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Sainsbury’s has joined Tesco and Morrisons in handing back its business rates relief, which will cost the supermarket around £440m.

Sainsbury’s said it had come to the decision “having considered this issue, particularly since the announcement of a second national lockdown in England”.

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

During the crisis it hired 56,000 people, paid 13,000 colleagues to self-isolate for 12 weeks and made nearly nine million grocery deliveries to elderly, disabled and vulnerable customers.

It previously announced its base case assumption for the 2020/21 financial year was that the costs of protecting customers and colleagues and the negative impacts of COVID-19 on financial services profits, fuel, general merchandise and clothing sales would be broadly offset by stronger grocery sales and around £450m of business rates relief.

However, lockdown restrictions have remained in place for longer than originally expected and throughout the pandemic all Sainsbury’s stores have been deemed essential retail.

It said almost all have been open and trading strongly, with the exception of a small number of convenience stores.

As a result of this, Sainsbury’s sales and profits have been stronger than originally expected, particularly since the start of the second national lockdown in England and therefore it has taken the decision to forego the business rates relief on all Sainsbury’s stores.

The group now expects underlying profit before tax of at least £270m for the financial year to March 2021, including the assumption that it will now forgo approximately £410m of business rates relief.

Sainsbury’s continues to expect UPBT in the financial year to March 2022 to exceed the £586m reported in the year to March 2020, despite now forgoing business rates relief of approximately £30 million

Simon Roberts, CEO, said: “We have been proud to play our part in feeding the nation in this extraordinary year and every one of our colleagues has gone above and beyond to support each other, our customers and our communities. While we have incurred significant costs in keeping colleagues and customers safe, food and other essential retailers have benefited from being able to open throughout.

“With regional restrictions likely to remain in place for some time, we believe it is now fair and right to forgo the business rates relief that we have been given on all Sainsbury’s stores. We are very mindful that non-essential retailers and many other businesses have been forced to close again in the second lockdown and we hope that this goes some way towards helping them.

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

Sainsbury’s shares opened up 2.8% at 215.8p.

Morning update

Morrisons joined Tesco in pledging to hand back its business rates relief to the government after the markets closed last night.

Morrisons said it had been considering the implications of the Government’s decision not to collect business rates this year “for some time”, and it had planned to make its decision once the full cost and duration of COVID-19 had become more clear.

However, it have now brought forward this decision and are committing to pay business rates for the coronavirus period in full. The total amount to be paid will be £274m, of which £230m relates to 2020/21.

Due to the impact of the second lockdown and other tier restrictions, it now expects direct COVID-19 costs to be around £270m, which is £40m more than its estimate at its 2020/21 interim results, and significantly higher than the £230m in-year business rates relief.

In addition to the direct COVID-19 costs, profit has been significantly impacted throughout the year by the extra costs of doing business during the pandemic, including the widespread temporary closure of many cafes and market street counters.

These costs have been exacerbated recently by the impacts of the second lockdown and tier system.

However, Morrisons said it has continued to manage its business well and achieved strong operating leverage. As a result, before the £230m business rates payment and recognising the busy Christmas and New Year trading period is still to come, Morrisons said it is expecting 2020/21 underlying profit before tax and exceptionals to be in line with expectations.

Reflecting Morrisons’ strong financial position, it has proposed to pay a special dividend of 4p per share to shareholders. This relates to the previously deferred payment for H2 2019/20 - the period before COVID-19. The special dividend will be payable on 25th January 2021.

It said handing back business rates relief will “clearly impact our net debt position”, while there has also be an impact on working capital due to the lower national fuel demand during the second lockdown; investment in higher levels of stock availability both during COVID-19 and preparations for Brexit; and the extension of the scheme to pay smaller suppliers immediately during the crisis.

As a result, Morrisons is unlikely to generate surplus capital, so have no current plans to pay a special dividend relating to 2020/21.

CEO David Potts commented: “We are grateful for the Government’s swift action at the start of the pandemic which enabled the whole sector to face squarely into the challenges and disruption caused by COVID-19.

