3rd Dec 2020 12:21
(Clarifying that J Sainsbury will prioritise dividend payments over net debt reduction if annual expectations are met after its decision to forgo business rates relief.)
(Alliance News) - J Sainsbury PLC on Thursday said it would follow supermarket rivals Tesco PLC and Wm Morrison Supermarkets PLC in deciding to forgo business rates relief.
However, Sainsbury's stressed that "shareholders should not bear the full short-term financial impact this year" of this decision, and thus it will prioritise the payment of dividends over reducing its net debt should profit and cash generation targets be met.
In March, the UK Chancellor of the Exchequer Rishi Sunak said the UK government would grant all retail, hospitality and leisure businesses a 100% business rates holiday for the next 12 months, with the intention of helping companies get through the Covid-19 pandemic.
Sainsbury's said it spent GBP290 million as a result of Covid-19 in the first half of its financial year, which was partially offset by GBP230 million of business rates relief.
The grocer's sales and profit was stronger than originally expected since the beginning of England's second national lockdown, hence the decision to forgo business rates relief on all stores. Sainsbury's noted that due to this, it now expects an underlying pretax profit of at least GBP270 million of the financial year to March, which includes the assumption it will forgo around GBP410 million in business rates relief.
In the year before, the group's underlying pretax profit was GBP586 million, suggesting a 53% year-on-year decline at least.
For the financial year ended in 2022, Sainsbury's said it expects profit to exceed to GBP586 million reported for the 2020 financial year, despite now forgoing business rates relief of GBP30 million.
"In the event that the business delivers profits and cash generation at least in line with its current expectations, the board believes that shareholders should not bear the full short-term financial impact this year of the business making the right decisions for customers and colleagues through the Covid-19 pandemic. Therefore, when considering free cash flow allocation this year the board will prioritise payment of dividends to shareholders over net debt reduction," Sainsbury's added.
Chief Executive Simon Roberts said: "We remain focused on delivering the plan we set out at our half year results. We continue to urge [the] government to review the business rates system to create more of a level playing field between physical and online retailers."
On Wednesday, Wm Morrison Supermarkets said it was planning to waive GBP274 million of business rates for the 2021 financial year, following Tesco's announcement that it will repay GBP585 million of business rates relief received that same day.
Shares in J Sainsbury were up 2.9% at 215.90 pence, Tesco were up 1.2% at 227.30 pence and Morrisons were down 0.8% at 177.29 pence in London on Thursday.
By Zoe Wickens; [email protected]
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