TIDMSBRY
RNS Number : 1070B
Sainsbury(J) PLC
04 June 2019
4 June 2019
J Sainsbury plc (the "Company")
Annual Report and Financial Statements
AND NOTICE OF ANNUAL GENEral meeting 2019
The following documents have today been posted or otherwise made
available to shareholders:
-- Annual Report and Financial Statements 2019 for the year ended 9 March 2019;
-- Notice of Annual General Meeting to be held on 4 July 2019; and
-- Form of Proxy for the 2019 Annual General Meeting.
In accordance with Listing Rule 9.6.1R, a copy of each of these
documents will be uploaded to the National Storage Mechanism and
will be available for viewing shortly at
www.morningstar.co.uk/uk/NSM
The above documents may also be viewed online at
www.about.sainsburys.co.uk/ar2019 and
www.about.sainsburys.co.uk/investors/shareholder-information/agm.
A condensed set of the Company's financial statements and
information on important events that have occurred during the
financial year and their impact on the financial statements were
included in the Company's Preliminary Results Announcement on 1 May
2019.
That information together with the information set out below
which is extracted from the Annual Report and Financial Statements
2019 (the "Annual Report 2019") constitute the material required by
Disclosure Guidance and Transparency Rule 6.3.5R which is required
to be communicated to the media in full unedited text through a
Regulatory Information Service.
This announcement is not a substitute for reading the full
Annual Report 2019. Page and note references in the text below
refer to page numbers in the Annual Report 2019. To view the
preliminary announcement, slides of the results presentation, the
transcript of the presentation and the webcast please visit
www.about.sainsburys.co.uk/investors/results-reports-and-presentations.
Enquiries
Investor Relations Media
James Collins Rebecca Reilly
+44 (0) 20 7695 0080 +44 (0) 20 7695 7295
Our Principal Risks and Uncertainties
Risk is an inherent part of doing business. The management of
risk is based on the balance between risk and reward, determined
through careful assessment of both the potential outcomes and
impact as well as risk appetite. Consideration is given to both
reputational as well as financial impact, recognising the
significant commercial value of the Sainsbury's brand. The risk
management process is aligned to our strategy and each principal
risk and uncertainty is considered in the context of how it relates
to the achievement of the Group's strategic objectives. The current
business strategy and objectives are categorised into the following
areas:
-- We know our customers better than anyone else;
-- Our values make us different;
-- Colleagues making the difference;
-- Great products and services at fair prices; and
-- There for our customers.
Our corporate risk map captures the principal risks to achieving
Sainsbury's business objectives. Sainsbury's Operating Board
formally reviews this twice a year. The appetite for each key risk
is also discussed and assessed with a target risk position agreed
to reflect the level of risk that the business is willing to
accept. This enables the Board to agree and monitor appropriate
actions as required. Please see the risk framework on page 67 for
further detail.
The gross risk movement from the prior year for each principal
risk and uncertainty has been assessed.
Mitigations in place, supporting the management of the risk to a
net risk position, are also described for each principal risk and
uncertainty.
Where principal risks have been included in the risk modelling,
undertaken as part of the preparation of the viability statement
(see page 37), this has been indicated with the following symbol
*.
Key risk movements
As noted, the principal and emerging risks are discussed and
monitored throughout the year to identify changes to the risk
landscape. Risks are reviewed in line with the Company's strategic
objectives.
Following the review of the principal risks and our strategic
key drivers, we have included two new principal risks and
uncertainties. One relates to the ongoing heightened levels of
political and regulatory uncertainty in the UK following the
referendum vote to leave the EU in June 2016, and the second is to
separate out the Sainsbury's Bank plc's risks from our Finance and
Treasury principal risk and uncertainty disclosure. The Bank has a
defined risk appetite aligned to the delivery of its own strategic
objectives.
The most significant principal risks identified by the Board,
and the corresponding mitigating controls, are set out below in no
order of priority.
Brand perception (no change in the gross risk exposure)
Risk
We are a multi-brand, multi-channel business incorporating
Sainsbury's, Argos, Habitat, Tu, Nectar and Sainsbury's Bank.
Our business must continue to evolve to meet customer needs
and maintain customer loyalty. Customer lifestyles, behaviours
and expectations are changing and we need to continue to differentiate
our offer to retain and attract customers. We also need to
protect our brands so that customers, suppliers and stakeholders
continue to trust us.
