced in November 2020 of 7.3p as part of 2019/20).

 

This represents an exception to our normal dividend policy of 1.9 times cover by full year underlying earnings, reflecting the Board's commitment to prioritise dividend payments ahead of net debt reduction and its confidence in the strength of underlying cash generation. The full year dividend is covered 1.5 times by underlying earnings.

 

This final dividend will be paid on 16 July 2021 to shareholders on the Register of Members at the close of business on 11 June 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 25 June 2021

 

Sainsbury's plans to return to paying a full-year dividend covered 1.9 times by full-year underlying earnings from 2021/22.

 

Net debt and retail cash flows

As at 6 March 2021, net debt was £6,469 million (7 March 2020: £6,947 million), a decrease of £478 million (2019/20: £399 million reduction). Excluding the impact of lease liabilities on net debt, Sainsbury's reduced net debt by £539 million in the year. Sainsbury's now expects to reduce non lease net debt by at least £950 million over a four-year period compared to 2018/19 year end net debt excluding lease liabilities of £1,522 million, £200m more than previous guidance. Free cash flow will be unusually low in 2021/22 due to partial reversal of working capital benefits but we expect average annual free cash flow for the three years to March 2022 to be at least £500m and this is consistent with the free cash flow guidance we have reiterated for the three years to March 2025. Over the 2 years to March 2022, the group will have delivered strong net debt reduction, despite the impact of reduced profits in 2020/21 due to COVID-19.

 

Group net debt includes the impact of capital injections into Sainsbury's Bank, but excludes Financial Services' own net debt balances. Financial Services balances are excluded because they are part of the daily operating cycle of the Bank rather than for financing purposes.

 

Net debt includes lease liabilities under IFRS 16 of £5,829 million (2019/20: £5,768 million) and the perpetual securities of £248 million (2019/20: £496 million).

 

Summary cash flow statement 1

Retail

Retail


52 weeks to

52 weeks to


06 March 2021

07 March 2020


£m

£m

Retail underlying operating profit

730

938




Adjustments for:



Retail underlying depreciation and amortisation

1,179

1,197

Share based payments and other

26

34

Retail non-underlying operating cash flows (excluding pensions)

(12)

(49)

Adjusted retail operating cash flow before changes in working capital2,3

1,923

2,120

Decrease/(increase) in working capital3

453

(97)

Net interest paid3

(372)

(405)

Pension cash contributions

(101)

(52)

Corporation tax paid

(94)

(113)

Net cash generated from operating activities

1,809

1,453

Cash capital expenditure

(568)

(599)

Repayments of obligations under leases

(499)

(419)

Initial direct costs on right-of-use assets

(7)

(13)

Proceeds from disposal of property, plant and equipment

27

81

Bank capital injections

-

(35)

Dividends and distributions received3

22

143

Retail free cash flow

784

611

Dividends paid on ordinary shares

(232)

(247)

Repayment of borrowings3

(539)

(379)

Other3

(13)

(3)

Net increase/(decrease) in cash and cash equivalents

-

(18)

Decrease in Debt

1,038

798

Other non-cash and net interest movements4

(560)

(381)

Movement in net debt

478

399




Opening net debt

(6,947)

(7,346)

Closing net debt

(6,469)

(6,947)

  of which



  Lease Liabilities

(5,829)

(5,768)

  Net Debt Excluding Lease Liabilities

(640)

(1,179)

 

See note 5 for a reconciliation between Retail and Group cash flow.

Excludes working capital and pension contributions.

Refer to the Alternative Performance Measures on pages 59 to 64 for reconciliation.

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

 

Adjusted retail operating cash flow before changes in working capital decreased by £197 million year-on-year to £1,923 million (2019/20: £2,120 million). Working Capital decreased by £453 million (2019/20: £97 million increase), as a result of the strong trading performance driving increased payables balances despite the impact of lower fuel sales and moving to reduced payment terms to support smaller suppliers. In addition, challenges sourcing stock on certain product ranges have further reduced inventory in our non-food business.

 

Cash capital expenditure was £568 million (2019/20: £599 million). There were no capital injections to the Bank this year (2019/20: £35 million). 

 

Dividends and distributions received of £22 million (2019/20: £143 million) reduced to normal levels, with the prior year benefitting from the proceeds of the sale of properties held in a joint venture with British Land.

Retail free cash flow increased by £173 million year-on-year to £784 million (2019/20: £611 million), driven by the working capital reduction. Free cash flow was used to fund dividends and reduce borrowings.

 

Dividends of £232 million were paid in the year, which were covered 3.3 times by free cash flow (2019/20: 2.5 times).

 

The Group held undrawn committed credit facilities of £1,450 million and undrawn uncommitted facilities of £195 million as at 6 March 2021.

 

Capital expenditure

Core retail cash capital expenditure was £568 million (2019/20: £599 million).

 

Sainsbury's expects core retail cash capital expenditure (excluding Financial Services) to be around £700-£750 million per annum over the next three years, reflecting investment in high-returning supply chain, logistics and infrastructure projects including the Argos transformation.

 

Financial Ratios




Key financial ratios

52 weeks to

52 weeks to


06 March 2021

07 March 2020




Return on capital employed (%) 1

5.5

7.4

Net debt to EBITDA 2

3.4 times

3.2 times

Fixed charge cover 3

2.2 times

2.7 times

 

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 less net debt (excluding perpetual securities). This is calculated using 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 profit / loss. 

Net debt of £6,469 million includes lease obligations under IFRS 16 and perpetual securities treated as debt, divided by Group underlying EBITDA of £1,911 million.

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.

 

Property value

As at 6 March 2021, Sainsbury's estimated market value of properties, with values based on a 25 year lease with RPI increases, including our share of properties held within property joint ventures or investment vehicles, was £10.1 billion (7 March 2020: £9.9 billion), with the increase driven by a small reduction in property yields.

 

Defined benefit pensions

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

 

At 6 March 2021, the net defined benefit surplus under IAS19 for the Group was £744 million (excluding deferred tax). The £375 million reduction from 7 March 2020 was primarily driven by lower than expected asset returns and increased inflation expectations.

