7 June 2021
J Sainsbury plc
(the "Company")
Annual Report and Financial Statements
AND NOTICE OF ANNUAL GENEral meeting 2021
The following documents have today been posted or otherwise made available to shareholders:
· Annual Report and Financial Statements 2021 for the year ended 6 March 2021;
· Notice of Annual General Meeting to be held on 9 July 2021; and
· Form of Proxy for the 2021 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 https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The above documents may also be viewed online at www.about.sainsburys.co.uk/ar2021 and www.about.sainsburys.co.uk/agm2021.
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 28 April 2021.
That information together with the information set out below which is extracted from the Annual Report and Financial Statements 2021 (the "Annual Report 2021") 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 2021. Page and note references in the text below refer to page numbers in the Annual Report 2021. 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
Below and on the following pages, we set out an overview of our risk management framework, the principal risks at year end, ongoing mitigations and how these align to our strategy. The Board monitors these principal risks on an ongoing basis and flexes mitigations where appropriate. Particular focus is currently given to how we adapt and respond to the medium and longer-term impacts of the COVID-19 pandemic, as they become clearer.
Risk management framework
The management of risk is based on the balance between risk and reward, determined through a careful assessment of both the potential outcomes and impact as well as risk appetite. Consideration is given to both reputational and 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 our strategic objectives.
The following diagram provides an overview of the key risk management activities undertaken by leadership that allow the Board to fulfil its obligations under the UK Corporate Governance Code 2018. Please refer to page 53 for the role and remit of these governance bodies.
| Divisional leadership teams Bottom-up risk identification | - Divisional risk maps reviewed and challenged - Divisional emerging risk map reviewed - Monitor risk actions |
| Governance forums Risk identification and monitoring | - Divisional risks relevant to forums' area of scope reviewed - Governance forum risk maps reviewed |
| Operating Board Bi-annual Corporate risk updates and deep dives | - Corporate risk map updated and actions monitored - Risk deep dives received - Emerging risk map reviewed |
| Audit Committee Corporate risk updates, deep dives and approve risk framework | - Corporate and emerging risk maps reviewed - Risk deep dives received - Risk policy and framework approved - Internal audit reporting |
| plc Board Review of risk process, corporate risks and approval of risk disclosures | - Annual internal controls certification by management - Principal Risk and Uncertainty disclosures |
Our risk management process is designed to identify key risks and to provide reasonable but not absolute assurance that they are fully understood and managed in line with management's risk appetite.
The plc Board has overall responsibility for risk management and internal controls, and for reviewing their effectiveness at least annually. Certain responsibilities have been delegated to the Audit Committee, as outlined on page 64.
The risk management process is embedded at the Operating Board level and is supported by the bottom-up risk process within divisions and governance forums. The Operating Board maintains an overall corporate risk map, which captures the key risks to achieving our strategic objectives and identifies the potential impact and likelihood at both a gross and net level.
The Operating Board formally reviews the risk map twice a year to discuss and agree the level of risk that the business is prepared to accept for each key risk. The target risk position is also captured to reflect management's risk appetite where this differs to the current net position. This enables the Operating Board to agree and monitor appropriate actions as required.
Operating Board members confirm annually that they are responsible for managing their business objectives and internal controls to provide reasonable, but not absolute, assurance that the risks in their areas of responsibility are appropriately identified, evaluated and managed. This is reported to the plc Board.
The Risk and Internal Audit team provide the Audit Committee with a risk management update at each meeting, which includes changes to the corporate risk map agreed by the Operating Board as well as the key risk activities undertaken within functions, governance forums and at divisional and corporate levels. The corporate risk map is formally discussed with the Board.
The COVID-19 pandemic has demonstrated that risk and issue management is an inherent part of doing business and has tested our risk and resilience processes. The impact of COVID-19 on our principal risks continues to be assessed by the Board and is set out, where relevant, in our risk disclosures.
| Developments in our risk management process Following the update of our strategy (see the 'Our Strategy' section on page 9), the corporate risk map was refreshed. The Risk and Internal Audit team met members of the Operating Board to discuss key risks associated with the updated strategy. The outputs were discussed with the Operating Board and the corporate risk map was refreshed. This revised corporate risk map was shared with the Audit Committee. Key changes include: - The 'Business strategy and change' risk associated with delivery of the updated strategic priorities was updated to include new risk descriptions and associated mitigations, with future actions to further mitigate the risk agreed by the Operating Board member owning the risk. - In previous years, we reported the 'Product safety and sourcing' risk as part of a broader 'Health and safety - people and product' principal risk. In recognition of the importance of this area, we have separated this risk out and are now monitoring and reporting on it individually. The health and safety of our colleagues and customers remains a principal risk. - Brexit was removed as a specific principal risk, reflecting that the future trading arrangements with the EU are known. Residual risks associated with Brexit are set out in the 'Political and Regulatory' principal risk.
