4 June 2019
J Sainsbury plc (the "Company")
Annual Report and Financial Statements
AND NOTICE OF ANNUAL GENEral meeting 2019
The following documents have today been posted or otherwise made available to shareholders:
· Annual Report and Financial Statements 2019 for the year ended 9 March 2019;
· Notice of Annual General Meeting to be held on 4 July 2019; and
· Form of Proxy for the 2019 Annual General Meeting.
In accordance with Listing Rule 9.6.1R, a copy of each of these documents will be uploaded to the National Storage Mechanism and will be available for viewing shortly at www.morningstar.co.uk/uk/NSM
The above documents may also be viewed online at www.about.sainsburys.co.uk/ar2019 and www.about.sainsburys.co.uk/investors/shareholder-information/agm.
A condensed set of the Company's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements were included in the Company's Preliminary Results Announcement on 1 May 2019.
That information together with the information set out below which is extracted from the Annual Report and Financial Statements 2019 (the "Annual Report 2019") constitute the material required by Disclosure Guidance and Transparency Rule 6.3.5R which is required to be communicated to the media in full unedited text through a Regulatory Information Service.
This announcement is not a substitute for reading the full Annual Report 2019. Page and note references in the text below refer to page numbers in the Annual Report 2019. To view the preliminary announcement, slides of the results presentation, the transcript of the presentation and the webcast please visit www.about.sainsburys.co.uk/investors/results-reports-and-presentations.
Enquiries
Investor Relations |
Media |
James Collins |
Rebecca Reilly |
+44 (0) 20 7695 0080 |
+44 (0) 20 7695 7295 |
Our Principal Risks and Uncertainties
Risk is an inherent part of doing business. The management of risk is based on the balance between risk and reward, determined through careful assessment of both the potential outcomes and impact as well as risk appetite. Consideration is given to both reputational as well as financial impact, recognising the significant commercial value of the Sainsbury's brand. The risk management process is aligned to our strategy and each principal risk and uncertainty is considered in the context of how it relates to the achievement of the Group's strategic objectives. The current business strategy and objectives are categorised into the following areas:
· We know our customers better than anyone else;
· Our values make us different;
· Colleagues making the difference;
· Great products and services at fair prices; and
· There for our customers.
Our corporate risk map captures the principal risks to achieving Sainsbury's business objectives. Sainsbury's Operating Board formally reviews this twice a year. The appetite for each key risk is also discussed and assessed with a target risk position agreed to reflect the level of risk that the business is willing to accept. This enables the Board to agree and monitor appropriate actions as required. Please see the risk framework on page 67 for further detail.
The gross risk movement from the prior year for each principal risk and uncertainty has been assessed.
Mitigations in place, supporting the management of the risk to a net risk position, are also described for each principal risk and uncertainty.
Where principal risks have been included in the risk modelling, undertaken as part of the preparation of the viability statement (see page 37), this has been indicated with the following symbol *.
Key risk movements
As noted, the principal and emerging risks are discussed and monitored throughout the year to identify changes to the risk landscape. Risks are reviewed in line with the Company's strategic objectives.
Following the review of the principal risks and our strategic key drivers, we have included two new principal risks and uncertainties. One relates to the ongoing heightened levels of political and regulatory uncertainty in the UK following the referendum vote to leave the EU in June 2016, and the second is to separate out the Sainsbury's Bank plc's risks from our Finance and Treasury principal risk and uncertainty disclosure. The Bank has a defined risk appetite aligned to the delivery of its own strategic objectives.
The most significant principal risks identified by the Board, and the corresponding mitigating controls, are set out below in no order of priority.