 

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

 

Retirement benefit obligations






Sainsbury's

Argos

Group

Group


as at

as at

as at

as at


06 March 2021

06 March 2021

06 March 2021

07 March 2020







£m

£m

£m

£m

Present value of funded obligations

(8,808)

(1,410)

(10,218)

(10,335)

Fair value of plan assets

9,596

1,404

11,000

11,491

Pension surplus/(deficit)

788

(6)

782

1,156

Present value of unfunded obligations

(21)

(17)

(38)

(37)

Retirement benefit obligations

767

(23)

744

1,119

Deferred income tax (liability)/asset

(178)

(14)

(192)

(214)

Net retirement benefit obligations

589

(37)

552

905

 

Consolidated income statement

for the 52 weeks to 6 March 2021

 



52 weeks to 6 March 2021

52 weeks to 7 March 2020



Before non-underlying items

Non-underlying items
(Note 4)

Total

Before non-underlying items

Non-underlying items
(Note 4)

Total


Note

£m

£m

£m

£m

£m

£m

Revenue


29,048

-

29,048

28,993

-

28,993

Cost of sales


(26,871)

(412)

(27,283)

(26,699)

(278)

(26,977)

Gross profit/(loss)


2,177

(412)

1,765

2,294

(278)

2,016

Administrative expenses


(1,480)

(238)

(1,718)

(1,345)

(114)

(1,459)

Other income


12

1

13

37

56

93

Operating profit/(loss)


709

(649)

60

986

(336)

650

Finance income

7

3

29

32

4

28

32

Finance costs

7

(356)

3

(353)

(404)

6

(398)

Share of post-tax loss from joint ventures and associates


-

-

-

-

(29)

(29)

Profit/(loss) before tax


356

(617)

(261)

586

(331)

255









Income tax (expense)/credit

8

(105)

86

(19)

(149)

46

(103)

Profit/(loss) for the financial period


251

(531)

(280)

437

(285)

152









(Loss)/earnings per share

9



pence



pence

Basic (loss)/earnings




(13.0)



5.8

Diluted (loss)/earnings




(13.0)



5.8

 

Consolidated statement of comprehensive income/(loss)

for the 52 weeks to 6 March 2021

 



52 weeks to 6 March 2021

52 weeks to 7 March 2020


Note

£m

£m

(Loss)/profit for the financial year


(280)

152

Items that will not be reclassified subsequently to the income statement




Remeasurement on defined benefit pension schemes

19

(482)

89

Movements on financial assets at fair value through other comprehensive income


55

17

Cash flow hedges fair value movements - inventory hedges


(60)

-

Current tax relating to items not reclassified


44

-

Deferred tax relating to items not reclassified

8

9

(18)



(434)

88

Items that may be reclassified subsequently to the income statement




Currency translation differences


(5)

-

Movements on financial assets at fair value through other comprehensive income


2

4

Cash flow hedges fair value movements - non-inventory hedges


(1)

(1)

Items reclassified from cash flow hedge reserve


13

(19)

Deferred tax on items that may be reclassified

8

10

3



19

(13)

Total other comprehensive (loss)/income for the year (net of tax)


(415)

75

Total comprehensive (loss)/income for the year


(695)

227

 

Consolidated balance sheet

At 6 March 2021 and 7 March 2020

 



6 March 2021

7 March 2020
Restated


Note

£m

£m

Non-current assets




Property, plant and equipment

11

8,587

8,949

Right of use assets

12

4,747

4,826

Intangible assets

13

914

974

Investments in joint ventures and associates


5

9

Financial assets at fair value through other comprehensive income


754

972

Trade and other receivables


50

43

Amounts due from Financial Services customers


2,280

3,453

Derivative financial assets


8

6

Net retirement benefit surplus

19

744

1,119



18,089

20,351

Current assets




Inventories


1,625

1,732

Trade and other receivables


725

811

Amounts due from Financial Services customers


3,127

3,951

Financial assets at fair value through other comprehensive income


90

82

Derivative financial assets


5

12

Cash and cash equivalents

16

1,477

994



7,049

7,582

Assets held for sale


24

4



7,073

7,586

Total assets


25,162

27,937





Current liabilities




Trade and other payables


(4,488)

(4,275)

Amounts due to Financial Services customers and other deposits


(6,086)

(6,890)

Borrowings

18

(258)

(48)

Lease liabilities

12

(524)

(510)

Derivative financial liabilities


(93)

(53)

Taxes payable


(59)

(163)

Provisions

15

(209)

(108)



(11,717)

(12,047)

Net current liabilities


(4,644)

(4,461)

Non-current liabilities




Other payables


(20)

(11)

Amounts due to Financial Services customers and other deposits


(203)

(1,204)

Borrowings

18

(748)

(1,248)

Lease liabilities

12

(5,310)

(5,264)

Derivative financial liabilities


(44)

(36)

Deferred income tax liability

8

(255)

(265)

Provisions

15

(261)

(89)



(6,841)

(8,117)

Total liabilities


(18,558)

(20,164)





Net assets


6,604

7,773

Equity




Called up share capital


637

634

Share premium


1,173

1,159

Merger reserve


568

568

Capital redemption reserve


680

680

Other reserves


167

168

Retained earnings


3,131

4,068

Total equity before perpetual securities


6,356

7,277

Perpetual capital securities


-

248

Perpetual convertible bonds


248

248

Total equity


6,604

7,773

 

 

Consolidated cash flow statement

for the 52 weeks to 6 March 2021

 



52 weeks to 6 March 2021

52 weeks to 7 March 2020


Note

£m

£m

Cash flows from operating activities




(Loss)/Profit before tax


  (261)

  255

Net finance costs


  321

  366

Share of post-tax loss from joint ventures


  -

  29

Operating profit


  60

  650

Adjustments for:




Depreciation expense

11, 12

  1,113

  1,127

Amortisation expense

13

  136

  129

Net impairment loss on property, plant and equipment, right of use assets, intangible assets

11, 12, 13

  321

  263

Non-cash adjustments arising from acquisitions


  (1)

  (2)

Financial Services impairment losses on loans and advances


  85

  80

Loss/(profit) on sale of properties and early termination of leases


  (17)

  (56)

Share-based payments expense


  29

  37

Defined benefit scheme expenses

19

  13

  9

Cash contributions to benefit schemes

19

  (101)

  (52)

Operating cash flows before changes in working capital


  1,638

  2,185

Changes in working capital




Decrease in inventories


  117

  197

Decrease/(increase) in financial assets at fair value through other comprehensive income


  267

  (177)

Decrease/(increase) in trade and other receivables


  62

  (129)

Decrease/(increase) in amounts due from Financial Services customers and other deposits


  1,912

  (499)

Increase/(decrease) in trade and other payables


  321

  (195)

(Decrease)/increase in amounts due to Financial Services customers and other deposits


  (1,805)

  492

Increase/(decrease) in provisions and other liabilities


  273

  (8)

Cash generated from operations


  2,785

  1,866

Interest paid


  (349)

  (384)

Corporation tax paid


  (93)

  (110)

Net cash generated from operating activities


  2,343

  1,372





Cash flows from investing activities




Purchase of property, plant and equipment


  (423)

  (519)

Initial direct costs on new leases


  (7)

  (13)

Purchase of intangible assets


  (172)

  (120)

Proceeds from disposal of property, plant and equipment


  27

  81

Interest received


  -

  2

Dividends and distributions received


  22

  143

Net cash used in investing activities


  (553)

  (426)





Cash flows from financing activities




Proceeds from issuance of ordinary shares


  17

  15

Proceeds from borrowings


  -

  250

Proceeds from short term borrowings


  660

  -

Repayment of borrowings


  (289)

  (169)

Repayment of short term borrowings


  (660)

  -

Repayment upon maturity of convertible bonds


  -

  (450)

Repayment of perpetual capital securities


  (250)

 -

Purchase of own shares


  (30)

  (18)

Repayment of capital element of lease obligations


  (501)

  (420)

Repayment of capital element of obligations under hire purchase arrangements


  -

  (10)

Dividends paid on ordinary shares

10

  (232)