The revised corporate risks have been mapped to the principal risks included in this report to ensure completeness.
Emerging risks and opportunities were also formally reviewed in the year through the risk assessment process. This allows emerging risks to be regularly discussed and identified by each division and then to be collated into a business-wide assessment of risks and opportunities. The review assessed how emerging risks and opportunities may impact our business, considering their potential timeframe and degree of certainty. The outcomes were reported to the Operating Board and Audit Committee and relevant actions were agreed.
Climate change risks are assessed in terms of the impact on our business model (climate resilience) and our impact on the environment. Risks are identified from the bottom-up and emerging risk assessments across the business and then reviewed in a specific climate change risk workshop to assess completeness. Climate resilience risks identified form an integral part of a number of our corporate risks and have been referenced in the existing principal risks we are disclosing, where appropriate. Risks around our impact on the environment are considered in the 'Environment and sustainability' principal risk. See page 15 for more information on our ongoing implementation of the TCFD recommendations. |
The specific risk management activities undertaken in the financial year to 6 March 2021 include:
- The Risk and Internal Audit team facilitated risk workshops with divisional leadership teams to identify the key risks which may prevent the achievement of objectives. A risk map is maintained for each division, setting out key risks and their gross, net and target positions. A consolidated view of relevant risks was then discussed at each key governance forum - safety, data governance and operational resilience
- Divisional management and governance forums reviewed key risks and the effectiveness and robustness of the mitigating controls as part of their normal business activities
- Emerging risks and opportunities were formally assessed and will continue to be monitored
- Risks to the delivery of our updated strategy were discussed with Operating Board members to identify themes for broader discussion with the full Operating Board
- The Operating Board reviewed and challenged the output of the bottom-up risk process including new risks, risk movements and key themes
- The plc Board reviewed the risk management process and corporate risks at the year end and approved our principal risks and uncertainties disclosure, as set out on pages 34 to 43
- Internal Audit provided independent assurance to management and the Audit Committee over specific risk areas as part of their annual audit plan
- As set out over the following pages, deeper risk discussions were undertaken with the Operating Board and/or Audit Committee for a selection of principal risks. Deep dives will continue, with focus on assessing whether we are within our risk appetite
The most significant principal risks identified by the Board and the mitigations are set out on the following pages in no order of priority.
The net 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 44), 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 strategic objectives of the business.
The key risk movements disclosed relate to increases in the net risk position for:
a. business continuity, operational resilience and major incident response - the risk position regressed to reflect the business disruption and costs associated with responding to COVID-19
b. business strategy and change - the risk position regressed following the strategy update. The overall impact of not delivering the strategy was assessed as being higher, although due to the mitigations in place, the likelihood was assessed as lower
Business continuity, operational resilience and major incident response*
RISK DEEP DIVE
| Risk A major incident or catastrophic event could affect the business or its individual brands' ability to trade. Sainsbury's exposure to operational resilience and major incident risks may be greater because of operational complexities and some ageing systems.
In the last year, the impact of and response to COVID-19 has affected most, if not all, of our business operations. This was and continues to be actively managed, although many of our mitigations are now part of day-to-day ways of working.
The level of business disruption caused by COVID-19 is outside of our risk appetite. We will continue to monitor the situation and return to pre-COVID business practices in line with government guidance and customer sentiment. |
| Direct oversight Group Operational Resilience Committee |
| Link to strategy - Food First - Brands that Deliver - Save to Invest - Connected to Customers - Net Zero by 2040 |
| Movement Increased net risk exposure The risk position regressed to reflect the business disruption and costs associated with COVID-19 |
| Mitigations - The Group Operational Resilience Committee (GORC) meets quarterly, chaired by the CFO, with support from our Company Secretary and Chief Information Officer. The GORC sets the operational resilience strategy for the business and monitors progress against this - To support this, the Operational Resilience Committee, which includes representatives from functions across Sainsbury's, including the Bank, meets regularly to ensure that the operational resilience policy and strategy is implemented - Business-wide resilience exercises are undertaken to imitate real life business continuity scenarios and test our ability to respond effectively. Actions in response to lessons learnt are agreed - Key strategic locations have an automated emergency call cascade solution implemented which allows for emergency communications to be made to all colleagues and for responses to be received back when required - COVID-19 confirmed that colleagues can work from home if required. Sainsbury's Bank has arrangements with a third-party to provide secondary back-up sites - Key business processes are assessed for operational resilience against a set of minimum standards and contingency measures are tested