Brand perception (no change in the gross risk exposure)
Risk We are a multi-brand, multi-channel business incorporating Sainsbury's, Argos, Habitat, Tu, Nectar and Sainsbury's Bank. Our business must continue to evolve to meet customer needs and maintain customer loyalty. Customer lifestyles, behaviours and expectations are changing and we need to continue to differentiate our offer to retain and attract customers. We also need to protect our brands so that customers, suppliers and stakeholders continue to trust us. |
Direct oversight Operating Board, Food Management Board, Sainsbury's Argos Management Board and Sainsbury's Bank Executive Committee |
Mitigations - We continually focus on evolving our ways of working to ensure we meet our customers' needs so that our brands remain relevant - We have a wide, differentiated product offer, which gives our customers more reasons to shop with us - We change and evolve to meet the needs of our customers through our digital strategy and technology developments, so that we are there for them whenever and wherever they want to shop with us, with great products and services at fair prices. To deliver this, we will continue to listen to and understand our customers - The purchase of Nectar supports our strategy of knowing our customers better than anyone else. The acquisition has given us more control over how we reward and recognise our customers and we have since launched trials in the Isle of Wight and Wales that are digital and give customers offers which are completely personalised to them - Our Living Well Index helps us to understand what 'living well' means to people across the UK today and to track how that picture changes over time. The most recent research identified that the UK's sense of wellbeing had fallen last year, with loneliness a key factor. By bringing people together though our Talking Tables initiative, we utilised our café store-space to help people be better connected to the communities they live and work in, bridging the loneliness gap - In terms of brand protection, many of the mitigation activities set out against the risks above also help prevent or reduce the risk of losing the trust and loyalty of customers, suppliers and broader stakeholders |
Brexit* (new risk)
Risk There remain heightened levels of political and regulatory uncertainty in the UK following the referendum vote to leave the EU in June 2016 and the lack of clarity around the date of departure. These uncertainties could have an adverse effect on customers, supply chains and colleagues, potentially impacting trading performance across the sector. |
Direct oversight Operating Board |
Mitigations - We have co-ordinated activities across the Trading, Retail, HR, Legal and Finance teams to help ensure that, in the event of a no deal, appropriate mitigations are in place to reduce the impact on customers, supply chains and colleagues. These activities specifically relate to three key areas of risk in the event of a no deal: 1. Delays at borders, reducing product availability and choice 2. Cost impact associated with tariffs, loss of trade and currency fluctuations 3. Impact of changes in EU migration throughout our supply chains - We continue to engage actively with key stakeholders to assess the specific impact on our business - We continue to assess and monitor the potential risks and impacts of these changes on our customers, supply chains and colleagues so that we can take appropriate action |
Business continuity, operational resilience and major incident response (no change in the gross risk exposure)
Risk A major incident or catastrophic event could impact on the Group's or individual brands' ability to trade. Sainsbury's exposure to operational resilience and major incident risks may be greater following the acquisition of Argos and Nectar given the increased size and complexity of the business. |
Direct oversight Group Operational Resilience Committee |
Mitigations - The operational resilience (OR) strategy, including incident management, resilience exercises and testing, has been aligned across the Group - The Group Operational Resilience Committee meets quarterly chaired by the CFO, with support from our Company Secretary and CIO. The Committee sets the operational resilience strategy for the Group and monitors progress against this - To support this, Operational Resilience Committees which include representatives from Sainsbury's Food, Argos, the Bank, and Habitat, meet regularly to ensure that the OR policy and strategy is implemented. In addition, they oversee the mitigation of all risks associated with OR and IT disaster recovery - Group-wide resilience exercises are undertaken to imitate real life business continuity scenarios and test the Group's ability to respond effectively - Key strategic locations have secondary backup sites which would be made available within pre-defined timescales and are regularly tested Incident management - In the event of any unplanned or unforeseen events, the Incident Response Team is convened at short notice to manage the response and any associated risk to the business - The Group has plans in place, supported by senior representatives who have the experience and the authority levels to make decisions in the event of a potentially disruptive incident |
Business strategy and change* (no change in the gross risk exposure)
Risk If the Board adopts the wrong business strategy or does not communicate or implement its strategies effectively, the business may be negatively impacted. Risks to delivering the strategy, change initiatives forming part of the strategy and other significant supporting change such as the integration with Argos need to be properly understood and managed to deliver long-term growth for the benefit of all stakeholders alongside management of business as usual. |
Direct oversight Board of J Sainsbury plc |