  (247)

Dividends paid on perpetual securities


  (23)

  (23)

Net cash used in financing activities


  (1,308)

  (1,072)





Net increase/(decrease) in cash and cash equivalents


  482

  (126)





Opening cash and cash equivalents


  994

  1,120

Closing cash and cash equivalents

16

  1,476

  994

 

Consolidated statement of changes in equity

for the 52 weeks to 6 March 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


Note

£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 income/(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

10

-

-

-

-

(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)

At 6 March 2021


637

1,173

568

847

3,131

6,356

-

248

6,604























At 10 March 2019


630

1,147

568

852

4,089

7,286

248

248

7,782

Profit for the period


-

-

-

-

129

129

16

7

152

Other comprehensive income


-

-

-

1

89

90

-

-

90

Tax relating to other comprehensive income/(loss)


-

-

-

-

(15)

(15)

-

-

(15)

Total comprehensive income/(loss) for the period ended 7 March 2020


-

-

-

1

203

204

16

7

227












Transactions with owners:











Dividends


-

-

-

-

(247)

(247)

-

-

(247)

Distribution to holders of perpetual securities


-

-

-

-

-

-

(16)

(7)

(23)

Amortisation of convertible bond equity component


-

-

-

(5)

5

-

-

-

-

Share-based payment


-

-

-

-

37

37

-

-

37

Purchase of own shares


-

-

-

-

(18)

(18)

-

-

(18)

Allotted in respect of share option schemes


4

12

-

-

(1)

15

-

-

15

Tax on items charged to equity


-

-

-

-

-

-

-

-

-

At 7 March 2020


634

1,159

568

848

4,068

7,277

248

248

7,773

 

Notes to the consolidated financial statements

 

1 General information

 

The financial information, which comprises the Group income statement, Group statement of comprehensive income, Group balance sheet, Group cash flow statement, Group statement of changes in equity and related notes, is derived from the full Group financial statements for the 52 weeks to 6 March 2021 and does not constitute full accounts within the meaning of section 435 (1) and (2) of the Companies Act 2006.

The Group Annual Report and Financial Statements 2021 on which the auditors have given an unqualified report and which does not contain a statement under section 498 (2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies in due course, and made available to shareholders in June 2021.

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 financial year represents the 52 weeks to 6 March 2021 (prior financial year: 52 weeks to 7 March 2020). The consolidated financial statements for the 52 weeks to 6 March 2021 comprise the financial statements of the Company and its subsidiaries (the 'Group') and the Group's share of the post-tax results of its joint ventures and associates.

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

2 Significant accounting policies

2.1 Basis of preparation

The Group's financial statements have been 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 financial statements are presented in sterling, rounded to the nearest million ('£m') unless otherwise stated. They have been prepared under the historical cost convention, except for derivative financial instruments, defined benefit pension scheme assets and financial assets at fair value through other comprehensive income that have been measured at fair value.

 

Sainsbury's Bank Plc and its subsidiaries have been consolidated for the twelve months to 28 February 2021 being the Bank's year-end date (prior financial year: 29 February 2020). There have been no significant transactions or events that occurred between this date and the Group's balance sheet date, and therefore no adjustments have been made to reflect the difference in year-end dates.

 

Unless otherwise stated, significant accounting policies have been applied consistently to all periods presented in the financial statements.

 

Presentational changes

 

In accordance with IAS 1 'Presentation of Financial Statements', within the consolidated statement of comprehensive income the Group presents separately items that will not be subsequently reclassified to the income statement and items that may be subsequently reclassified to the income statement, which includes the fair value movements on effective cash flow hedges. In accordance with IFRS 9 'Financial Instruments', cash flow hedge gains and losses in relation to inventory purchases are recognised as part of the cost of inventory, and therefore the carrying value of inventory is adjusted for the accumulated gains or losses recognised directly in other comprehensive income (a basis adjustment), and then recognised in the income statement when the inventory is sold.

 

 

2 Significant accounting policies continued

 

This basis adjustment is not part of other comprehensive income. The Group has therefore separately presented effective fair value movements on inventory hedges and non-inventory hedges within the consolidated statement of comprehensive income and shown the inventory basis adjustments as a separate line within the statement of changes in equity. Comparative period amounts have not been adjusted on the grounds of materiality.

 

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 12 months to 28 April 2022.

 

In assessing the Group's ability to continue as a going concern, the Directors have considered the Group's most recent corporate planning and budgeting processes. This includes an annual review which considers profitability, the Group's cash flows, committed funding and liquidity positions and forecasted future funding requirements over three years, with a further two years of indicative movements. The most recent corporate plan was prepared in October 2020, and refreshed in March 2021 as part of normal budgeting process. This 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 6 March 2021, the Revolving Credit Facility 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 6 March 2021.

 

In assessing going concern, scenarios in relation to the Group's principal risks have been considered in line with those disclosed in the viability statement (included in the Group's annual report) by overlaying them into the corporate plan and assessing the impact on cash flows, net debt and funding headroom. These severe but plausible scenarios included modelling 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 projects, bonuses and dividend payments.

 

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

 

2 Significant accounting policies continued

 

2.3 Amendments to published standards

 

Effective for the Group and Company in these financial statements:

The Group has considered the following amendments to published standards that are effective for the Group for the financial year beginning 8 March 2020 and concluded that they are either not relevant to the Group or that they do not have a significant impact on the Group's financial statements other than disclosures.

 

-  Amendments to References to Conceptual Framework in IFRS Standards

-  Amendments to IFRS 3 'Business Combinations' on the definition of a business

-  Amendments to IAS 1 'Presentation of Financial Statements' and IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' on the definition of material

-  Amendments to IFRS 9 'Financial Instruments', IAS 39 'Financial Instruments: Recognition and Measurement' and IFRS 7 'Financial Instruments: Disclosures' on the Interest Rate Benchmark Reform

 

The Group has noted the exemption granted in the 'COVID-19-related rent concessions' amendment to IFRS 16 'Leases'. This exemption applies for periods commencing on or after 1 June 2020, with an option to early adopt. The Group has elected not to apply the exemption granted as the Group has not received material COVID-19-related rent concessions as a lessee.

 

Standards and revisions effective for future periods:

The following standards and revisions will be effective for future periods:

-  Amendments to IFRS 3 'Business Combinations' with reference to the Conceptual Framework

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

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

-  Amendments to IAS 1 'Presentation of Financial Statements' on the classification of liabilities as current or non-current

-  IFRS 17 'Insurance Contracts'

The Group has considered the impact of the remaining above standards and revisions and have concluded that they will not have a significant impact on the Group's financial statements.

 

Interest Rate Benchmark Reform

The Group applied the Phase 1 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 which became effective from 1 January 2020 and early adopted the Phase 2 amendments  from 8 March 2020 retrospectively. However, in accordance with exceptions provided in the Phase 2 amendments, the Group has elected not to restate the prior period to reflect the application of these amendments, including not providing additional disclosures for 2020. There is no impact on opening equity balances as a result of retrospective application.

Both Phase 1 and Phase 2 are relevant to the Group because it applies hedge accounting to its interest rate benchmark exposures. The Group has no variable lease payments that are linked to LIBOR.