Crisis management - In the event of any unplanned or unforeseen events, the Incident Response Team ('the IRT') is convened to manage the response and any associated risk to the business - The business 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 - The IRT was convened at various times through the year to co-ordinate our response to changing COVID-19 guidance across the devolved nations. The Chair reports to the Operating Board, which provided strategic direction and decision making across financial, operational and regulatory matters, considering all stakeholders. The IRT was also briefly convened at year-end in response to Brexit but was stood down as our response was managed by existing business forums - We recognise that there is an increasing risk to our supply chains from extreme weather events due to climate change, which we will continue to manage through diversification of our supply chain. Our operations will also continue to be more impacted by flood risks due to climate change, leading to the need to prevent and/or respond to such events effectively. These risks are managed to limit the impact on customers and our business |
Business strategy and change*
RISK DEEP DIVE
| Risk The strategy requires significant, concurrent change activities to be delivered in the right sequence and at pace to drive business value. Key risks associated with this include an inability to prioritise resources to deliver competing change activities and/or not having the right skills, capabilities and culture in place to deliver and embed the required changes/within required timescales. |
| Direct oversight Business Performance Review, Operating Board |
| Link to strategy - Food First - Brands that Deliver - Save to Invest - Connected to Customers - Net Zero by 2040 |
| Movement Increased net risk exposure The risk position changed following the strategy update. The overall impact of not delivering the strategy was assessed as being higher, although due to the mitigations in place, the likelihood was assessed as lower. On balance, this represents a regression to the risk position. The Operating Board continues to monitor this. |
| Mitigations - Our business strategy, as set out in this Strategic Report, is focussed on the following priorities: - Food First - Brands that Deliver - Save to Invest - Connected to Customers - Net Zero 2040 - The Operating Board has regular sessions to discuss strategy, supported by a dedicated Strategy team. The strategy is communicated and the business continually engages with a wide range of stakeholders, including shareholders, colleagues, customers and suppliers - To ensure focus is maintained on delivering the strategic priorities of the business, new transformational change projects are approved by the Business Performance Review (BPR) forum, once they have been through robust challenge on expected costs and benefits, proposed timeframes for achieving the benefits and risks associated with their delivery. The BPR also monitors and reviews the "in year" implementation of the plans to meet budget targets - During the year, the Operating Board reviewed roles and responsibilities and defined clear operational accountability for delivering our strategic priorities. Governance forums were also reviewed and refreshed to simplify the business's review and decision making process. See the Board Leadership and Company Purpose section on page 53 for more information - The Operating Board also reviewed our culture to identify strengths to build on and opportunities to enhance the behaviours required to embed the changes required to deliver our strategic objectives. As a result, our performance management process has been refreshed and rolled out - We defined 8 key operational and financial metrics, linked to Executive Director incentives (see page 80), that will be used to measure and report on our strategic performance in a clear and consistent manner. We will continue to monitor these metrics and respond as appropriate to how they change over time |
Colleague engagement, retention and capability
| Risk The business employs 189,000 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 business operations. An inability to attract, motivate and retain talent, specific skillsets and capability impacts our ability to deliver our strategic objectives, thus increasing its impact.
In the last year, the impact of COVID-19 has affected most, if not all, of our store, depot and office-based colleagues. This was and continues to be actively managed, although many of our mitigations are now part of day-to-day ways of working.
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 Operating Board |
| Link to strategy - Food First - Brands that Deliver - Save to Invest - Connected to Customers - Net Zero by 2040 |
| Movement No change |
| Mitigations - During the last year, we enhanced our regular and transparent communication with colleagues so they understand the actions we are taking to support them and customers through the pandemic. As part of this, we made additional resources and guidance available - We flexed our policies to support our colleagues and managers during COVID-19. From the very start of the pandemic, we committed to paying all colleagues that were required to shield full pay for each of the shielding periods. We also supported colleagues self-isolating or with COVID-19-related sickness - Colleagues were redeployed across the business and we recruited additional temporary and permanent colleagues to support during the pandemic - We invested in a series of additional recognition activities for colleagues across all areas of the business. We also made three special payments to frontline colleagues in our stores, depots and contact centres, and two payments to frontline managers, to acknowledge their hard work and commitment this year - Physical and mental wellbeing support, including guides, tips and webinars, plus remote working guides are provided to colleagues, along with financial payments for furniture and peripherals to support home working - 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 - Reviews are performed to help develop the skills colleagues need to deliver objectives and this is supported by embracing new ways of attracting talent - 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 - Our business priority, 'Be a place where we all love to work' reinforces our commitment to giving people the opportunity to be the best they can be - We continue to work tirelessly to be an inclusive place to work for all. Over the last 12 months we increased our focus on ethnic diversity, rolling out race fluency development to our top 1400 leaders, tripling our investment in development programmes for ethnically diverse colleagues and publishing our first ethnicity pay gap report - We continue to listen closely to colleagues to inform and adapt our future plans and actions. We use regular online surveys, analysis of Yammer activity and engagement with trade unions and our Great Place to Work groups to understand colleague sentiment - As change initiatives are implemented, the methods described above will continue to be employed to understand and maintain colleague trust and engagement - One of our key metrics used to measure and report on our strategic performance is to "maintain strong colleague engagement" as explained in the "Our KPIs" section of this report. We will continue to monitor this metric and respond as appropriate to how it changes over time |
