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www.sainsburys.co.uk
J Sainsbury plc, 33 Holborn, London EC1N 2HT
Annual Review
Business review
— Chairman’s statement
— Corporate objectives
— Key fi nancial performance indicators
— Key progress and achievements
— Operating review
— Corporate responsibility review
— Financial review
— Principal risks and uncertainties
Board of Directors
Operating Board
Governance
Directors’ report
Statement of corporate governance
Remuneration report
Statement of Directors’ responsibilities
Financial Statements & additional information
Independent auditors’ report to the members
of J Sainsbury plc
Group income statement
Statements of recognised income and expense
Balance sheets
Cash fl ow statements
Notes to the fi nancial statements
Five year fi nancial record
Additional shareholder information
Financial calendar
Glossary
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Also online...
An illustrated review of Sainsbury’s
during the 2008/09 fi nancial year is
also online at our corporate website
or through the direct website address
www.j-sainsbury.co.uk/illustratedreview
This annual report is also available online
at www.j-sainsbury.co.uk. By providing
information online we are reducing the
amount of paper printed and distributed
and last year the majority of our
shareholders chose to receive information
online helping us to save 26 tonnes of
paper. If you would like to receive this
document electronically in the future
rather than in print please contact
Computershare (see page 94 for details).
Designed by sasdesign.co.uk. Printed by royle print.
This Report is printed on Revive Pure White Offset, a recycled
paper containing 100% post consumer collected waste.
The paper is FSC accredited as a recycled grade.
The printer is certifi ed to the environmental management
system ISO14001 and is also Carbon Neutral.
The FSC Logo identifi es products which
contain wood from well managed forests
certifi ed in accordance with the rules of
Forest Stewardship Council. FSC Trademark
© 1996 Forest Stewardship Council, A.C.
Business review
Sainsbury’s celebrates its 140th anniversary this month
and we do so from a position of increasing fitness and
strength. We have made fundamental improvements
to our operation over the last few years, but one
thing has not changed: our commitment to the values
that have underpinned our business throughout our
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history. Our passion for great food at fair prices, our commitment to
customers, colleagues and suppliers and our strong ethical approach
to business. This is the heart of our brand and it has helped our
strong continued improvement.
About Sainsbury’s
J Sainsbury plc was founded in 1869 and today comprises 502 supermarkets and 290 convenience
stores. It jointly owns Sainsbury’s Bank with Lloyds Banking Group and has two property joint ventures
with Land Securities Group PLC and The British Land Company PLC.
The Sainsbury’s brand is built upon a heritage of providing customers with healthy, safe, fresh and tasty
food. Quality and fair prices go hand-in-hand with a responsible approach to business. Sainsbury’s stores
have a particular emphasis on fresh food and we strive to innovate continuously and improve products
in line with customer needs.
We now serve over 18 million customers a week and have a market share of around 16 per cent. Our large
stores offer around 30,000 products and we offer complementary non-food products and services in
many of our stores. An internet-based home delivery shopping service is also available to 88 per cent
of UK households.
Sales (including VAT)
Sales (excluding VAT)
Underlying operating profit
Underlying profit before tax
Profit before tax
Profit after tax
Underlying basic earnings per share
Basic earnings per share
Proposed dividend per share
2009
£m
2008
£m
20,383 19,287
18,911 17,837
535
488
479
329
616
543
466
289
22.1p
16.6p
13.2p
19.6p
19.1p
12.0p
Notes
Like-for-like sales: Like-for-like sales are Easter adjusted for comparative purposes. 2008/09 included an Easter Sunday trading week. 2007/08 included two Good Friday trading weeks and
an Easter Sunday trading week.
Underlying operating profit: Underlying profit before tax from continuing operations before underlying net finance costs and share of underlying post-tax results from joint ventures.
Underlying profit before tax: Profit before tax from continuing operations before any profit or loss on sale of properties, investment property fair value movements, impairment of goodwill,
financing fair value movements and one-off items that are material and infrequent in nature. In the prior financial year, these one-off items were the costs relating to an approach from Delta
Two, the costs associated with the Office of Fair Trading dairy inquiry and fair value gain on other financial asset.
Underlying basic earnings per share: Profit after tax from continuing operations attributable to ordinary shareholders before any profit or loss on sale of properties, investment property fair
value movements, impairment of goodwill, financing fair value movements and one-off items that are material and infrequent in nature, divided by the weighted average number of ordinary
shares in issue during the period, excluding those held by the ESOP trusts, which are treated as cancelled.
Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties
that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places
throughout the Annual Report and Financial Statements and include statements regarding our intentions, beliefs or current expectations and those of our officers, Directors and employees
concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Unless otherwise required by applicable
law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments
or otherwise.
Annual Report and Financial Statements 2009 J Sainsbury plc
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Chairman’s statement
This is another good set of results for Sainsbury’s with continuing growth in sales and tight cost control
leading to further improvements in profit. Underlying profit before tax for the year was up 11.3 per cent
to £543 million with underlying basic earnings per share up 12.8 per cent to 22.1 pence. As a result of this
further improvement in profitability, the Board is recommending a final dividend of 9.6 pence per share,
making a full year dividend of 13.2 pence, an increase of ten per cent over the previous year. This dividend
is covered 1.67 times by earnings in line with our long-term policy for dividend cover of 1.50 to 1.75 times.
This year’s performance is pleasing for two particular reasons. Firstly, many commentators believed
Sainsbury’s would be relatively poorly placed for the expected decline in consumer confidence in the
UK. 2008 was a year in which growth expectations throughout the world worsened. But while consumer
confidence in the UK declined, our performance improved during the year as a result of the strength
and resilience of our brand and the actions we took to develop our offer to changing customer trends.
Our universal customer appeal, part of our ‘Making Sainsbury’s Great Again’ (“MSGA”) recovery plan,
stood us in very good stead but the team also did a great job during the year, extending our entry
price point ‘basics’ range, relaunching core ‘own label’ products for which Sainsbury’s is justly famous,
running marketing campaigns such as ‘Feed your Family for a Fiver’, increasing promotional activity
and implementing many other initiatives to boost revenues and control costs. The second reason why
the performance was pleasing is that the year marks the end point for the management incentives in
the MSGA recovery plan set out in 2004. The targets set in 2004 were widely held to be challenging
and in some quarters unrealistic, but have been achieved.
In the current environment there is much discussion about inappropriate management incentives but
I believe Sainsbury’s recovery is a persuasive example of how reaching strategic goals can be aided by
appropriate reward structures, aligning interests of all key stakeholders. In our case, customers and
colleagues have benefited from our trading recovery, our top 1,000 managers have achieved good
rewards and our shareholders too are participating in our improved performance, despite the recent
sharp declines in stock market values worldwide.
In the UK, high levels of government and consumer debt will impact customer attitudes and put business
conditions under pressure for some while. This is the market within which we have to operate and we
must continue to develop our business appropriately. The grocery sector tends to be relatively well-
placed in weaker economic conditions as most people are inclined to prioritise their weekly food shop
over more discretionary expenditure. They will however insist on great food and fair prices. Sainsbury’s
long heritage of offering great product quality, competitive pricing and integrity of sourcing is integral
to how we do business and our values are just as relevant today, as we celebrate our 140th anniversary,
as they were when we set up shop in 1869.
The last year or so has been dominated by the worldwide slowdown in economic growth triggered by
the ‘credit crunch’ affecting banks and other financial institutions in many countries, and notably the UK.
It would be wrong to suggest the Board foresaw the depth and intensity of the financial crisis, but it is
true that our solid financial position is a clear advantage in current conditions. In March 2006 almost all
Sainsbury’s debt was put on a low-cost long-term basis, maturing in 2018 and 2031 and so our need for
short-term bank finance is very limited.
We continue to be active in the management of our extensive property assets, with a successful
programme of selling the freeholds of properties with limited development potential in order to direct
investment to stores which can be extended or otherwise developed in the interests of shareholders.
Our joint venture with British Land unlocks significant opportunity to develop a number of our most
important stores and deliver an improved customer offer.
I believe we are well positioned to continue our good progress and we have identified opportunities for
further growth. While food remains at the heart of Sainsbury’s offer, non-food ranges are playing an
increasingly important role in our growth. Half our new space is dedicated to non-food and we will be
launching non-food offer online during the first half of 2009/10.
Finally, towards the end of 2008 I indicated to the Board that I believed it would be prudent to consider
the succession planning for Sainsbury’s chairman. Having completed five years in the role, a search for
my successor is now being undertaken. The business is in a fundamentally stronger competitive position
than in 2004 and is in the hands of an experienced and well-established Board, a fine management team
and 150,000 committed colleagues. I am confident Sainsbury’s will continue to prosper in these more
challenging times.
Philip Hampton
Chairman
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J Sainsbury plc Annual Report and Financial Statements 2009
Corporate objectives
Corporate objectives
The Company’s ‘Recovery to Growth’ plan spans
from March 2007 to March 2010 and has fi ve areas
of focus:
• Great food at fair prices: To build on and
stretch the lead in food. By sharing customers’
passion for healthy, safe, fresh and tasty food,
Sainsbury’s will continue to innovate and provide
leadership in delivering quality products at fair
prices, sourced with integrity.
• Accelerating the growth of complementary
non-food ranges and services: To continue to
accelerate the development of non-food ranges
and services following the principles of quality
and value and to provide a broader shopping
experience for customers.
• Reaching more customers through additional
channels: To extend the reach of Sainsbury’s
brand by opening new convenience stores and
developing the online home delivery operation.
• Growing supermarket space: To expand
the Company’s store estate, actively seeking
and developing a pipeline of new stores and
extending the largely under-developed store
portfolio to provide an even better food offer
while also growing space for non-food ranges.
• Active property management: The ownership
of property assets provides operational fl exibility
and the exploitation of potential development
opportunities will maximise value.
These areas are underpinned by Sainsbury’s
strong heritage and brand which consistently
sets it apart from major competitors. A passion for
healthy, safe, fresh and tasty food, the Company’s
values, innovation and strong ethical approach to
business are what customers want and expect from
Sainsbury’s. Despite current economic conditions
these values remain important for customers who
give Sainsbury’s most credit among the four major
supermarkets for addressing the issues of most
concern to them.
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Targets March 2007 — March 2010
• Space growth — ten per cent new space by March 2010
• Development of grocery and non-food ranges
• Costs — cost savings to offset half of operating cost infl ation
• Channel growth through online and convenience expansion
• Profi t — profi t growth fl owing through at a percentage rate to sales
in high single digits
• Annual investment in price and quality of 100 — 150 basis points
• Sales growth — total additional sales of £3.5 billion by March 2010
• Capital expenditure of £2.5 billion by March 2010
• Cash fl ow broadly neutral over three years
Annual Report and Financial Statements 2009 J Sainsbury plc
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Key Financial Performance Indicators
Like-for-like sales year-on-year %
20
18
16
14
12
10
8
6
4
2
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1 year LFL
2 year LFL
3 year LFL
4 year LFL
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0
8
1
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3
4
1
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5
3
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6
9
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2005/06
2006/07
2007/08
2008/09
Trading Intensity per Square Foot1 (£ per week)
Underlying Profit Before Tax2 (£m)
2006/07
£19.30
2007/08
£19.69
2008/09
£20.01
2006/07
2007/08
2008/09
380
488
543
Underlying Basic Earnings per Share3 (pence)
Underlying Operating Margin4 (%)
2006/07
14.7p
2007/08
19.6p
2008/09
22.1p
2006/07
2007/08
2008/09
2.54
3.00
3.26
Net Capital Expenditure5 (£m)
Operating Cash Flow (£m)
2006/07
2007/08
2008/09
631
799
862
2006/07
2007/08
2008/09
830
998
1,206
Notes
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2 Underlying profit before tax: profit before tax from continuing operations before any profit or loss on sale of properties, investment property fair value movements, impairment of
Trading intensity per square foot: sales per week (including VAT, excluding fuel) divided by sales area excluding checkout space.
0.00
3.26
goodwill, financing fair value movements and one-off items that are material and infrequent in nature.
3 Underlying basic earnings per share: Profit after tax from continuing operations attributable to ordinary shareholders before any profit or loss on sale of properties, investment
property fair value movements, impairment of goodwill, financing fair value movements and one-off items that are material and infrequent in nature, divided by the weighted average
number of ordinary shares in issue during the period, excluding those held by the ESOP trusts, which are treated as cancelled.
4 Underlying operating margin: underlying profit before tax from continuing operations before underlying net finance costs and underlying share of post-tax profit or loss from joint
ventures, divided by sales excluding VAT, including fuel.
5 Net capital expenditure: Total capital expenditure including the investment in the British Land joint venture, less disposal proceeds.
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J Sainsbury plc Annual Report and Financial Statements 2009
Key Progress and Achievements
Five areas of focus
Great food at fair prices
• Over
18m
customer transactions every week.
• Market share now circa 16 per cent.
• Product availability and customer service
are measured in all stores on an ongoing basis.
We have maintained our high performance
levels in these areas and during the year, price
perception recorded the biggest improvement
of all metrics tracked.
• Universal Appeal delivered through ‘good, better
best’ tiering of Sainsbury’s ‘basics’1, standard
Sainsbury’s2 and ‘Taste the difference’3 sub-brands.
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CR highlights
Best for food and health
• ‘basics’ sales up
60%
year-on-year in fi nal quarter
of year.
• ‘1 per cent fat’ milk, launched
in April 2008, is now
consumed in approximately
2.5 million UK households.
Sourcing with integrity
• Sales of RSPCA Freedom Food chicken are up
130%
year-on-year.
• In February 2009 Sainsbury’s became the fi rst
major supermarket to stop selling eggs from
caged hens.
Respect for our environment
• Over 200 stores have achieved savings of
over 53,000 tonnes of CO2 in 2008.
• On track to send zero food waste to landfi ll
by the end of 2009.
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Accelerating the growth of
complementary non-food ranges and services
• TU clothing: over 40 per cent of customers
bought a TU product during the past year up
around 20 per cent.
• Sainsbury’s Bank delivers post-tax profi t of
£4 million (50 per cent share of joint venture
fi nancial services operation).
Reaching more customers through
additional channels
• Accelerated growth of convenience chain with
50 new stores planned in 2009/10 and 100
in 2010/11.
• Online food home delivery service sales up by
over 25 per cent year-on-year.
• Online food business now annualising at over
£500 million.
• Operates from 169 stores covering 88 per cent
of UK households.
• Non-food online launching in fi rst half of 2009/10.
Growing supermarket space
• Over four per cent gross space growth achieved
in 2008/09 and on track for over fi ve per cent
in 2009/10.
Active property management
• Over £750 million of gross property transactions
completed.
Making a positive
difference to our community
• We raised over
£10m
this year in support of Comic Relief. The
Company is the charity’s largest corporate
partner having donated more than £40 million
in the last ten years.
• Active Kids: we have now donated over
£70 million worth of sports equipment and
experiences to schools, nurseries, Scouts and
Girlguiding UK groups through our Active Kids
scheme which was launched in 2005.
A great place to work
• We now have
2,000
colleagues participating in You Can, the
Company’s umbrella brand for established and
new initiatives supporting job opportunities for
the long-term unemployed and disadvantaged,
and skills development for both new and
existing colleagues.
Annual Report and Financial Statements 2009 J Sainsbury plc
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Operating review
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Our business is growing because we have
responded quickly and effectively to a rapidly
changing environment. Total sales for the
year were up 5.7 per cent and like-for-like
sales excluding fuel were up 4.5 per cent.
In addition we have continued to drive cost
efficiencies offsetting over 75 per cent of cost
inflation and delivered further profit growth.
Fixing fundamental parts of our operation through
our ‘Making Sainsbury’s Great Again’ (“MSGA”)
recovery programme has placed the business in
a strong position. Although consumer confidence
in the UK has declined during the year, our
performance improved as a result of the strength
of the Sainsbury’s brand and actions we have taken
to adjust our offer to changing customer trends.
Sainsbury’s is a long-established company and
celebrates its 140th anniversary this month. It has
a heritage of offering customers great products
at fair prices, through a variety of economic
trading periods, and we have developed our offer
to compete and grow in what has been a very
challenging period for the UK retail industry.
Our universal customer appeal and continued
investment in price and quality have been
fundamental to our growth, catering for a range
of changing customer needs and trends. Over
the past 12 months consumers have become
increasingly ‘savvy’ and have responded to rises
in the cost of living by making significant changes
to the mix of products they buy. In an effort to
manage their household budgets more tightly,
people are eating out less and cooking at home
more. They are shopping around to get the best
prices and deals but also want the best quality
they can afford and to stay true to their values.
Sainsbury’s ‘good, better, best’ product range
hierarchy has provided customers with the flexibility
to change what they buy, rather than where they
shop. Customer transactions have grown to over
18 million a week and basket size has also
increased. Further improvements in service levels
and product availability have been achieved and as
customers increasingly compare the value offered
in different supermarkets they are realising they
can get both great products and fair prices at
Sainsbury’s. Investment in pricing, improved
promotions and a range of marketing activities
have all combined to significantly improve our
customers’ price perception.
We have continued to invest in our five areas
of focus (outlined on page three), each of which
has delivered over the past year and provides
significant opportunities for future growth. The
areas are to build and stretch our lead in food,
accelerate the development of non-food ranges
and services, extend the reach of our brand via our
online and convenience offers, to grow our store
estate and actively manage our property assets.
Our progress in the past four years has made the
Company a stronger business with a wide customer
base and universal appeal. We are performing well
and have significant opportunities for further growth.
We expect the current economic environment to
remain challenging but our focus on doing a great
job for customers means we are well positioned to
continue our good progress.
Operating review
Sainsbury’s performance over the past 12 months
has been underpinned by the enormous changes
made during the MSGA recovery programme.
Sainsbury’s is now a stronger business having
delivered four consecutive years of sales growth
and we continue to build on this strong foundation.
Our focus on listening to customers and constantly
working to improve their shopping experience has
enabled us to successfully anticipate and respond
to changing economic conditions during the past
12 months. The brand has been proven to be
both resilient and flexible and we are competing
effectively and growing sales in a particularly
challenging economic environment.
There has been a considerable change in customer
shopping patterns over the year as consumers
have increasingly felt the need to manage household
budgets more carefully. The grocery sector tends
to be more resilient in such conditions as food
purchasing is not as discretionary as many other
product sectors, but Sainsbury’s has still had to
adapt to changes in how and where consumers
want to spend their money. Our performance in the
current economic climate shows we are in touch with
our customers and capable of responding effectively
to their changing needs and wants.
This year Sainsbury’s is celebrating its 140th
anniversary having set up shop in Drury Lane,
London in 1869. The Company was founded on
the principle of helping people in poorer parts of
London eat a better diet, despite budget constraints,
and over the years it has remained true to its value
of offering great products at fair prices with a
strong ethical approach to business. Getting value
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J Sainsbury plc Annual Report and Financial Statements 2009
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Operating review continued
for money is even more important to consumers
when budgets are stretched. Basket size has
increased as Sainsbury’s ‘good, better, best’
product range hierarchy, the basis of our universal
appeal, caters for the full range of customer needs
and budgets. As requirements have changed,
customers have been able to adapt their shopping
within Sainsbury’s stores.
Over 18 million customers now shop at Sainsbury’s
every week. Even though they are looking to
economise, ethical and environmental concerns are
growing in importance for customers. Sainsbury’s
provides a compelling offer and we take a leading
stance on a range of such issues on behalf of
our customers while still ensuring products are
competitively priced. This has been the essence of
Sainsbury’s brand for 140 years and has relevance
in all economic environments. Today our marketing
campaigns are based around three themes. ‘Shop
and Save’ provides customers with competitive
pricing and a range of promotions. ‘Switch and
Save’ highlights the quality and value of Sainsbury’s
own-brand products at significantly lower prices
than equivalent leading brands and ‘Cook and Save’
helps customers make their household budgets
stretch further with initiatives such as ‘Feed your
Family for a Fiver’ and ‘Love your Leftovers’.
