Sainsbury’s accounts ‘a missed opportunity’ to inform shareholders on income derived from suppliers

Supermarket giant Sainsbury’s refusal to disclose its income from suppliers in its preliminary results is a missed opportunity to inform both its shareholders and suppliers, says Moore Stephens, the Top Ten accountancy firm.

In December 2014 the Financial Reporting Council (FRC), the regulator overseeing corporate reporting in the UK, called on retailers to disclose the income they receive from their suppliers, following revelations that misreporting of this income resulted in Tesco overstating its half-year profits by £263 million (a figure revised by Tesco to £326m two weeks ago).

In its preliminary annual results, released on May 6, Sainsbury’s refused to disclose the information requested by the FRC, saying that it was “commercially sensitive” in relation to its earnings, and also “not significant in the context of the balance sheet.”

This approach contrasts sharply with Sainsbury’s FTSE 100 supermarket rivals. Morrisons, in its March report, fully disclosed the information, while Tesco disclosed some information in its April report, and said it expected to provide fuller information later in the year.

Sainsbury’s says that these arrangements can be extremely complex, and can include numerous elements such as incentives, discounts and rebates that can be triggered at a range of different sales levels.

Duncan Swift, partner and head of the firm’s Food Advisory Group, explains that disclosure of income derived from suppliers is very important, as in profit terms each £1 collected from suppliers is worth around £15 collected from the tills.

Swift adds that Sainsbury’s has missed a significant opportunity to provide both its suppliers and its shareholders with a clearer picture of how the group’s income is derived.

Says Duncan Swift: “Given that both Tesco and Morrisons have both disclosed details of their supplier income in response to the FRC’s call, it is surprising that Sainsbury’s has chosen not to follow suit.

“It is hard to see how suppliers are going to start getting a more equitable deal from supermarkets unless they become more transparent on these issues.

“As we saw with the Tesco misstatement last year, income from suppliers can have a disproportionate effect on the profits of a supermarket, so shareholders and suppliers alike would have welcomed the opportunity to get a fuller picture of Sainsbury’s income and profitability.

“It is difficult to see how income from suppliers can simultaneously be argued on the one hand as ‘insignificant’ and on the other as ‘commercially sensitive’, and Sainsbury’s is the first supermarket to attempt to argue both sides.

“On the original misstatement of its results, Tesco was accused of not being sufficiently focused on the consumer, and being distracted by the profit attraction of supplier income. Sainsbury’s lack of disclosure is unlikely to convince its investors, its consumers and its suppliers that it did not do the same.”