Customer*
| Risk We are a business incorporating Sainsbury's, Argos, Habitat, Tu clothing, Nectar and Sainsbury's Bank; our business must continue to evolve to meet customer needs and maintain customer loyalty. A failure to align with, and respond to changes in customer sentiment, behaviours, expectations and circumstances, exacerbated by uncertainties around customer behaviours post the COVID-19 pandemic, will impact our ability to retain existing and attract new customers. |
| Direct oversight Operating Board and Sainsbury's Bank Management Board; Customer, Commercial and Channels Forum |
| Link to strategy - Food First - Brands that Deliver - Connected to Customers |
| Movement No change |
| Mitigations - Customer trends, attitudes and behaviours are continually monitored over time through their response to our propositions and feedback, as well as reviewing future customer and macro trends on a quarterly basis, to help set our future direction - We implemented a proactive quality and pricing strategy that focuses both on what our existing customers want and on what will attract new customers. As part of this, we launched our Sainsbury's Quality, Aldi Price Match campaign in February 2021 - We change and evolve to meet the needs of our customers. To react to customer demand during the COVID-19 pandemic, we more than doubled our Groceries Online and Click & Collect capacity over the last year. We continue to invest in these arrangements for now and the future, monitoring customer behaviour closely so that we respond appropriately as we move out of the COVID-19 pandemic - Nectar supports our strategy of being Connected to Customers, allowing us to know and serve our customers better. The launch of Digital Nectar has given us more control over how we reward and recognise our customers, with focus on personalising specific offers and rewards. Customers can now collect and spend their Nectar rewards with hundreds of brands online as well as with our core partners - We continue to review our products and services to ensure that we respond to the increasingly environmentally conscious expectations of our customer. We are taking a leading role in offering delicious, affordable food that supports healthy and sustainable diets and helps customers reduce their impact on the environment one plate at a time - One of our key metrics used to measure and report on our strategic performance is to deliver "strong customer satisfaction scores" as explained in the "Our KPIs" section of this report. We will continue to monitor this metric and respond as appropriate to how it changes over time |
Data security*
RISK DEEP DIVE
| Risk It is essential that the security of customer, colleague and company confidential data be maintained. A major information security breach could have a significant 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 to broader business disruption as well as to data breaches. |
| Direct oversight Data Governance Committee |
| Link to strategy - Connected to Customers |
| Movement No change |
| Mitigations - A Data Governance Committee (DGC) is established and is supported by focussed working groups looking at the management of colleague, customer and commercial data, information security and associated awareness and training - The Data Governance and Information Security function, with the support of colleagues in the Technology division, continue to develop information security strategies and to build the necessary capability to respond to the increasing number and sophistication of attacks, alongside focusing on improving how we handle data and protect systems across the organisation - A suite of information security policies 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 - Reviews of key third parties who hold sensitive customer or colleague data continue to take place and progress is monitored by the DGC - A risk based security testing approach across IT infrastructure and systems is in place to identify ongoing vulnerabilities and allow us to adapt and improve our defences |
Environment and sustainability
| Risk The environment and sustainability are core to Sainsbury's values, with our Net Zero 2040 commitments forming a key pillar of our strategic priorities. The key focus of the business in this area relates to reducing our environmental impact, which, if not achieved, could result in a financial and/or reputational risk. |
| Direct oversight Net Zero Steerco, Corporate Responsibility and Sustainability Committee |
| Link to strategy - Net Zero by 2040 |
| Movement No change |