Customers increasingly compare and contrast the
offer available in different supermarkets, and are
recognising the value they get at Sainsbury’s.
While further improvements to customer service
and product availability have been achieved, of all
the measurements tracked on a regular basis over
the past 12 months, our price perception metric
has seen the biggest improvement.
The entry level ‘basics’ range was extended during
the year and now comprises over 650 products.
A wider ‘basics’ products range was also made
available in a greater number of stores across
our estate. ‘Basics’ provides a compelling part of
Sainsbury’s own-brand range and is a clear way to
save money when considerations such as size, shape
or product appearance are not a primary concern.
New products continue to be added to the range.
Around two-thirds of the items are under £1 and
over 200 are under 50 pence. Around 70 per cent
of our customers now buy into the range helping
to make ‘basics’ the Company’s fastest growing
sub-brand over the year. In the final quarter of the
year sales were up over 60 per cent year-on-year.
Strong marketing campaigns have played a key role
in showing customers that Sainsbury’s understands
the challenges they are facing and has solutions
to help them. In October 2008 the Institute of
Grocery Distribution presented us with its ‘Award
for Consumer Understanding’ for delivering
innovative and appropriate solutions for customers.
In particular it acknowledged our ‘Feed Your Family
for a Fiver’ campaign, launched in March 2008,
which recognised the increasing trend towards
cooking more from scratch and eating at home.
The campaign has been incredibly successful and
customers also believe they have a better, healthier
diet when cooking meals at home themselves. The
campaign helps customers save money with simple
meal ideas for a family of four, for £5 or under.
Operations and cost efficiency
We have made significant progress in improving
our operational efficiency as a result of the MSGA
recovery plan. Major projects were completed to
improve the performance of our supply chain and
information technology infrastructure and there
was significant investment to realign the customer
offer. Ongoing operational improvements now
ensure we continue to do a great job for customers
in terms of product availability and service and are
also delivering cost savings.
During the year, cost efficiency programmes have
offset over 75 per cent of total cost inflation. Cost
inflation was at the top end of our medium-term
expectations of between two and three per cent
and largely driven by increases in wages, property
and energy costs despite hedging to help smooth
the impact of the latter area of expenditure.
Efficiency programmes are focused on continued
simplification of operations to deliver better
processes and lower costs. Initiatives across all
areas of our business are supporting sustained
investment in the customer offer. New checkout
equipment means faster scanning of items and
new printers producing double-sided receipts are
quicker and also provide environmental benefits.
Over 100 stores now have self-scan tills providing
customers with a choice of check-out options and
this year we plan to roll-out self-scan tills to around
100 additional stores. Shelf-ready packaging
continues to improve replenishment and further
enhancements to store labour scheduling have
been completed.
In August 2008 Sainsbury’s opened its flagship
‘green’ store in Dartmouth, Devon. This has
reduced its overall CO2 emissions by 54 per cent
through the use of renewable energy and has
reduced energy consumed from the national grid
by over 50 per cent. Rainwater harvesting has
reduced mains water usage by 60 per cent saving
around one million litres of mains water every year.
Most of the energy-saving features identified in
Dartmouth are now being replicated in new stores.
A project was launched in 2007 to further
improve the energy efficiency of existing stores.
This comprised the roll-out of new technology
and enhanced ‘housekeeping’ initiatives and is
delivering good pay-back. Over 200 stores have
been completed, saving over 53,000 tonnes of
CO2 every year as a result. Stock loss has also
been reduced through investment in security,
management information and training and
further improvements have been made in
product availability.
Annual Report and Financial Statements 2009 J Sainsbury plc
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Operating review continued
During 2008 we redefined the role of deputy
store managers eliminating duplicated activities
and setting out new accountabilities and reporting
lines. Comprehensive training is supporting the
change so that we continue to grow while
maintaining our customer focus and flexibility.
The store HR structure has also been streamlined
following the introduction of a shared HR service
centre in Manchester in 2008. The centre assumes
some administrative tasks previously undertaken
within store and provides an online recruitment
service allowing store HR colleagues to focus
more time on mentoring, training and leadership.
In January 2009 we announced plans to restructure
our store support centre in London, cutting out
duplication of activities and simplifying structures
across our Holborn, Manchester and Coventry
support teams, aligning them for the future growth
of the business. The new structures were in place
by the start of the 2009/10 financial year.
There have been significant improvements within
the distribution network which are delivering
cost savings. The introduction of a new transport
management system and processes are helping
improve overall supply chain efficiency, reducing
the requirement for temporary facilities at peak
trading periods, and the benefits of investments
made in the previous financial year are now coming
through in lower costs. Our Waltham Point depot
has now been reconfigured and new facilities
have been opened in North Yorkshire and Kent
to support our ongoing growth. To keep pace with
the development of non-food, distribution of these
ranges has transferred to a 350,000 sq ft site at
Tamworth. Our depot in Corby, Northamptonshire,
is currently undergoing refurbishment and will
support the online non-food operation.
The full-year benefit of many of the initiatives to
improve operations and drive cost efficiency will
continue to come through in the current year and
similar programmes are being introduced on an
ongoing basis.
Strong financial position
Sainsbury’s balance sheet is well supported by
significant property assets and long-dated debt.
Retaining ownership of appropriate property assets
is an important part of the Company’s strategy
and the estimated market value of these assets
at the year-end was circa £7.5 billion, including the
share of joint venture properties. In March 2006,
Sainsbury’s refinanced its debt book with low-cost
long-term property-backed finance. The Company
does not require any significant refinancing until
2018 and in addition to this funding has undrawn
committed facilities which allows flexibility for
working capital management and investment flows.
Great food at fair prices
Great food at fair prices is integral to our approach
to innovating and leading on ingredient standards
and product quality while also offering competitive
prices. This month Sainsbury’s celebrates its
140th anniversary. The ‘Quality perfect, prices
lower’ strapline was on the front of the first store
and has remained a guiding principle throughout
Sainsbury’s history. The first store stocked just
butter, eggs and milk but provided these at a time
when affordable quality food was scarce.
The Company pioneered the introduction of
own-label lines in 1882 and our extensive heritage
provides customers today with a unique proposition
in Sainsbury’s own-brand products. Over the years
we have led the way on ingredient standards and
product innovation and the quality of Sainsbury’s
own-brand products is widely recognised. Red
Label tea is the oldest own-brand product still sold
today and became Fairtrade in 2007. Customers have
increasingly looked to own-brand products during
the year to help them save money and they have
unrivalled trust in Sainsbury’s own-brand products.
Within our own-brand product ranges three tiers
defined as ‘good, better, best’ are offered via
the ‘basics’, standard Sainsbury’s and ‘Taste the
difference’ sub-brands. All tiers must adhere to
Sainsbury’s stringent policies concerning ingredients
and sourcing so customers can be confident of
the Company’s attention to quality while ensuring
products are tasty and as healthy as they can
be. Sainsbury’s front of pack multiple traffic light
nutritional labelling is also applied to all relevant
products, including ‘basics’, to help customers
make easy, healthy and affordable choices at
a glance. Sainsbury’s has been advocating and
supporting the use of colour and guideline daily
amounts for four years as recommended by the
Food Standard Agency, after extensive research,
in April 2009.
Our attention to quality within own-brand product
ranges is supported by competitive pricing.
Prices are constantly benchmarked against key
competitors. Over £450 million was invested during
our MSGA programme and investment is ongoing.
Promotions also play an important role in helping
to reduce a customer’s overall spend on everyday
items. In April 2008 we refocused our promotional
programme with simple, more family-oriented
deals. New point-of-sale materials changed the
look and feel of stores highlighting key offers
to customers and a number of market-leading
promotions were run over the year.
Advertising campaigns communicating value and
quality have helped customers save money without
compromising quality. ‘Feed your Family for a
Fiver’, one of our most successful campaigns, uses
a mix of ‘Taste the difference’, standard and ‘basics’
products in meal ideas. It helps customers manage
tighter budgets as they make their own choices to
substitute individual ingredients to get significantly
below the £5 threshold or add more premium
products if they wish.
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Operating review continued
In September 2008, we relaunched our standard
own-brand range, which accounts for over 40 per
cent of sales, with our ‘Switch and Save’ campaign.
This offered savings of at least 20 per cent when
selecting Sainsbury’s equivalent product over
the leading brand and followed a comprehensive
appraisal and development programme for the top
200 products. In January the campaign focused
on ‘basics’. Growth during the four-week campaign
was up nearly 80 per cent year-on-year. All these
activities have signifi cantly improved customers’
price perception of Sainsbury’s.
‘Taste the difference’ remains an important part
of the product offer. In the current economic
environment the range allows ‘savvy shoppers’
to make conscious decisions about the quality they
want for different ingredients and meal occasions.
In particular ‘Taste the difference’ ready meals
are fulfi lling a trend towards customers treating
themselves at home rather than eating out or
buying more expensive takeaways to eat at home.
Sainsbury’s is committed to sourcing British
products and we converted a number of own-brand
ranges such as sandwiches and chilled ready meals
to 100 per cent British during the year, with the
exception of products used for authenticity reasons.
We have also continued to innovate. ‘Milk in a Bag’
reduced packaging by 75 per cent compared to
the two-pint plastic bottle and is now available in
126 stores. We also secured the fi rst shipment into
the UK of responsibly sourced palm oil (“RSPO”)
and have converted our entire frozen fi sh range to
RSPO certifi ed.
We strive to further animal husbandry standards
and introduced a range of higher welfare meat,
fi sh and poultry products during the year. In June
2008 we launched responsibly-sourced fresh and
smoked salmon, and in September 2008 a new
range of Freedom Food endorsed outdoor-bred
pork was introduced and Freedom Food approval
was granted for farms supplying ‘Taste the
difference’ outdoor reared pork. In August 2008
we launched indoor-reared Freedom Food
accredited chicken and in January 2009 ‘Taste the
difference’ Woodland Chicken. All birds are reared
in a natural woodland environment and the range
is independently audited to RSPCA-approved
standards. Sales of RSPCA Freedom Food chicken
are up 130 per cent year-on-year.
In February 2009 we became the fi rst major
retailer to stop selling eggs laid by battery hens.
Two pence from every Woodland chicken and
box of Woodland eggs sold is paid to Woodland
producers to help promote sustainable free-range
farming. Over £300,000 has already been donated
to the Woodland Trust via this initiative. Sainsbury’s
was awarded the 2008 Compassion in World
Farming Good Egg Award, the second year in
a row, for our work in this area.
Accelerating the growth of
complementary non-food ranges
and services
Food remains at the heart of Sainsbury’s
proposition but non-food ranges complement our
core food offer and are now a signifi cant business
in their own right. There has been good growth in
home and lifestyle and core ranges and the star
performer remains Sainsbury’s TU clothing range.
As household budgets tighten, there are signs that
customers are increasingly appreciating the value
offered by supermarket non-food product ranges
and choosing them over other specialist retailers.
Sainsbury’s brand values are just as relevant in
non-food products as in food. Products follow the
same principles of quality, value and innovation
and the ‘good, better, best’ hierarchy.
The TU clothing brand, launched in
2004, is the most established part of
our non-food offer. The infrastructure
supporting TU is now well developed
and in-house designers focus on
quality and value while tracking the
latest developments in fashion and
clothing technology. Fairtrade T-shirts
are the biggest selling volume line
with over two million T-shirts sold in the last year
and over 40 per cent of customers have bought
a TU item over the past year, an increase of around
20 per cent. TU was introduced into a further
20 stores during the year and is now in 290 stores.
However, less than a third of these stores carry
an extensive range showing the sales potential
increased space will deliver.
Other elements of Sainsbury’s non-food range are
in earlier stages of development. In April 2008, the
TU brand was transferred to our standard home
and lifestyle product range as ‘TU home’ launched
in two stores. The full range comprises over 2,000
kitchen and home products. The majority of stores
now carry varying elements of the range, which
is performing well. New stores, particularly
those over 50,000 sq ft, now offer customers
comprehensive non-food ranges. In April 2008,
Sydenham in Kent became our largest store at
87,000 sq ft and in November, the fi rst two-fl oor
store opened in Hayes in Middlesex where 13,000
sq ft of TU clothing is situated above TU home and
lifestyle ranges.
Our non-food business is now being run by Luke
Jensen, previously Sainsbury’s strategy director,
who was appointed to the new role of managing
director for non-food in January 2009. The non-
food operation is now fully established in our
Non-Food Support Centre in Coventry where
around 450 colleagues provide the support and
infrastructure required for this area of the business.
There is signifi cant opportunity and potential for
the growth of non-food ranges as systems and
support services such as information technology
and logistics are developed for the individual
specialist areas. New stores are providing additional
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Operating review continued
sales area for the non-food products and wider
ranges are being introduced as stores are
extended. The importance and potential of our
non-food business is demonstrated by half of
our new space being allocated to non-food.
The performance of Sainsbury’s Bank continues
to improve. Our 50 per cent share of post-tax profit
for our joint venture financial services operation
is £4 million for 2008/09 (£(3) million loss in
2007/08). The continued investment in product
development and customer acquisition is focused
on insurance products, savings and credit cards.
The steps taken during the MSGA programme to
stabilise Sainsbury’s Bank have resulted in a tight
focus on cost control, tighter risk management and
a concentration on commission-based products and
growing savings accounts to deliver multiple income
streams. This has continued to enable Sainsbury’s
Bank to make good progress and maintain a strong
and well capitalised balance sheet.
Reaching more customers through
additional channels
Our online food home delivery service continues to
grow. Ongoing improvement to the service continues
to deliver efficiencies and sales increased by over
25 per cent year-on-year through both customer
retention and attracting new shoppers to the service.
The operation is now annualising as a £500 million
business and delivers over 100,000 orders a week.
The service is available to 88 per cent of UK
households. Over the year an additional 22 stores
started running the service taking the total number
to 169 stores. We believe there is significant growth
potential in our online operation and plan to
increase capacity in areas of high demand.
Non-food online
As previously announced, we are planning to
complement our in-store non-food offer with a
service providing non-food products online. This is
on schedule to launch in the first half of 2009/10
and will provide customers with the choice of a
range of Sainsbury’s own-brand and branded
non-food products.
Convenience stores
Convenience is a key part of our strategy and we
believe there is potential to expand our presence
in this market as our service and product offer is
well received in convenience locations, where we
complement and operate successfully alongside
local individual specialist stores. Significant
improvements in operating performance have
been achieved through the integration with
our core supermarket business during 2008 and
the disposal of 57 stores and one closure during
the year which did not fit our convenience
operating model.
Under the leadership of Dido Harding, who joined
Sainsbury’s operating board in March 2008, a review
of the convenience business was undertaken
during the first half of the year. In November 2008,
we announced plans to significantly accelerate the
growth of our convenience operation. Sixteen
convenience stores opened during the year and 50
new stores are planned in 2009/10. A further 100
are planned in 2010/11 and will continue at a similar
level each year on an ongoing basis. We have been
testing different approaches to the convenience
market in five stores during the second half of the
year. These have been developed from listening
to customers and centre on two distinct shopping
missions which characterise the convenience
market; ‘food on the move’ and a ‘local
neighbourhood’ mission. These are providing
insight which will be part of the accelerated
expansion of the convenience operation.
Growing supermarket space
New space growth opportunities are being
developed as part of the plans outlined in May
2007. Half the targeted new space growth is set
to come from new stores with the balance from
extensions. Total new space will be split equally
across food and non-food ranges enabling the
continued development of a great food offer
via expanded food halls as well as growing total
non-food space. Over the three years from March
2007 to March 2010, more than 12 per cent gross
new space will have opened compared to the
original plan for ten per cent growth, for the
same planned capital expenditure of £2.5 billion
and with a higher proportion of freehold ownership
than originally expected.
During the year, 13 supermarkets opened, two of
which were replacements and a further 13 were
refurbished. Twenty-one were extended during the
year bringing total extensions over the last three
years to 54. Total gross new space was over four
per cent comprising two per cent from new stores
and two per cent from extensions. We successfully
operate a range of store formats and we are now
opening and extending existing sites to create
stores over 80,000 sq ft. In October 2008, we
opened our largest new store in eight years in
Milton Keynes, Buckinghamshire. At 60,000 sq ft
this store provides customers with a full range of
food and non-food products. In November 2008
the Hayes, Middlesex store became our first store
over two floors and our largest extension having
more than doubled in size from 34,000 sq ft to
82,000 sq ft.
In 2009/10 we expect to achieve gross new
space growth of over five per cent, including the
acquisition of 24 stores from the Co-operative
Group. These are an excellent addition to the
Company’s store portfolio being mainly in the west
of England, Wales and Scotland where Sainsbury’s
is less well represented. An extra 500,000
customers will now have a Sainsbury’s store within
a ten-minute drive. Nineteen of these stores are
expected to operate as supermarkets.
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Operating review continued
The environment for growing space is changing as
opportunities to acquire land for development and
new stores are becoming more available and at
more attractive rates than in recent years. We have
increased our hurdle rates for property investments
and have also developed our ability to deliver
larger, more cost-effective store extensions and
lower-cost new stores. We will seek to take full
advantage of the unique opportunities available at
the current time to acquire land and existing sites
while ensuring we maintain a broadly stable debt
position. Capital plans are flexible and constantly
reviewed to target expenditure for the best long-
term returns.
Active property management
We believe that ownership of our property assets
enables us to retain operational flexibility while
exploiting potential development opportunities and
maximising value for shareholders. The proportion
of freehold or long-leasehold property has increased
and is now at 65 per cent, including half the space
of 50 per cent owned joint venture properties.
We have a significant portfolio of properties with
development potential. In addition to 297 freehold
and long leasehold properties, the majority of
which can be extended, there are 43 properties
within joint venture (“JV”) arrangements.
Sainsbury’s has two strategic property JVs. The
first with Land Securities, formed in November
2007, brings together undeveloped properties and
development expertise. One property was added
to the JV during the year and it now comprises
five properties planned for future mixed use
development. In March 2008, we created a JV with
British Land to unlock the significant opportunity
to develop a number of our most important stores
and deliver an improved customer offer. The JV
comprises 38 Sainsbury’s supermarkets with
25 earmarked for development. One year on, of
these 25, two extensions adding 30,000 sq ft have
already been completed and ten further projects
are now going through the planning consent
process. These will deliver around 260,000 sq ft
of additional space in the next few years. We will
benefit from the enhanced trading performance
of the extensions as well as retaining a share of
the increased property value.
The strategy is broadly cash neutral with mature
assets sold to fund development opportunities.
During the year a number of key leasehold sites,
in addition to the 38 sites within the British Land
JV, have been acquired for development at a total
investment cost of £392 million. This investment
was funded by the disposal of mature assets
through sales and leaseback transactions
(including eight supermarkets) for £393 million
resulting in a profit of £57 million.
Corporate responsibility
With over 18 million customers each week,
Sainsbury’s has a real impact on UK consumers.
Five principles underpin activities. As a leading
food retailer we focus on being the ‘best for food
and health’ which is why we are committed to
‘sourcing with integrity’. Because we source from
all over the world and sell in the UK we have to
show ‘respect for our environment’ and play an
active role in the communities we serve ‘making
a positive difference to our community’. All this is
possible through the commitment of our colleagues
so that Sainsbury’s is ‘a great place to work’.
A more comprehensive account of our approach to
corporate responsibility can be found on pages 12-15.
Succession planning for role
of Chairman
Led by senior independent director John McAdam,
the Company is currently conducting a search for
a new chairman and will announce the outcome
of this process in due course.
Competition Commission (“CC”)
We welcomed the CC’s finding in its report
published in 2008 that the UK groceries market
is ‘delivering a good deal for consumers’. This is
consistent with the significant improvements our
customers have experienced in product quality,
availability, service and price over recent years.
We are playing a full part in continuing discussions
with the CC and other parties, to ensure remedies
are implemented in the most effective and
efficient way to maintain choice and value for
UK consumers. In April 2009, the CC published
its formal undertaking for the appointment of an
Ombudsman. We continue to believe the creation
of this new role to undertake investigations and
arbitrate disputes between suppliers and grocery
retailers will introduce additional, unnecessary
bureaucracy and cost, will increase the burden and
disruption to retailers and will not be in the best
interests of consumers.