The Phase 1 amendments provided reliefs that may otherwise have resulted in the Group no longer being able to apply hedge accounting for certain hedge relationships as a result of uncertainties arising from the LIBOR benchmark reform. As a result of the reliefs the Group was able to continue existing hedge accounting whilst implementing its LIBOR to SONIA transition project.

2 Significant accounting policies continued

The Phase 2 amendments to IFRS 9 provide a series of reliefs from certain hedge accounting requirements when a change required by interest rate benchmark reform occurs to a hedged item and/or hedging instrument and consequently the hedge relationship can be continued without any interruption.

3 Alternative Performance Measures (APMs)

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

3.1 Purpose of APMs

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.

The APMs that the Group has focused on in the period are detailed on page 59. All of the APMs relate to the current period's results and comparative periods.

3.2 Changes to APMs

The following APMs have been updated during the period:

· Like-for-like sales: The impact on sales of stores which were temporarily closed due to COVID-19 have been included within like-for-like sales. During the year due to temporary store closures as a result of the COVID-19 pandemic there has been a material increase in digital sales. It is not possible to calculate the exact transfer of sales from temporarily closed stores to online as a result of the pandemic therefore the like-for-like definition has been adjusted to include temporary store closures as a result of COVID-19 . Only permanently closed sites and those temporarily closed for non COVID-19 related reasons are excluded from like-for-like sales.

· Net cash generated from retail operations (per Financial Review): The presentation of the summary cashflow statement on page 61 has been modified to provide useful additional information of the build from Retail Underlying Operating Profit.

· Earnings before interest, tax, depreciation and amortisation (EBITDA): Following the adoption of IFRS16, EBITDA and EBITDAR (earnings before interest, tax, depreciation, amortisation and rent) are broadly consistent measures. Therefore EBITDA is now being disclosed instead of EBITDAR.

 

4 Profit before non-underlying items

 

In order to provide shareholders with additional insight into the underlying performance of the business, certain items are excluded from the Group's underlying results and presented as 'profit before non-underlying items' on the face of the income statement. This is consistent with how the performance of the Group is reviewed by management. Determining which items are to be adjusted requires judgement, and considers both the nature and scale of the item, as well as the circumstances surrounding it. Reversals of prior non-underlying items are considered based on the same criteria.

 

Profit before non-underlying items is not defined by International Financial Reporting Standards and is one of the APMs used by the Group (see page 59). Therefore, it may not be directly comparable with adjusted measures of other companies.

 

4 Profit before non-underlying items continued

 

The most significant non-underlying items in the current year relate to restructuring programmes, impairment charges and income relating to the Supreme Court ruling on ATM business rates. More details on each are included further below.

 

The Group has also excluded the following items from underlying profit:

 

· Financial Services transition - multi-year costs incurred in transitioning to a new, more flexible banking platform as part of the previously announced New Bank Programme. These principally comprise contractor and service provider costs relating to the migration of data and other services to the Bank's new infrastructure and operating model.

· Profit or loss on disposal of properties - such disposals are not part of the Group's underlying business.

· Investment property fair value movements - these reflect the difference between the fair value of an investment property at the reporting date and its carrying amount at the previous reporting date and are held within the property JVs. The valuations are impacted by external market factors and can therefore vary significantly year-on-year.

· Perpetual securities coupons - these are accounted for as equity in line with IAS 32 'Financial instruments: Presentation', however are accrued on a straight-line basis and included as an expense within underlying profit as they are included by management when assessing Group borrowings.

· Non-underlying finance movements - these include fair value remeasurements on derivatives not in a hedging relationship. The fair value measurements are impacted by external market factors and can fluctuate significantly year-on-year. Lease interest on impaired non-trading sites, including site closures, is excluded from underlying profit as those sites do not contribute to the underlying business.

· IAS 19 pension interest and expenses include the financing element and scheme expenses of the Group's defined benefit scheme. These are reported outside underlying profit as they no longer relate to the Group's on-going activities following closure of the scheme to future accrual.

· Acquisition adjustments - these reflect the adjustments arising from acquisitions including the fair value unwind and amortisation of acquired intangibles.

 

The Group has not included any additional costs incurred or credits received directly in relation to the impacts of COVID-19 within non-underlying items. Whilst some items (such as 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. In addition, the repayment of business rates relief announced in December 2020 has also been treated as underlying, due to being a cost that would have been incurred in an ordinary trading year.

 

4 Profit before non-underlying items continued

 

 


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)

 

Restructuring programmes

During the financial period, it has been agreed to accelerate the structural integration of Sainsbury's and Argos and further simplify the Argos business model. As a result, around 420 Argos stores will be closed by March 2024, leaving the total number of UK standalone stores at around 100. To support this, a total of 32 Local Fulfilment Centres will be built across the UK that will operate the Group's fast track delivery operations, delivering to customers' homes and to Argos stores and collection points across the country.

 

In addition, the Group is creating a new supply chain and logistics operating model, moving to a single integrated supply chain and logistics network across Sainsbury's and Argos. As a result of this, a number of existing depots are closing.  Further, the Group has reviewed its Store Support Centre ways of working and as a result is reducing its office space.

 

Further opportunities to rationalise the Group's supermarkets, convenience estate have been identified, building on last year's property strategy programme that was announced at the Capital Markets Day in September 2019. At that time it was communicated that 10 to 15 supermarkets and 30 to 40 convenience stores would close. It is now expected that 15 to 20 supermarkets and 55 to 65 convenience stores will close or be sold.

 

Costs totalling £423 million have been recognised in the period in relation to the above and comprise the following:

 


£m

Write downs of property, plant and equipment

26

Write downs of leased assets

72

Write downs of intangible assets

3

Closure provisions

240

Accelerated depreciation of assets

27

Redundancy provisions

61

Consultancy costs

10

Gain on lease terminations

(16)


423

 

4 Profit before non-underlying items continued

Closure provisions relate to onerous contract costs, dilapidations and strip out costs on leased sites. Onerous contract costs have been recognised where sites are forecast to close before the end of the contractual lease term, and relate to the unavoidable costs that the business will incur by virtue of remaining in a lease, such as service charges, insurance and security.

 

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.

 

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.

 

With regards to the above restructuring and impairment charges, the costs incurred arise as a result of implementing changes for the future to evolve and reshape the business. They are therefore different in nature to the COVID-19-related income and costs that were incurred to maintain business as usual activity and which have been reported within underlying profit.

 

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.

 

Impairment of non-financial assets

In addition to the above, in line with IAS 36 'Impairment of non-financial assets', the Group is required to assess whether there is any indication that an asset (or cash generating unit (CGU)) may be impaired (i.e. its carrying amount may be higher than its recoverable amount).

 

The COVID-19 pandemic has resulted in changes to customer shopping habits, patterns and sources of finance. Despite this, the Group has proved resilient through the pandemic, with higher grocery sales growth helping to offset the additional in-store costs. However the changes in customer behaviour have led to an acceleration of the Group's structural integration of Sainsbury's and Argos during the period and through this, a review of the economic performance of the Group's assets has been performed as a result of store rationalisation, changes in channel mix, and changes in customer borrowing and cash usage behaviour. This has been deemed an indicator of impairment and a full impairment review has therefore been performed covering both Retail and Financial Services non-financial assets.