Direct oversight
Operating Board, Food Management Board, Sainsbury's Argos
Management Board and Sainsbury's Bank Executive Committee
Mitigations
* We continually focus on evolving our ways of working
to ensure we meet our customers' needs so that our
brands remain relevant
* We have a wide, differentiated product offer, which
gives our customers more reasons to shop with us
* We change and evolve to meet the needs of our
customers through our digital strategy and technology
developments, so that we are there for them whenever
and wherever they want to shop with us, with great
products and services at fair prices. To deliver this,
we will continue to listen to and understand our
customers
* The purchase of Nectar supports our strategy of
knowing our customers better than anyone else. The
acquisition has given us more control over how we
reward and recognise our customers and we have since
launched trials in the Isle of Wight and Wales that
are digital and give customers offers which are
completely personalised to them
* Our Living Well Index helps us to understand what
'living well' means to people across the UK today and
to track how that picture changes over time. The most
recent research identified that the UK's sense of
wellbeing had fallen last year, with loneliness a key
factor. By bringing people together though our
Talking Tables initiative, we utilised our café
store-space to help people be better connected to the
communities they live and work in, bridging the
loneliness gap
* In terms of brand protection, many of the mitigation
activities set out against the risks above also help
prevent or reduce the risk of losing the trust and
loyalty of customers, suppliers and broader
stakeholders
Brexit* (new risk)
Risk
There remain heightened levels of political and regulatory
uncertainty in the UK following the referendum vote to leave
the EU in June 2016 and the lack of clarity around the date
of departure. These uncertainties could have an adverse effect
on customers, supply chains and colleagues, potentially impacting
trading performance across the sector.
Direct oversight
Operating Board
Mitigations
* We have co-ordinated activities across the Trading,
Retail, HR, Legal and Finance teams to help ensure
that, in the event of a no deal, appropriate
mitigations are in place to reduce the impact on
customers, supply chains and colleagues. These
activities specifically relate to three key areas of
risk in the event of a no deal:
1. Delays at borders, reducing product availability and choice
2. Cost impact associated with tariffs, loss of trade and
currency fluctuations
3. Impact of changes in EU migration throughout our supply
chains
* We continue to engage actively with key stakeholders
to assess the specific impact on our business
* We continue to assess and monitor the potential risks
and impacts of these changes on our customers, supply
chains and colleagues so that we can take appropriate
action
Business continuity, operational resilience and major incident
response (no change in the gross risk exposure)
Risk
A major incident or catastrophic event could impact on the
Group's or individual brands' ability to trade. Sainsbury's
exposure to operational resilience and major incident risks
may be greater following the acquisition of Argos and Nectar
given the increased size and complexity of the business.
Direct oversight
Group Operational Resilience Committee
Mitigations
* The operational resilience (OR) strategy, including
incident management, resilience exercises and testing,
has been aligned across the Group
* The Group Operational Resilience Committee meets
quarterly chaired by the CFO, with support from our
Company Secretary and CIO. The Committee sets the
operational resilience strategy for the Group and
monitors progress against this
* To support this, Operational Resilience Committees
which include representatives from Sainsbury's Food,
Argos, the Bank, and Habitat, meet regularly to
ensure that the OR policy and strategy is
implemented. In addition, they oversee the mitigation
of all risks associated with OR and IT disaster
recovery
* Group-wide resilience exercises are undertaken to
imitate real life business continuity scenarios and
test the Group's ability to respond effectively
* Key strategic locations have secondary backup sites
which would be made available within pre-defined
timescales and are regularly tested
Incident management
* In the event of any unplanned or unforeseen events,
the Incident Response Team is convened at short
notice to manage the response and any associated risk
to the business
* The Group has plans in place, supported by senior
representatives who have the experience and the
authority levels to make decisions in the event of a
potentially disruptive incident
Business strategy and change* (no change in the gross risk
exposure)
Risk
If the Board adopts the wrong business strategy or does not
communicate or implement its strategies effectively, the business
may be negatively impacted. Risks to delivering the strategy,
change initiatives forming part of the strategy and other
significant supporting change such as the integration with
Argos need to be properly understood and managed to deliver
long-term growth for the benefit of all stakeholders alongside
management of business as usual.