Office of Fair Trading (“OFT”)
In April 2008 the OFT started an investigation
involving suppliers and supermarkets including
Sainsbury’s on the basis that it had reasonable
grounds to suspect co-ordination of retail prices.
Sainsbury’s has strict guidelines for compliance
with competition law and is co-operating with
the OFT in these enquiries.
Outlook
Sainsbury’s is performing well and has identified
significant opportunities for future growth in all
its five areas of focus. Our progress in the past four
years has made us a stronger business and we now
serve over 18 million customers a week with great
product at fair prices. Sainsbury’s universal appeal
gives customers the flexibility to change what
they buy rather than where they shop, helping
them offset the current constraints on household
budgets. We expect the current economic
environment to remain challenging but we are
well positioned to continue our good progress.
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… At Sainsbury’s we will deliver an ever
improving quality shopping experience for our
customers with great products at fair prices.
We will exceed customer expectations for
healthy, safe, fresh and tasty food, making
their lives easier every day.
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Corporate responsibility review
With over 18 million customers each week
Sainsbury’s has a real impact on UK consumers.
Five principles underpin our activities. As a leading
food retailer we focus on being the ‘best for food
and health’ which is why we are committed to
‘sourcing with integrity’. Because we source from
all over the world and sell in the UK we have to
show ‘respect for our environment’ and play an
active role in the communities we serve ‘making
a positive difference to our community’. All this
is possible through the commitment of our
colleagues so that Sainsbury’s is ‘a great place
to work’.
Stakeholders trust the company to act responsibly
on their behalf and this is an integral part of the
Sainsbury’s brand. In the current economic climate,
our values remain just as important and relevant
and although customers are increasingly price-
conscious, ethical and environmental issues remain
important for them.
Sainsbury’s was the fi rst UK food retailer to publish
an environment report which we did in 1996.
We continue to report on environmental issues
although the report is now expanded to cover the
fuller range of issues now commonly referred to
under the umbrella of corporate responsibility.
140 YEARS
OF MAKING A
DIFFERENCE
Corporate Responsibility
Report 2009
Our 2009 Corporate Responsibility
report will be published on 13 July
and is available online at
www.j-sainsburys.co.uk/cr
Best for food and health
Sainsbury’s approach is to help and inspire
customers to eat a healthy balanced diet by
promoting healthy eating and active lifestyles.
We aim to make products as healthy as possible
without compromising taste and quality and
promote clear and transparent labelling to help
customers make informed choices about the food
they eat. Sainsbury’s promotes healthy eating
inspiring customers to cook via successful
campaigns such as ‘Feed your Family for a Fiver’
and simple ‘tip card’ ideas, 50 per cent of which
contain at least one portion of fruit or vegetables
towards an individual’s recommended 5-a-day.
Twenty-fi ve per cent of the ideas on tip cards are
also rated as ‘healthier’.
As part of the Company’s commitment to the
responsible sale of alcohol, from September 2009
we will be introducing a ‘Think 25’ policy across all
stores, building on the ‘Think 21’ policy introduced
in September 2005.
Highlights during the year
Basics: ‘basics’ sales up 60 per cent year-on-year
in the last quarter of the year. We continue to apply
our front of pack Multiple Traffi c Light labelling to
all relevant products, including our basics range,
making it easier for customers to make healthy
and affordable choices at a glance.
Saturated fat: Dairy is one of the major
contributors of saturated fat to the UK diet. Our
‘1 per cent fat’ milk, launched in April 2008, has the
same taste and calcium content as semi-skimmed
milk but nearly half the fat and is now consumed
in around two and a half million UK households.
Sugar: We have reduced the sugar or sucralose in
all of our squash lines by ten per cent. Over 65 per
cent of our own brand bottled and carbonated
squash and over 90 per cent of our own brand
squash contain no added sugar.
Fibre: In 2008 we introduced a number of
products with higher fi bre content including a
wholemeal ‘basics’ loaf, one of our top three selling
‘basics’ bakery products. Sales of the new loaf
almost doubled in the three months following
its launch.
Sourcing with integrity
Sourcing with integrity is about offering products
that are better for customers, the environment and
the animals, farmers and suppliers involved in their
production. Sainsbury’s is committed to offering
production. Sainsbury’s is committed to offering
British products at their best, when in
season and when the quality meets
customers’ expectations. We have a long
history of supporting British farmers
and helping to raise capability and skills
to create sustainable businesses and
long-term relationships.
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Corporate responsibility review continued
Sainsbury’s also recognises the value it can bring
to communities in developing countries and we
are the UK’s largest retailer of Fairtrade products,
accounting for around one-third of all UK Fairtrade
sales. In August 2008 we celebrated the first
anniversary of our Fair Development Fund by
introducing dried fruit and nuts from Uganda,
Malawi, Mozambique and Zambia, the first food
produced from grants awarded at the fund’s launch
in August 2007. A major aim of the fund, run by
Comic Relief and financed by Sainsbury’s with
£1 million over four years, is to develop long-term
sustainable solutions for producers in developing
countries to meet Fairtrade standards and start
selling internationally on fairer terms.
We remain committed to promoting high standards
of animal welfare and recognise that in using
sustainable resources in our products, such as
FSC Timber, we minimise the impact of our
products on the environment.
Highlights during the year
RSPCA Freedom Food chicken: Sales of our
RSPCA Freedom Food chicken are up over 130 per
cent year-on-year. Sales of all our higher welfare
chicken (including Freedom Food, Free range and
Organic) are up over 30 per cent year-on-year.
Cage-free Eggs: In February 2009 we became
the first major supermarket to stop selling eggs
from caged hens. This means that over half a
million hens will no longer be kept in battery
cages, meeting our 2010 target a whole year
ahead of schedule and two years before
government legislation comes into effect.
Fairtrade: Our Fairtrade sales this year hit
£210 million, maintaining our position as the
largest retailer of Fairtrade products in the UK
by sales value. We now account for around one-
third of all Fairtrade sales in the UK.
RSPCA Freedom Food salmon: In June 2008
we launched our ‘Responsibly sourced’ salmon,
making us the first major supermarket to convert
all our farmed salmon to the RSPCA Freedom Food
standard. All our fresh and smoked farmed salmon
is now 100 per cent Scottish and meets the RSPCA
Freedom Food standard.
Respect for our environment
Sainsbury’s recognises that tackling issues such as
climate change involves working both upstream in
its supply chains and downstream with customers.
On the issue of carbon reduction we are working
hard to reduce our operational footprint by
improving the energy efficiency of stores and the
distribution network and by increasing the amount
of renewable energy used.
Sainsbury’s champions the ‘Reduce, Re-use,
Recycle’ approach to minimise waste from its
business and customer waste via packaging and
food waste. We are on target to send zero food
waste to landfill by the end of 2009. We have also
promoted the re-use of shopping bags since the
mid 1990s. In April 2008 we increased the recycled
content of our single use bags from 33 per cent to
50 per cent and started issuing Nectar loyalty
points to customers re-using their own bags when
shopping in Sainsbury’s stores in June 2008.
Highlights during the year
Environmentally efficient stores: In August 2008
we opened our flagship green store in Dartmouth,
Devon. The store has achieved reductions in its
overall CO2 emissions by 54 per cent through the
use of renewable energy and has reduced energy
consumed from the national grid by over 50 per
cent. Rainwater harvesting has reduced mains
water usage by 60 per cent, saving around one
million litres of mains water every year. Most
of the energy saving features identified from
Dartmouth are now being replicated in our
new stores.
Energy reduction programme for existing stores:
A project was launched in 2007 to improve the
energy efficiency of our existing stores. Over
200 stores have so far been completed, achieving
savings of over 53,000 tonnes of CO2 every year
as a result. In 2009 we will continue the scheme,
targeting 100 stores during 2009/10.
Carrier bags: Over the past three years the
company has reduced the environmental impact
of its carrier bags by 63 per cent as measured by
the amount of virgin plastic used and over the
past two years has reduced the number of bags
issued by 58 per cent.
Food waste: Following the success of a food
waste trial we are on track to send zero food
waste to landfill in 2009. Food waste from 38
stores is currently sent for anaerobic digestion
in Northamptonshire where it is broken down
into fertiliser and methane gas, used to generate
electricity. This approach will be rolled out
nationwide in 2009.
Making a positive difference to
our community
Sainsbury’s stores are at the heart of the
communities they serve and with around 150,000
colleagues throughout the UK, we are a major
contributor to local employment. We support local
communities through programmes such as food
donation schemes and Sainsbury’s Active Kids.
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Sainsbury’s participation in Red Nose Day on
13 March 2009 also saw customers and colleagues
help the company donate over £10 million to
Comic Relief an increase of 32 per cent over
the previous event. We are the charity’s largest
corporate partner having donated over £40 million
in the past ten years.
Highlights during the year
Comic Relief: The £10 million donated to Comic
Relief this year will help to support some of the
most vulnerable people in both the UK and the
developing world.
Active Kids: We have now donated over £70
million worth of sports equipment and experiences
to schools, nurseries, Scouts and Girlguiding UK
groups through our Active Kids scheme which
was launched in 2005. In the year ending March
2009 we donated £18 million worth of equipment
and resources, with more than 150,000 young
people trying a new physical activity as a result.
We are on target to donate £100 million worth of
equipment by 2011.
Food donation: In 2008/09 we donated over
£5 million worth of surplus food to a network
of charities across the UK through our Food
Donation programme.
Job creation: During the year ending March 2009
we generated 5,000 new jobs by opening 11 new
supermarkets, 20 new convenience stores and
a number of store extensions. We will continue
our programme of store development in 2009/10
generating 6,500 additional jobs.
Alcohol: From September 2009 we will be
introducing a Think 25 policy across all of our
stores, further encouraging the responsible sale
of alcohol.
A great place to work
Being a great place to work is rooted in Sainsbury’s
heritage and values. The Company was one of the
fi rst shops to actively recruit women in 1914 and
we set up a training school in 1915 initially to help
women do the jobs of men away at war. It was so
successful that other retailers started advertising
for ‘Sainsbury’s-trained’ colleagues. We are
committed to championing inclusion, diversity and
fl exible working and we aim to recruit, retain and
engage colleagues from backgrounds that refl ect
the communities we serve.
Our colleague development programme ‘You Can’,
combines established and new initiatives to support
job opportunities for the long-term unemployed and
disadvantaged and skills development for new and
existing colleagues. Launched in November 2008
it offers colleagues development opportunities
from support with literacy and numeracy through
to Level 2 NVQ qualifi cations.
Highlights during the year
You Can: We now have over 2,000 colleagues
participating in You Can. 760 colleagues have
been recruited in 2008/09 by providing job
opportunities to the long-term unemployed and
disadvantaged, whilst around 1,300 colleagues are
now benefi ting from the online skills, job-related
qualifi cations and apprenticeship opportunities
offered through ‘You Can’.
Colleague bonus: 120,000 colleagues will share
a bonus of £60 million this year bringing the total
amount paid out over the last four years to over
£210 million. The bonus scheme is linked to the
delivery of great service and product availability
as well as overall sales and profi t measures.
Annual Report and Financial Statements 2009 J Sainsbury plc
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Financial review
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Sainsbury’s has made good progress in the
challenging economic environment, reflecting
the ongoing development of its offer and
increasingly universal appeal, and continuing
to deliver its growth strategy, whilst benefiting
from a strong and robust balance sheet.
Sales (including VAT) increased by 5.7 per cent to
£20,383 million (2008: £19,287 million). Underlying
profit before tax improved by 11.3 per cent to
£543 million (2008: £488 million). Profit before
tax was down 2.7 per cent, at £466 million
(2008: £479 million), impacted by the non-cash
investment property fair value movements of
£(124) million (2008: £nil), partially offset by
£57 million profit on property disposals (2008:
£7 million). Underlying basic earnings per share
increased to 22.1 pence (2008: 19.6 pence), up
12.8 per cent. Basic earnings per share were down
13.1 per cent, at 16.6 pence (2008: 19.1 pence) as
a result of the non-cash, investment property fair
value movements (which are disallowable for tax
purposes). A final dividend of 9.6 pence per share
has been recommended by the Board (2008:
9.0 pence) making a full year dividend of 13.2 pence
per share, up 10.0 per cent year-on-year (2008:
12.0 pence).
Summary income statement
for the 52 weeks to 21 March 2009
Sales (including VAT)1
2009
£m
2008
£m
Change
%
20,383
19,287
Sales (excluding VAT)
18,911
17,837
Underlying operating profit
Underlying net finance costs2
Underlying share of post-tax profit/(loss) from joint ventures3
Underlying profit before tax
Profit on sale of properties
Investment property fair value movements
Financing fair value movements
One-off items
Profit before tax
Income tax expense
Profit for the financial period
Underlying basic earnings per share
Basic earnings per share
Full year dividend per share
616
(89)
543
535
(45)
16
488
57
(124)
(10)
—
466
(177)
289
15.1
(97.8)
(2)
11.3
7
—
(4)
(12)
479
(150)
329
22.1p
16.6p
12.0p
19.6p
19.1p
10.0
13.2p
5.7
6.0
n/a
n/a
n/a
(150.0)
n/a
(2.7)
(18.0)
(12.2)
12.8
(13.1)
1
Sales (including VAT) were adversely affected by the reduction in the standard rate of VAT from 17.5 per cent to 15 per cent, effective from 1 December 2008. Sainsbury’s estimates that
this diluted sales growth by circa 30 basis points in the full year, with 40 basis points in quarter 3 and 80 basis points in quarter 4.
2 Net finance costs pre-financing fair value movements.
3 The underlying share of post-tax results from joint ventures is stated before investment property fair value movements and financing fair value movements.
Sales (including VAT) and space
Sales (including fuel) increased by 5.7 per cent to
£20,383 million (2008: £19,287 million) through
good like-for-like (“LFL”) growth and new space.
The 5.7 per cent growth includes a (0.7) per cent
dilution caused by the timing of Easter in 2008
and 2009, which was more than offset by a 0.9 per
cent contribution from net new space. LFL sales
(including fuel) were up 5.5 per cent, which reflects
in part the impact of higher fuel prices and
improved fuel volumes.
Sales (including VAT, including fuel)
for the 52 weeks to 21 March 2009
Like-for-like sales (Easter-adjusted)
Removal of Easter adjustment1
Net new space (excluding extensions)
Total sales growth
2009
%
5.5
0.3
0.9
2008
%
4.4
1.1
5.8
(0.7)
5.7
1
Like-for-like sales growth has been Easter-adjusted for comparative purposes. 2008 included two Good Friday trading weeks and one Easter Sunday trading week. 2009 included one
Easter Sunday trading week only.
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LFL sales (excluding fuel) were up 4.5 per cent, of
which 0.5 per cent was contributed by extensions.
This LFL growth was slightly above Sainsbury’s
medium-term planning assumption of between
three and four per cent, and reflected continued
improvement throughout the year, with LFL growth
of 3.4 per cent in quarter 1, 4.3 per cent in quarter
2, 4.5 per cent in quarter 3 (4.9 per cent VAT-
adjusted), and 6.2 per cent in quarter 4 (7.0 per
cent VAT-adjusted). Online sales increased by over
25 per cent and now represents a £500 million
annualised business.
Sales (including VAT, excluding fuel)
for the 52 weeks to 21 March 2009
Like-for-like sales (Easter-adjusted)
Removal of Easter adjustment1
Net new space (excluding extensions)
Total sales growth
2009
%
4.5
(0.8)
1.0
4.7
2008
%
3.9
0.4
1.4
5.7
1
Like-for-like sales growth has been Easter-adjusted for comparative purposes. 2008 included two Good Friday trading weeks and one Easter Sunday trading week. 2009 included one
Easter Sunday trading week only.
Net new space (excluding extensions) contributed
1.0 per cent to total sales growth (excluding fuel).
Sainsbury’s added a gross 665,000 sq ft of new
space (net 512,000 sq ft after disposals and
closures), which represents a gross increase of
4.1 per cent (net 3.2 per cent) since the start of
the year. Sainsbury’s opened 13 new supermarkets
during the year, including two replacement stores,
and completed 21 supermarket extensions and
13 refurbishments. In the convenience estate,
it opened 16 new stores, disposed of 57 stores,
as announced in March 2008, closed one store
and refurbished four stores.
Store numbers and retailing space
As at 22 March 2008
New stores
Closures/disposals
Extensions/refurbishments/downsizes
Reclassifications1
As at 21 March 2009
Memorandum
Extensions
Refurbishments/downsizes
Total projects
Supermarkets
Number
Supermarkets
Area
000 sq ft
Convenience
Number
Convenience
Area
000 sq ft
504
13
(2)
–
(13)
15,495
266
(50)
360
(97)
502
15,974
21
13
34
346
14
360
319
16
(58)
–
13
290
-
4
4
696
40
(103)
(1)
97
729
-
(1)
(1)
Total
Number
823
29
(60)
-
-
Total
Area
000 sq ft
16,191
306
(153)
359
-
792
16,703
21
17
38
346
13
359
1 Following the recent review of the convenience mission, 13 stores previously classified as supermarkets will now operate under the convenience fascia.
In March 2009, Sainsbury’s announced the
acquisition of 24 stores from the Co-operative
Group, of which 19 are expected to operate as
supermarkets. These stores are all expected to be
converted in the first half of the year and will be
slightly earnings-dilutive in 2010, with the more
significant impact in the first half. Gross space
growth of 5 per cent is expected in 2010, weighted
towards new stores following this acquisition. Net
new stores are expected to contribute 2.0 per cent
to total sales growth (excluding fuel) in 2010,
weighted more towards the second half.
Underlying operating profit
Underlying operating profit increased by 15.1 per
cent to £616 million (2008: £535 million) reflecting
Underlying operating profit
for the 52 weeks to 21 March 2009
Underlying operating profit (£m)1
Year-on-year operating profit growth (%)
Underlying operating margin (%)2
the good sales performance and a 26 basis point
improvement in underlying operating margin to
3.26 per cent for the year (2008: 3.00 per cent).
The rate of improvement was consistent across
the first half and the second half. Sainsbury’s
has driven operational gearing from higher sales
volumes and the delivery of cost efficiency savings
which have offset over 75 per cent of total cost
inflation as well as supporting sustained
investment in the customer offer. Sainsbury’s
expects cost inflation to be at the higher end of
its medium-term expectation of between two and
three per cent in 2010, offset by a similar level
of savings as in 2009.
2009
616
15.1
3.26
2008
535
24.7
3.00
1 Underlying profit before tax from continuing operations before underlying net finance costs and underlying share of post-tax results from joint ventures.
2 Underlying operating profit divided by sales excluding VAT.
Annual Report and Financial Statements 2009 J Sainsbury plc
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Sainsbury’s Bank joint venture (“JV”)
Sainsbury’s 50 per cent equity share of Sainsbury’s
Bank’s post-tax profit amounted to £4 million in the
year (2008: £(3) million loss). The underlying
banking business has driven increased profitability
through a rise in net interest income, strong cost
control and tighter risk management which has
resulted in a reduced charge for bad debts.
Sainsbury’s Bank has imposed tighter lending
criteria and attracted more diverse sources of
income. It has a strong and well-capitalised
balance sheet.
Profits from the Sainsbury’s Bank JV are expected
to show a small increase in 2010 as it continues to
invest in growth.
Property joint ventures
On 26 March 2008 Sainsbury’s invested
£274 million to create a 50:50 JV with British
Land. This securitised property JV holds 38 of
Sainsbury’s most important stores. The results of
the JV have been equity accounted since inception
and Sainsbury’s share of underlying post-tax profit
in the year is £9 million. The investment has been
financed largely by the sale of mature assets with
no further development potential, at broadly
similar yields.