Mitigations - The business strategy is focused on the following: 1. We know our customers better than anyone else 2. We will be there wherever and whenever they need us 3. We will offer great products and services at fair prices 4. Our colleagues make the difference 5. Our values make us different - The progress against strategic programmes and any risks to delivery, such as the ability to implement and deliver change and new business initiatives, is regularly reviewed by the Board and the overall strategy is reviewed at the annual two-day Strategy Conference - The Operating Board also has regular sessions to discuss strategy, supported by a dedicated strategy team - The strategy is communicated and the Group engages with a wide range of stakeholders, including shareholders, colleagues, customers and suppliers, on a continual basis - In addition, management performs ongoing monitoring of business as usual performance to determine indicators of potential negative performance because of change initiatives |
Colleague engagement, retention and capability (no change in the gross risk exposure)
Risk The Group employs 178,000 colleagues who are critical to the success of our business. Attracting talented colleagues, investing in training and development, maintaining good relations, and rewarding colleagues fairly are essential to the efficiency and sustainability of the Group's operations. Delivery of the strategic objectives, including integration with Argos, increases the impact of an inability to attract, motivate and retain talent, specific skill sets and capability. In addition, the challenging trading environment requires a focus on efficient operations, which may include change initiatives affecting colleagues, therefore presenting a risk of loss of colleague trust or engagement. |
Direct oversight Food Management Board, Sainsbury's Argos Management Board and Sainsbury's Bank Executive Committee |
Mitigations - The Group's employment policies and remuneration and benefits packages are regularly reviewed and are designed to be competitive with other companies, fair and consistent, as well as providing colleagues with fulfilling career opportunities - In addition to strong leadership and nurturing of talent by line managers, formal processes are also in place to identify talent and actively manage succession planning throughout the business - Reviews are performed to help develop the skills colleagues need to deliver objectives and this is supported by embracing new ways of attracting talent - Colleague surveys, performance reviews, listening groups, communications with trade unions, regular communication of business activities and colleague networking forums such as Yammer, the updated colleague portal (Our Sainsbury's) and the colleague learning portal are some of the methods the Group uses to understand and respond to colleagues' needs - Our corporate value 'Great Place to Work' reinforces our commitment to giving people the opportunity to be the best they can be - As change initiatives are implemented, the methods described above will continue to be employed to understand and maintain colleague trust and engagement |
Data security* (no change in the gross risk exposure)
Risk It is essential that the security of customer, colleague and company confidential data be maintained. A major breach of information security could have a major negative financial and reputational impact on the business. The risk landscape is increasingly challenging with deliberate acts of cybercrime on the rise, targeting all markets and heightening the risk exposure. |
Direct oversight Group Data Governance Committee |
Mitigations - A Group Data Governance Committee is established and is supported by focused working groups looking at the management of colleague data, customer data, information security, commercial data and awareness and training - The Chief Information Security Officer continues to develop information security strategies and to build the necessary capability to deliver against those strategies - The Head of Data Governance focuses on improving how we handle data across the organisation - Various information security policies and standards are in place, which focus on encryption, network security, access controls, system security, data protection and information handling - All colleagues are required to complete mandatory training on how to keep our information safe. This is supplemented by regular awareness campaigns, focusing on specific aspects of data and information security - A review of key third parties who hold sensitive customer or colleague data continues to take place, and progress is monitored by the Data Governance Committee - A risk-based security testing approach across Group IT infrastructure and applications is in place to identify ongoing vulnerabilities - Reflecting the importance of data security, the Chief Information Security Officer and the Head of Data Governance provide regular updates to the Audit Committee on mitigating controls and activities to manage this risk. These discussions are conveyed to the Board as part of our normal governance processes |
Environment and sustainability (no change in the gross risk exposure)
Risk The environment and sustainability are core to Sainsbury's values. The key risk facing the Group in this area relates to reducing the environmental impact of the business, which could result in a financial and/or reputational risk. |
Direct oversight Operating Board |
Mitigations - The Corporate Responsibility and Sustainability Committee met twice during the year. The Committee oversees the impact of Sainsbury's corporate responsibility and sustainability strategy against 'Live Well for Less' and building customer trust - The Committee has relaunched Sainsbury's Value Management Groups, which are responsible for driving and executing the strategy. Five Value Management Groups have been formed: - Health Management Group - Community Management Group - Environment Management Group - Sourcing With Integrity Management Group - Great Place to Work Management Group |