| Mitigations - In line with our commitment made in 2020, we continue to invest £1 billion over 20 years to deliver on our Net Zero strategy, which focuses on becoming Net Zero across our operations by 2040, see page 14 for more information. Specific working groups are responsible for driving and executing the Net Zero Strategy, through delivering on seven commitments: Reducing Carbon emissions Plastic packaging Water usage Food waste Increasing Recycling Biodiversity Healthy and sustainable diets - In February 2021, we cemented our commitment to reducing greenhouse gas emissions by having our Scope 1, 2 and 3 targets approved by the Science Based Targets Initiative which shows our approach is aligned with the climate science and the ambitions of the Paris agreement - The Net Zero Steering Group, which leads the operational execution of the Net Zero plan and oversees working group activity, met 8 times during the year. In each meeting, the working groups provided the Steering Group with an update on progress being made towards our Net Zero commitments - The Corporate Responsibility and Sustainability (CR&S) Committee, which oversees the delivery of our Corporate Social Responsibility agenda, met three times during the year. In each meeting, the Net Zero Steering Group provided the Committee with an update on progress being made on delivering our Net Zero strategy. The CR&S Committee also receives progress updates on wider sustainability initiatives. See page 62 for more information - One of our key metrics used to measure and report on our strategic performance is to "deliver our Net Zero commitment" as explained in the "Our KPIs" section of this report. We will continue to monitor this metric and respond as appropriate to how it changes over time. We also publicly report on progress towards achieving our Net Zero targets twice a year, to ensure transparency - See page 15 for more information on our ongoing implementation of the TCFD recommendations |
Financial and treasury*
RISK DEEP DIVE
| Risk The main financial risk relates to availability of short and long-term funding to meet business needs and fluctuations in interest, commodity and foreign currency rates. |
| Direct oversight The Board of J Sainsbury plc |
| Link to strategy - Food First - Brands that Deliver - Save to Invest - Connected to Customers - Net Zero by 2040 |
| Movement No change |
| Mitigations - The plc Board approved Treasury policies are in place to address liquidity risk, refinancing risk, financial markets risk and counterparty credit risk. In addition, the business funding strategy is approved annually by the plc Board - The Treasury function is responsible for managing liquid resources, funding requirements, commodity, interest rate and currency exposures as set out in line with the Treasury policy and overseen by the Treasury Committee - The Treasury function has clear operating procedures, which are regularly reviewed and audited - A long-term funding plan is formed as part of the annual corporate plan process, which includes an assessment of short and long-term core funding requirements and contingent funding requirements - A short-term funding plan is formalised as part of the annual budget process, which includes an assessment of the core and contingent funding requirements for the following year and the market conditions for each of the debt markets accessible to the business - Annually, the Audit Committee reviews and approves the viability and going concern statements and reports to the plc Board - Finance commercial reviews are held each period, chaired by the CFO, to review the balance sheet, P&L and net debt, with relevant actions and mitigations agreed - 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 use 8 key metrics to measure and report on our strategic performance, including "200bp+ reduction in retail operating cost to sales" and "dependable retail free cash flow: £500m pa average" as explained in the "Our KPIs" section of this report. We will continue to monitor these metrics and respond as appropriate to how they change over time - Financial and Treasury risk in respect of Sainsbury's Bank are detailed separately |
Health and safety*
RISK DEEP DIVE
| 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.
In the last year, the impact of COVID-19 has affected the health and safety of our customers and colleagues. This was and continues to be actively managed, although many of our mitigations are now part of day-to-day ways of working. |
| Direct oversight Group Safety Committee |
| Link to strategy - Connected to Customers |
| Movement No change This risk included Product Safety in last year's Principal Risks and Uncertainties, but this year only relates to Health & Safety. The Product Safety risk is reported on separately, given the importance of this risk area and its increased profile. |
| Mitigations - Clear policies and procedures are in place detailing the controls required to manage health and safety across the business and comply with all applicable regulations. These cover the end-to-end operations, including the auditing and vetting of construction contractors and the health and safety processes in place in our depots, stores and offices - The Operating Board were regularly updated on colleague and customer health and safety matters throughout the COVID-19 pandemic. Policies and procedures were adjusted in response, particularly focused on increased cleaning and monitoring and limiting customer numbers in stores, in line with government guidance. Significant investment was made in providing colleagues and customers with facemasks, hand sanitiser and protective screens - With the need for remote working in response to COVID-19 lockdown requirements, individual workplace risk assessments were performed and equipment provided to colleagues where required for health and safety purposes - Process compliance is supported through oversight from our Primary Authority partners, internal training programmes and management monitoring, all which align to both health and safety laws and our internal policies. We invested in technology solutions to direct and monitor process completion, with oversight provided by field teams in both Safety and Internal Audit - The Group Safety Committee (GSC) met four times during the year, receiving detailed reports on a wide range of topics including COVID management and control, growth of online operations, building fabric review and safety training. The GSC were also supported by additional working groups to manage the ever changing risk the COVID-19 pandemic presented - The Operating Board and plc Board receive quarterly reports on safety and also receive an annual safety update and deep dive facilitated by the Head of Group Safety |
Political and regulatory environment*
| Risk There is a trend of increasing regulation, together with enforcement action, across all areas of our business. This increases the risk of non-compliance, adds additional cost as we respond to the regulations and drives complexity into our business processes. |
| Direct oversight Operating Board |
| Link to strategy - Food First - Brands that Deliver - Save to Invest - Connected to Customers - Net Zero by 2040 |
