TIDMSBRY
RNS Number : 0751B
Sainsbury(J) PLC
07 June 2021
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 - Divisional risk maps reviewed
Bottom-up risk identification and challenged
- Divisional emerging risk
map reviewed
- Monitor risk actions
Governance forums - Divisional risks relevant
Risk identification and monitoring to forums' area of scope reviewed
- Governance forum risk maps
reviewed
-----------------------------------------
Operating Board - Corporate risk map updated
Bi-annual Corporate risk updates and actions monitored
and deep dives - Risk deep dives received
- Emerging risk map reviewed
-----------------------------------------
Audit Committee - Corporate and emerging risk
Corporate risk updates, deep maps reviewed
dives and approve risk framework - Risk deep dives received
- Risk policy and framework
approved
- Internal audit reporting
-----------------------------------------
plc Board - Annual internal controls
Review of risk process, corporate certification by management
risks and approval of risk disclosures - 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 GBP1 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: GBP500m
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.
Fair value
Fair value through
Amortised through profit
cost OCI or loss Total
Group GBPm GBPm GBPm GBPm
------------------------------------- ---------- ----------- ----------- --------
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)
------------------------------------- ---------- ----------- ----------- --------
Fair value
Fair value through
Amortised through profit
cost OCI or loss Total
Group GBPm GBPm GBPm GBPm
------------------------------------- ---------- ----------- ----------- --------
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
GBP322 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 Group
Carrying Fair
amount value
GBPm GBPm
----------------------------------------------------------- --------
At 6 March 2021
Financial assets
Amounts due from Financial Services customers
and other banks(1) 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 Group
Carrying Fair
amount value
GBPm GBPm
At 7 March 2020
Financial assets
Amounts due from Financial Services customers(1) 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 GBP3,984 million (2020: GBP4,512 million) of interest rate
swaps.
The fair value of financial assets as disclosed in the table
above as at 6 March 2021 was GBP5,455 million (2020: GBP7,455
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 GBP7,441 million (2020: GBP9,614 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).
Level Level Level Total
1 2 3 GBPm
Group GBPm GBPm GBPm
--------------------------------------- ------- ------- ------ ------
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 Commodity
at FVTOCI derivatives Total
GBPm GBPm GBPm
----------------------------------------------- ------------- -------
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 Commodity
at FVTOCI derivatives Total
GBPm GBPm GBPm
----------------------------------------------- ------------- -------
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:
2020 Change
2021 Change in 2021 Change in discount
growth rate in discount 2020 Change rate
+/-1.0% rate +/-1.0% in growth +/-1.0%
GBPm GBPm rate +/-1.0%GBPm GBPm
---------------------------------- -------------- ------------------ -------------
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 GBP6 million (2020: GBP(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 2020 Change
2021 Change in electricity 2020 Change in electricity
in volume forward in volume forward
+/-20.0% price +/-20.0% +/-20.0% price +/-20.0%
GBPm GBPm GBPm GBPm
-------------------------------------------- ---------------- ------------ ----------------
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 2020
GBPm GBPm
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 2020
GBPm GBPm
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 2020
GBPm GBPm
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.
S tatement 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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June 07, 2021 10:25 ET (14:25 GMT)
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