Sainsbury’s share of underlying post-tax profit
of its 50:50 JV with Land Securities, established
in November 2007, was £3 million for the year
(2008: £1 million profit). One additional property
was sold into the JV during the year, bringing the
total number of properties within the JV to five.
Profits from both the British Land JV and the Land
Securities JV in 2010 are expected to be similar to
those recorded in 2009.
Further to the establishment of the British Land JV,
Sainsbury’s now accounts for investment
properties held within its property JVs at their
market value as determined by professional valuers
at each reporting date. The difference between the
fair value of an investment property at the
reporting date and its carrying amount prior to
re-measurement is included within the income
statement but excluded from underlying profit
in order to provide a clear and consistent
presentation of the underlying performance of
Sainsbury’s ongoing business for shareholders.
Any profit or loss on properties sold out of the
JVs once developed will be recognised within
the income statement but will be excluded from
underlying profit.
At 21 March 2009, non-cash investment property
fair value movements of £(124) million (at the
half-year: £(36) million) have been recognised
within the share of post-tax losses from JVs in the
income statement, reflecting Sainsbury’s 50 per
cent share. These fair value movements are
broadly equivalent to a valuation of the properties
at an average yield of 6.2 per cent.
Underlying net finance costs
Underlying net finance costs increased by
£44 million to £(89) million (2008: £(45) million)
which reflects £30 million lower net return on
pension schemes and £21 million higher net
interest costs due to increased level of average
borrowings, partially offset by £7 million higher
capitalised interest.
Under IAS 19 ‘Employee Benefits’, there have been
significant movements in the pension charges in
2009 compared to 2008. These have resulted in
a reduction of £30 million in the net return on
pension schemes, of which £19 million is due to
an increase in interest on pension liabilities and
£11 million is due to a lower rate of return on
pension assets. At the level of underlying profit
before tax (“UPBT”), the impact of this reduction
in net return on pension schemes is mitigated by
a £25 million reduction in service costs charged to
operating profit. The net impact of these changes
was therefore a £5 million reduction in UPBT
compared with 2008.
Interest cover, excluding the net return on pension
schemes, was 5.8 times (2008: 5.9 times).
Sainsbury’s expects underlying interest costs
excluding the net return on pension schemes to
reduce by around £25 million in 2010 (from £(113)
million in 2009) with lower interest rates on the
Group’s inflation-linked debt outweighing the
impact of a small increase in average net debt.
Underlying net finance costs1
for the 52 weeks to 21 March 2009
Interest income
Net return on pension schemes
Underlying finance income
Interest costs
Capitalised interest
Underlying finance costs
Net underlying finance costs
Net underlying interest costs excluding net return on pension schemes
1 Finance income/costs pre-financing fair value movements.
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2009
£m
28
24
52
(156)
15
(128)
(45)
(113)
2008
£m
29
54
83
(136)
8
(99)
(141)
(89)
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Property disposals
The Group recorded a profit of £57 million on the
sale of surplus properties during the year (including
eight supermarkets where no further development
was achievable, sold at an average yield of 5.2 per
cent). This compares to a £7 million profit in 2008.
Taxation
The income tax charge was £(177) million (2008:
£(150) million), with an underlying rate of 29.1 per
cent (2008: 30.9 per cent) and an effective rate
of 38.0 per cent (2008: 31.3 per cent).
The underlying rate is lower than last year due to
a reduction in the statutory rate of corporation tax
from 30 per cent to 28 per cent on 1 April 2008
and the resolution of a number of other items.
Disallowable depreciation amounted to £73 million
in 2009 (2008: £71 million).
Despite the reduction in the statutory rate, the
effective rate is higher than in the previous year
due to the £(124) million non-cash investment
property fair value movements, which reduce
profits, but for which no tax relief is available.
Underlying tax rate calculation
for the 52 weeks to 21 March 2009
Profit before tax
Less: profit on sale of properties
Add: investment property fair value
movements
Add: financing fair value movements
Underlying profit before tax
Underlying tax rate (%)
Profit
£m
466
(57)
124
10
543
Tax
£m
(177)
21
-
(2)
(158)
29.1
Sainsbury’s expects the underlying rate of tax in
2010 to be broadly in line with 2009.
Earnings per share
Underlying basic earnings per share increased by
12.8 per cent from 19.6 pence in 2008 to 22.1 pence
in 2009, reflecting the improvement in underlying
profit after tax attributable to equity holders.
The weighted average number of shares in issue
increased by 19.8 million due to the vesting of
share option schemes during the year. However,
the total number of shares for calculating diluted
earnings per share decreased by four million in the
same period, through the exercise or lapse of
share options.
Basic earnings per share were down 13.1 per cent,
at 16.6 pence (2008: 19.1 pence) as a result of the
non-cash investment property fair value movements
(which are disallowable for tax purposes).
Underlying earnings per share calculation 2009
for the 52 weeks to 21 March 2009
pence
Basic earnings per share
Profit on sale of properties, net of tax
Investment property fair value
movements, net of tax
7.1
Financing fair value movements, net of tax 0.5
-
Other one-off items, net of tax
16.6
(2.1)
2008
pence
19.1
(0.4)
-
0.2
0.7
Underlying basic earnings per share
22.1
19.6
Dividends
The Board proposes a final dividend of 9.6 pence
per share (2008: 9.0 pence), which will be paid
on 17 July 2009 to shareholders on the Register
of Members at the close of business on 22 May,
subject to approval. This will increase the full
year dividend by 10.0 per cent, to 13.2 pence per
share (2008: 12.0 pence per share).
The dividend is covered 1.67 times (2008:
1.63 times) by underlying earnings, in line with
Sainsbury’s policy of providing cover of between
1.50 and 1.75 times.
The proposed final dividend was recommended by
the Board on 12 May 2009, and as such, has not
been included as a liability as at 21 March 2009.
Net debt and cash flows
Sainsbury’s net debt as at 21 March 2009 was
£(1,671) million (2008: £(1,503) million), an increase
of £168 million from the 2008 year-end position.
The increase was driven primarily by core capital
expenditure, weighted towards the first half of the
financial year, the investment in the British Land
JV, and increased outflows for taxation and interest.
Summary cash flow statement
for the 52 weeks to 21 March 2009
Cash generated from operations
Net interest paid
Corporation tax paid
Cash flow before appropriations
Purchase of non-current assets
Investment in joint ventures
Disposal of non-current assets/operations
Proceeds from issuance of ordinary shares
Capital redemption
Proceeds from/(repayment of) borrowings
Net dividends paid
Decrease in cash and cash equivalents
(Increase)/decrease in debt
Other non-cash movements
Movement in net debt
Opening net debt
Closing net debt
2009
£m
1,206
(118)
(160)
928
(994)
(291)
390
15
—
165
(215)
(2)
(157)
(9)
2008
£m
998
(97)
(64)
837
(986)
(31)
197
43
(10)
(36)
(178)
(164)
46
(5)
(168)
(1,503)
(123)
(1,380)
(1,671)
(1,503)
Annual Report and Financial Statements 2009 J Sainsbury plc
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This was partially offset by improved operational
cash flows and disposals of £393 million.
Sainsbury’s expects year-end net debt to increase
to between £(1.7) billion and £(1.8) billion in 2010,
following broadly the same profile as in 2009 with
cash outflows weighted towards the first half.
Financing
Sainsbury’s seeks to manage its financing by
diversifying funding sources, configuring core
borrowings with long-term maturities and
maintaining sufficient stand-by liquidity.
Sainsbury’s core funding is represented by two
long-term loans entered into in March 2006 and
secured over a portion of its property assets.
The amortising loans comprise £1,130 million due
2018 and £872 million due 2031. During the year
Sainsbury’s also entered into a new £150 million
bilateral bank loan maturing in May 2015. Short-
term funding is maintained through two committed
revolving credit facilities: £400 million due
February 2012 and £163 million due May 2011.
At 21 March 2009, there was no outstanding
balance under these facilities (2008: £nil).
Since the year-end Sainsbury’s has renewed its
£35 million loan, due May 2009, at a level of
£50 million and extended its term to May 2012.
Additionally, it has put in place a new £50 million
credit facility, maturing May 2012.
Capital expenditure
Core capital expenditure amounted to £863 million
(2008: £850 million) in the full year, which
included £386 million on new store development
(2008: £308 million) and £385 million on
extensions and refurbishments (2008: £424 million).
During the year, a number of freehold properties
of existing trading stores were acquired, in line
with Sainsbury’s plans to buy freeholds of trading
sites where it believes there are potential long-
term development opportunities. This expenditure
totalled £392 million (2008: £168 million),
including £274 million on the British Land JV.
This expenditure has been offset by proceeds
of £393 million in relation to property disposals
(2008: £219 million).
On 4 March 2009, Sainsbury’s announced the
acquisition of 24 stores from the Co-operative
Group. The financial impact of this acquisition
is not reflected in the financial statements.
Completion on these stores, of which only one
store is awaiting OFT approval, commenced
in May 2009.
Sainsbury’s expects capital expenditure for 2010
of between £800 million and £900 million. This
will bring its three-year expenditure to £2.5 billion,
in line with the guidance provided in May 2007.
Capital expenditure
for the 52 weeks to 21 March 2009
New store development
Extensions and refurbishments
Other — including supply chain and IT
Core retail capital expenditure
British Land JV investment
Acquisition of freehold properties
Proceeds from property transactions
Net capital expenditure
2009
£m
386
385
92
863
274
118
(393)
862
2008
£m
308
424
118
850
—
168
(219)
799
Working capital
Sainsbury’s has continued to manage working
capital carefully and cash generated from
operations includes a year-on-year improvement
in working capital of £167 million. This has been
achieved through improved management of trade
cash flows, supported by the growth of Sainsbury’s
supply chain financing platform, whilst reducing
stock days.
Summary balance sheet
Shareholders’ funds as at 21 March 2009 were
£4,376 million (2008: £4,935 million), a reduction
of £559 million, primarily as a result of the
deterioration of the pension surplus into a deficit,
which reduces net assets by £588 million. Gearing,
which measures net debt as a percentage of total
equity, increased to 38 per cent (2008: 30 per
cent) as a result of the pension surplus moving
into deficit.
Summary balance sheet
at 21 March 2009
Non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Debt
Net debt
2009
£m
8,425
689
195
627
(2,298)
(1,671)
Trade and other payables and provisions (3,040)
Retirement benefit (obligations)/assets,
net of deferred tax
(222)
2008
£m
8,010
681
206
719
(2,222)
(1,503)
(2,825)
366
Net assets
4,376
4,935
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Financial review continued
Pensions
The retirement benefit obligations as at 21 March
2009 have been calculated on a consistent basis
with the previous year, with updates provided on
market-based assumptions.
As at 21 March 2009, the present value of
retirement benefit obligations less the fair value
of plan assets was a deficit after deferred tax of
£(222) million (2008: a surplus of £366 million).
The movement into deficit mainly reflects the
change in asset values in the year, in line with
market performance.
Sainsbury’s is currently commencing its 2009
triennial funding valuation, which will provide an
updated estimate of funding obligations, for which
the statutory completion date is June 2010.
Pensions
at 21 March 2009
Present value of funded obligations
Fair value of plan assets
2009
£m
2008
£m
(3,610)
3,310
(3,668)
4,171
Updated Pensions Accounting in 2010
The financing element of IAS 19 ‘Employee Benefits’
pensions accounting generates significant volatility
in the income statement. In line with the way in
which external commentators and other companies
view and prepare accounts, Sainsbury’s will be
removing the IAS 19 financing element from its
UPBT in 2010.
The 2010 IAS 19 service charge (included in
operating profit) will remain within UPBT. The
charge in 2010 is expected to be similar to the
£(53) million cost in 2009.
For reference, the effect of this accounting change
on UPBT for 2009 and 2008 is shown below:
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accounting change
for the 52 weeks to 21 March 2009
2009
£m
Reported UPBT
Less: IAS 19 financing element
543
(24)
Revised UPBT
519
2008
£m
488
(54)
434
Change
%
11.3
(55.6)
19.6
12.8
21.1
Present value of unfunded obligations
Retirement benefit (obligations)/assets
Deferred income tax asset/(liability)
(300)
(9)
(309)
87
503
(8)
495
(129)
Reported underlying
basic earnings per share
Revised underlying
basic earnings per share
22.1p
19.6p
21.2p
17.5p
Net retirement benefit (obligations)/assets
(222)
366
Change in Accounting Reference Date
Sainsbury’s will change its accounting reference
date from 28 March to 20 March with effect from
2010, and will report its 2010 results for the
52 weeks to 20 March 2010. This change is to
ensure that each half-year and full-year results
includes one complete Easter period, and to avoid
any volatility that might otherwise be caused
by the variable timing of Easter.
Underlying profit before tax will now be defined as:
profit before tax from continuing operations before
any profit or loss on sale of properties, investment
property fair value movements, impairment of
goodwill, financing fair value movements, IAS 19
net return on pension schemes and one-off items
that are material and infrequent in nature.
Annual Report and Financial Statements 2009 J Sainsbury plc
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Principal risks and uncertainties
The ‘Making Sainsbury’s Great Again’ (“MSGA”)
plan continued to progress from recovery to focus
on growth during the year. To support the growth
plans and to fully consider both opportunities
and risks, a new business strategy team has been
established, and the risk management process has
been enhanced. Risk is an inherent part of doing
business. The system of risk management used to
identify the principal risks the Group faces, and
to develop and closely monitor key controls, is
described on pages 31 to 32. The management of
the risks is based on a balance of risk and reward
determined through careful consideration of both
the potential likelihood and impact. The principal
risks identified by the Board and the corresponding
mitigating controls are set out below in no order
of priority.
Business continuity and acts of terrorism
A major incident or act of terrorism could impact
on the Group’s ability to trade.
In the event of a potentially disruptive incident,
detailed plans are in place to maintain business
continuity. These plans are regularly updated
and tested.
Business strategy
If the Board adopts the wrong business strategy
or does not implement its strategies effectively,
the business may be negatively impacted. Strategic
risk needs to be properly understood and managed
to deliver long-term growth for the benefit of all
stakeholders.
A clear strategy is in place with five key areas of
focus: great product at fair prices, accelerating
the growth of complementary non-food ranges,
reaching more customers through additional
channels, growing supermarket space and active
property management. Progress against these
areas of focus and any risks to delivery are
regularly reviewed by the Board and the overall
strategy is reviewed at the annual two-day
strategy conference. The Operating Board also
holds regular sessions to discuss strategy. This
activity is supported by a dedicated strategy team.
To ensure that the strategy is communicated
and understood, the Group engages with a wide
range of stakeholders including shareholders,
colleagues, customers and suppliers.
Colleague engagement, retention and capability
The Group employs around 150,000 colleagues
who are critical to the success of our business.
Maintaining good relations with colleagues and
investing in their training and development is
essential to the efficiency and sustainability of
the Group’s operations.
The Group’s employment policies and remuneration
and benefits packages are regularly reviewed and
designed to be competitive with other companies,
as well as providing colleagues with fulfilling career
opportunities. Colleague surveys, performance
reviews, communications with trade unions and
regular communication of business activities are
some of the methods the Group uses to understand
and respond to colleagues’ needs. Processes are
also in place to identify talent and actively manage
succession planning throughout the business.
Economic and market risks
The unprecedented economic slowdown and
reducing job security is resulting in an increasing
demand for value from customers. Challenges to
household disposable income, competitor pricing
positions and product costs can affect the
performance of the Group in terms of both sales
and costs.
Focus continues on delivering quality products
with universal appeal, at a range of price points
ensuring value for all our customers. This is
achieved through the continuous review of our
key customer metrics, active management of
price positions, development of sales propositions
and increased promotion and marketing activity.
While external cost pressures including oil-related
costs and business rates affect our business, the
Group continues to work hard to mitigate the
impact of these cost pressures on customers and
on our overall profitability through the delivery
of cost savings.
Environment and sustainability
The key risk facing the Group in this area relates to
reducing the environmental impact of the business
with a focus on reducing packaging and new ways
of reducing waste and energy usage across stores,
depots and offices.
A number of initiatives are in place, which are
being led by the Environmental Action team and
the Corporate Responsibility Steering Group to
reduce our environmental impact and to meet
our customers’ requirements in this area.
Further details are included on pages 12 to 15.
22
J Sainsbury plc Annual Report and Financial Statements 2009
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Principal risks and uncertainties continued
Financial strategy and treasury risk
The main financial risks are the availability of short
and long-term funding to meet business needs and
fluctuations in interest and foreign currency rates,
which are heightened by the turbulence in the
financial markets and the downturn in the
economic environment.
The central treasury function is responsible for
managing the Group’s liquid resources, funding
requirements, and interest rate and currency
exposures and the associated risks as set out
in note 29 of the Annual Report and Financial
Statements. This function has clear policies
and operating procedures which are regularly
reviewed by internal audit.
Fraud
The Group has a strong control framework in
respect of potential fraud or other dishonest
behaviour, which is regularly reviewed by internal
audit. A set of policies are in place to provide
colleagues with clear guidance on behaviour.
In addition, there are ‘whistle blowing’ procedures
in place to enable colleagues and suppliers to
raise concerns about possible improprieties on
a confidential basis. Internal audit undertakes
detailed investigations and highlights its findings
to the Audit Committee.
Health and safety
Prevention of injury or loss of life for both
colleagues and customers is of utmost importance.
Clear policies and procedures are in place, which
are aligned to all relevant regulations and
industry standards and adherence to them
is regularly monitored.
IT systems and infrastructure
The Group is reliant on its IT systems and
operational infrastructure in order to trade
efficiently. A failure in these systems could have
a significant impact on our business.
The Group has extensive controls in place to
maintain the integrity and efficiency of its systems
including detailed recovery plans in the event of a
significant failure. New innovations and upgrades
to systems are ongoing to improve both the
customer experience and colleague efficiency.
Prior to introducing system changes rigorous
testing is completed.
Pension risk
The Group operates a number of pension
arrangements which includes two defined benefit
schemes. These schemes are subject to risks in
relation to their liabilities as a result of changes
in life expectancy, inflation and future salary
increases, and to risks regarding the value of
investments and the returns derived from
such investments.
An investment strategy is in place which has been
developed by the pension trustees, in consultation
with the Company, to mitigate the volatility of
liabilities and to diversify investment risk.
Product safety
The quality and safety of our products is of the
highest importance and any failure in standards
would significantly affect the confidence of our
customers.
There are stringent controls in place to ensure
product safety and integrity. Food hygiene
practices are taken very seriously and are
monitored regularly to ensure compliance with
standards. All aspects of product safety are
governed through the Product Safety Committee.
All suppliers are expected to conform to the
Group’s code of conduct for Socially Responsible
Sourcing which launched in 1998 and covers fair
terms of trading, protection of children, worker
health and safety, equal opportunities, freedom
of association, freedom of employment, hours
of work and wages.
Regulatory environment
The Group’s operations are subject to a broad
spectrum of regulatory requirements particularly
in relation to planning, competition and
environmental issues, employment, pensions and
tax laws and regulations over the Group’s products
and services.
There is an established governance process in
place to monitor regulatory developments and to
ensure that all existing regulations are complied
with. Regular reviews are completed across the
estate to ensure compliance and that training
needs are addressed as required.
Annual Report and Financial Statements 2009 J Sainsbury plc
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J Sainsbury plc: Board of Directors
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Philip Hampton
Chairman
Appointed Chairman on 19 July 2004.
He was Group Finance Director of
Lloyds TSB Group plc from 2002 to
2004, Group Finance Director of BT
Group plc from 2000 to 2002, Group
Finance Director of BG Group plc from
1997 to 2000, Group Finance Director
of British Gas plc from 1995 to 1997,
Group Finance Director of British Steel
plc from 1990 to 1995, an Executive
Director of Lazards from 1981 to 1990
and a Non-Executive Director of RMC
Group plc from 2002 to 2005. He was
appointed Non-Executive Chairman of
The Royal Bank of Scotland Group plc on
3 February 2009 and is a Non-Executive
Director of Belgacom S.A. (the Belgian
telecom group). Age 55.