 

An impairment charge of £220 million has been recognised in the period and comprises:

 


£m

Impairment of property, plant and equipment

62

Impairment of leased assets

65

Impairment of intangible assets

93


220

 

4 Profit before non-underlying items continued

 

Of the total charge of £220 million, £105 million is in relation to assets within the Financial Services segment, with the remaining £115 million within the Retail segment. Further details of the impairment charge are included within note 14.

 

Financial Services transition

These predominantly comprise Financial Services transition costs 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.

 

ATM business rates reimbursement

£42 million of income is due to be received (of which £27 million has been received as at 6 March 2021) from the Valuation Office following the Supreme Court's ruling that ATMs outside stores should not be assessed for additional business rates on top of normal store rates.

 

Property, finance, pension and acquisition adjustments

· Profit on disposal of properties for the financial period comprised £1 million for the Group and £nil for the joint ventures.

· The coupons on the perpetual subordinated capital securities and the perpetual subordinated convertible bonds are accounted for as equity in line with IAS 32 'Financial Instruments: Presentation', however are accrued on a straight-line basis and included as an expense within underlying profit before tax. During the year, the perpetual capital securities were redeemed.

· Non-underlying finance movements for the financial year comprised £(1) million for the Group and £nil for the joint ventures. These are presented separately in note 7.

· Defined benefit pension interest and expenses comprises pension finance income of £19 million and scheme expenses of £(13) million (see note 19).

· Acquisition adjustments of £(19) million reflect the unwind of non-cash fair value adjustments arising from Home Retail Group and Nectar UK acquisitions and are recognised as follows:

 


52 weeks to 6 March 2021


52 weeks to 7 March 2020


Argos

Nectar

Total Group


Argos

Nectar

Total Group


£m

£m

£m


£m

£m

£m

Cost of sales

1

-

1


2

-

2

Depreciation

4

-

4


(2)

-

(2)

Amortisation

(18)

(6)

(24)


(18)

(8)

(26)


(13)

(6)

(19)


(18)

(8)

(26)

 

4 Profit before non-underlying items continued

 

Comparative information


Cost of sales

Administrative expenses

Other income

Net finance income/(costs)

Share of loss from JVs

Total adjustments before tax

Tax

Total adjustments


£m

£m

£m

£m

£m

£m

£m

£m

Property strategy programme

(255)

(41)

-

-

-

(296)

28

(268)

Retail restructuring programme

(21)

(11)

-

-

-

(32)

6

(26)

Financial Services transition and other

(2)

(27)

-

-

-

(29)

4

(25)

Total strategic programmes

(278)

(79)

-

-

-

(357)

38

(319)










Property, finance, pension and acquisition adjustments






Profit/(loss) on disposal of properties

-

-

56

-

(21)

35

3

38

Investment property fair value movements

-

-

-

-

(3)

(3)

-

(3)

Perpetual securities coupons

-

-

-

23

-

23

(4)

19

Non-underlying finance movements

-

-

-

(17)

(5)

(22)

3

(19)

IAS 19 pension expenses

-

(9)

-

28

-

19

(4)

15

Acquisition adjustments

-

(26)

-

-

-

(26)

5

(21)

Total property, finance, pension and acquisition adjustments

-

(35)

56

34

(29)

26

3

29










Tax adjustments









Over provision in prior years

-

-

-

-

-

-

8

8

Revaluation of deferred tax balances

-

-

-

-

-

-

(3)

(3)










Total adjustments

(278)

(114)

56

34

(29)

(331)

46

(285)

 

Prior year property strategy programme

During the prior year, the Group identified an impairment indicator following an approved programme of store closures. This programme was initially announced at the Capital Markets Day in September 2019. It was subsequently revisited during the second half of the prior-financial year resulting in additional planned closures. Impairment charges and closure costs were therefore recognised in the prior year as follows:

 


Property strategy programme

Impairment review


£m

£m

Impairment of property, plant and equipment

70

84

Impairment of leased assets

51

29

Impairment of intangible assets

5

13

Store closure provisions

41

-

Redundancy provisions

3

-


170

126

 

Prior year retail restructuring programme

Restructuring costs of £(32) million in the prior year mostly comprise redundancy payments following changes to the Group's store management structure, responding to changing customer shopping habits and reducing costs throughout the store estate, as well as the closure of one Argos distribution centre, prior to the wider store closure programme announced at the Capital Markets Day.  Also included costs incurred following announced head-office restructures during the year.

4 Profit before non-underlying items continued

 

Cash flow statement

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



52 weeks to 6 March 2021

52 weeks to 7 March 2020



£m

£m

Cash flows from operating activities




IAS 19 pension expenses


(7)

(9)

Financial Services transition and other


(15)

(22)

Argos integration costs


-

(2)

Restructuring programmes


(39)

(34)

ATM Rates reimbursement


27

-

Transaction costs relating to the proposed merger with Asda


-

(13)

Cash used in operating activities


(34)

(80)





Cash flows from investing activities




Proceeds from property disposals


27

81

Cash generated from investing activities


27

81





Net cash flows


(7)

1

 

5 Segment reporting

Background

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 and Clothing

- Financial Services

 

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 4. All material operations and assets are in the UK.

 

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

 

Segment revenue presents a disaggregation of revenue from customers consistent with the Group's primary revenue streams.

 

5 Segment reporting continued

Income statement and balance sheet

 


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 share of post tax profit from joint ventures and associates

-

-

-

Underlying profit/(loss) before tax

377

(21)

356

Non-underlying expense (note 4)


(617)

Loss before tax


(261)

Income tax expense (note 8)


(19)

Loss for the financial period


(280)

Assets

17,637

7,520

25,157

Investment in joint ventures and associates

5

-

5

Segment assets

17,642

7,520

25,162

Segment liabilities

(11,940)

(6,618)

(18,558)

Other segment items

Additions to non-current assets




  Property, plant and equipment

419

-

419

  Intangible assets

145

27

172

  Right-of-use assets

542

-

542

Depreciation expense1




  Property, plant and equipment

627

2

629

  Right-of-use assets

483

1

484

Amortisation expense2




  Intangible assets

116

20

136

Impairment charges

216

105

321

Restructuring charges

322

-

322

Share based payments

26

3

29

 

1   Depreciation within the Retail segment includes a £(4) million reduction in relation to the unwind of fair value adjustments recognised on acquisition of HRG.

Amortisation expense within the Retail segment includes £24 million charge in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK.