Direct oversight
Board of J Sainsbury plc
Mitigations
* The business strategy is focused on the following:
1. We know our customers better than anyone else
2. We will be there wherever and whenever they need us
3. We will offer great products and services at fair prices
4. Our colleagues make the difference
5. Our values make us different
* The progress against strategic programmes and any
risks to delivery, such as the ability to implement
and deliver change and new business initiatives, is
regularly reviewed by the Board and the overall
strategy is reviewed at the annual two-day Strategy
Conference
* The Operating Board also has regular sessions to
discuss strategy, supported by a dedicated strategy
team
* The strategy is communicated and the Group engages
with a wide range of stakeholders, including
shareholders, colleagues, customers and suppliers, on
a continual basis
* In addition, management performs ongoing monitoring
of business as usual performance to determine
indicators of potential negative performance because
of change initiatives
Colleague engagement, retention and capability (no change in the
gross risk exposure)
Risk
The Group employs 178,000 colleagues who are critical to the
success of our business. Attracting talented colleagues, investing
in training and development, maintaining good relations, and
rewarding colleagues fairly are essential to the efficiency
and sustainability of the Group's operations. Delivery of
the strategic objectives, including integration with Argos,
increases the impact of an inability to attract, motivate
and retain talent, specific skill sets and capability. In
addition, the challenging trading environment requires a focus
on efficient operations, which may include change initiatives
affecting colleagues, therefore presenting a risk of loss
of colleague trust or engagement.
Direct oversight
Food Management Board, Sainsbury's Argos Management Board
and Sainsbury's Bank Executive Committee
Mitigations
* The Group's employment policies and remuneration and
benefits packages are regularly reviewed and are
designed to be competitive with other companies, fair
and consistent, as well as providing colleagues with
fulfilling career opportunities
* In addition to strong leadership and nurturing of
talent by line managers, formal processes are also in
place to identify talent and actively manage
succession planning throughout the business
* Reviews are performed to help develop the skills
colleagues need to deliver objectives and this is
supported by embracing new ways of attracting talent
* Colleague surveys, performance reviews, listening
groups, communications with trade unions, regular
communication of business activities and colleague
networking forums such as Yammer, the updated
colleague portal (Our Sainsbury's) and the colleague
learning portal are some of the methods the Group
uses to understand and respond to colleagues' needs
* Our corporate value 'Great Place to Work' reinforces
our commitment to giving people the opportunity to be
the best they can be
* As change initiatives are implemented, the methods
described above will continue to be employed to
understand and maintain colleague trust and
engagement
Data security* (no change in the gross risk exposure)
Risk
It is essential that the security of customer, colleague and
company confidential data be maintained. A major breach of
information security could have a major negative financial
and reputational impact on the business. The risk landscape
is increasingly challenging with deliberate acts of cybercrime
on the rise, targeting all markets and heightening the risk
exposure.
Direct oversight
Group Data Governance Committee
Mitigations
* A Group Data Governance Committee is established and
is supported by focused working groups looking at the
management of colleague data, customer data,
information security, commercial data and awareness
and training
* The Chief Information Security Officer continues to
develop information security strategies and to build
the necessary capability to deliver against those
strategies
* The Head of Data Governance focuses on improving how
we handle data across the organisation
* Various information security policies and standards
are in place, which focus on encryption, network
security, access controls, system security, data
protection and information handling
* All colleagues are required to complete mandatory
training on how to keep our information safe. This is
supplemented by regular awareness campaigns, focusing
on specific aspects of data and information security
* A review of key third parties who hold sensitive
customer or colleague data continues to take place,
and progress is monitored by the Data Governance
Committee
* A risk-based security testing approach across Group
IT infrastructure and applications is in place to
identify ongoing vulnerabilities
* Reflecting the importance of data security, the Chief
Information Security Officer and the Head of Data
Governance provide regular updates to the Audit
Committee on mitigating controls and activities to
manage this risk. These discussions are conveyed to
the Board as part of our normal governance processes
Environment and sustainability (no change in the gross risk
exposure)
Risk
The environment and sustainability are core to Sainsbury's
values. The key risk facing the Group in this area relates
to reducing the environmental impact of the business, which
could result in a financial and/or reputational risk.
Direct oversight
Operating Board
Mitigations
* The Corporate Responsibility and Sustainability
Committee met twice during the year. The Committee
oversees the impact of Sainsbury's corporate
responsibility and sustainability strategy against
'Live Well for Less' and building customer trust
* The Committee has relaunched Sainsbury's Value
Management Groups, which are responsible for driving
and executing the strategy. Five Value Management
Groups have been formed:
* Health Management Group
* Community Management Group
* Environment Management Group
* Sourcing With Integrity Management Group
* Great Place to Work Management Group
Financial and treasury* (no change in the gross risk
exposure)
Risk
The main financial risks are the availability of short-and
long-term funding to meet business needs and fluctuations
in interest, commodity and foreign currency rates. In addition,
there remains a risk around the Group defined benefit pension
arrangement that is subject to risks in relation to liabilities
as a result of changes in interest rates, life expectancy,
inflation and their alignment to the value of investments
and the returns derived from such investments.