“Throughout this difficult period Morrisons has done its best work to look after our colleagues, our customers and key workers, to feed the nation, to protect both the vulnerable and our smaller suppliers and to play a full and leading role in meeting the enormous challenges that the COVID-19 pandemic brought. I’m exceptionally proud of the way that the whole business has responded.”

Elsewhere, Nestlé has announced it will redouble its efforts to combat climate change.

The company is taking measures to halve its emissions by 2030 and achieve net zero by 2050.

Actions focus on supporting farmers and suppliers to advance regenerative agriculture, planting hundreds of millions of trees within the next 10 years and completing the company’s transition to 100 percent renewable electricity by 2025.

Additionally, Nestlé is continuously increasing the number of ‘carbon neutral’ brands.

Nestlé Chairman Paul Bulcke said, “The Board recognizes the strategic importance of taking decisive measures to address climate change. It supports accelerating and scaling up our work to ensure the long-term success of the company and to contribute to a sustainable future for generations to come.”

The company emitted 92 million tonnes of greenhouse gas emissions in 2018, which will serve as the baseline for measuring progress.

“Tackling climate change can’t wait and neither can we. It is imperative to the long-term success of our business,” said Mark Schneider, Nestlé CEO. “We have a unique opportunity to address climate change, as we operate in nearly every country in the world and have the size, scale and reach to make a difference. We will work together with farmers, industry partners, governments, non-governmental organizations and our consumers to reduce our environmental footprint.”

Nestlé’s work to get to net zero spans three main areas: the company is already working with over 500 000 farmers and 150 000 suppliers to support them in implementing regenerative agriculture practices; Nestlé is also scaling up its reforestation program to plant 20m trees every year for the next 10 years in the areas where it sources ingredients; finally, Nestlé expects to complete the transition of its 800 sites in the 187 countries where it operates to 100% renewable electricity within the next five years.

Within its product portfolio, Nestlé is expanding its offering of plant-based food and beverages and is reformulating products to make them more environmentally friendly. It is increasing the number of ‘carbon neutral’ brands it offers to give consumers the opportunity to contribute to the fight against climate change.

The company expects to invest a total of CHF3.2bn over the next five years to accelerate work in this area, including CHF 1.2 billion to spark regenerative agriculture across the company’s supply chain.

Nestlé will provide annual updates to provide transparency on its progress.

On the markets this morning, the FSTE 100 has opened up 0.1% to 6,472.2pts.

Risers this morning include Science in Sport, up 6.7% to 32p, WH Smith, up 4.2% to 1,615.6p, McColl’s Retail Group, up 2.6% to 31.4p.

Fallers so far include Hotel Chocolat, down 5% to 393.5p, Finsbury Food Group, down 2.9% to 74.8p and Stock Spirits, down 1.8% to 266.5p.

Morrisons is up 0.6% to 179.8p after its announcement last night.

Yesterday in the City

The FTSE 100 ended the day up 1.2% at 6,463.3pts yesterday.

However, UK supermarkets and some retailers ended the day down as Tesco announced it would give back £585m in business rates and were followed by Morrisons.

Tesco ended the day down 1.9% to 224.5p, while Morrisons was down 2.3% to 178.7p and Sainsbury’s – which hasn’t yet committed to pay back its business rates relief - ended the day down 2.9% to 209.9p.

Other retailers on the slide included McColl’s, down 5.1% to 30.6p, Pets at Home, down 2.2% to 409.6p and B&M European Value Retail, down 2.2% to 478p.

The rest of the day’s fallers included Nichols, down 5.4% to 1,140p, Devro, down 1.9% to 157p Reckitt Benckiser, down 1.5% to 6,350p, DS Smith, down 1.5% to 339.4p and Cranswick, down 1.2% to 3,486p.

The day’s risers included Hotel Chocolat, up 5% to 393.5p, SSP Group, up 5.3% to 360p, Science in Sport, up 5.3% to 30p, Naked Wines, up 3.4% to 610p, Imperial Brands, up 3.1% to 1,420p and Finsbury Food Group, up 2.7% to 77p.

 

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