 

5 Segment reporting continued

 



Retail

Financial
Services

Group

52 weeks to 7 March 2020


£m

£m

£m






Segment revenue





Retail sales to external customers


28,424

-

28,424

Financial Services to external customers


-

569

569

Underlying revenue


28,424

569

28,993

Revenue


28,424

569

28,993






Underlying operating profit


938

48

986

Underlying finance income


4

-

4

Underlying finance costs


(404)

-

(404)

Underlying share of post-tax profit from joint ventures and associates


-

-

-

Underlying profit before tax


538

48

586

Non-underlying expense (note 4)




(331)

Profit before tax




255

Income tax expense (note 8)




(103)

Profit for the financial period




152






Assets


18,463

9,465

27,928

Investment in joint ventures and associates


9

-

9

Segment assets


18,472

9,465

27,937

Segment liabilities


(11,738)

(8,426)

(20,164)






Other segment items





Additions to non-current assets





  Property, plant and equipment


527

1

528

  Intangible assets


88

36

124

  Right-of-use assets


406

-

406

Depreciation expense1





  Property, plant and equipment


627

7

634

  Right-of-use assets


492

1

493

Amortisation expense2





  Intangible assets


106

23

129

Impairment charges


257

6

263

Restructuring charges


44

-

44

Share based payments


34

3

37

 

1   Depreciation within the Retail segment includes a £2 million charge in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK.

2   Amortisation expense within the Retail segment includes £26 million charge in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK.

 

Geographical segments

The Group trades predominantly in the UK and the Republic of Ireland and consequently the majority of revenues, capital expenditure and segment net assets arise there. The profits, turnover and assets of the businesses in the Republic of Ireland are not material to the Group.

 

5 Segment reporting continued

Cash flow

 



52 weeks to 6 March 2021

52 weeks to 7 March 2020


APM

Retail

Financial Services

Group

Retail

Financial Services

Group

reference











£m

£m

£m

£m

£m

£m









(Loss)/Profit before tax


  (114)

  (147)

  (261)

  235

  20

  255

Net finance costs


  321

  -

  321

  363

  3

  366

Share of post-tax loss from joint ventures and associates


  -

  -

  -

  29

 -

  29

Operating profit


  207

  (147)

  60

  627

  23

  650

Adjustments for:








Depreciation and amortisation expense


  1,226

  23

  1,249

  1,225

  31

  1,256

Net impairment charge on property, plant and equipment, right-of-use assets and intangible assets


  216

  105

  321

  257

  6

  263

Non-cash adjustments arising from acquisitions


  (1)

  -

  (1)

  (2)

 -

  (2)

Financial Services impairment losses on loans and advances


  -

  85

  85

 -

  80

  80

(Profit)/loss on sale of properties and early termination of leases


  (19)

  2

  (17)

  (56)

 -

  (56)

Share-based payments expense


  26

  3

  29

  34

  3

  37

Non-cash defined benefit scheme expenses


  13

  -

  13

  9

 -

  9

Cash contributions to defined benefit scheme


  (101)

  -

  (101)

  (52)

 -

  (52)

Operating cash flows before changes in working capital


  1,567

  71

  1,638

  2,042

  143

  2,185

Movements in working capital


  708

  439

  1,147

  (71)

  (248)

  (319)

Cash generated from operations


  2,275

  510

  2,785

  1,971

  (105)

  1,866

Interest paid

a

  (349)

  -

  (349)

  (384)

 -

  (384)

Corporation tax (paid)/received


  (94)

  1

  (93)

  (113)

  3

  (110)

Net cash generated/(used) from operating activities


  1,832

  511

  2,343

  1,474

  (102)

  1,372









Cash flows from investing activities








Purchase of property, plant and equipment


  (423)

  -

  (423)

  (517)

  (2)

  (519)

Initial direct costs on new leases


  (7)

  -

  (7)

  (13)

 -

  (13)

Purchase of intangible assets


  (145)

  (27)

  (172)

  (82)

  (38)

  (120)

Proceeds from disposal of property, plant and equipment


  27

  -

  27

  81

 -

  81

Interest received

a

  -

  -

  -

  2

 -

  2

Dividends and distributions received

e

  22

  -

  22

  143

 -

  143

Net cash used in investing activities


  (526)

  (27)

  (553)

  (386)

  (40)

  (426)









Cash flows from financing activities








Proceeds from issuance of ordinary shares

d

  17

  -

  17

  15

 -

  15

Proceeds from borrowings

c

  -

  -

  -

  250

 -

  250

Proceeds from short term borrowings

c

  660

  -

  660

  -

  -

  -

Repayment of borrowings

c

  (289)

  -

  (289)

  (169)

 -

  (169)

Repayment of short term borrowings

c

  (660)

  -

  (660)

 -

 -

 -

Repayment upon maturity of convertible bonds

c

  -

  -

  -

  (450)

 -

  (450)

Repayment of perpetual capital securities

c

  (250)

  -

  (250)

 -

 -

 -

Purchase of own shares

d

  (30)

  -

  (30)

  (18)

 -

  (18)

Repayment of capital element of obligations under lease liabilities

b

  (499)

  (2)

  (501)

  (419)

  (1)

  (420)

Repayment of capital element of obligations under hire purchase agreements

c

  -

  -

  -

  (10)

 -

  (10)

Dividends paid on ordinary shares


  (232)

  -

  (232)

  (247)

 -

  (247)

Dividends paid on perpetual securities

a

  (23)

  -

  (23)

  (23)

 -

  (23)

Net cash used in financing activities


  (1,306)

  (2)

  (1,308)

  (1,071)

  (1)

  (1,072)

















Bank capital injections


  -

  -

  -

  (35)

  35

 -

Net cash (used in)/generated from intra group funding


  -

  -

  -

  (35)

  35

 -









Net increase/(decrease) in cash and cash equivalents


  -

  482

  482

  (18)

  (108)

  (126)

 

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.

 

Income is recognised when earned by the Group when all obligations per the terms of the contract have been performed. Any supplier arrangements which are linked to inventory purchases are included within the cost of the related inventory, and therefore recognised within cost of sales once the inventory is sold. Unpaid amounts relating to supplier arrangements are recognised within trade and other receivables, unless there is a legal right of offset, in which case it is recognised within trade and other payables.

 

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. Income is recognised as the obligations per the terms of the agreement have been satisfied. These involve a degree of judgement and estimation in ensuring the appropriate cut-off for fixed amounts which span a period-end, however the agreements are sufficiently detailed which significantly reduces the degree of estimation required to be applied.

-  Volume-based 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 and requires estimates of the amount earned up to the balance sheet date, for each relevant supplier contract. Where agreements span a financial period-end, estimations are required of projected turnover and judgement may also need to be applied to determine the rebate level earned as agreements may involve multiple tiers. In order to minimise any risk arising from estimation, agreements from suppliers are obtained to agree the value to be recognised at year-end, prior to it being invoiced. By aligning the agreements to the Group's financial year, where possible, the estimates required are minimised.

-  Marketing and advertising income - relates to income which is directly linked to the cost of producing the Argos catalogue as well as advertising income from suppliers through the Group's subsidiary Nectar 360 Services LLP. During the year it was announced that production of the Argos catalogue would cease. Income relating to the Argos catalogue is recognised once agreed with the supplier and when the catalogue is made available to the Group. Advertising income relating to Nectar 360 Services LLP is recognised when the advertising campaign obligations are fulfilled.

 

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.

