REG - Sainsbury(J) PLC - Annual Report and Notice of AGM 2022
06/06/2022 13:15
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RNS Number : 8589N Sainsbury(J) PLC 06 June 2022
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
(http://www.about.sainsburys.co.uk/ar2022) and
www.about.sainsburys.co.uk/agm2022 (http://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
(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
(http://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 - Divisional risk maps reviewed and challenged
Bottom-up risk identification - Divisional emerging risk map reviewed
- Monitor risk mitigation plans
Governance fora - Divisional risks relevant to fora area of scope reviewed
Risk identification and monitoring - Governance forum risk maps reviewed
Operating Board - Corporate risk map updated and actions monitored
Bi-annual Corporate risk updates and deep dives - Risk deep dives received
- Emerging risk map reviewed
Audit Committee - Corporate and emerging risk maps reviewed
Corporate risk updates, deep dives and approve risk framework - Risk deep dives received
- Risk policy and framework approved
- Internal audit reporting
plc Board - Annual internal controls certification by management
Review of risk process, corporate risks and approval of risk disclosures - 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 Fair value through OCI Fair value through profit Total
£m £m or loss £m
£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 Fair value through OCI Fair value through profit Total
£m £m or loss £m
£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 Group
amount fair value
£m £m
At 5 March 2022
Financial assets
Amounts due from Financial Services customers(1) 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 Group
amount fair value
£m £m
At 6 March 2021
Financial assets
Amounts due from Financial Services customers(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 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 Level 2 Level 3 Total
£m £m £m £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 Commodity derivatives Total
instruments £m £m
at FVTOCI
£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 Commodity derivatives Total
instruments £m £m
at FVTOCI
£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 2022 Change in discount rate +/-1.0% 2021 Change in growth rate +/-1.0%£m 2021 Change in discount rate
growth rate £m +/-1.0%
+/-1.0% £m
£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 2022 Change in electricity forward price +/-20.0% 2021 2021 Change
in volume £m Change in electricity forward price +/-20.0%
+/-20.0% in volume £m
£m +/-20.0%
£m
Derivative financial instruments 23/(23) 16/(16) 1/(1) 7/(7)
Designated in a cash flow hedge relationship 2022 Change 2022 Change in electricity forward price +/-20.0% 2021 Change 2021 Change in electricity forward price +/-20.0%
in volume £m in volume £m
+/-20.0% +/-20.0%
£m £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 2021
£m £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 2021
£m £m
Dividends and distributions received 2 4
Rental expenses paid (8) (6)
Year-end balances arising from transactions with joint ventures and associates
2022 2021
£m £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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