Justin King
Chief Executive
Appointed Chief Executive Officer on
29 March 2004 and is also Chairman
of the Operating Board. He has been
a Non-Executive Director of Staples,
Inc. since September 2007 and was
appointed to the Board of the London
Organising Committee of the Olympic
Games and Paralympic Games in
January 2009. He was formerly Director
of Food at Marks & Spencer plc and
from 1994 to 2001 he held a number
of senior positions at ASDA/WalMart
in Trading, HR and Retail. Justin was
previously Managing Director of Häagen
Dazs UK and spent much of his early
career with Mars Confectionery and
Pepsi International. Age 47.
Darren Shapland
Chief Financial Officer
Appointed Chief Financial Officer on
1 August 2005 and is also Chairman of
Sainsbury’s Bank plc. He was formerly
Group Finance Director of Carpetright
plc from 2002 to 2005 and Finance
Director of Superdrug Stores plc from
2000 to 2002. Between 1988 and 2000,
Darren held a number of financial
and operational management roles at
Arcadia plc including Joint Managing
Director, Arcadia Home Shopping;
Finance Director of Arcadia brands;
Finance Director, Top Shop/Top Man
(Burton Group) and Director of Supply
Chain Programme (Burton Group).
Age 42.
Mike Coupe
Trading Director
Appointed an Executive Director on
1 August 2007 and has been a member
of the Operating Board since October
2004. He joined Sainsbury’s from Big
Food Group where he was a Board
Director of Big Food Group plc and
Managing Director of Iceland Food
Stores. Mike previously worked for both
ASDA and Tesco, where he served in
a variety of senior management roles.
Age 48.
Life President
Lord Sainsbury of Preston Candover KG
Key to Committee Members
Remuneration Committee
Audit Committee
Nomination Committee
Corporate Responsibility Committee
Denotes Chairman of Committee
24
J Sainsbury plc Annual Report and Financial Statements 2009
Board of Directors continued
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Val Gooding
Non-Executive Director
Appointed a Non-Executive Director on
11 January 2007. She was formerly Chief
Executive of BUPA from August 1998
to May 2008, which she joined from
British Airways, and is a Non-Executive
Director of Standard Chartered Bank
plc. Val is a member of the BBC’s
Executive Board, and the Advisory
Board of the Warwick Business School.
She is a Trustee of the British Museum,
and a Non-Executive Director of the
Lawn Tennis Association. She was
formerly a Non-Executive Director
of Compass Group plc and
BAA plc. Age 58.
Gary Hughes
Non-Executive Director
Appointed a Non-Executive Director on
1 January 2005. Gary is Chief Financial
Officer of the Gala Coral Group.
Formerly he was Chief Executive of
CMP Information Limited — a division of
United Business Media plc from 2006 to
2008, Group Finance Director of Emap
plc from 2000 to 2005, Group Finance
Director of SMG plc from 1996 to 2000,
and Deputy Finance Director of Forte plc
from 1994 to 1996. Prior to this Gary
held a number of senior management
positions with Guinness plc in the UK
and in North America. Age 47.
Bob Stack
Non-Executive Director
Appointed a Non-Executive Director
on 1 January 2005. He was a Director
of Cadbury plc until December 2008.
He joined Cadbury Beverages in the
US in 1990 and was first appointed
to the Board of Cadbury Schweppes
plc in May 1996 as Group Human
Resources Director. In March 2000 he
was appointed Chief Human Resources
Officer and took on responsibility for
communication and external affairs
in addition to HR. Bob is Trustee and
Non-Executive Director of Earthwatch
International and also a Non-Executive
Director of IMI plc and a Visiting
Professor at Henley Management
College. Age 58.
Dr John McAdam
Senior Independent Director
Appointed a Non-Executive Director on
1 September 2005. He is Chairman of
Rentokil Initial plc and United Utilities
plc. He is also a Non-Executive Director
of Rolls-Royce Group plc and Sara Lee
Corporation. John joined Unilever as a
management trainee in 1974 and went
on to hold a number of senior positions
in Birds Eye Walls, Quest and Unichema,
before the sale of the Specialty
Chemical Businesses to ICI in 1997. He
was Chief Executive of ICI plc, until its
sale to Akzo Nobel, and was formerly
Non-Executive Director of Severn Trent
plc from 2000 to 2005. Age 61.
Anna Ford
Non-Executive Director
Appointed a Non-Executive Director on
2 May 2006. She retired from the BBC
in 2006, after 32 years in News and
Current Affairs. Anna is a Non-Executive
Director of N Brown Group plc and has
been a Trustee of the Royal Botanical
Gardens in Kew, London; a Fellow of the
Royal Geographical Society; a Trustee of
Forum for the Future; and an Honorary
Bencher of Middle Temple. Age 65.
Mary Harris
Non-Executive Director
Appointed a Non-Executive Director
on 1 August 2007. She is a member of
the supervisory boards of TNT NV and
Unibail-Rodamco S.A. Mary previously
spent much of her career with McKinsey
& Company, most recently as a partner,
and her previous work experience
included working for PepsiCo in Greece
and the UK as a sales and marketing
executive. Age 43.
Annual Report and Financial Statements 2009 J Sainsbury plc
25
The Operating Board
Justin King (1)
See page 24
Darren Shapland (2)
See page 24
Mike Coupe (3)
See page 24
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Tim Fallowfield (4)
Company Secretary
Company Secretary since 2001.
A member of the Operating Board,
Tim joined from Exel plc, the global
logistics company where he was
Company Secretary and Head of
Legal Services (1994-2001). Prior to
this he worked at Clifford Chance and
is a qualified solicitor.
Luke Jensen (5)
Strategy Director
Luke joined Sainsbury’s in 2008 from
the retail and consumer practice at
the strategy consulting firm OC&C.
In this role, he has advised the boards
of many leading UK and international
retail and FMCG companies and private
equity groups. Previous roles include,
2004-2008: OC&C UK, Director/Partner
and Head of FMCG, Consumer and
Retail Practice; 2002-2003: M8 Group,
UK, Founder and Group FD/Executive
Director; 2001-2002: NAO, UK, Joint
Managing Director and Chairman;
1992-2000: OC&C UK, Director/Partner;
1988-1991: Banque Paribas, Manager,
Acquisition Finance. Joined the
Operating Board in June 2008.
Angela Morrison (6)
IT and Change Director
Angela joined Sainsbury’s from ASDA/
Wal-Mart in March 2005 as IT Director.
Joined the Operating Board in June
2008. At ASDA/Wal-Mart she held a
number of roles including, 2001-2005:
European Strategy Director;
1999-2001: IT Director; 1997-1999:
Director of E-Commerce; 1996-1997:
IT Strategy Manager.
John Rogers (7)
Property Director
John joined Sainsbury’s in March 2005
as Director of Corporate Finance; from
March 2007 to June 2008, he was
Director of Group Finance. Joined the
Operating Board in June 2008. Prior
to Sainsbury’s, John was Group Finance
Director for Hanover Acceptances, a
diversified corporation with wholly
owned subsidiaries in the food
manufacturing, real-estate and agri-
business sectors. Previous roles include
Senior Manager at Monitor Company
and Manager at Arthur Andersen.
Gwyn Burr (8)
Customer Director
Joined the Operating Board in 2004.
Director of Sainsbury’s Bank plc.
Gwyn has over 20 years’ business
experience, including five with Nestlé
Rowntree and over 13 with ASDA/
Wal-Mart. At ASDA, she held various
Board level positions across Own Brand,
Marketing, Customer Service and Retail.
Roger Burnley (9)
Retail and Logistics Director
Joined the Operating Board in March
2006 as Supply Chain Director and in
April 2008 he assumed the new role of
Retail & Logistics Director. Roger was
previously Supply Chain Director at
Matalan. He spent his early career in
retail management and buying at B&Q
before joining ASDA/Wal-Mart, where
he held a number of positions before
becoming Supply Chain Director in 2001.
Imelda Walsh (10)
HR Director
HR Director since October 2001. Joined
the Operating Board when formed in
May 2004. Before this was a member of
the Board of Sainsbury’s Supermarkets
Ltd from March 2003. Director of
Sainsbury’s Bank plc. Prior to joining
Sainsbury’s, worked for Barclays Retail
Financial Services, Coca-Cola and
Schweppes Beverages. Author of the
Flexible working review, published
May 2008.
Dido Harding (11)
Convenience Director
Joined the Operating Board in March
2008. Dido joined Sainsbury’s from
Tesco where she held a variety of senior
roles both in their UK and international
businesses. Prior to this she worked at
Kingfisher plc and Thomas Cook Ltd
where she gained considerable retail
experience. She began her career as
a consultant with McKinsey.
Neil Sachdev (12)
Commercial Services Director
Joined Sainsbury’s in March 2007 as
Commercial Director following 28 years
at Tesco, where he worked in a range of
different business areas including, January
2000-August 2006: Stores Board Director
UK Property/Operations; September
1999-January 2000: Supply Chain
Director; September 1998-September
1999: Director, Competition Commission;
February 1998-September 1998: Support
Director; October 1994-July 1998: Retail
Director. Joined the Operating Board in
June 2008.
26
J Sainsbury plc Annual Report and Financial Statements 2009
Directors’ report
The Directors present their report and audited financial statements
for the 52 weeks to 21 March 2009.
Principal activities
The Company’s principal activities are grocery and related retailing.
Business review
The Business Review sets out a comprehensive review of the
development and performance of the business for the 52 weeks
ended 21 March 2009 and future developments. The Business
Review is set out on pages 1 to 23 of this report. All the information
detailed in these pages is incorporated by reference into this report
and is deemed to form part of this report.
Dividends
The Directors recommend the payment of a final dividend of
9.6 pence per share (2008: 9.0 pence), making a total dividend for
the year of 13.2 pence per share (2008: 12.0 pence), an increase
of 10.0 per cent over the previous year. Subject to shareholders
approving this recommendation at the Annual General Meeting
(“AGM”), the dividend will be paid on 17 July 2009 to shareholders
on the register at the close of business on 22 May 2009.
Changes to the Board
No changes were made to the Board in 2008/09.
Re-election of Directors
In accordance with the Articles of Association, Anna Ford, John
McAdam and Darren Shapland will retire by rotation and seek
re-election at the AGM.
Full biographical details of all of the current Directors are set out
on pages 24 and 25.
Annual General Meeting
The AGM will be held on Wednesday, 15 July 2009 at The Queen
Elizabeth II Conference Centre, Broad Sanctuary, Westminster,
London SW1P 3EE at 11.00am. The Chairman’s letter and the
Notice of Meeting accompany this report, together with notes
explaining the business to be transacted at the meeting.
At the meeting, resolutions will be proposed to declare a final
dividend, to receive the Annual Report and Financial Statements
and approve the Remuneration Report, to elect Directors and to
re-appoint PricewaterhouseCoopers LLP as auditors. In addition,
shareholders will be asked to renew both the general authority
of the Directors to issue shares and the authority to issue shares
without applying the statutory pre-emption rights, and to authorise
the Company to make market purchases of its own shares.
No such purchase has been made during the last financial year.
Shareholders will also be asked to adopt new Articles of Association
to reflect changes introduced by the provisions of the 2006
Companies Act and authorise Directors to hold general meetings
at 14 days notice. A resolution to renew the authority to make
‘political donations’ as defined by Part 14 of the 2006 Companies
Act will also be proposed.
Share capital and control
The following information is given pursuant to Section 992 of the
Companies Act 2006.
Except as described below in relation to the Company’s employee
share schemes, there are no restrictions on the voting rights
attaching to the Company’s ordinary shares or the transfer of
securities in the Company; no person holds securities in the
Company carrying special rights with regard to control of the
Company; and the Company is not aware of any agreements
between holders of securities that may result in restrictions in the
transfer of securities or voting rights. Further details on the rights,
restrictions and obligations attaching to the share capital of the
Company, including voting rights, are contained in the Company’s
Articles of Association. The Articles of Association may only be
changed with the agreement of shareholders.
Shares acquired through the Company’s employee share schemes
rank pari passu with shares in issue and have no special rights.
Where, under the Company’s All Employee Ownership Plan,
participants are beneficial owners of the shares but the trustee
is the registered owner, the voting rights are normally exercised
by the registered owner at the direction of the participants. The
J Sainsbury Employee Benefit Trust waives its right to vote and to
dividends on the shares it holds. Some of the Company’s employee
share plans include restrictions on transfer of shares while the
shares are held within the plan.
At the AGM held in July 2008, the Company was authorised by
shareholders to purchase its own shares, within certain limits and
as permitted by the Articles of Association. The Company made
no purchases of its own shares during the year and no shares
were acquired by forfeiture or surrender or made subject to a
lien or charge.
All of the Company’s employee share schemes contain provisions
relating to a change of control. On a change of control, options and
awards granted to employees under the Company’s share schemes
may vest and become exercisable, subject to the satisfaction of any
applicable performance conditions at that time.
The Company is not party to any significant agreements that would
take effect, alter or terminate upon a change of control following a
takeover bid.
Ordinary shares
Details of the changes to the ordinary issued share capital during
the year are shown on page 68. At the date of this report,
1,754,033,158 ordinary shares of 284/7 pence have been issued,
are fully paid up and are listed on the London Stock Exchange.
Major interests in shares
As at 12 May 2009, the Company had been notified by the following
investors of their interests in three per cent or more of the
Company’s shares. These interests were notified to the Company
pursuant to Disclosure and Transparency Rule 5:
Crédit Agricole Cheuvreux
International Limited
Judith Portrait (a trustee of
various settlements, including
charitable trusts)
Legal & General Group plc
Lord Sainsbury of Turville*
Qatar Holdings LLC
Number of
shares
% of
voting rights
55,965,129
3.21
71,332,495
69,825,844
102,045,437
476,792,132
4.09
4.00
5.85
27.28
* Innotech Advisers Limited, an investment company 100 per cent owned by Lord Sainsbury of
Turville, holds 92,000,000 shares in J Sainsbury plc.
Directors’ interests
The beneficial interests of the Directors and their families in the
shares of the Company are shown in the Remuneration Report
on pages 33 to 40. The Company’s Register of Directors’ interests
contains full details of Directors’ interests, shareholdings and
options over ordinary shares of the Company.
During the year, no Director had any material interest in any
contract of significance to the Group’s business.
Directors’ indemnities
The Directors are entitled to be indemnified by the Company to the
extent permitted by law and the Company’s Articles of Association
in respect of all losses arising out of or in connection with the
execution of their powers, duties and responsibilities. The Company
has executed deeds of indemnity for the benefit of each Director
in respect of liabilities which may attach to them in their capacity
as Directors of the Company. The Company purchased and
maintained Directors’ and Officers’ liability insurance throughout
2008/09, which was renewed for 2009/10. Neither the indemnities
nor the insurance provide cover in the event that the Director is
proved to have acted fraudulently.
Annual Report and Financial Statements 2009 J Sainsbury plc
27
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Directors’ report continued
Market value of properties
The Directors believe that the aggregate open market value of
Group properties exceeds the net book value as set out in note 11
on page 58 and 59 of the financial statements.
Essential contracts
Sainsbury’s has contractual and other arrangements with
numerous third parties in support of its business activities.
None of the arrangements is individually considered to be
essential to the business of Sainsbury’s.
Policy on payment of creditors
The policy of the Company and its principal operating companies
is to agree terms of payment prior to commencing trade with a
supplier and to abide by those terms on the timely submission
of satisfactory invoices. The Company is a holding company and
therefore has no trade creditors. Statements on the operating
companies’ payment of suppliers are contained in their financial
statements.
Corporate responsibility
Sainsbury’s has a strong record in its commitment to corporate
responsibility, which is an everyday part of how the Company
does business. Details of the Company’s principal corporate
responsibility initiatives and activities are set out on pages 12 to 15.
The Company’s Corporate Responsibility Report, which will be
published in July 2009 (www.j-sainsbury.co.uk/crreport2009) ,
provides a comprehensive statement on corporate responsibility
and describes the Company’s policies and activities in relation to
its five corporate responsibility principles: Best for Food and Health,
Sourcing with Integrity, Respect for Our Environment, Making a
Positive Difference to Our Community and A Great Place to Work.
As part of ‘A Great Place to Work’ the Company has well developed
policies for fair and equal treatment of all colleagues, employment
of disadvantaged persons and colleague participation. During their
employment, the Company seeks to work with each individual,
enabling them to reach and maximise their potential in the context
of their own personal circumstances.
Under the banner of a new programme, ‘You Can’, the Company
also actively works with a number of organisations which seek
to promote inclusion within the workplace. These include Local
Employment Partnerships, The Employers’ Forum on Disability
(Gold member), the Shaw Trust, Remploy and Mencap. The
Company has also focused on the broader skills agenda and has
set ambitious targets for enabling colleagues to achieve nationally
recognised qualifications.
The Company’s quarterly, interim and annual results are presented
to all senior management and are communicated to all colleagues.
Colleagues have always been encouraged to hold shares in the
Company and over 45,000 colleagues are shareholders directly
or through the Commitment Shares Plan Trust or the Sainsbury’s
Share Purchase Plan Trust.
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Donations
During the year, cash and in-kind donations to charitable
organisations and other community projects totalled £5.7 million
(2008: £5.6 million). Sainsbury’s colleagues, customers and
suppliers raised £17.4 million (2008: £7.4 million) for charities
through events supported by the Company, including Comic
Relief and Fareshare, a charity specialising in food donation.
The Company made no political donations in 2009 (2008: £nil).
Post balance sheet events
Events after the balance sheet date are disclosed in note 38 on
page 92 of the financial statements.
Financial risk management
The financial risk management and policies of the Group are
disclosed in note 29 on pages 73 to 77 of the financial statements.
Going concern
As highlighted in the Financial Review on pages 16 to 21, the Group
manages its financing by diversifying funding sources, configuring
core borrowings with long-term maturities and maintaining
sufficient stand by liquidity. Full details of the Group’s financing
arrangements can be found in note 20 on pages 64 and 65 of the
financial statements.
The debt refinancing in March 2006 removed the Group’s reliance
on unsecured credit markets for medium and long-term finance and
the Group’s first significant refinancing exposure is not until 2018.
As a consequence, the Directors believe that the Group is well
placed to manage its business risks successfully despite the current
challenging economic outlook. The Directors are satisfied that the
Company has sufficient resources to continue in operation for the
foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the financial statements which are
shown on pages 43 to 92.
In addition, notes 29 and 30 on pages 73 to 79 of the financial
statements include the Group’s objectives, policies and processes
for managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and its
exposures to credit risk and liquidity risk.
Disclosure of information to auditors
Each of the Directors confirms that, so far as he/she is aware, there
is no relevant audit information of which the auditors are unaware.
Each Director has taken all steps that he/she ought to have taken
as a Director in order to make himself/herself aware of any relevant
audit information and to establish that the auditors are aware of
that information.
Auditors
PricewaterhouseCoopers LLP have expressed their willingness
to be reappointed as auditors of the Company. Upon the
recommendation of the Audit Committee, resolutions to reappoint
them as auditors and to authorise the Directors to determine their
remuneration will be proposed at the AGM.
By order of the Board
Tim Fallowfield
Company Secretary
12 May 2009
28
J Sainsbury plc Annual Report and Financial Statements 2009
Statement of corporate governance
Compliance
The following sections explain how the Company applies the
principles and supporting principles of the Combined Code on
Corporate Governance 2006 (the “Code”). During the year, the
Company has complied with all the provisions of the Code.
The Board
The Board has been chaired since 2004 by Philip Hampton.
It consists of three Executive Directors and six Non-Executive
Directors. Dr John McAdam is the Senior Independent Director.
The Directors’ biographical details are set out on pages 24 and 25.
The Board is scheduled to meet eight times during the year,
including a two-day strategy conference. The Chairman and
Non-Executive Directors met during the year without the Executive
Directors being present and the Non-Executive Directors also met
during the year without the Executive Directors or the Chairman
being present.
Division of responsibilities
There is a clear division of responsibilities between the Chairman
and the Chief Executive which is set out in writing and has been
approved by the Board. Philip Hampton is responsible for leadership
of the Board, setting its agenda and monitoring its effectiveness.
He ensures effective communication with shareholders and that the
Board is aware of the views of major shareholders. He facilitates
both the contribution of the Non-Executive Directors and
constructive relations between the Executive and Non-Executive
Directors. He ensures that the Chief Executive develops a strategy
which is supported by the Board as a whole. Justin King is
responsible for executing the strategy, once agreed by the Board.
He creates a framework of values, organisation and objectives to
ensure the successful delivery of key targets, and allocates decision
making and responsibilities accordingly. He takes a leading role,
with the Chairman, in the relationship with all external agencies
and in promoting Sainsbury’s.
Independence/Non-Executive Directors
The Non-Executive Directors bring wide and varied commercial
experience to Board and Committee deliberations. They are
appointed for an initial three-year term, subject to election by
shareholders at the first AGM after their appointment, after which
their appointment may be extended for a second term, subject to
mutual agreement and shareholder approval.
Philip Hampton satisfied the independence criteria of the Code on
his appointment. From 25 November 2008 until 16 January 2009
he was appointed Non-Executive Chairman of UK Financial
Investments Limited (“UKFI”), the company set up to manage the
Government’s investments in various UK banks. On 19 January
2009 he was appointed to the Board of The Royal Bank of Scotland
Group plc (“RBS”) and became its Non-Executive Chairman on
3 February 2009. The Board considered each role and concluded
that he would continue to be able to fulfil his duties to the
Company, notwithstanding each new appointment, noting that
the roles at UKFI and RBS were Non-Executive and part time.
The Board also concluded that there were no material conflicts
resulting from the appointments.
All the Non-Executive Directors are considered to be independent
according to the provisions of the Code. The Board is satisfied that
there is no compromise to the independence of the Directors who
have executive or non-executive roles with other companies.
From 1 October 2008, there has been a Companies Act requirement
that Directors must avoid a situation where they have, or can have,
a direct or indirect interest that conflicts, or possibly may conflict,
with a company’s interests. Directors of public companies may
authorise conflicts and potential conflicts, where appropriate, if a
company’s Articles of Association permit. Shareholders approved
the appropriate amendments to the Company’s Articles at the
2008 AGM.
The Board has established procedures for the disclosure by
Directors of any such conflicts, and also for the consideration and
authorisation of these conflicts by the Board. In accordance with
the Act, the Board considered and authorised each Director’s
reported potential conflicts of interest during the year. The Board
will continue to monitor and review potential conflicts of interest
on a regular basis.
The Board’s role
The Board is focused on delivering sustainable added value for
shareholders. It regularly considers strategic issues, key projects
and major investments and monitors performance against delivery
of the agreed key targets. It approves the corporate plan and the
annual budget and reviews performance against targets at every
meeting. These and other key responsibilities are formally reserved
powers of the Board.
During the year the Board received updates on the investor
relations programme and feedback from major shareholders and
reviewed the funding of the Company’s pension plans and broader
pension matters. Given the current economic climate it has
received regular detailed reports on the Company’s funding and
liquidity position. It has also regularly reviewed Sainsbury’s Bank’s
liquidity and the overall control of its financial position and cash
management.
The Board delegates certain responsibilities to its principal
committees. Through the Audit Committee, the Directors ensure
the integrity of financial information, the effectiveness of the
financial controls and the internal control and risk management
systems. The Remuneration Committee sets the remuneration
policy for Executive Directors and determines their individual
remuneration arrangements. The Nomination Committee
recommends the appointment of Directors and has responsibility
for evaluating the balance of the Board and for succession planning
at Board level. The Corporate Responsibility (“CR”) Committee
reviews key CR policy, taking into account the Company’s CR
objectives and the overall strategic plan. Further details are set
out below.
Attendance
The table shows the attendance of Directors at scheduled Board
and Committee meetings. The Board scheduled eight meetings
during the year and ad hoc conference calls were also convened
to deal with specific matters which required attention between
scheduled meetings.
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Board Committee Committee Committee
CR Nomination Remuneration
Committee
Audit
Mike Coupe
Anna Ford
Val Gooding
Philip Hampton
Mary Harris
Gary Hughes
Justin King
John McAdam
Darren Shapland
Bob Stack
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8(8)
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8(8)
8(8)
8(8)
8(8)
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4(4)
4(4)
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2(2)
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2(2)
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2(2)
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4(4)
4(4)
4(4)
4(4)
4(4)
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4(4)
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4(4)
(The number of meetings held during the year is shown in brackets)
—
5(5)
5(5)
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-
5(5)
Annual Report and Financial Statements 2009 J Sainsbury plc
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Statement of corporate governance continued
Information and development
The Chairman is responsible for ensuring that all Directors are
properly briefed on issues arising at Board meetings and that they
have full and timely access to relevant information. The quality and
supply of information provided to the Board is reviewed as part of
the Board evaluation exercise.
The Company has a programme for meeting Directors’ training
and development requirements. Newly appointed Directors who
do not have previous public company experience at Board level are
provided with appropriate training on their role and responsibilities.
New Directors participate in a comprehensive and tailored
induction programme including store and depot visits and meetings
with members of the Operating Board, senior management and
external advisors. Subsequent training is available on an ongoing
basis to meet any particular needs. During the year the Company
Secretary, Tim Fallowfield, has provided updates to the Board on
relevant governance matters, new legislation and on Directors’
duties and obligations, whilst the Audit Committee regularly
considers new accounting developments through presentations
from management and the external auditors. The consultants to
the Remuneration Committee advise the Committee on relevant
trends in remuneration matters. The Board programme includes
presentations from management which, together with site visits,
increases the Non-Executive Directors’ understanding of the
business and the sector.
All Directors have access to the advice and services of the Company
Secretary. He has responsibility for ensuring that Board procedures
are followed and for governance matters. The appointment and
removal of the Company Secretary is one of the matters reserved
for the Board. There is an agreed procedure by which members of
the Board may take independent professional advice at the
Company’s expense in the furtherance of their duties.
Board evaluation
The Board agreed that this year’s evaluation exercise should be
conducted by Tim Fallowfield, the Company Secretary. Having
agreed the key objectives with the Chairman, he prepared a
detailed questionnaire and then met with each Director separately
to discuss the Board’s role and structure, process and relationships,
and any emerging issues. The performance of the Board
Committees was also reviewed. He then presented the findings
to the Board, identifying what was working well and areas which
could be improved or approached differently. The Board concluded
that the action plan from the 2008 review had been implemented
and it was satisfied with the progress that it had made during the
year and that it was working effectively. An action plan was agreed
to address the themes which emerged from this year’s exercise; for
instance the continuing training programme for the Non-Executive
Directors will be updated.
The Senior Independent Director reviewed the Chairman‘s
performance and subsequently met with him to provide feedback
to him. The Chairman separately reviewed the contribution of
each of the Directors with them.
Operating Board
Day-to-day management of the Company is delegated to the
Operating Board, which is chaired by Justin King. The Operating
Board held ten scheduled meetings during the year. Directors’
responsibilities are set out on page 26. It has formal terms of
reference setting out its key responsibilities. Minutes are copied
to the Chairman and Non-Executive Directors. Operating Board
members regularly attend and present at Board meetings as well
as the strategy conference.
The Operating Board has delegated certain powers to the Trading
Board, the Retail & Logistics Board and the Investment Board and
receives regular reports from the Health and Safety Committee,
the Product Safety Committee and the Corporate Responsibility
Steering Group.
Board Committees
The Board has delegated certain responsibilities to the Nomination,
Remuneration, Corporate Responsibility and Audit Committees.
Nomination Committee
The Nomination Committee is chaired by Philip Hampton and
comprises each of the Non-Executive Directors. Justin King is
not a member of the Committee although he is invited to
attend meetings.
The Committee holds one meeting each year where it reviews
succession planning and senior management development. During
the year Philip Hampton informed the Board that, having completed
five years as Chairman, he would be stepping down from the Board
during 2009. The Committee is leading the recruitment process for
his successor, chaired by John McAdam, the Senior Independent
Director. Search consultants, Egon Zehnder International, have
been instructed by the Committee in connection with this process.
The Committee has considered the skills, knowledge, background
and experience required for the role, and a job specification has
been prepared. The Committee has also specified the time
commitment expected of the role.
The Committee’s terms of reference are available on the website
(www.j-sainsbury.co.uk/governance) and set out the Committee’s
responsibilities. The Committee meets when necessary and in
2008/09 met on four occasions.
Remuneration Committee
The Committee is chaired by Bob Stack who was appointed
a Non-Executive Director and Chairman of the Committee on
1 January 2005. The Remuneration Report is set out on pages 33
to 40.
Corporate Responsibility Committee
The Committee is chaired by Anna Ford, and Justin King and Mary
Harris are its members. Philip Hampton attends each meeting. It
met twice during the year. Formal meetings are supported by CR
strategic meetings hosted by Anna Ford and Justin King. Each
meeting is based around one of the five CR principles and key
external stakeholders are invited to attend. During the year five
meetings were held, relating to each of the five principles.
At operational level, Justin King chairs the CR Steering Group,
attended by the four Operating Board Directors and Lawrence
Christensen, Chairman for the Environment, who champion each
of our five CR principles.
A summary of the Company’s corporate responsibility priorities
and activities are set out on pages 12 to 15. This year’s Corporate
Responsibility report will be published in July 2009.
The Association of British Insurers recommends that the Board
considers material risks and control processes relating to corporate
responsibility. The Board receives an annual update on health and
safety and product safety, and relevant controls and governance,
and any specific issues on these and other matters which might
affect the Company’s reputation are reported to the Board as they
occur. In addition the Audit Committee’s review of the system of
internal controls and risk management processes referred to below
includes corporate responsibility risks and the Committee considers
any major corporate responsibility or brand reputation issues
identified by the process, to the extent any such exist. The
induction programme for new Board Directors includes a full
review of corporate responsibility.
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Statement of corporate governance continued
Audit Committee
The Committee is chaired by Gary Hughes with John McAdam and
Mary Harris as its other members, all of whom are independent
Non-Executive Directors. The Board has determined that Gary
Hughes has recent and relevant financial experience. Philip
Hampton, Justin King, Darren Shapland, Karen Whitworth, Director
of Group Internal Audit, other senior members of the Finance
Division and the external auditors are invited to attend Committee
meetings. Tim Fallowfield is secretary to the Committee.
During the year the Committee met on four occasions, the agendas
being organised around the Company’s reporting cycle. It
monitored the integrity of the financial statements and any formal
announcements relating to the Company’s financial performance
and reviewed any significant financial judgements contained in
them. The Committee has also reviewed the effectiveness of the
Company’s financial controls and the systems of internal control
and risk management. Where any weaknesses were identified,
the detailed actions for resolution are closely monitored through
to completion.
Given the current economic climate, the Committee has regularly
reviewed the Company’s funding and liquidity position and has
considered its impact on the Company’s financial and operational
capabilities. The Committee’s detailed review of the year-end
position assisted the Board in giving the going concern statement
set out on page 28.
The Committee reviewed PricewaterhouseCoopers LLP’s (“PwC”)
overall work plan and approved their remuneration and terms of
engagement and considered in detail the results of the audit, PwC’s
performance and independence and the effectiveness of the overall
audit process. The Committee recommended PwC’s re-appointment
as auditors to the Board and this resolution will be put to
shareholders at the AGM.
The Committee has implemented the Company’s policy which
restricts the engagement of PwC in relation to non-audit services.
The policy is designed to ensure that the provision of such services
does not have an impact on the external auditors’ independence
and objectivity. It identifies certain types of engagement that the
external auditors shall not undertake and others (such as tax
planning and mergers and acquisitions advice) that can only be
undertaken with appropriate authority from the Committee
Chairman or the Committee, should non-audit fees exceed preset
thresholds. The Committee receives a report at each meeting on
the non-audit services being provided and the cumulative total of
non-audit fees. In the event that cumulative non-audit fees exceed
the audit fee then all subsequent non-audit expenditure must be
approved by the Committee Chairman. The majority of the non-
audit work undertaken during 2008/09 related to corporation tax
advice and the 2009 pension funding valuation. The non-audit fees
for the year were £0.9 million, and the audit fee for the year in
respect of the Group, Company and its subsidiaries and the fee for
the interim review totalled £0.8 million. The Committee is satisfied
that the level of non-audit fees has no impact on the auditors’
independence, noting that over each of the last three years audit
fees have exceeded non-audit fees.
The Committee has regularly reviewed the Internal Audit
department’s resources, budget, work programme, results and
management’s implementation of its recommendations. Karen
Whitworth, the Director of Group Internal Audit, has direct access
to the Committee Chairman and Philip Hampton and has regular
meetings with all Committee members. The Committee regularly
met with PwC without management being present, and may
meet the Director of Group Internal Audit separately if it
deems necessary.
The Committee reviewed the Company’s ’whistle blowing’ procedures
to ensure that arrangements are in place to enable colleagues and
suppliers to raise concerns about possible improprieties on a
confidential basis.
The Company has a fraud policy and has established a Serious
Fraud Committee, which convenes in the event of serious incidents
to oversee case management and ensure appropriate actions are
taken. The Audit Committee receives an update at each meeting
on all material frauds.
The Committee reviews the minutes of the meetings of the
Sainsbury’s Bank Audit Committee and receives a detailed update
on any key matters. Given the economic climate it has particularly
focused on the Bank’s liquidity and cash flows, capital adequacy
and risk management processes.
The Committee’s terms of reference, which are available on
the website (www.j-sainsbury.co.uk/governance), set out the
Committee’s responsibilities.
Internal control
The Board has overall responsibility for the system of internal
controls, which is fully embedded into the operations of the
Company and includes risk management. Certain of these
responsibilities have been delegated to the Audit Committee. The
Audit Committee has reviewed the effectiveness of the system of
internal control and ensured that any required remedial action has
or is being taken on any identified weaknesses. The system of
internal controls has been in place throughout the year, up to the
date of approval of the Annual Report and Financial Statements,
and it accords with the Turnbull guidance and Section 1 of The
Combined Code. It is designed to manage rather than eliminate the
risk of failure to achieve the Company’s business objectives
and can only provide reasonable and not absolute assurance
against material misstatement or loss. It covers all controls
including financial, operational and compliance controls and
risk management procedures.
The processes used to assess the effectiveness of the internal
control systems are ongoing, enabling a cumulative assessment
to be made, and include the following:
•
•
•
•
•
•
•
•
discussion and approval by the Board of the Company’s strategic
direction, plans and objectives and the risks to achieving them;
review and approval by the Board of budgets and forecasts,
including both revenue and capital expenditure;
regular reviews by management of the risks to achieving
objectives and actions being taken to mitigate them;
regular reviews by management and the Audit Committee
of the scope and results of internal audit work across the
Company and of the implementation of recommendations.
The scope of the work covers all key activities of the Company
and concentrates on higher risk areas;
reviews of the scope of the work of the external auditors by the
Audit Committee and any significant issues arising;
regular reviews by the Board and Audit Committee of identified
fraudulent activity and any whistle blowing by colleagues or
suppliers, and actions being taken to remedy any control
weaknesses;
reviews by the Audit Committee of accounting policies and
levels of delegated authority; and
consideration by the Board and by the Audit Committee of
the major risks facing the Group and of the procedures in
place to manage them.
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Statement of corporate governance continued
Risk management
The risk management system has been enhanced and has been in
place during the year and up to the date of approval of the Annual
Report and Financial Statements. Accepting that risk is an inherent
part of doing business, the system is designed to identify key risks
and provide assurance that these risks are fully understood and
managed. It is also supported by a risk policy and guidelines on
how to apply the policy, which are communicated throughout the
Company. The effectiveness of the process is reviewed twice a year
by the Audit Committee which then reports to the Board.
The Operating Board maintains a risk register which is regularly
reviewed and formally discussed twice a year with the Board.
The register contains the key risks facing the Company and
identifies the potential impact and likelihood of the risk at both a
gross (pre mitigating controls) and a net (post mitigating controls)
level. Where the net risk requires further actions, these are agreed
with specific timelines. These actions are closely monitored until
they are fully implemented. The principal risks are summarised
on pages 22 and 23.
The risk management process is cascaded through each division
and consists of:
•
•
formal identification by the management of each division of the
key risks to achieving their business objectives and the controls
in place to manage them. This identification exercise is achieved
through workshops which are facilitated by Internal Audit. The
likelihood and potential impact of each risk is evaluated and
actions necessary to mitigate them are identified. The risks and
the robustness of the controls mitigating them are regularly
reviewed by the management of each division as part of their
normal business activities; and
certification by management that they are responsible for
managing the risks to their business objectives and that the
internal controls are such that they provide reasonable but not
absolute assurance that the risks in their areas of responsibility
are appropriately identified, evaluated and managed.
The Operating Board reviews and challenges the output from the
divisional risk process and updates the overall Company risk
register if deemed necessary.
Internal Audit provides independent assurance as to the existence
and effectiveness of the risk management activities described by
management.
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Investor relations
The Company is committed to maintaining good communications
with investors. Normal shareholder contact is the responsibility
of Justin King, Darren Shapland and Elliot Jordan, Head of Investor
Relations. The Chairman, Philip Hampton, is generally available to
shareholders and meets with institutional and other large investors
as required.
The Company regularly meets with its large investors and
institutional shareholders who, along with sellside research
analysts, are invited to presentations by the Company immediately
after the announcement of the Company’s interim and full year
results. They are also invited to participate in conference calls
following the announcement of the Company’s trading statements.
The content of these presentations and conference calls are
webcast and are posted on the Company’s website (www.j-sainsbury.
co.uk/investors) so as to be available to all investors.
The Board regularly receives feedback on the views of major
investors and the Investor Relations programme, and Makinson
Cowell provide investor relations consultancy services to the
Company and give an external analysis to the Board on the views
of institutional investors and sellside analysts. Non-Executive
Directors also receive regular market reports and broker updates
from the Company’s Investor Relations department.
Shareholders have the opportunity to meet and question the Board
at the AGM, which will be held on 15 July 2009. There will be a
display of various aspects of the Company’s activities and Justin
King will make a business presentation. A detailed explanation of
each item of special business to be considered at the AGM is included
with the Notice of Meeting which will be sent to shareholders at least
20 working days before the meeting. All resolutions proposed at the
AGM will be taken on a poll vote. This follows best practice guidelines
and enables the Company to count all votes, not just those of
shareholders who attend the meeting.
Information on matters of particular interest to investors is set out
on page 94 and on the Company’s website (www.j-sainsbury.co.uk/
investors).
32
J Sainsbury plc Annual Report and Financial Statements 2009
Remuneration report
This report is made by the Board on the recommendation of the
Remuneration Committee. The first part of the report provides
details of remuneration policy. The second part provides details
of the remuneration, pensions and share plan interests of the
Directors for the 52 weeks ended 21 March 2009. The Directors
confirm that this report reflects the provisions of Schedule 7A of
the Companies Act 1985.
A resolution will be put to shareholders at the Annual General
Meeting (“AGM”) on 15 July 2009 asking them to approve
this report.
Remuneration Committee
The Remuneration Committee is chaired by Bob Stack. The
Committee comprises Bob Stack, Anna Ford and Val Gooding, all
of whom are independent Non-Executive Directors. The Committee
met five times in 2008/09.
Tim Fallowfield, Company Secretary, acts as secretary to the
Committee. Philip Hampton, Justin King and Imelda Walsh, Human
Resources Director, are invited to attend Committee meetings. The
Committee considers their views when reviewing the remuneration
of the Executive Directors and Operating Board Directors. They are
not involved in discussions concerning their own remuneration.
The responsibilities of the Committee include:
•
•
•
•
determining and agreeing with the Board the broad
remuneration policy for the Chairman, Executive Directors
and the Operating Board Directors;
setting individual remuneration arrangements for the Chairman
and Executive Directors;
recommending and monitoring the level and structure of
remuneration for those members of senior management within
the scope of the Committee, namely the Operating Board
Directors and any other executive whose salary exceeds that
of any Operating Board Director; and
approving the service agreements of each Executive Director,
including termination arrangements.
The Committee’s terms of reference are available on the Company’s
website (www.j-sainsbury.co.uk/governance).
The Committee is authorised by the Board to appoint external
advisers if it considers this beneficial. Over the course of the year,
the Committee was advised by Deloitte LLP (“Deloitte”) whose
consultants attended four of the five Committee meetings and
received copies of the relevant papers for all meetings. Deloitte
also provided the Company with unrelated advice and consultancy
on human resources systems development, direct tax and due
diligence. Towers Perrin provided comparative data which was
considered by the Committee in setting remuneration levels.
Total Shareholder Return (“TSR”) calculations are supplied by
UBS, who provided broking and banking services to the Company
during the year.
Remuneration policy
The Committee is proud of the ongoing growth and success of
the Company during these very challenging market conditions.
It continues to believe that the five areas of focus within the
Company’s strategy (as described in the Business Review) will
generate good long-term growth. It is committed to ensuring that
the management team is rewarded for continuing to deliver the
Company’s growth plans and long-term shareholder value.
It remains the Committee’s intention, therefore, that Executive
Directors’ and Operating Board Directors’ remuneration should be
competitive, both in terms of base salary and total remuneration,
taking into account the individual Director’s role, performance and
experience. This approach is designed to promote the Company’s
short and long-term success through securing and retaining high
calibre executive talent. Basic salary is targeted around the median
of the market with an opportunity to earn above median levels of
total reward in return for exceptional performance. The Committee
has regard to a number of factors as described below in determining
Executive Directors’ salaries, including the general level of salary
increases awarded throughout the Company. A significant
proportion of the total remuneration package is performance-
related, aligning management’s and shareholders’ interests.
Remuneration policies and practices are designed to create long-
term value for shareholders through their alignment with the
corporate strategy, key targets and objectives.
Remuneration review
At the AGM in 2006, shareholders approved an incentive framework
which was designed to support the Company’s business strategy
over the medium to longer term. It was consistent with best
practice and comprised the Deferred Annual Bonus Plan with a
performance-related share match, and the Long-term Incentive
Plan 2006 (the “Value Builder Share Plan”).
The framework was developed in order to build on the sales-led
recovery plan announced in 2004 by embedding key measures
of financial and capital efficiency, as well as supporting strong
performance of the core business by delivering quality earnings,
growing profits and generating cash for future investments and/or
return to shareholders.
In the 2008 Remuneration Report, the Committee indicated its
intention to conduct a review of the remuneration policy during
the year. This was to ensure that the policy continued to:
•
•
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support the Company’s long-term strategic goals beyond the
four-year business milestones announced in 2004;
provide a common focus for the top 1,000 managers (from
Chief Executive to supermarket store managers) on critical
business measures and ensure appropriate alignment of pay
and incentive plans from Executive Directors to store manager
level; and
deliver market competitive reward opportunities to a high
performing management team.
In addition to the above, the Committee was mindful that total
quantum levels should not increase in the current climate.
The review identified the need to revise several aspects of the
remuneration framework to maintain its effectiveness.
Although none of the changes necessitates formal shareholder
approval, detailed proposals were issued in advance to the
Company’s main investors and key institutions in respect of the
Company’s intentions to:
•
•
reduce the combined potential that could previously have been
earned through the annual bonus plan and the Deferred Annual
Bonus Plan from 300 per cent to 250 per cent of salary for
Justin King and from 180 per cent to 160 per cent of salary for
Darren Shapland, Mike Coupe and Operating Board Directors,
split equally between cash and share-based awards as set
out below;
for 2009/10, retain the performance measures and leave their
relative weighting unchanged in respect of the annual bonus
plan’s cash-based element;
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Remuneration report continued
•
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replace the Deferred Annual Bonus Plan, which is conditional on
a single TSR measure, with a deferred share-based award that is
governed by a range of key financial and non-financial measures
(including TSR) — these strategic measures contribute to the
long-term, sustainable growth and success of the Company;
for 2009/10, reduce awards granted under the Value Builder
Share Plan from those made to Executive Directors since 2007,
such that the award for Justin King is up to 200 per cent of
salary (previously 250 per cent) and 160 per cent of salary for
Darren Shapland and Mike Coupe (previously 200 per cent); and
leave the performance matrix scale and performance conditions
for 2009/10 Value Builder awards unchanged, but revise the
way in which pension accounting costs are applied to the
measurement of the Value Builder Share Plan’s performance
conditions to smooth out volatility and better reflect the level
of cash generated by the Company.
•
Mike Coupe has become a highly-valued member of and
contributor to the Board since his appointment to it in
August 2007. His role will expand in 2009/10. Accordingly,
his basic salary was increased to £510,000 (previously
£487,000; 4.7 per cent uplift).
By way of further context, Executive Directors’ basic salaries
increased by 2.5 per cent in 2008/09, consistent with the level
applied to management and central non-management colleagues.
ii) Annual incentives
2008/09
All bonus plans across the Company are aligned under a set of
common principles. For 2008/09, Board and management plans
retained the same key targets based on profit and sales growth,
product availability, plus an element for individual performance.
The Committee has ensured that each of the above changes
maintains a suitable degree of stretch within the incentive plans.
In accordance with the Remuneration Policy, significant out-
performance is still required in order for above median levels of
reward to be earned. Further details on the above changes are
set out in the relevant sections of this report.
Components of remuneration
The balance between the fixed (basic salary and pension) and
variable (annual bonus and long-term incentive plan) elements
of remuneration changes with performance, and the variable
proportion of total remuneration increases significantly for
increased levels of performance. For median performance, it is
anticipated that broadly 60 per cent of total remuneration for
Executive Directors will be performance-related in 2009/10.
The main remuneration components for the Executive Directors
and Operating Board Directors comprising basic salary, incentive
plans, pensions and benefits are set out below:
i) Basic salary
Basic salary for each Executive Director is determined by the
Committee, taking account of the Director’s performance,
experience and responsibilities. The Committee also reviews
Operating Board Directors’ salaries taking similar factors into
account. The Committee considers salary levels in comparable
companies by referring to relevant pay data in the UK retail sector,
in companies with annual sales revenues over £5 billion and also in
companies with a market capitalisation of between £3 — £10 billion.
This approach ensures that the best available benchmark for the
Director’s specific position is obtained. When determining Executive
Directors’ salaries, the Committee also has regard to economic
factors, remuneration trends and the general level of salary
increases awarded throughout the Company.
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•
•
The Committee approved the following basic salaries for 2009/10:
Justin King’s basic salary was increased to £900,000 per
annum (previously £872,000; 3.2 per cent uplift). This level of
award is market aligned and is consistent with the percentage
increases awarded for store colleagues and the wider
management team.
Darren Shapland continues to deliver an outstanding individual
performance and contribution to the Company in a broad and
demanding role and now takes responsibility for three additional
areas of store development, procurement and corporate
strategy, in addition to his ‘normal’ CFO duties. The Committee
considered that his salary was no longer commensurate with
his expanded role and increased experience, and in view of
this, as well as market competitive practice, the Committee
increased his basic salary to £560,000 per annum
(previously £513,000; 9.2 per cent uplift).
In 2008/09, a profit ‘gateway’ measure was introduced rather
than a sales gateway as had been applied in prior years, reflecting
the increasing emphasis on growing profit. In addition, a higher
weighting was applied to the profit measure.
The profit, sales and availability targets were also shared across
all store colleague bonus plans. Availability is measured across all
stores on a regular basis by an independent third party, conducting
random and unannounced store visits.
In determining bonus payments for 2008/09, the Committee
took account of performance against each of the plan’s measures
in addition to individual targets. 2008/09 was a strong year
financially for the Company: the profit gateway was exceeded, sales
grew well in a challenging climate, and availability in our stores was
improved. As such, a bonus ranging between 63 to 66 per cent of
the maximum opportunity was awarded to Executive Directors in
respect of 2008/09. This compares with a bonus range of 64 to 86
per cent of the maximum opportunity for 2007/08, reflecting the
very stretching nature of the profit out performance targets set
for 2008/09.
The 2008/09 bonus plan for store colleagues was based on the
achievement of sales, availability and customer service targets
measured in their individual stores, underpinned by a corporate
profit target. As a result of store and corporate performance in
2008/09, around 120,000 colleagues will receive a bonus payment
in respect of the 2008/09 financial year totalling around
£60 million. This is a higher level of awards than was made in
2007/08, whereby around 117,000 colleagues received a bonus
totalling around £47 million.
2009/10
Following the remuneration review, the Company’s annual incentive
arrangements for 2009/10 will comprise a cash-based element
and, for Executive Directors and senior management, a share-
based element which carries a further two-year deferral period.
The share-based incentive replaces the Deferred Annual Bonus
Plan, thereby maintaining the alignment of Directors’ and
shareholders’ interests.
The cash-based element of the annual bonus plan will remain
unchanged in terms of its measures and it will continue to
incentivise the achievement of stretching profit, sales and
availability targets as well as individual performance measures.
The greatest weighting of the measures will remain profit and
it will again act as the overall ‘gateway’ target. However, the
maximum cash bonus potential that can be earned for 2009/10
will reduce from 150 per cent to 125 per cent of salary in respect
of Justin King and from 100 per cent to 80 per cent of salary
in respect of Darren Shapland and Mike Coupe.
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J Sainsbury plc Annual Report and Financial Statements 2009
Remuneration report continued
The share-based element will be launched to cover the top levels
of management. It has been designed to reward them for achieving
stretching annual targets which contribute to building sustainable,
long-term growth of the Company. Share-based awards will be
made to participants subject to a basket of key strategic measures
which will be aligned under four broad performance categories:
•
•
•
•
financial performance;
returns to shareholders;
relative performance against peers; and
strategic goals.
At least one half of the award will be based on the delivery
of financial performance (e.g. profit) as well as returns to
shareholders. The balance will be based on measures which
will assess the Company’s performance relative to its competitors
(e.g. market share; relative sales growth) as well as key strategic/
corporate goals (for 2009/10 these will be linked to the five areas
of focus e.g. space targets). In addition, no shares will be awarded
unless the profit gateway target (as applied to the cash annual
bonus plan) is achieved.
Shares may be awarded with a value of up to 125 per cent of salary
for Justin King and 80 per cent of salary for Darren Shapland and
Mike Coupe. Performance will be measured over one financial year,
but any shares awarded will be deferred for a further two years to
ensure that management’s interests continue to be aligned with
returns to shareholders.
For reasons of commercial sensitivity, the specific details of the
targets for the 2009/10 financial year cannot be disclosed in this
Report, but further disclosure will be made in respect of these next
year. The Committee will review the performance of the targets
following the 2009/10 year-end and will confirm the resulting
share-based awards. Share awards in respect of that cycle will not
be released until after the end of the 2011/12 financial year, and
they will be subject to forfeiture if the participant resigns from the
Company or is dismissed for misconduct or cause during the two-
year deferral period.
iii) Long-term incentives
Incentive arrangements for Executive Directors in respect of the
2008/09 financial year consisted of the Deferred Annual Bonus
Plan and Value Builder Share Plan. Awards earned under each of
the incentive plans are non-pensionable. This section describes
these plans in detail, together with the J Sainsbury plc Share Plan
2005 (known as the ‘Making Sainsbury’s Great Again Plan’), which
is now closed and no further grants will be made under it. From the
2009/10 grant cycle onwards, only annual grants under the Value
Builder Share Plan will continue to be made.
Deferred Annual Bonus Plan 2006
Since its introduction, the Deferred Annual Bonus Plan has applied
to the top levels of management including Executive Directors and
currently comprises around 40 participants in total.
The first deferral took place in June 2007, in respect of the
2006/07 bonus awards and a second deferral was made in June
2008, in respect of the 2007/08 bonus awards. Whilst the Plan
(which solely measures TSR performance relative to the peer group
set out below) has merits which were supported by the Committee
on its introduction in 2006, the Committee believes that these have
been limited in the last two years by the takeover approaches in
relation to the Company and by consolidation in the retail sector.
Accordingly, as a result of the remuneration review the final
deferral under the Plan will be made in June 2009, in respect of
bonus awards earned for the 2008/09 financial year, and once this
has occurred, no further deferrals will be made other than in
exceptional circumstances.
Under the Plan, a percentage of the Executive Directors’ earned
annual bonuses is deferred into the Company’s shares for a period
of three years. The compulsory deferral for Justin King is 25 per
cent of his bonus, with 20 per cent compulsory deferral for Darren
Shapland and Mike Coupe. In addition, Executive Directors may
elect to defer a further proportion of their annual bonus, provided
it does not exceed their compulsory deferral level. In respect of the
2007/08 bonus award, Justin King decided to defer the maximum
level of 25 per cent of his bonus on a voluntary basis. Darren
Shapland deferred 20 per cent of his bonus, the maximum allowed
on a voluntary basis.
The Plan measures the Company’s TSR performance over a three-
year period against a bespoke UK and European retail comparator
group comprising: Ahold, Carrefour, Casino, Delhaize, DSG
International, Home Retail Group, Kingfisher, Marks & Spencer,
Metro, Morrisons, Next and Tesco.
Up to two matched shares may be awarded for each share deferred
depending on the extent to which the TSR measure is achieved.
No shares are awarded for below median performance, and the
full match will only apply where the Company achieves first place
within the comparator group. At median position the match will be
0.5 shares for each deferred bonus share and the share match will
be pro-rated at every position between median and first place.
To the extent that the performance condition is met at the end of
the three-year performance period, the matched shares will be
added to the deferred bonus shares. The deferred bonus shares and
half of the matched shares can be accessed immediately, while the
remainder will be held over for a further year. Dividends or their
equivalents will accrue on shares that vest.
Long-term Incentive Plan 2006
The top 1,000 managers in the Company participate in this Plan
(known as ‘the Value Builder Share Plan’), from the Chief Executive
to supermarket store managers, and share common performance
measures.
Under the Plan a core award of shares in the Company is granted
to all participants, calculated as a percentage of their salaries and
scaled according to grade. As set out below, dependent upon
performance, core awards can grow by up to four times. No awards
vest for performance below the threshold levels.
Following the remuneration review, the Committee has determined
that for 2009/10, it will:
•
•
•
reduce long-term incentive awards under the Plan from those
made since 2007. A core award of 50 per cent of salary will be
granted to Justin King and of 40 per cent of salary to both
Darren Shapland and Mike Coupe. This is compared to core
awards of 62.5 per cent and 50 per cent of salary allocated to
Justin King, and Darren Shapland and Mike Coupe, respectively,
in both 2007 and 2008;
leave the performance matrix scale and performance conditions
unchanged (subject to the revisions below); and
calculate cash flow per share by using the actual cash
contributions in respect of future service benefits that are made
to its pension schemes (both defined contribution and defined
benefit arrangements), rather than apply the non-cash IAS 19
driven actuarial numbers. Additionally, any pension surplus/
deficit will be excluded from the calculation of capital employed.
This approach will better reflect the level of cash generated
by, and the capital base of, the Company, as well as mitigate
any volatility.
As in prior years, the vesting of awards is based on the
performance of two stretching co-dependent performance
conditions: Return on Capital Employed (“ROCE”) and a cash flow
per share measure, both of which are assessed over a three-year
performance period. There is no retesting.
These measures are designed to continue to build on the sales-led
recovery plan and focus on creating further shareholder value.
ROCE measures the efficiency with which new cash is invested and
Annual Report and Financial Statements 2009 J Sainsbury plc
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Remuneration report continued
through which existing capital delivers profit, driving both cost
savings and operational efficiencies. Cash flow per share captures
the Company’s operational efficiency as well as the Company’s
ability to generate cash for future investment or return to
shareholders. The Plan’s measures are key indicators of business
success and therefore create a further direct link between the
interests of management and shareholders.
No awards will vest unless threshold ROCE and cash flow per share
targets are achieved. The performance measures are reviewed each
year by the Committee, before a new grant is made, to ensure that
they remain relevant and stretching.
ROCE is calculated based on shareholders’ proportion of underlying
operating profit for the business, including our share of underlying
profit arising from joint ventures. The capital employed figure
excludes the one-off impact of capital spend in the year the
calculation is made.
Total cash flow per share is calculated at the end of the
performance period from two components:
•
•
the underlying cash operating profit or loss for the business
before depreciation and amortisation, less interest and taxes
(adjusted to strip out the impact of one-off items) in the final
year of the performance period. This reflects the Company’s
improved ability to generate sustainable cash flows; plus
the improvement in normalised working capital over the
performance period. This reflects the Company’s aggregate
contribution to cash from improvements in working capital
over the three-year period.
These components are then added and expressed as a per share
figure. The improvement in total cash flow per share is expressed
as a percentage of cash operating profit per share in the base year
and is annualised.
The working capital element will be capped so as not to comprise
more than one-third of the total cash flow per share figure (the two
components being considered on an absolute basis).
Vesting is calculated by applying a performance multiplier to the
core award on a sliding scale up to four times. The performance
matrix applying to Value Builder awards that will be made in
2009 is set out below. Straight-line vesting will be carried out
if performance falls between two points.
ROCE
15%
14%
13%
12%
11%
3%
1.5
1.0
0.5
—
-
Total cash flow per share percentage
6%
2.5
1.5
1.0
0.5
-
9%
3.0
2.5
1.5
1.0
0.5
12%
3.5
3.0
2.5
1.5
1.0
15%
4.0
3.5
3.0
2.5
1.5
Performance will be measured at the end of the performance
period. If the required level of performance has been reached,
50 per cent of the award will be released at the end of year three.
Subject to participants remaining in employment for a further year,
the balance will then be released.
The Committee has discretion to make adjustments to the
calculation of the performance measures (for instance for material
acquisitions and disposals) to ensure it remains a true and fair
reflection of performance. Dividends will accrue on the shares
that vest in the form of additional shares.
36
J Sainsbury plc Annual Report and Financial Statements 2009
Performance will be tested in May 2009 in respect of the Value
Builder Share Plan grant made in 2006/07.
J Sainsbury plc Share Plan 2005
Following extensive investor consultation, the J Sainsbury plc Share
Plan 2005 (known as the ‘Making Sainsbury’s Great Again Plan’)
was designed to reward strong growth in sales and profitability.
It is a one-off, self-funded incentive arrangement and was closed
to new entrants on 25 March 2006.
Over 1,000 colleagues received conditional core awards under
this Plan, from the Chief Executive through to supermarket store
managers, focused on identical targets. The levels of core award
were scaled according to seniority; the maximum being 100 per
cent of salary for the Chief Executive. In addition, all Executive
Directors and Operating Board Directors committed to making
a personal investment of 50 per cent of salary in the Plan —
accordingly Justin King, Darren Shapland and Mike Coupe
acquired 118,754, 70,224 and 73,891 shares respectively.
Performance is measured over a four-year period from the financial
year ended 26 March 2005 until the year ending 21 March 2009.
Awards would vest if two stretching and co-dependent performance
conditions were achieved: growth in sales and earnings per share
(“EPS”). No awards would vest unless threshold levels of growth in
both sales and EPS were achieved.
The maximum award available under the Plan was targeted towards
sales growth of £2.5 billion (using a base figure of £13,588 million),
and compound annual growth in EPS of at least 21 per cent over a
four-year period. There was an opportunity for partial vesting of up
to half the award if accelerated performance targets had been met
at the end of year three (the 52 weeks ended 22 March 2008).
Vesting is calculated by applying a performance multiplier to the
core award and personal investment; this is on a sliding scale from
one times to five times and is plotted in a matrix format, as set out
on page 86. Dividends accrue on any shares that vest and will be
released to participants in the form of additional shares at the point
of vesting.
Performance was tested in May 2008 and each of the three-year
targets was exceeded and, in accordance with the accelerated
vesting provisions, half of the awards were available for exercise.
The number of shares awarded to Justin King, Darren Shapland
and Mike Coupe is set out on page 38.