 



52 weeks to 6 March 2021

52 weeks to 7 March 2020



£m

£m





Fixed amounts


236

  278

Supplier rebates


55

  68

Marketing and advertising income


83

  105

Total supplier arrangements


374

451

 

6 Supplier arrangements continued

 

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

 



52 weeks to 6 March 2021

52 weeks to 7 March 2020



£m

£m

Within inventory


(5)

  (7)





Within current trade receivables




Supplier arrangements due


49

  44

Accrued supplier arrangements


37

  38





Within current trade payables




Supplier arrangements due


32

  12

Accrued supplier arrangements


5

 -

Deferred income due


(2)

  (2)

Total supplier arrangements


116

85

 

7 Finance income and finance costs

 


2021

2020


Underlying

Non-Underlying

Total

Underlying

Non-Underlying

Total


£m

£m

£m

£m

£m

£m

Interest on bank deposits and other financial assets

1

-

1

2

-

2

Fair value measurements

-

10

10

-

-

-

IAS 19 pension financing income

-

19

19

-

28

28

Finance income on net investment in leases

2

-

2

2

-

2

Finance Income

3

29

32

4

28

32






















Secured borrowings

(49)

-

(49)

(50)

-

(50)

Unsecured borrowings

(1)

-

(1)

(12)

-

(12)

Lease liabilities

(295)

(10)

(305)

(323)

(9)

(332)

Provisions - amortisation of discount

(1)

(1)

(2)

-

-

-

Fair value measurements

-

-

-

-

(8)

(8)

Interest capitalised - qualifying assets

4

-

4

4

-

4

Perpetual securities coupon

(14)

14

-

(23)

23

-

Finance costs

(356)

3

(353)

(404)

6

(398)

Interest paid and interest received for the purpose of the cash flow statement relates to retail only, with Financial Services interest paid and interest received included in the net operating cash flow.

The coupons on the perpetual capital securities and perpetual convertible bonds are accounted for as dividends in accordance with IAS 32 'Financial Instruments: Presentation' and hence are not a finance cost. These are included as a finance cost in the presentation of underlying results, but do not qualify as a finance cost for IFRS statutory purposes.

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

8 Taxation

 


52 weeks to 6 March 2021

52 weeks to 7 March 2020


£m

£m

Current year UK tax

16

96

Current year overseas tax

6

5

Over-provision in prior years

(12)

(13)

Total current tax expense

10

88

Origination and reversal of temporary differences

(46)

(2)

Under provision in prior years

27

17

Derecognition of capital losses

28

-

Total deferred tax expense

9

15

Total income tax expense in income statement

19

103

Analysed as:

Underlying tax

105

149

Non-underlying tax

(86)

(46)

Total income tax expense in income statement

19

103

Underlying tax rate

29.5%

25.4%

Effective tax rate

(7.3)%

40.4%

 

9 Earnings per share

 

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

For diluted earnings per share, the earnings attributable to the ordinary shareholders are adjusted by the coupons on the perpetual subordinated convertible bonds (and also interest on the senior convertible bonds (net of tax) in the prior year). 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 4. 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.

 

 


2021

2020


million

million

Weighted average number of shares in issue1

2,210.0

2,207.6

Weighted average number of dilutive share options1

21.7

24.1

Weighted average number of dilutive senior convertible bonds1

-

153.7

Weighted average number of dilutive subordinated perpetual convertible bonds1

88.4

84.6

Total number of shares for calculating diluted earnings per share

2,320.1

2,470.0





£m

£m

(Loss)/profit for the financial period (net of tax)

(280)

152

Less profit attributable to:



Holders of perpetual capital securities

-

(16)

Holders of perpetual convertible bonds

(7)

(7)

(Loss)/profit for the financial period attributable to ordinary shareholders

(287)

129




(Loss)/profit for the financial period attributable to ordinary shareholders

(287)

129

Add interest on senior convertible bonds (net of tax)1

-

9

Add coupon on subordinated perpetual convertible bonds (net of tax)1

-

6

Diluted (loss)/earnings for calculating diluted (loss)/earnings per share

(287)

144




(Loss)/profit for the financial period attributable to ordinary shareholders of the parent

(287)

129

Adjusted for non-underlying items (note 4)

617

331

Tax on non-underlying items

(86)

(46)

Add back coupons on perpetual securities (net of tax)2

14

23

Underlying profit after tax attributable to ordinary shareholders of the parent

258

437

Add interest on convertible bonds (net of tax)

-

9

Add coupon on subordinated perpetual convertible bonds (net of tax)

6

6

Diluted underlying profit after tax attributable to ordinary shareholders of the parent

264

452





Pence per share

Pence per share

Basic (loss)/earnings

(13.0)

5.8

Diluted (loss)/earnings

(13.0)

5.8

Underlying basic earnings

11.7

19.8

Underlying diluted earnings

11.4

18.3

 

1  In accordance with IAS 33, 'Earnings per share', dilutive share options and their respective earnings adjustments are excluded from the calculation of diluted

earnings per share when the impact is anti-dilutive.

2  Underlying earnings per share calculation is based on underlying profit after tax attributable to ordinary shareholders. Therefore the perpetual securities coupons are added back.

 

10 Dividends

 


2021

2020

2021

2020


pence per share

pence per share

£m

£m

Amounts recognised as distributions to ordinary shareholders in the year:





Final dividend of prior financial year

-

7.9

-

174

Interim dividend of current financial year

3.2

3.3

71

73

Special Dividend

7.3

-

161

-


10.5

11.2

232

247

 

On 27 April 2021, after the balance sheet date, a final dividend of 7.4 pence per share was proposed by the Directors in respect of the 52 weeks to 6 March 2021. This results in a total final proposed dividend of £164 million.

 

In the prior year, no final dividend was proposed. Given the wide range of potential profit and cash flow outcomes of COVID-19 at the time, the Board believed it was prudent to defer any dividend payment decisions until later in the financial year. Accordingly, a special dividend of 7.3 pence per share (£161 million) was paid on 18 December 2020 along with the interim dividend.

 

Subject to shareholders' approval at the Annual General Meeting, the dividend will be paid on 16 July 2021 to the shareholders on the register at 11 June 2021. The proposed final dividend has not been included as a liability at 6 March 2021.

 

11 Property, plant and equipment

 


Land and buildings

Fixtures and equipment

Total


£m

£m

£m

Cost




At 8 March 2020

9,712

5,303

15,015

Adjustment to opening balance

3

22

25

Reclassification between intangibles and PPE

1

37

38

At 8 March 2020 restated (refer below)

9,716

5,362

15,078

Additions

89

330

419

Disposals

(59)

(404)

(463)

Transfer to asset held for sale

(91)

-

(91)

At 6 March 2021

9,655

5,288

14,943




Accumulated depreciation and impairment




At 8 March 2020

2,690

3,414

6,104

Adjustment to opening balance

3

22

25

At 8 March 2020 restated (refer below)

2,693

3,436

6,129

Depreciation expense for the year

173

456

629

Impairment loss for the year

26

62

88

Disposals

(32)

(391)

(423)

Transfer to asset held for sale

(67)

-

(67)

At 6 March 2021

2,793

3,563

6,356




Net book value at 6 March 2021

6,862

1,725

8,587




Capital work-in-progress included above

122

320

442





Cost




At 10 March 2019

9,917

5,111

15,028

Additions

31

497

528

Disposals

(245)

(305)

(550)

Transfer from asset held for sale

9

-

9

At 7 March 2020

9,712

5,303

15,015





Accumulated depreciation and impairment




At 10 March 2019

2,644

3,191

5,835

Depreciation expense for the year

184

450

634

Impairment loss for the year

123

37

160

Disposals

(269)

(264)

(533)

Transfer from asset held for sale

8

-

8

At 7 March 2020

2,690

3,414

6,104




Net book value at 7 March 2020

7,022

1,889

8,911




Capital work-in-progress included above

141

295

436

 

The prior year cost and accumulated depreciation have been restated, with no impact on the reported net book  value of property, plant & equipment. An adjustment had been erroneously recorded against assets that had been disposed of across a number of different reporting periods.