| Movement No change We reported a separate Brexit risk in last year's Principal Risks and Uncertainties. Now the trading arrangements with the EU are agreed and managed as part of our day-to-day ways of working, we removed the specific risk but included the impact of future Brexit related uncertainty in this risk. |
| Mitigations - We continually monitor for changes to existing regulations that would impact the business, so that we can respond appropriately. Areas in the last year where the risk profile has changed include: - the impact of complying with the post-Brexit regulatory and enforcement regime, including what it means to be trading under both UK and EU regulations in Ireland - responding to proposed new rules associated with obesity, plastic, packaging and food waste - anticipating and responding to emerging areas of regulatory focus on environment and climate change, and associated reporting requirements - We regularly review the implications of Brexit on our supply chain activities, particularly in relation to new customs regulations and our ability to both import products from the EU into the UK and maintain supplies to our stores in Northern Ireland - We complete an annual regulatory risk assessment with key areas of the organisation to identify emerging regulation that may impact the business, so that we can plan and implement an appropriate response - As a responsible business, we proactively engage with Government, devolved administrations, regulators and industry bodies in the areas in which we operate, on public policy issues impacting our customers and colleagues. Our engagement is transparent, and we allow our responses to government consultations to be made public |
Product safety and sourcing*
| Risk Failure to manage safety and sourcing risks for both food and non-food products leads to injury or loss of life, breach of regulation and/or reputational damage. |
| Direct oversight Group Safety Committee |
| Link to strategy - Food First - Brands that Deliver - Save to Invest - Connected to Customers - Net Zero by 2040 |
| Movement New risk Given the importance of this risk area and its increased profile, we are now reporting on this risk separately, where last year it was included with the health and safety risk. |
| Mitigations - Clear policies and procedures are in place detailing the controls required to manage product safety, fraud and ethical risks across the business and comply with all applicable regulations - These cover the end-to-end operations, including product safety processes in place in our depots and stores and the quality management controls in place to ensure product safety and integrity - In addition, established supplier audit and product testing programmes are in place to support rigorous monitoring of supplier sites, product safety, traceability, integrity and ethical issues, including modern slavery - Supplier terms, conditions and product specifications set clear standards for product/raw material safety and quality with which suppliers are expected to comply - The Group Safety Committee receive regular reports on product safety from the Head of Technical Operations and from the Head of Group Safety on operational food safety risks. In addition, the Corporate Responsibility and Sustainability Committee discussed matters related to product sourcing risk, including supply chain transparency, modern slavery and human trafficking - We work collaboratively with our suppliers to manage any challenges associated with product availability. This received additional focus during both the COVID-19 pandemic and the Brexit transition period |
Sainsbury's Bank*
| Risk Sainsbury's Bank is exposed to a number of risks. These include operational risk, regulatory risk, credit risk, capital risk, funding, liquidity risk, and market risk. |
| Direct oversight The Boards of J Sainsbury plc and Sainsbury's Bank plc |
| Link to strategy - Brands that Deliver |
| Movement No change |
| 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 Risk 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 - Oversight by J Sainsbury plc is provided through: - Membership of the Board of Sainsbury's Bank plc - one J Sainsbury plc Operating Board member 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*
| Risk We operate in a highly competitive market during a time of economic uncertainty, primarily driven by the COVID-19 pandemic. With the outlook set to remain the same for the immediate future, we need to respond appropriately to external market conditions while maintaining clear focus on delivering our strategic objectives. We also need to be mindful of the ongoing risk of supplier failure and the operational and/or financial consequences for our business. |
| Direct oversight Customer, Commercial and Channels Forum; Operating Board |
| Link to strategy - Food First - Brands that Deliver - Save to Invest |
| Movement No change |
| Mitigations - We have a wide, differentiated product offer, incorporating Sainsbury's, Argos, Habitat, Tu clothing, Nectar and Sainsbury's Bank - We continually monitor current market trends and price points across competitors, and respond through actively managing price positions, developing sales propositions and adjusting promotional and marketing activity - We implemented a proactive quality and pricing strategy that focuses on what our existing customers want and that will attract new customers. As part of this, we launched our Sainsbury's Quality, Aldi Price Match campaign in February 2021 - Related to supplier continuity specifically, we maintain regular, open dialogue with key suppliers concerning their ability to trade. During the height of the COVID-19 pandemic, we supported our smaller suppliers by expediting payments to help maintain continuity of supply in light of the ongoing uncertainty - One of our key metrics used to measure and report on our strategic performance is "grocery market share performance" as explained in the "Our KPIs" section of this report. We will continue to monitor this metric and respond as appropriate to how it changes over time |
DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial assets and liabilities by category
Set out below are the accounting classification of each class of financial assets and liabilities as at 6 March 2021 and 7 March 2020.
| Group | Amortised cost £m | Fair value through OCI £m | Fair value through profit or loss £m | Total £m |
| At 6 March 2021 | ||||
| Cash and cash equivalents | 1,477 | - | - | 1,477 |
| Trade and other receivables | 609 | - | - | 609 |
| Amounts due from Financial Services customers | 5,407 | - | - | 5,407 |
| Financial assets at FVOCI | - | 844 | - | 844 |
| Trade and other payables | (4,102) | - | - | (4,102) |
| Current borrowings | (258) | - | - | (258) |
| Non-current borrowings | (748) | - | - | (748) |
| Amounts due to Financial Services customers and banks | (6,289) | - | - | (6,289) |
| Derivative financial instruments | - | - | (124) | (124) |
| Lease liabilities | (5,834) | - | - | (5,834) |
| | (9,738) | 844 | (124) | (9,018) |
| Group | Amortised cost £m | Fair value through OCI £m | Fair value through profit or loss £m | Total £m |
| At 7 March 2020 | ||||
| Cash and cash equivalents | 841 | - | 153 | 994 |
| Trade and other receivables | 506 | - | 169 | 675 |
| Amounts due from Financial Services customers | 7,404 | - | - | 7,404 |
| Financial assets at FVOCI | - | 1,054 | - | 1,054 |
| Trade and other payables | (3,835) | - | - | (3,835) |
| Current borrowings | (48) | - | - | (48) |
| Non-current borrowings | (1,248) | - | - | (1,248) |
| Amounts due to Financial Services customers and banks | (8,094) | - | - | (8,094) |
| Derivative financial instruments | - | - | (71) | (71) |
| Lease liabilities | (5,774) | - | - | (5,774) |
| | (10,248) | 1,054 | 251 | (8,943) |
Travel Money, cash in ATMs and ATM cash in transit (included in cash, balances with central banks and other demand deposits) of £322 million as at 7 March 2020 were previously classified as fair value through profit or loss and have been reclassified as amortised cost. There were no changes to amounts recognised as a result of the classification due to the book value of cash equalling its fair value.
c) Fair value estimation
Set out below is a comparison of the carrying amount and the fair value of financial instruments that are carried in the financial statements at a value other than fair value. The fair values of financial assets and liabilities are based on prices available from the market on which the instruments are traded. Where market values are not available, the fair values of financial assets and liabilities have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values of short-term deposits, trade receivables, other receivables, overdrafts and payables and lease liabilities are assumed to approximate to their book values.
| Group Carrying amount £m | Group Fair value £m | |
| At 6 March 2021 | ||
| Financial assets | ||
| Amounts due from Financial Services customers and other banks1 | 5,407 | 5,418 |
| Financial liabilities | ||
| Loans due 2031 | (627) | (761) |
| Bank loans due 2021 | (199) | (199) |
| Tier 2 capital due 2023 | (179) | (183) |
| Amounts due to Financial Services customers and other banks | (6,289) | (6,298) |
| | (1,887) | (2,023) |
| Group Carrying amount £m | Group Fair value £m | |
| At 7 March 2020 | ||
| Financial assets | ||
| Amounts due from Financial Services customers1 | 7,405 | 7,455 |
| Financial liabilities | ||
| Loans due 2031 | (667) | (888) |
| Bank loans due 2021 | (199) | (199) |
| Bank loans due 2024 | (250) | (250) |
| Tier 2 capital due 2023 | (180) | (177) |
| Amounts due to Financial Services customers and other banks | (8,093) | (8,100) |
| | (1,984) | (2,159) |
1 Included within a portfolio fair value hedging relationship with £3,984 million (2020: £4,512 million) of interest rate swaps.
The fair value of financial assets as disclosed in the table above as at 6 March 2021 was £5,455 million (2020: £7,455 million). The fair value of the financial assets has been calculated by discounting cash flows at prevailing interest rates and is within Level 2 of the fair value hierarchy (see below for fair value hierarchy description). The fair value of financial liabilities was £7,441 million (2020: £9,614 million) which has been calculated by discounting cash flows at prevailing interest rates and is within Level 2 of the fair value hierarchy.
Fair value measurements recognised in the balance sheet
The following table provides an analysis of financial instruments that are recognised at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1 fair value measurements are derived from quoted market prices (unadjusted) in active markets for identical assets or liabilities at the balance sheet date. This level includes listed equity securities and debt instruments on public exchanges;
Level 2 fair value measurements are derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). The fair value of financial instruments is determined by discounting expected cash flows at prevailing interest rates; and
Level 3 fair value measurements are derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
| Group | Level 1 £m | Level 2 £m | Level 3 £m | Total £m |
| At 6 March 2021 | ||||
| Financial instruments at fair value through other comprehensive income | ||||
| Interest bearing financial assets | - | 1 | - | 1 |
| Other financial assets | - | 15 | 291 | 306 |
| Investment securities | 537 | - | - | 537 |
| Derivative financial assets | - | 7 | 6 | 13 |
| Derivative financial liabilities | - | (137) | - | (137) |
| At 7 March 2020 | ||||
| Financial instruments at fair value through other comprehensive income | ||||
| Interest bearing financial assets | - | 1 | - | 1 |
| Other financial assets | - | 14 | 237 | 251 |
| Investment securities | 802 | - | - | 802 |
| Derivative financial assets | - | 18 | - | 18 |
| Derivative financial liabilities | - | (86) | (3) | (89) |
Reconciliation of Level 3 fair value measurements of financial assets and liabilities:
| Financial instruments at FVTOCI £m | Commodity derivatives £m | Total £m | ||
| At 7 March 2020 | 237 | (3) | 234 | |
| In finance cost in the Group income statement | - | 9 | 9 | |
| In other comprehensive income | 54 | - | 54 | |
| At 6 March 2021 | 291 | 6 | 297 | |
| Financial instruments at FVTOCI £m | Commodity derivatives £m | Total £m | ||
| At 9 March 2019 | 220 | 1 | 221 | |
| In finance cost in the Group income statement | - | (4) | (4) | |
| In other comprehensive income | 17 | - | 17 | |
| At 7 March 2020 | 237 | (3) | 234 | |
The financial instruments at fair value through OCI relate to the Group's beneficial interest in a property investment pool. The net present value of the Group's interest in the various freehold reversions owned by the property investment pool has been derived by assuming a property growth rate of zero per cent per annum (2020: 0.6 per cent) and a discount rate of seven per cent (2020: nine per cent) (see note 19). The sensitivity of this balance to changes of one per cent in the assumed rate of property rental growth and one per cent in the discount rate holding other assumptions constant is shown below:
| 2021 Change in growth rate +/-1.0% £m | 2021 Change in discount rate +/-1.0% £m | 2020 Change in growth rate +/-1.0%£m | 2020 Change in discount rate +/-1.0% £m | ||
| Financial instruments at fair value through OCI | 9/(9) | (6)/6 | 11/(10) | (7)/7 | |
The Group has entered into several long-term fixed price Power Purchase agreements with independent producers. Included within derivative financial liabilities is £6 million (2020: £(4) million) relating to these agreements. The Group values its Power Purchase agreements as the net present value of the estimated future usage at the contracted fixed price less the market implied forward energy price discounted at the prevailing swap rate. The Group also makes an assumption regarding expected energy output based on the historical performance and the producer's estimate of expected electricity output. The sensitivity of this balance to changes of 20 per cent in the assumed rate of energy output and 20 per cent in the implied forward energy prices holding other assumptions constant is shown below:
| 2021 Change in volume +/-20.0% £m | 2021 Change in electricity forward price +/-20.0% £m | 2020 Change in volume +/-20.0% £m | 2020 Change in electricity forward price +/-20.0% £m | |
| Derivative financial instruments | 1/(1) | 7/(7) | (1)/1 | 6/(8) |
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:
| | 2021 £m | 2020 £m |
| Short-term employee benefits | 9 | 12 |
| Post-employment employee benefits | 1 | 1 |
| Share-based payments | 5 | 6 |
| | 15 | 19 |
Five key management personnel had credit card balances with Financial Services (2020: two). 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 (2020: one). 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 6 March 2021, the Group entered into various transactions with joint ventures and associates as set out below. All transactions with joint ventures and associates are at arms-length.
| | 2021 £m | 2020 £m |
| Dividends and distributions received | 4 | 141 |
| Disposals of joint ventures | - | (21) |
| Rental expenses paid | (6) | (14) |
Year-end balances arising from transactions with joint ventures and associates
| | 2021 £m | 2020 £m |
| Payables | | |
| Other payables | (2) | 18 |
c) Retirement benefit obligations
As discussed in note 38, 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 38 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 Accounting Standards (IASs) in conformity with the requirements of the Companies Act 2006 and additionally in accordance with International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union. The Directors 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 IASs in conformity with the requirements of the Companies Act 2006, IFRSs adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in 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 46 to 49, confirms that, to the best of their knowledge:
- the financial statements, which have been prepared in accordance with the relevant financial reporting framework give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company; 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 emerging and principal risks and uncertainties that it faces; and
- the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's position and performance, business model and strategy.
By order of the Board
Tim Fallowfield
Company Secretary and Corporate Services Director
27 April 2021
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