Duncan Swift, partner and head of the food advisory group at Moore Stephens, drew attention to Sainsbury’s non-disclosure of the figure in its full-year preliminary results released on May 6. He called the decision a “missed opportunity to inform shareholders and suppliers”.
In December 2014, the FRC called on retailers to disclose the income they receive from suppliers. That followed revelations that misreporting of this income resulted in Tesco overstating its half-year profits by £263M in August last year. It revised that figure to £326M in full-year results on April 22.
A spokeswoman for Sainsbury told FoodManufacture.co.uk: “Companies include different figures and use different ways to show (or not show) the commercial income and so there is no consistency yet from a regulatory perspective. Once the regulation is in place, it would become a lot clearer.”
‘Obfuscation at its finest’
However, Swift called this response “obfuscation at its finest”. It was “effectively saying the FRC has not stipulated (as in issued a directive or in the form of a regulation) precisely what the ‘standard’ disclosure should look like”. He called this “a completely lame excuse”.
“It’s like saying: ‘we know what we had to say, but choose not to say it, because we weren’t quite sure how to say it’ …”
In its December statement, the FRC said: “The FRC’s Conduct Committee expects to see high quality disclosure of this area of reporting in forthcoming annual and interim reports and accounts and plans to include it as an area of focus when it reviews audits and accounts during 2015.”
‘Complex supplier arrangements’
At the time, Richard Fleck, chairman of the FRC’s Financial Reporting Review Panel, commented: “Complex supplier arrangements such as fees and discounts may have a significant impact on the reported margins and other results of a company and on investors’ views of its performance.
“Where this is the case, it is essential that investors are able to understand the basis and extent of judgement and estimation involved and the potential uncertainties affecting the accounts and future prospects.
“Today’s announcement is a reminder to boards of retail companies in particular of what they should consider and encourages them to review their reporting in this area as many have already announced.”
‘Commercially sensitive’
In its preliminary full-year results statement, Sainsbury claimed such disclosure was “commercially sensitive” and “not significant in the context of the balance sheet”.
It claimed that these arrangements could be extremely complex, including numerous elements such as incentives, discounts and rebates triggered at a range of different sales levels.
Moore Stephens contrasted Sainsbury’s position with that of Morrisons, which fully disclosed supplier income in its March financial report.
Tesco had also disclosed some information in its April 22 figures and said it expected to provide fuller information later in the year. Asda’s stance on full disclosure of supplier income after the FRC statement remains to be seen, as its full-year results are not due until later this year.
Swift said disclosure of income derived from suppliers was very important, as in profit terms each £1 collected in this way represented £15 collected from the tills.
‘More transparent’
“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,” he said.
“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’. Sainsbury 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.”