Direct oversight
Board of J Sainsbury plc
Mitigations
* The Treasury Committee is responsible for reviewing
Retail Treasury proposals, approving Retail Treasury
transactions and monitoring compliance with Retail
Treasury policy
* The Group Treasury function is responsible for
managing the Group's liquid resources, funding
requirements, mandates, interest rate and currency
exposures and the associated risks as set out in line
with the Group Treasury policy
* The Group Treasury function has clear policies and
operating procedures, which are regularly reviewed
and audited
* The Cash Action Group is responsible for the
optimisation of activities to continually review and
improve our cash generation, and meets periodically
* On a periodic basis Finance Commercial review
sessions are held, chaired by the CFO to review the
Company balance sheet, income statement and net debt
in detail, with relevant actions and mitigations
agreed
* The Group's funding strategy is approved annually by
the Board and includes maintaining appropriate levels
of working capital. The Audit Committee reviews and
approves annually the viability and going concern
statements and reports into the Board
* There is a long-term funding framework in place for
the pension deficit and there is ongoing
communication and engagement with the Pension
Trustees
* We have robust cost savings plans in place to offset
the impact of operating cost inflation
* With regard to pensions, investment strategies are in
place which have been developed by the pension
trustees, in consultation with the Company, to manage
the volatility risk of liabilities, to diversify
investment risk and to manage cash
Health and safety - people and product* (no change in the gross
risk exposure)
Risk
Prevention of injury or loss of life for both colleagues and
customers is of utmost importance and is paramount to maintaining
the confidence our customers have in our business.
Direct oversight
Group Safety Committee
Mitigations
* Clear policies and procedures are in place detailing
the controls required to manage health and safety and
product safety risks across the business and to
comply with all applicable regulations
* These cover the end-to-end operations, from the
auditing and vetting of construction contractors to
the health and safety processes in place in our
depots, stores and offices, and including the
controls to ensure people and product safety
* In addition, established product testing programmes
are in place to support rigorous monitoring of
product traceability and provide assurance over
product safety and integrity
* Supplier terms, conditions and product specifications
set clear standards for product, raw material safety
and quality with which suppliers are expected to
comply
* Process compliance is supported by external
accreditation and internal training programmes, which
align to both health and safety laws and Sainsbury's
internal policies
* In addition, resource is dedicated to manage the risk
effectively, in the form of the Group Safety
Committee and specialist safety teams
Political and regulatory environment* (increased gross risk
exposure)
Risk
There is an increasing trend of regulation, together with
enforcement action, across all areas of our business. This
adds additional cost as we respond to the regulations and
drives complexity into our business processes.
Direct oversight
Operating Board
Mitigations
* We complete a bi-annual regulatory risk assessment
with key areas of the business to identify current
and emerging regulation affecting the Group, so that
we can respond appropriately
* Regulatory updates are regularly presented to our
oversight boards and committees, including the
Regulatory Pay Forum, which was established in 2019
to oversee National Living Wage and National Minimum
Wage compliance across the Sainsbury's Group, with
flexibility to support other areas of reward
compliance if necessary
* To influence current and emerging regulatory
requirements, we continue to engage actively with
Government, industry and regulatory bodies
* We publicly communicate matters where we believe
industry change is required, with a view to enabling
fair competition that is beneficial to our customers
Sainsbury's Bank* (new gross risk exposure)
Risk
Sainsbury's Bank is exposed to a number of risks. These include
operational risk, regulatory risk, credit risk, capital risk,
funding and liquidity risk and market risk.
Direct oversight
Board of J Sainsbury plc and Sainsbury's Bank plc
Mitigations
* The Bank is managed through defined governance
structures that include the Board of Sainsbury's Bank
plc, its Risk Committee and Audit Committee. The
Board of Sainsbury's Bank plc is comprised of
Executive Directors, Non-Executive Directors and a J
Sainsbury plc Executive Director
* The Bank has a defined risk appetite aligned to
delivery of strategic objectives and has implemented
a risk management framework that is overseen by its
Risk Committee. This Committee monitors the
effectiveness of risk management activities against
strategic, operational, compliance and financial
risks, and is updated on and discusses emerging risk
areas. In particular, the Committee reviews the
results of stress testing including the internal
Liquidity and Capital Adequacy Assessments
* The actual management of risks is through an
executive governance structure, which manages the
day-to-day operations of the business. This includes
the Sainsbury's Bank Management Board, an Executive
Risk Committee and an Asset and Liability Committee
Group oversight is provided through:
* Membership of the Board of Sainsbury's Bank plc - one
of J Sainsbury plc Executive Directors is on the
Board of Sainsbury's Bank plc and provides updates to
the Board of J Sainsbury plc on Bank matters
* Updates on key matters arising from meetings of the
Risk Committee and Audit Committee are reported to
the J Sainsbury plc Audit Committee
* There are a number of reserved matters where
Sainsbury's Bank plc needs to obtain permission from
J Sainsbury plc
Trading environment and competitive landscape* (no change in the
gross risk exposure)
Risk
The sector outlook has been and is set to remain highly competitive.