 

Refer to note 13 for details on the reclassifications between property, plant & equipment and intangible assets.

 

12 Leases

 

Group as lessee

The Group's lease portfolio is principally comprised of property leases of land and buildings in relation to stores, distribution centres and support offices, but also includes other assets such as motor vehicles . The leases have varying terms and often include break clauses or options to renew beyond the non-cancellable periods.

 

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

 

 

Net book value

Land and buildings

Equipment

Total


£m

£m

£m

At 8 March 2020

4,536

290

4,826

New leases and modifications

413

129

542

Depreciation charge

(398)

(86)

(484)

Impairment charge

(137)

-

(137)

At 6 March 2021

4,414

333

4,747









At 10 March 2019

4,747

246

4,993

New leases and modifications

285

121

406

Depreciation charge

(416)

(77)

(493)

Impairment charge

(80)

-

(80)

At 7 March 2020

4,536

290

4,826

 

Refer to note 14 for further details over the impairment charge recognised.

 

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

 

Lease Liability




2021

2020


£m

£m

At 8 March 2020 and 10 March 2019

5,774

5,831

New leases and modifications1

561

373

Interest expense

305

332

Payments

(806)

(762)

At 6 March 2021 and 7 March 2020

5,834

5,774




Current

524

510

Non-current

5,310

5,264

 

1.  Refer significant judgement section below

 

Significant judgement - lease terms

The inclusion of a lease extension period or lease break period in the lease term is a key judgement for the Group and considers all relevant factors that create an economic incentive for it to exercise them. For leased properties, this includes the current and expected profitability of the respective site, as well as the length of time until the option can be exercised. Any changes to the Group's judgement over lease terms will impact both the right of use asset and lease liability.

 

The accelerated structural integration of Sainsbury's and Argos which commenced in the prior year has led to changes in the IFRS 16 right of use asset and lease liability balances.

 

12 Leases continued

 

The judgements applied in the exercising of lease breaks have changed. The store rationalisation programme is deemed a change in circumstances within the control of the Group and means that lease breaks will be exercised, whereas the judgement applied to these leases on transition to IFRS 16 in 2020 was that the break would not be exercised. The Group has also revisited its assumptions about the way that lease breaks will be exercised across the portfolio and made it more specific for each part of the store estate. This acts to decrease the lease liability and right of use asset by circa £200 million. With hindsight, the trigger for the recognition of this modification was the Capital Markets Day in September 2019 as this is the point at which the Group's first stage of store rationalisation was announced.


In conjunction with store rationalisation, the Group has been actively pursuing lease extension opportunities across well-performing supermarket sites. This ensures key stores remain in the portfolio as the Group seeks to open more Argos store-in-stores, as well as increasing its online capacity through its in-store picking model. The extensions act to increase the lease liability and right-of-use asset as a result of committing to future additional rental payments, as well as reflecting updated discount rates which are typically lower than those previously used. Certain extensions agreed in the prior year were not reflected in lease modifications in the prior year. This acts to increase the lease liability and right of use asset by circa £415m.


The net impact of these items is an increase to lease liability and right of use assets of circa £215m. The impact of the adjustments, both quantitatively and qualitatively, was considered in detail, and it was concluded that they were not sufficiently material to warrant a restatement of the prior year accounts. The adjustments are predominantly balance sheet in nature, with none of them impacting KPIs or financial covenants, and the  impact on the 2020 income statement is less than £2 million. The adjustments have therefore been reported within the £561 million new leases and modifications in the current period.

13 Intangible assets

 


Goodwill

Computer software

Acquired brands

Customer relationships

Total


£m

£m

£m

£m

£m

Cost






At 8 March 2020

400

494

231

32

1,157

Adjustment to opening balance

-

293

-

-

293

Reclassification between intangibles and PPE

-

(38)

-

-

(38)

At 8 March 2020 restated (refer below)

400

749

231

32

1,412

Additions

-

172

-

-

172

Disposals

(6)

(22)

(2)

-

(30)

At 6 March 2021

394

899

229

32

1,554






Accumulated amortisation and impairment






At 8 March 2020

22

(12)

109

26

145

Adjustment to opening balance

-

293

-

-

293

At 8 March 2020 restated (refer below)

22

281

109

26

438

Amortisation expense for the year

-

114

20

2

136

Impairment loss for the year

12

84

-

-

96

Disposals

(6)

(22)

(2)

-

(30)

At 6 March 2021

28

457

127

28

640






Net book value at 6 March 2021

366

442

102

4

914












Cost






At 10 March 2019

400

617

231

32

1,280

Additions

-

124

-

-

124

Disposals

-

(247)

-

-

(247)

At 7 March 2020

400

494

231

32

  1,157






Accumulated amortisation and impairment






At 10 March 2019

4

122

89

22

237

Amortisation expense for the year

-

105

20

4

129

Impairment loss for the year

18

5

-

-

23

Disposals

-

(244)

-

-

(244)

At 7 March 2020

22

(12)

109

26

145






Net book value at 7 March 2020

378

506

122

6

1,012

 

Goodwill balances are detailed in note 14.

 

The prior year cost and accumulated amortisation have been restated, with no impact on the reported net book  value of intangible assets. An adjustment had been erroneously recorded against assets that had been disposed of across a number of different reporting periods.

 

The reclassifications between intangible assets  and property, plant & equipment relate to work in progress originally capitalised into intangibles that should have been recognised within property, plant & equipment. The prior year balance sheet has been restated to reflect this.

 

14 Impairment of non-financial assets

 

Goodwill

Goodwill is not subject to amortisation but is tested for impairment annually or whenever there is an indication that the asset may be impaired.

 

For the purposes of impairment testing, goodwill is allocated to the Cash Generating Unit (CGU) or group of CGUs within the Retail or Financial Services segments. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to dispose. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Impairment losses recognised for goodwill are not subsequently reversed.

 

Property, plant and equipment, right-of-use assets, and finite lived intangible assets

At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment (PPE), right-of-use assets, and finite-lived intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset, being the higher of its fair value less costs to dispose and its value in use, is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

 

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount and an impairment loss is recognised immediately in the income statement.

 

Where there has been a change in the estimates used to determine the recoverable amount and an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating u