6 June 2022
J Sainsbury plc
(the "Company")
Annual Report and Financial Statements
AND NOTICE OF ANNUAL GENEral meeting 2022
The following documents have today been posted or otherwise made available to shareholders:
· Annual Report and Financial Statements 2022 for the year ended 5 March 2022;
· Notice of Annual General Meeting to be held on 7 July 2022; and
· Form of Proxy for the 2022 Annual General Meeting.
The above documents may be viewed online at www.about.sainsburys.co.uk/ar2022 and www.about.sainsburys.co.uk/agm2022.
In accordance with Listing Rule 9.6.1R, a copy of each of these documents in unedited full text will be submitted to the National Storage Mechanism and will be available for viewing shortly at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
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 2022.
That information together with the information set out below which is extracted from the Annual Report and Financial Statements 2022 (the "Annual Report 2022") 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 2022. Page and note references in the text below refer to page numbers in the Annual Report 2022. 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 |
Principal Risks and Uncertainties
Risk management is an inherent part of doing business; it balances risk and reward, determined through a careful assessment of both the potential outcomes and impact, as well as risk appetite.
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 Operating Board monitors these principal risks on an ongoing basis and flexes mitigations where appropriate.
Our approach to risk management
Our risk management framework is designed to:
- identify key risks that are aligned to our strategy but that could prevent us from achieving our strategic objectives
- assess the likelihood of these risks occurring, in combination with both the reputational and financial impact they may introduce
- manage the risks through implementing appropriate mitigation plans and controls, in line with our risk appetite
- monitor and report on our risks, associated mitigation plans and changes to the internal/external environment to the relevant governance fora
The following diagram provides an overview of the key risk management activities undertaken by leadership that support this risk framework and allow the Board to fulfil its obligations under the UK Corporate Governance Code 2018. Please refer to page 61 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 mitigation plans |
| Governance fora Risk identification and monitoring | - Divisional risks relevant to fora 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 |
The plc Board has overall responsibility for risk management, the system of internal control, and for reviewing the effectiveness of these at least annually. As such, they have approved our principal
risks disclosure, as set out on pages 40 to 50. Certain responsibilities have been delegated to the Audit Committee, as outlined on page 73.
| COVID-19 The COVID-19 pandemic demonstrated that active risk and issue management is an inherent part of doing business. Disruptions to our business as a result of COVID-19 were actively managed either through day-to-day ways of working or if needed, through the Incident Response Team. Reflecting this, we do not have a specific principal risk related to COVID-19, although its impact on our principal risks continues to be assessed by the Board and is set out where relevant, in individual risk disclosures. |
Our risk management process
The Risk and Internal Audit team facilitate "bottom up" risk workshops with divisional leadership teams to identify the key risks which may prevent the achievement of their 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 - and the effectiveness of mitigating activities - are also discussed at relevant governance fora, covering safety, data governance and operational resilience.
The Operating Board maintains the overall corporate risk map, which captures the key risks to achieving our strategic objectives.
The Operating Board formally reviews the corporate risk map from a "top down" perspective twice a year, to discuss and agree the level of risk that the business is prepared to accept for each key risk. They also review and challenge the output of the bottom up risk process, considering new risks, movements in the position of risks and key themes.
The target risk position for the corporate risks 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. A risk dashboard is maintained for each corporate risk, setting out the risk, causes of the risk, key mitigations and any actions to reach the target risk position.
Operating Board members also confirm annually that the corporate risk map accurately reflects their view of key risk across the organisation, that they are responsible for managing risks relevant to their division and that internal controls exist to provide reasonable, but not absolute, assurance that the risks in their areas of responsibility are appropriately identified, evaluated and managed; this is also
reported to the Board.
The Risk and Internal Audit team provide the Audit Committee with a risk management update at each meeting, which includes an overview of changes to the corporate risk map and risk disclosures
agreed by the Operating Board for their review and comment.
Risk and Internal Audit also provide independent assurance to management and the Audit Committee over specific risk areas as part of their annual audit plan; risk deep dives were also undertaken with the Operating Board and/or Audit Committee for a selection of principal risks, as set out over the following pages.
The Audit Committee Chair provides updates to the plc Board.
| Emerging risks and opportunities Emerging risks and opportunities are also formally reviewed in the year as part of the bottom up divisional risk management process. This allows emerging risks to be considered and discussed by each division and then collated to perform a business-wide assessment of how emerging risks and opportunities may impact our business, considering their potential timeframe and degree of certainty. The outcomes are reported to the Operating Board and Audit Committee and relevant actions are agreed. |
Independent review of our risk management framework
During the year, an independent review of our risk management framework was carried out by a Big 4 firm; this review confirmed that we are compliant with the Risk Management requirements of the UK Corporate Governance Code. Actions to further enhance risk management activities were agreed in line with management's appetite. In particular, work continues to define the risk appetite for each corporate risk.
Changes to principal risk disclosures
As described above, the principal and emerging risks are discussed and monitored throughout the year to identify and respond to changes in the risk landscape.
The key change to the risks during the year relates to our previous "Environment and sustainability" principal risk. The risk has been expanded and broadened in line with the launch of our Plan for Better strategic priority (see page 13), which includes our previous Net Zero commitments, but has been broadened to include our responsibilities towards putting our planet and people at the core of our business. There are two key changes.
Firstly, the principal risk now also considers our social objectives, for example, to leave a measurable positive impact on the communities we serve and source from and to make Sainsbury's an inclusive place to work and shop.
Secondly, we consolidated all climate resilience risks - the impact of changes to the environment on our business model - under this principal risk, where previously climate resilience risks were assessed within each of the relevant principal risks. This change also reflects the related governance and oversight processes.
As a result, we are reporting this as a new risk, have renamed it "Environment and social sustainability" and given its increased scope, have reset the associated gross, net and target risk positions. Further information on our ongoing implementation of the TCFD recommendations can also be found on page 17.
The net position of all other corporate risks remain unchanged from last year.
Our Principal Risks
The most significant principal risks identified by the Board and the associated mitigations are set out below. This year, we have ordered them to first show those that have been included in the risk modelling undertaken as part of the preparation of the viability statement (see page 51). This reflects that these have the potential to have the largest impact on the business and is indicated with the following symbol: *
The other principal risks are then set out in no priority order.
We have also more clearly drawn out the link between each principal risk and the group's key performance indicators (see page 30) and continue to highlight the link with the strategy of the business.
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.
| Ukraine We continue to monitor the situation in Ukraine and the associated impacts this may cause across our principal risks, with regard to our customers, our colleagues and our supply chain. |
Business continuity, operational resilience and major incident response*
| 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.
COVID-19 continued to impact the business throughout the year. For example, increased costs of global supply chains, the availability of colleagues both within Sainsbury's and our suppliers and differing responses across the devolved nations. These disruptions are actively managed either through day-to-day ways of working or if needed, through the Incident Response Team. |
| Direct oversight Group Operational Resilience Committee |
| Link to strategy - Food First - Brands that Deliver - Save to Invest - Connected to Customers - Plan for Better |
| Link to key performance indicators N/A |
| Movement No change |
| Mitigations - The Group Operational Resilience Committee (GORC) meets quarterly, chaired by the CFO, with support from the Company Secretary and Chief Information Officer. The GORC sets the operational resilience strategy for the business and monitors progress against this - The Operational Resilience Committee, which includes representatives from functions across Sainsbury's, including the Bank, meets regularly to implement the operational resilience policy and strategy - Business-wide resilience exercises are undertaken to imitate real life business continuity scenarios and test our ability to respond effectively. This includes testing our emergency call cascade. Actions in response to lessons learnt are agreed - Key business processes are assessed for operational resilience against a set of minimum standards and contingency measures regularly tested. Remote working solutions have reduced the risk of loss of a key site
Crisis management - In the event of any unplanned or unforeseen events, the Incident Response Team (IRT) is convened to manage the response and any associated risk to the business - The IRT Chair reports to the Operating Board, which provides strategic direction and decision making across financial, operational and regulatory matters, considering all stakeholders - The IRT was convened at various times through the year including to respond to the high demand for fuel, the impact of the Omicron variant on business operations, Storm Eunice and to co-ordinate contingency measures with supplier challenges |
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 - Plan for Better |
| Link to key performance indicators All metrics, associated with our objective of delivering for customers and driving stronger financial results |
| Movement No change |
| 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 - Plan for Better - We have created the new role of Chief Transformation Officer to drive end to end transformation. This will mean we can bring together all of the key elements of transformation across the business and ensure that we deliver on our Save to Invest priority, making the business simpler and more efficient, while reducing costs to support our plans to Win in Food and create Brands that Deliver - The Operating Board has regular sessions to discuss strategy, supported by a dedicated Strategy team. The Operating Board engages with a wide range of stakeholders - including shareholders, colleagues, customers and suppliers - to ensure our strategy remains relevant. Reflecting this, one of our strategic priorities, Net Zero 2040, was broadened this year to set out our sustainability goals across three critical areas. See page 13 for more detail on Plan for Better. - 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 - This year, to further develop the culture required to deliver our strategy, we launched our Valued Behaviours - Own It, Make It Better and Be Human. These Valued Behaviours were communicated widely across our business and they have been embedded in all our development materials, performance management and recruitment processes |
Customer*
| Risk Our business includes Sainsbury's, Argos, Habitat, Tu clothing, Nectar and Sainsbury's Bank. The business, across all brands, 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 changes in customer behaviours as the COVID-19 pandemic continues to evolve, 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 |
| Link to key performance indicators Customer satisfaction |
| Movement No change |
| Mitigations - The Customer, Commercial and Channels Forum, chaired by the Chief Marketing Officer, is responsible for ensuring the customer is at the heart of our decision making - 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 continue to invest in digitising the Nectar Loyalty scheme which provides us with a rich source of customer data and insight that is reviewed and embedded right across our business - We continued to focus on value, quality, and convenience, reflecting both what our existing customers want and what will attract new customers - In terms of value and quality, we delivered the Sainsbury's Quality, Aldi Price Match campaign throughout the year, refreshing it regularly to respond to customer feedback, launched 1,950 new products and introduced Nectar Prices, providing personalised pricing for customers - In terms of convenience, we continue to monitor and flex our ways of working to meet customer demand for how they want to shop, particularly as the COVID-19 pandemic continues to evolve. As well as our traditional channels, we have invested in our contactless channels such as SmartShop, Click & Collect and Groceries Online. In particular, SmartShop Mobile Pay has now also been rolled out to nearly all convenience stores - We continue to innovate and trialled our first SmartShop Pick & Go store during the year to gain customer feedback |
Data security*
RISK DEEP DIVE
| 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 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 |
| Link to key performance indicators N/A |
| Movement No change |
| Mitigations - A Data Governance Committee (DGC) is in place to oversee the management of colleague, customer and commercial data, information security and associated awareness and training. Metrics to measure alignment to risk appetite are discussed in each meeting of the DGC - 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 colleague awareness campaigns, focusing on specific aspects of data and information security, for example e-mail phishing exercises, with results reported to the DGC - 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 and address vulnerabilities and allow us to adapt and improve our defences |
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 - Plan for Better |
| Link to key performance indicators Retail free cashflow: £500m+ pa average |
| Movement No change |
| Mitigations - Treasury policies, approved by the plc Board, are in place to address liquidity, refinancing, financial markets and counterparty credit risks. 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 Audit Committee reviews and approves the viability and going concern statements on an annual and half-yearly basis respectively - The Treasury function has clear operating procedures and adherence to these is regularly reviewed and audited - A long-term funding plan is developed 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 - There is a long-term funding framework in place for the pension deficit and there is ongoing communication and engagement with the Pension Trustees - Detailed cashflow forecasts are produced by the Finance and Treasury functions. Finance commercial reviews are also held each period, chaired by the CFO, with relevant actions and mitigations agreed - Financial and Treasury risks 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 continued to affect 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 |
| Link to key performance indicators N/A |
| Movement No change |
| Mitigations - 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 risks associated with COVID-19 - In particular, the Customer Journey Team ensured COVID-19 mitigations throughout Sainsbury's were proportionate and aligned with legislation - The Operating Board receives quarterly reports on safety, including an annual deep dive facilitated by the Head of Group Safety, who also provided an annual safety update to the plc Board - Clear policies and procedures are in place detailing the controls required to manage health and safety across the business, aligned to Assured Primary Authority advice, to 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, offices and for home working colleagues - Process compliance is supported through oversight from our Primary Authority, 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 new Group Head of Health, Safety and Insurance was appointed in June 2021 and completed a full review of the Safety team and processes. As a result, new measures of success were defined. Key areas include a renewed focus on reducing harm and its associated costs by removing unnecessary complexity and enhancing the use of data to prioritise the team's work |
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 - Plan for Better |
| Link to key performance indicators N/A |
| Movement No change |
| Mitigations - We complete a bi-annual risk assessment to review key regulatory risks, which functions are impacted and at a high level, how they are managed - Accountability and responsibilities for key regulatory risks are confirmed as part of this. Our key regulatory risks include Competition Law, GDPR, GSCOP and Anti-Bribery and Corruption. A high-level of assessment of the key elements of a compliance framework for each of these key risks is completed and the results are shared with the Operating Board - Mandatory training is in place for the key regulatory areas, including data governance, anti-bribery and corruption, competition law and GSCOP - In terms of emerging regulatory risk, we liaise with external parties and our internal stakeholders to monitor changes to existing regulations that would impact the business, so that we can respond appropriately. Areas of focus remain the same as the previous year and 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 and the implications of any changes to the NI Protocol - responding to proposed new rules associated with high fat, sugar and salt products, plastic, packaging and food waste - anticipating and responding to emerging areas of regulatory focus on environment and climate change, and associated reporting requirements - 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 - Plan for Better |
| Link to key performance indicators N/A |
| Movement No change |
| Mitigations - Clear policies and procedures are in place detailing the controls required to manage product safety, product fraud and ethical risks across the business and to comply with all applicable regulations - These cover the end-to-end operations, including safety processes in place in our depots and stores and the quality management controls in place to ensure product safety and integrity - During the year, Food Safety policies were refreshed and simplified to ensure they were clear to colleagues and suppliers - 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. Where on-site visits are not allowed due to COVID-19 restrictions, remote audit and assurance programmes are in place - Product recall escalation procedures are in place to quickly resolve issues for food and non-food product incidents - 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 Director of Technical, Food, Head of Technical & Ethical, GM&C and from the Group Head of Health, Safety and Insurance on operational food safety risks. In addition, the Corporate Responsibility & Sustainability Committee discussed matters related to product sourcing risk, including supply chain transparency, modern slavery and human trafficking |
Sainsbury's Bank*
| Risk Sainsbury's Bank is exposed to a number of risks, including those related to operational, regulatory, credit, capital, funding, liquidity and market risks.
The COVID-19 pandemic means uncertainty around the economic outlook will continue, particularly with regard to how the path of inflation, interest rates and levels of unemployment will evolve. This is actively managed through our normal economic scenario modelling analyses and corresponding playbooks. |
| Direct oversight The Boards of J Sainsbury plc and Sainsbury's Bank plc |
| Link to strategy - Brands that Deliver |
| Link to key performance indicators N/A |
| 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, independent 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 that require Sainsbury's Bank plc 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. Whilst the UK has now left the European Union, uncertainties around the final trading relationship with Northern Ireland and UK border checks create additional complexities for our business and our suppliers.
With the outlook set to remain broadly 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, either through insolvency or through an inability to deliver products due to global supply chain challenges. |
| Direct oversight Customer, Commercial and Channels Forum; Operating Board |
| Link to strategy - Food First - Brands that Deliver - Save to Invest |
| Link to key performance indicators Grocery market share performance |
| Movement No change |
| Mitigations - We have a wide, differentiated portfolio of brands, including Sainsbury's, Argos, Habitat, Tu clothing, Nectar and Sainsbury's Bank, which provides some inherent resilience to unforeseen changes - 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 put the customer at the heart of our decision making to ensure we retain existing and attract new customers - see the "Customer" principal risk for further details - We are in regular contact with the government and other external bodies to understand decision making in relation to Northern Ireland so we, and our suppliers, can adapt our ways of working as needed - In terms of supplier continuity specifically, we maintain regular, open dialogue with key suppliers concerning their ability to trade and collaborate with them on solutions where appropriate. This year, we subsumed the operations of one key supplier into our business, to ensure continuity of supply - Reflecting the impact of COVID-19 on global supply chains, we have continued to work collaboratively with all our suppliers this year to maintain availability of products for the customer. Actions taken include onboarding alternate suppliers, rationalising products and providing logistics support |
Colleague engagement, retention and capability
| Risk The business employs over 171,000 colleagues who are critical to the success of our business. Attracting talented colleagues, investing in training and development and rewarding colleagues fairly are all essential to the sustainability of our operations. An inability to attract, motivate and retain talent, specific skillsets and capability impacts our ability to deliver our strategic objectives. The availability of skills in specific areas is a key area of focus.
COVID-19 continues to affect our store, depot and office-based colleagues. 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 that affect colleagues, impacting trust or engagement. |
| Direct oversight Operating Board |
| Link to strategy - Food First - Brands that Deliver - Save to Invest - Connected to Customers - Plan for Better |
| Link to key performance indicators Colleague engagement |
| Movement No change |
| Mitigations - Employment policies and remuneration and benefits packages are regularly reviewed and are designed to be fair, consistent and competitive. Our base rate of pay for Sainsbury's and Argos store colleagues is £10 an hour nationally, ahead of the Living Wage, and £11.05 an hour in London, in line with the London Living Wage. Over the course of the year, we also made exceptional payments for areas with specific skills shortages, for example drivers - We have processes in place to nurture talent and provide fulfilling career opportunities. Formal processes are in place to discuss performance and development, identify talent, actively manage succession planning and enable colleagues to progress into management roles - We have invested in leadership immersion sessions focused on our new valued behaviours, as well as ongoing behavioural and leadership development, to build capability and support a positive working culture - We continue to take action to be an inclusive place to work. We've set stretching gender, ethnically diverse and Black representation targets for 2024, which form part of our leaders' long-term incentives - We continue to listen closely to colleagues to inform and adapt our future plans and actions. Our annual colleague survey was updated this year to ensure we are measuring the things that matter most to our people and that support the culture we seek to have - In September 2021, we went live with our new hybrid ways of working, giving colleagues greater flexibility to come together in our offices, stores and depots for collaboration, coaching or community purposes and work remotely the rest of the time - We design and run specific programmes to target hard to recruit areas, presenting a wide range of opportunities for colleagues from across our business, as well as attracting new talent. We have introduced a new HGV driver apprenticeship as well as an HGV driver academy - We have upweighted our recruitment teams, to support hiring in difficult and competitive markets, and embraced new ways of attracting talent |
Environment and social sustainability
RISK DEEP DIVE
| Risk Understanding and mitigating the impact of the climate on our business operations, reducing our environmental impact as well as using our size and scale as a business to have a positive impact on society and our communities is a core part of our strategy.
During the year, the Plan for Better strategic priority was launched, putting our responsibilities towards our planet and people at the core of our business.
Reflecting this, this risk was broadened from focussing on our Net Zero commitments, to include consideration of environmental and social sustainability risks and the impact of climate change on our business operations; the latter was previously considered within each relevant Principal Risk. As a result, the gross, net and target positions of this risk were reset. |
| Direct oversight Corporate Responsibility and Sustainability Committee, Plan for Better Steering Committee |
| Link to strategy - Plan for Better |
| Link to key performance indicators Plan for Better commitment |
| Movement New risk |
| Mitigations - The Corporate Responsibility & Sustainability (CR&S) Committee provides oversight of the Plan for Better strategy. The CR&S Committee, Plan for Better Steering Committee and Audit Committee review and approve our external reporting and provide oversight of programme risks - Our Plan for Better strategy, explained on page 13 of this report, was launched this year and sets out our environmental and social sustainability goals across our whole business, outlining our priority areas of focus, our key commitments and our progress against these. We have identified areas which matter most to our stakeholders, have the greatest impact on our business and which are aligned to the UN Sustainable Development Goals, so that we can make the biggest difference - Our Plan for Better strategy has three interlocking pillars: Better for you, Better for the planet and Better for everyone - The Plan for Better Steering Committee (Steering Committee) met six times during the year and provided regular updates to the CR&S Committee and to the Operating Board as required. This Steering Committee oversees delivery of the Plan for Better programme, supported by three working groups responsible for driving and executing the strategy - One of our key metrics to measure and report on Plan for Better performance is our progress towards becoming Net Zero across our own operations by 2035 and supply chain by 2050. We will continue to monitor our progress in achieving our targets, flexing our approach as needed. We also publicly report on progress towards achieving our Net Zero targets, as well as our other targets within Plan for Better twice a year, to ensure transparency - See page 17 for more information on our ongoing implementation of the TCFD recommendations |
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 5 March 2022 and 6 March 2021.
|
| Amortised cost £m | Fair value through OCI £m | Fair value through profit or loss £m | Total £m |
| Cash and cash equivalents | 825 | - | - | 825 |
| Trade and other receivables | 552 | - | - | 552 |
| Amounts due from Financial Services customers and other banks | 5,189 | - | - | 5.189 |
| Financial assets at FVOCI | - | 800 | - | 800 |
| Trade and other payables | (4,218) | - | - | (4,218) |
| Borrowings | (761) | - | - | (761) |
| Amounts due to Financial Services customers and banks | (5,259) | - | - | (5,259) |
| Derivative financial instruments | - | - | 259 | 259 |
| Lease liabilities | (6,621) | - | - | (6,621) |
| At 5 March 2022 | (10,293) | 800 | 259 | (9,234) |
| Restated | Amortised cost £m | Fair value through OCI £m | Fair value through profit or loss £m | Total £m |
| Cash and cash equivalents | 1,575 | - | - | 1,575 |
| 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) |
| Borrowings | (1,104) | - | - | (1,104) |
| Amounts due to Financial Services customers and banks | (6,289) | - | - | (6,289) |
| Derivative financial instruments | - | - | (124) | (124) |
| Lease liabilities | (5,834) | - | - | (5,834) |
| At 6 March 2021 | (9,738) | 844 | (124) | (9,018) |
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.
| Carrying amount £m | Group fair value £m | |
| At 5 March 2022 | ||
| Financial assets | ||
| Amounts due from Financial Services customers1 | 5,189 | 5,216 |
| Financial liabilities | ||
| Loans due 2031 | (575) | (717) |
| Tier 2 capital due 2023 | (179) | (180) |
| Amounts due to Financial Services customers and other banks | (5,259) | (5,260) |
| Carrying amount £m | Group fair value £m | |
| At 6 March 2021 | ||
| Financial assets | ||
| Amounts due from Financial Services customers1 | 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 Included within a portfolio fair value hedging relationship with £3,235 million (2021: £3,984 million) of interest rate swaps.
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 have been calculated by discounting cash flows at prevailing interest rates and are 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 instrument 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).
| | Level 1 £m | Level 2 £m | Level 3 £m | Total £m |
| At 5 March 2022 | ||||
| Financial instruments at fair value through other comprehensive income | ||||
| Other financial assets | - | 15 | 367 | 382 |
| Investment securities | 418 | - | - | 418 |
| Derivative financial assets | - | 111 | 180 | 291 |
| Derivative financial liabilities | - | (32) | - | (32) |
| 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) |
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 2021 | 291 | 6 | 297 | |
| In cost of sales in the Group income statement | - | 76 | 76 | |
| In other comprehensive income | 76 | 98 | 174 | |
| At 5 March 2022 | 367 | 180 | 547 | |
| Financial instruments at FVTOCI £m | Commodity derivatives £m | Total £m | ||
| At 8 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 | |
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 (2021: zero per cent) and a discount rate of seven per cent (2021: seven per cent) - see note 18. 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:
| 2022 Change in growth rate +/-1.0% £m | 2022 Change in discount rate +/-1.0% £m | 2021 Change in growth rate +/-1.0%£m | 2021 Change in discount rate +/-1.0% £m | ||
| Financial instruments at fair value through OCI | 6/(6) | (5)/5 | 9/(9) | (6)/6 | |
The Group has entered into several long-term fixed price Power Purchase agreements with independent producers. Included within derivative financial assets is £180 million (2021: £6 million) relating to these agreements. The Group has entered into a new Power Purchase Agreement during the year, and this has been designated as a cash flow hedge.
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:
| Not in a hedge relationship | 2022 Change in volume +/-20.0% £m | 2022 Change in electricity forward price +/-20.0% £m | 2021 Change in volume +/-20.0% £m | 2021 Change in electricity forward price +/-20.0% £m |
| Derivative financial instruments | 23/(23) | 16/(16) | 1/(1) | 7/(7) |
| Designated in a cash flow hedge relationship | 2022 Change in volume +/-20.0% £m | 2022 Change in electricity forward price +/-20.0% £m | 2021 Change in volume +/-20.0% £m | 2021 Change in electricity forward price +/-20.0% £m |
| Derivative financial instruments | 32/(32) | 20/(20) | N/A | N/A |
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:
|
| 2022 £m | 2021 £m |
| Short-term employee benefits | 12 | 9 |
| Post-employment employee benefits | 1 | 1 |
| Share-based payments | 6 | 5 |
| | 19 | 15 |
Three key management personnel had credit card balances with Financial Services (2021: five). These arose in the normal course of business and were immaterial to the Group and the individuals. One key management personnel held saving deposit accounts with Financial Services (2021: 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 5 March 2022, the Group entered into various transactions with joint ventures and associates as set out below. All transactions with joint ventures and associates are at arm's-length.
|
| 2022 £m | 2021 £m |
| Dividends and distributions received | 2 | 4 |
| Rental expenses paid | (8) | (6) |
Year-end balances arising from transactions with joint ventures and associates
|
| 2022 £m | 2021 £m |
| Other payables | (1) | (2) |
c) Retirement benefit obligations
As discussed in note 37, 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 37 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 UK-adopted international accounting standards. 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 UK-adopted international 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 54 to 57, 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 OBE
Company Secretary and Corporate Services Director
27 April 2022
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