The trading environment, driven by ongoing competitive retail
pricing combined with growing inflationary cost pressures,
may adversely affect our performance. There is also an ongoing
risk of supplier failure, with possible operational or financial
consequences for the Group.
Direct oversight
Food Management Board, Sainsbury's Argos Management Board
and Sainsbury's Bank Executive Committee
Mitigations
* We adopt a differentiated strategy with a continued
focus on delivering quality products and services
with universal appeal, at fair prices, helping our
customers live well for less
* This is achieved through the continuous review of our
product quality, key customer metrics, monitoring of
current market trends and price points across
competitors, active management of price positions,
development of sales propositions and increased
promotional and marketing activity
* We continue with our commitment to offer customers
even better value with lower regular prices
* In delivering our strategic plan, including our price
investment, we will maintain the strength of our
balance sheet and have identified a series of
measures to conserve cash in the business
* Through these measures, we will deliver sustainable
operating cost savings
* Concerning supplier continuity, Sainsbury's maintains
regular, open dialogue with key suppliers concerning
their ability to trade
Related party transactions
a) Key management personnel
The key management personnel of the Group comprise members of
the J Sainsbury plc Board of Directors and the Operating Board. The
key management personnel compensation is as follows:
2019 2018
GBPm GBPm
Short-term employee benefits 11 9
Post-employment employee benefits 1 1
Share-based payments 10 5
------ ------
22 15
Five key management personnel had credit card balances with
Financial Services (2018: eight). These arose in the normal course
of business and were immaterial to the Group and the individuals.
Three key management personnel held saving deposit accounts with
Financial Services (2018: three). These balances arose in the
normal course of business and were immaterial to the Group and the
individuals.
b) Joint ventures and associates
Transactions with joint ventures and associates
For the 52 weeks to 9 March 2019, the Group entered into various
transactions with joint ventures and associates as set out
below:
2019 2018
GBPm GBPm
Management services provided - 1
Income share received from joint ventures
and associates - 26
Dividends and distributions received 18 37
Repayment of loans from joint venture (5) -
Rental expenses paid (38) (46)
Year-end balances arising from transactions with joint ventures
and associates
2019 2018
GBPm GBPm
Receivables
Other receivables - 6
Payables
Other payables (5) -
Loans due to joint ventures - (5)
Insight 2 Communication LLP became a wholly owned subsidiary as
at 1 February 2018; up until this point it was a joint venture. All
transactions up to the acquisition date have been included above.
Outstanding balances as at 9 March 2019 have been excluded as it
has now been fully consolidated.
Loans with joint ventures are interest bearing and repayable on
demand.
c) Retirement benefit obligations
As discussed in note 30, the Group has entered into an
arrangement with the Pension Scheme Trustee as part of the funding
plan for the actuarial deficit in the Scheme. Full details of this
arrangement are set out in note 30 to these financial
statements.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year that give a true and fair view
of the state of affairs of the Group and the Company as at the end
of the financial year, and of the profit or loss of the Group for
the financial year. Under that law, the Directors have prepared the
Group financial statements in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European
Union (EU) and have elected to prepare the Parent Company financial
statements in accordance with United Kingdom Generally Accepted
Accounting Practice, including FRS 101 'Reduced Disclosure
Framework' (UK Accounting Standards and applicable law). Under
company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and the Company and of the profit
or loss of the Group for that period. In preparing these financial
statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether IFRSs as adopted by the European Union and
applicable UK Accounting Standards have been followed, subject to
any material departures disclosed and explained in the Group and
Company financial statements respectively; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's and the
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Company and the Group and enable
them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
Having taken all the matters considered by the Board and brought
to the attention of the Board during the year into account, we are
satisfied that the Annual Report and Financial Statements, taken as
a whole, is fair, balanced and understandable.
The Board believes that the disclosures set out in this Annual
Report provide the information necessary for shareholders to assess
the Group's performance, business model and strategy.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed on
pages 44 to 45, confirms that, to the best of their knowledge:
- the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of
the Group; and
- the Strategic Report and Directors' Report contained in the
Annual Report and Financial Statements include a fair review of the
development and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that it faces.
By order of the Board
Tim Fallowfield
Company Secretary and Corporate Services Director
30 April 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
ACSSSMFFLFUSELM
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June 04, 2019 08:05 ET (12:05 GMT)
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