Financial and treasury* (no change in the gross risk exposure)
Risk The main financial risks are the availability of short-and long-term funding to meet business needs and fluctuations in interest, commodity and foreign currency rates. In addition, there remains a risk around the Group defined benefit pension arrangement that is subject to risks in relation to liabilities as a result of changes in interest rates, life expectancy, inflation and their alignment to the value of investments and the returns derived from such investments. |
Direct oversight Board of J Sainsbury plc |
Mitigations - The Treasury Committee is responsible for reviewing Retail Treasury proposals, approving Retail Treasury transactions and monitoring compliance with Retail Treasury policy - The Group Treasury function is responsible for managing the Group's liquid resources, funding requirements, mandates, interest rate and currency exposures and the associated risks as set out in line with the Group Treasury policy - The Group Treasury function has clear policies and operating procedures, which are regularly reviewed and audited - The Cash Action Group is responsible for the optimisation of activities to continually review and improve our cash generation, and meets periodically - On a periodic basis Finance Commercial review sessions are held, chaired by the CFO to review the Company balance sheet, income statement and net debt in detail, with relevant actions and mitigations agreed - The Group's funding strategy is approved annually by the Board and includes maintaining appropriate levels of working capital. The Audit Committee reviews and approves annually the viability and going concern statements and reports into the Board - There is a long-term funding framework in place for the pension deficit and there is ongoing communication and engagement with the Pension Trustees - We have robust cost savings plans in place to offset the impact of operating cost inflation - With regard to pensions, investment strategies are in place which have been developed by the pension trustees, in consultation with the Company, to manage the volatility risk of liabilities, to diversify investment risk and to manage cash |
Health and safety - people and product* (no change in the gross risk exposure)
Risk Prevention of injury or loss of life for both colleagues and customers is of utmost importance and is paramount to maintaining the confidence our customers have in our business. |
Direct oversight Group Safety Committee |
Mitigations - Clear policies and procedures are in place detailing the controls required to manage health and safety and product safety risks across the business and to comply with all applicable regulations - These cover the end-to-end operations, from the auditing and vetting of construction contractors to the health and safety processes in place in our depots, stores and offices, and including the controls to ensure people and product safety - In addition, established product testing programmes are in place to support rigorous monitoring of product traceability and provide assurance over product safety and integrity - Supplier terms, conditions and product specifications set clear standards for product, raw material safety and quality with which suppliers are expected to comply - Process compliance is supported by external accreditation and internal training programmes, which align to both health and safety laws and Sainsbury's internal policies - In addition, resource is dedicated to manage the risk effectively, in the form of the Group Safety Committee and specialist safety teams |
Political and regulatory environment* (increased gross risk exposure)
Risk There is an increasing trend of regulation, together with enforcement action, across all areas of our business. This adds additional cost as we respond to the regulations and drives complexity into our business processes. |
Direct oversight Operating Board |
Mitigations - We complete a bi-annual regulatory risk assessment with key areas of the business to identify current and emerging regulation affecting the Group, so that we can respond appropriately - Regulatory updates are regularly presented to our oversight boards and committees, including the Regulatory Pay Forum, which was established in 2019 to oversee National Living Wage and National Minimum Wage compliance across the Sainsbury's Group, with flexibility to support other areas of reward compliance if necessary - To influence current and emerging regulatory requirements, we continue to engage actively with Government, industry and regulatory bodies - We publicly communicate matters where we believe industry change is required, with a view to enabling fair competition that is beneficial to our customers |
Sainsbury's Bank* (new gross risk exposure)
Risk Sainsbury's Bank is exposed to a number of risks. These include operational risk, regulatory risk, credit risk, capital risk, funding and liquidity risk and market risk. |
Direct oversight Board of J Sainsbury plc and Sainsbury's Bank plc |
Mitigations - The Bank is managed through defined governance structures that include the Board of Sainsbury's Bank plc, its Risk Committee and Audit Committee. The Board of Sainsbury's Bank plc is comprised of Executive Directors, Non-Executive Directors and a J Sainsbury plc Executive Director - The Bank has a defined risk appetite aligned to delivery of strategic objectives and has implemented a risk management framework that is overseen by its Risk Committee. This Committee monitors the effectiveness of risk management activities against strategic, operational, compliance and financial risks, and is updated on and discusses emerging risk areas. In particular, the Committee reviews the results of stress testing including the internal Liquidity and Capital Adequacy Assessments - The actual management of risks is through an executive governance structure, which manages the day-to-day operations of the business. This includes the Sainsbury's Bank Management Board, an Executive Risk Committee and an Asset and Liability Committee Group oversight is provided through: - Membership of the Board of Sainsbury's Bank plc - one of J Sainsbury plc Executive Directors is on the Board of Sainsbury's Bank plc and provides updates to the Board of J Sainsbury plc on Bank matters - Updates on key matters arising from meetings of the Risk Committee and Audit Committee are reported to the J Sainsbury plc Audit Committee - There are a number of reserved matters where Sainsbury's Bank plc needs to obtain permission from J Sainsbury plc |
Trading environment and competitive landscape* (no change in the gross risk exposure)
Risk The sector outlook has been and is set to remain highly competitive. The trading environment, driven by ongoing competitive retail pricing combined with growing inflationary cost pressures, may adversely affect our performance. There is also an ongoing risk of supplier failure, with possible operational or financial consequences for the Group. |
Direct oversight Food Management Board, Sainsbury's Argos Management Board and Sainsbury's Bank Executive Committee |
Mitigations - We adopt a differentiated strategy with a continued focus on delivering quality products and services with universal appeal, at fair prices, helping our customers live well for less - This is achieved through the continuous review of our product quality, key customer metrics, monitoring of current market trends and price points across competitors, active management of price positions, development of sales propositions and increased promotional and marketing activity - We continue with our commitment to offer customers even better value with lower regular prices - In delivering our strategic plan, including our price investment, we will maintain the strength of our balance sheet and have identified a series of measures to conserve cash in the business - Through these measures, we will deliver sustainable operating cost savings - Concerning supplier continuity, Sainsbury's maintains regular, open dialogue with key suppliers concerning their ability to trade |
Related party transactions
a) Key management personnel
The key management personnel of the Group comprise members of the J Sainsbury plc Board of Directors and the Operating Board. The key management personnel compensation is as follows:
|
2019 £m |
2018 £m |
Short-term employee benefits |
11 |
9 |
Post-employment employee benefits |
1 |
1 |
Share-based payments |
10 |
5 |
|
22 |
15 |
Five key management personnel had credit card balances with Financial Services (2018: eight). These arose in the normal course of business and were immaterial to the Group and the individuals. Three key management personnel held saving deposit accounts with Financial Services (2018: three). These balances arose in the normal course of business and were immaterial to the Group and the individuals.
b) Joint ventures and associates
Transactions with joint ventures and associates
For the 52 weeks to 9 March 2019, the Group entered into various transactions with joint ventures and associates as set out below:
|
2019 £m |
2018 £m |
Management services provided |
- |
1 |
Income share received from joint ventures and associates |
- |
26 |
Dividends and distributions received |
18 |
37 |
Repayment of loans from joint venture |
(5) |
- |
Rental expenses paid |
(38) |
(46) |
Year-end balances arising from transactions with joint ventures and associates
|
2019 £m |
2018 £m |
Receivables |
|
|
Other receivables |
- |
6 |
Payables |
|
|
Other payables |
(5) |
- |
Loans due to joint ventures |
- |
(5) |
Insight 2 Communication LLP became a wholly owned subsidiary as at 1 February 2018; up until this point it was a joint venture. All transactions up to the acquisition date have been included above. Outstanding balances as at 9 March 2019 have been excluded as it has now been fully consolidated.
Loans with joint ventures are interest bearing and repayable on demand.
c) Retirement benefit obligations
As discussed in note 30, the Group has entered into an arrangement with the Pension Scheme Trustee as part of the funding plan for the actuarial deficit in the Scheme. Full details of this arrangement are set out in note 30 to these financial statements.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Group and the Company as at the end of the financial year, and of the profit or loss of the Group for the financial year. Under that law, the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 101 'Reduced Disclosure Framework' (UK Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and Company financial statements respectively; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Having taken all the matters considered by the Board and brought to the attention of the Board during the year into account, we are satisfied that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable.
The Board believes that the disclosures set out in this Annual Report provide the information necessary for shareholders to assess the Group's performance, business model and strategy.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed on pages 44 to 45, confirms that, to the best of their knowledge:
- the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
- the Strategic Report and Directors' Report contained in the Annual Report and Financial Statements include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
By order of the Board
Tim Fallowfield
Company Secretary and Corporate Services Director
30 April 2019