The Plan’s four-year performance targets will be tested in May
2009 covering the period to 21 March 2009. It is expected that
full vesting will occur and, in accordance with its maturity vesting
provisions, the remaining awards will be released in full.
iv) Other share plans
In order to encourage wider employee share ownership, the
Company provides two all employee share plans for colleagues,
namely the Savings Related Share Option Scheme (“SAYE”) and
the All Employee Share Ownership Plan. Executive Directors may
participate in these plans in the same way as all other colleagues
and Justin King and Darren Shapland currently participate in
both plans. As these are all employee plans there are no
performance conditions. The Committee approves the adoption
or amendment of these plans and any awards under these plans
to the Executive Directors.
The 2003 (five-year) SAYE reached maturity on 1 March 2009.
Around 7,000 colleagues could use their savings and tax-free bonus
to buy Sainsbury’s shares at the 241.0 pence option price. The 2005
(three-year) SAYE matured at the same time and a further 3,000
colleagues could use their savings and tax-free bonus to buy
Sainsbury’s shares at the 231.0 pence option price. Using the
market price on the date of the first exercise, the value of all the
shares subject to the maturity was in excess of £20 million. The
Company currently has over 25,400 colleagues participating in
the SAYE with over 50,700 individual savings contracts.
Remuneration report continued
In 2003, the Company awarded free shares under its All Employee
Share Ownership Plan to all colleagues who had one financial year’s
service. These shares were held in a trust for five years and on
4 June 2008, 1.4 million shares were released to 39,600 colleagues.
In August the Company introduced a matching element to the
partnership element of the All Employee Share Ownership Plan
on a buy four get one free basis for one year. These matching
shares must be held for five years to receive all of the relevant
tax benefits and will be forfeited if the individual resigns from
the Company within the first three years. Justin King and Darren
Shapland have received 75 matching shares during the year.
Service contracts
Justin King has a service contract which can be terminated by
either party by giving 12 months’ written notice. If his service
contract is terminated without cause, the Company can request that
he works his notice period or takes a period of garden leave, or can
pay an amount in lieu of notice equal to one times basic salary for
the notice period plus 75 per cent of basic salary in lieu of all other
benefits including pension and bonus. In addition, if he is dismissed
within six months of a change of control the above sum will become
payable. The contract contains restrictive covenants, which continue
for 12 months after termination.
v) Pensions
The Company’s Defined Benefit Pension Plan was closed on
31 January 2002 and, as such, Justin King, Darren Shapland and
Mike Coupe do not participate in it. For 2008/09, Justin King and
Mike Coupe received pension supplements of 30 per cent of salary
and 25 per cent of salary, respectively, in lieu of pension
plan participation.
Darren Shapland participated in the JS Self Invested Pension
Plan, a defined contribution arrangement which is open to all
senior management, until 10 August 2008. Prior to this date, he
contributed five per cent of his salary up to the Company’s earnings
cap (2008: £117,600) whilst the Company contributed 12.5 per cent
of salary up to the cap; a salary supplement equal to 25 per cent
of his pensionable salary over the cap was paid to him. Upon his
withdrawal from the Plan, he received a pension supplement equal
to 25 per cent of his full salary.
vi) Benefits
Other benefits for Directors include the provision of company
car benefits, life assurance, colleague discount and private
medical cover.
Shareholding guidelines
To create greater alignment with the interests of shareholders
and to be consistent with one of the objectives of the incentive
framework, the Committee has proposed that all Executive
Directors and Operating Board Directors should build up a
shareholding in the Company over a five-year period starting from
2006/07 that is equal to their annual basic salary, and maintain it
thereafter. At the year-end, Justin King held 548,962 shares, Darren
Shapland held 442,355 shares and Mike Coupe 410,878 shares,
in addition to their share scheme grants. At the year-end, based
on the year-end share price, this represented 197 per cent, 270 per
cent and 264 per cent of salary respectively.
Performance graph
The graph below shows the TSR performance of an investment of
£100 in J Sainsbury plc shares over the last five years compared
with an equivalent investment in the FTSE 100 Index. This has
been selected to provide an established and broad based index.
£
300
250
200
150
100
50
Mar 04
Mar 05
Mar 06
Mar 07
Mar 08
Mar 09
If Darren Shapland’s or Mike Coupe’s service contracts are
terminated without cause, the maximum payment they would
receive would be equal to one times basic salary for the 12 month
notice period plus 50 per cent of basic salary in lieu of all other
benefits. They are required to mitigate their losses and would
receive phased payments, which would be reduced or terminated
if they secured alternative employment during the notice period.
Their contracts also contain restrictive covenants, which continue
for 12 months after termination. The contracts do not contain any
specific provisions relating to change of control.
The Executive Directors’ service contracts became effective on the
following dates:
Justin King
Darren Shapland
Mike Coupe
Contract date
29 March 2004
1 August 2005
1 August 2007
Chairman
The Chairman does not have a service contract. His letter of
appointment became effective on 19 July 2004. He was appointed
for an initial term of three years renewable on a 12 month rolling
basis thereafter by mutual consent. His appointment may be
terminated at any time upon six months’ written notice from either
party. He devotes such time as is necessary to perform his duties.
The Chairman’s fees have remained unchanged since his
appointment in 2004.
The Chairman does not participate in any performance related
incentive plans.
Non-Executive Directors
Non-Executive Directors do not have service contracts. They are
appointed for an initial three-year period, which may be extended
for a further term by mutual consent. The initial appointments
and any subsequent re-appointments are subject to election or
re-election by shareholders. Their appointments may be terminated
on three months’ notice from either side.
Non-Executive Directors are paid a basic fee in cash of £50,000
per annum with additional fees of £10,000 per annum being
payable to the Senior Independent Director and to the Chairmen of
the Audit, Remuneration and Corporate Responsibility Committees.
The fees are reviewed annually by a sub-committee of the Board,
consisting of the Chairman and one or more Executive Directors,
which takes into account market rates and the specific responsibilities
and time commitments of the role within Sainsbury’s and were
last increased in March 2007. They will be reviewed in the autumn.
Non-Executive Directors do not participate in any performance
related incentive plans.
J Sainsbury plc
FTSE 100 Index
The Non-Executive Directors’ letters of appointment became
effective on the following dates:
Anna Ford
Val Gooding
Mary Harris
Gary Hughes
John McAdam
Bob Stack
Appointment date
2 May 2006
11 January 2007
1 August 2007
1 January 2005
1 September 2005
1 January 2005
Annual Report and Financial Statements 2009 J Sainsbury plc
37
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Remuneration report continued
The following section provides details of the remuneration, pension and share plan interests of the Directors for the 52 weeks ended
21 March 2009 and has been audited.
i) Directors’ remuneration
The remuneration of the Directors for the year was as follows:
Salary/fees
£000
Bonus3
£000
Pension
supplement4
£000
Benefits5
£000
Justin King
Mike Coupe
Darren Shapland
Philip Hampton
Anna Ford
Val Gooding
Mary Harris
Gary Hughes
John McAdam
Bob Stack
Note
1, 7
2
2
872
487
513
395
60
50
50
60
60
60
869
311
321
‑
‑
‑
‑
‑
‑
‑
262
122
117
‑
‑
‑
‑
‑
‑
‑
Payments made to Directors who left the
Board before the start of the financial year
Total 2009
Total 2008
2,607
2,379
1,501
1,773
501
423
Total6
2009
£000
2,048
937
967
396
60
50
50
60
60
60
Total6
2008
£000
2,176
694
1,042
396
60
50
33
60
60
60
‑
-
4,688
4,631
45
17
16
1
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‑
‑
‑
‑
‑
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1 Highest paid Director.
2 Appointed to the Board on 1 August 2007. Total remuneration in 2008 pro-rated accordingly.
3 Includes performance bonuses earned in the period under review but paid following the end of the financial year.
4 Justin King is not a member of the Company pension schemes and received 30 per cent of his basic salary as a cash pension supplement. In addition to this supplement, £3,000 (2008: £4,000) of
interest has been earned on a notional fund during the year from his previous membership of the Executive Stakeholder Pension Plan. Mike Coupe is not a member of the Company pension schemes and
received 25 per cent of his basic salary as a cash pension supplement. Darren Shapland was a member of the Executive Stakeholder Pension Plan until 10 August 2008. Contributions to the Stakeholder
Plan by the Company in 2008/09 in respect of his membership were £5,650 (2008: £14,100). He received a cash pension supplement equal to 25 per cent of the amount by which his salary exceeded the
Company’s earnings cap (2008: £117,600) until that date, and a supplement of 25 per cent of his basic salary thereafter.
5 Benefits include company car benefits and private medical cover.
6 The totals for 2008 and 2009 (in the case of Darren Shapland) do not include deductions made from basic salary for Saving Money and Reducing Tax (“SMART”) pensions.
7 The Company allows Executive Directors to take up one public company non-executive role outside the Company subject to a consideration of the role and the time commitment. Directors are entitled
to retain the fees earned from such an appointment. Justin King was appointed a Non-Executive Director of Staples, Inc. on 17 September 2007. He received US$75,000 for his services during 2008/09.
He received no stock options. In 2008 he received US$43,750 from Staples, Inc. He also received 6,414 restricted stock units which vest between March 2009 and December 2010. In addition he received
48,199 Stock Options, 16,699 of which vest in March 2009 with the remainder vesting 25 per cent per annum.
ii) Long-term incentive plans
J Sainsbury plc Share Plan 2005
The table below shows the conditional awards granted under this Plan, which would be released if the Company achieves maximum vesting.
Date of
grant
Core
share
award
Justin King
Darren Shapland
Mike Coupe
24.03.05
01.08.05
24.03.05
237,508
102,558
118,226
Share
price at
date of
award
pence
293.0
280.5
293.0
Number of
options
released
14 May 20082
831,278
396,843
443,347
Number of
dividend
shares
allocated
20 May 20083
Maximum
share award
to vest on
13 May 20091, 2, 4
Second
exercise
date2
Last
exercise
date
66,965
31,968
35,715
831,278 13.05.09 23.03.10
396,843 13.05.09 23.03.10
443,347 13.05.09 23.03.10
Personal
investment
118,754
70,224
73,891
1 The maximum share award excludes the personal investment shares acquired by the Directors, which must be held for the duration of the Plan. It assumes full vesting.
2 Performance was tested against the accelerated performance targets in May 2008 and the awards vested in full and, in accordance with the accelerated provisions, half of the award vested. Performance
will be measured in May 2009 and it is expected that awards will vest in full.
3 The value of the dividend which would have been received on newly available shares has been divided by a five-day average share price from 14 to 20 May 2008 to calculate the number of dividend shares
to be allocated.
4 The performance conditions attaching to the award are sales and EPS targets. Further information is provided on page 86.
5 The J Sainsbury plc Share Plan 2005 is a nil cost option plan. The exercise price is nil.
The following table shows the options that vested in May 2008 as a result of the accelerated performance targets being met in full.
Number of
options
released
during the
year
Number of
options
exercised
during the
year
898,243
428,811
479,062
-
428,811
479,062
Mid market
price on
date of
exercise
pence
-
296.25
298.5
Gains on
option
exercises
£000
-
1,270
1,430
Lapsed
during
the year
-
-
-
Number of
options held
21 March
2009
898,243
-
-
Exercise
price
pence
Date
from
which
exercisable
Date
of expiry
nil 14.05.08 23.03.10
-
-
nil
-
-
nil
Justin King
Darren Shapland
Mike Coupe
Darren Shapland retained 252,729 shares arising out of this release; the remainder was used to fund the income tax and national insurance charge relating to the release.
Mike Coupe retained 282,346 shares arising out of this release; the remainder was used to fund the income tax and national insurance charge relating to the release.
Market price on vesting date 374.5 pence.
38
J Sainsbury plc Annual Report and Financial Statements 2009
Remuneration report continued
Long-term Incentive Plan 2006
The table below shows the conditional awards granted under this Plan, which would be released if the Company achieves maximum vesting.
Date of
grant
Maximum
share award1
Share price at
date of award
pence
First exercise
date
Last exercise
date
Justin King
Darren Shapland
Mike Coupe
20.06.07
583.5 12.05.10 11.05.12
13.07.06 390,424
20.06.07 380,844
630,876
28.05.08
13.07.06
188,480
179,220
28.05.08
13.07.06
20.06.07
28.05.08
296,916
186,384
163,092
281,868
334.0 13.05.09 12.05.11
583.5 12.05.10 11.05.12
352.0 11.05.11 10.05.13
334.0 13.05.09 12.05.11
352.0 11.05.11 10.05.13
334.0 13.05.09 12.05.11
583.5 12.05.10 11.05.12
352.0 11.05.11 10.05.13
1 The maximum share award assumes full vesting.
2 The performance conditions attaching to the award are return on capital employed and growth in cash flow per share. Further information is provided on page 87.
3 The Long-term Incentive Plan 2006 is a nil cost option plan. The exercise price is nil.
4 There were no exercises or lapses under this Plan during the year.
Deferred Annual Bonus Plan
The table below shows the maximum number of shares conditionally allocated to participants and what would be released to them in the
form of nil cost options if the Company achieves maximum vesting.
Justin King
Darren Shapland
Mike Coupe
Date of
grant
20.06.07
20.06.08
20.06.07
20.06.08
20.06.07
20.06.08
Deferred
bonus
share
award
86,026
158,042
29,033
52,043
21,294
18,292
Maximum
matching
share
award1
172,052
316,084
58,066
104,086
42,588
36,584
Share
price at
date of
award
pence
First
exercise
date
Last
exercise
date
583.5 22.03.10 22.03.12
325.75 21.03.11 21.03.13
583.5 22.03.10 22.03.12
325.75 21.03.11 21.03.13
583.5 22.03.10 22.03.12
325.75 21.03.11 21.03.13
1
The maximum matching share award is the maximum award that would become exercisable provided that the Company achieves first position within the comparator group of namely Ahold, Carrefour,
Casino, Delhaize, DSG International, Home Retail Group, Kingfisher, Marks & Spencer, Metro, Morrisons, Next and Tesco. The Company’s relative performance is determined by reference to total
shareholder return.
2 There were no exercises or lapses under this Plan during the year.
3 The exercise price is nil.
iii) Saving Related Share Option Scheme (“SAYE”)
At the end of the year, the Directors’ SAYE share options were as follows:
Number of
options
23 March
2008
6,969
2,881
4,047
Number of
options
granted
during
the year
Number of Mid-Market
price on
date of
exercise
pence
options
exercised
during
the year
Gains on
option
exercise
£000
Number of
options
lapsed
during
the year
-
-
-
-
-
4,047
-
-
293.5
-
-
3
-
-
-
Number of
options
21 March
2009
6,969
2,881
-
Weighted
average
exercise
price
pence
Date
from which
exercisable
Date
of expiry
231.0 01.03.11 31.08.11
328.0 01.03.10 31.08.10
-
231.0
-
Justin King
Darren Shapland
Mike Coupe
The Savings Related Share Option Scheme is an all employee share option scheme and has no performance conditions as per HMRC Regulations.
In the period from 23 March 2008 to 21 March 2009, the highest mid-market price of the Company’s share was 398.75 pence and the
lowest mid-market price was 240.0 pence and at 21 March 2009 was 313.0 pence.
R
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Annual Report and Financial Statements 2009 J Sainsbury plc
39
Remuneration report continued
iv) Directors’ interests
The beneficial interests of the Directors and their families in the shares of the Company are shown below:
Mike Coupe
Justin King
Darren Shapland
Anna Ford
Val Gooding
Philip Hampton
Mary Harris
Gary Hughes
John McAdam
Bob Stack3
Ordinary
shares1
23 March 2008 21 March 2009
Ordinary
shares1
Ordinary
shares
12 May 20094
98,870
390,383
137,253
410,878
548,962
442,355
410,878
549,051
442,443
1,000
1,320
25,000
5,000
18,246
1,000
2,800
1,000
1,320
25,000
5,000
21,510
1,000
2,800
1,000
1,320
25,000
5,000
21,510
1,000
2,800
1
Ordinary shares are beneficial holdings which include the Directors’ personal holdings and those of their spouses and minor children. They also include the beneficial interests in shares which are held
in trust under the Sainsbury’s Share Purchase Plan.
2 The totals above for Justin King, Darren Shapland and Mike Coupe include the deferred annual bonus shares purchased under the Plan, which have to be held until the end of the performance period.
See page 39 for further information.
3 Held in the form of 700 American Depository Receipts.
4 Includes shares purchased under the Sainsbury’s Share Purchase Plan between 21 March 2009 and 12 May 2009.
5 The Executive Directors are potential beneficiaries of the Company’s employee benefit trust, which are used to satisfy awards under the Company’s employee share plans, and they are therefore treated as
interested in the 9.7 million shares (2008: 22.4 million) held by the Trustees.
Approved by the Board on 12 May 2009
Bob Stack
Chairman of the Remuneration Committee
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40
J Sainsbury plc Annual Report and Financial Statements 2009
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report,
the Remuneration report and the financial statements in
accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the
Company and the Group financial statements in accordance with
International Financial Reporting Standards (“IFRSs”) as adopted
by the European Union. The financial statements are required by
law to give a true and fair view of the state of affairs of the
Company and the Group and of the profit or loss of the Group
for that period.
In preparing those financial statements, the Directors are
required to:
•
•
•
•
select suitable accounting policies and then apply them
consistently;
make judgements and estimates that are reasonable and
prudent;
state that the financial statements comply with IFRSs as
adopted by the European Union; and
prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Company and
the Group will continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
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.
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 24 to 25 confirm that, to the best of each person’s
knowledge and belief:
•
•
the financial statements, 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
Company; and
the Directors’ report contained in the Annual Report includes a
fair review of the development and performance of the business
and the position of the Company and Group, together with a
description of the principal risks and uncertainties that they face.
By order of the Board
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company and the Group and to enable
them to ensure that the financial statements and the Remuneration
report comply with the Companies Act 1985 and, as regards the
Tim Fallowfield
Company Secretary
12 May 2009
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Annual Report and Financial Statements 2009 J Sainsbury plc
41
Independent Auditors’ report to the members of
J Sainsbury plc
Basis of audit opinion
We conducted our audit in accordance with International Standards
on Auditing (UK and Ireland) issued by the Auditing Practices
Board. An audit includes examination, on a test basis, of evidence
relevant to the amounts and disclosures in the financial statements
and the part of the Remuneration report to be audited. It also
includes an assessment of the significant estimates and judgements
made by the Directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the
Group’s and Company’s circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable
assurance that the financial statements and the part of the
Remuneration report to be audited are free from material
misstatement, whether caused by fraud or other irregularity
or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial
statements and the part of the Remuneration report to be audited.
•
•
Opinion
In our opinion:
oup financial statements give a true and fair view, in
the Gr
accordance with IFRSs as adopted by the European Union,
of the state of the Group’s affairs as at 21 March 2009 and
of its profit and cash flows for the 52 weeks then ended;
the Company financial statements give a true and fair view, in
accordance with IFRSs as adopted by the European Union as
applied in accordance with the provisions of the Companies Act
1985, of the state of the Company’s affairs as at 21 March 2009
and of its cash flows for the 52 weeks then ended;
the financial statements and the part of the Remuneration
report to be audited have been properly prepared in accordance
with the Companies Act 1985 and, as regards the Group
financial statements, Article 4 of the IAS Regulation; and
the information given in the Directors’ report is consistent with
the financial statements.
•
•
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
12 May 2009
Notes
(a) The maintenance and integrity of the J Sainsbury plc website
is the responsibility of the Directors; the work carried out by
the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements
since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
We have audited the Group and Company financial statements (the
‘financial statements’) of J Sainsbury plc for the 52 weeks ended
21 March 2009 which comprise the Group income statement, the
Group and Company Statements of recognised income and
expense, the Group and Company Balance sheets, the Group and
Company Cash flow statements and the related notes. These
financial statements have been prepared under the accounting
policies set out therein. We have also audited the information in
the Remuneration report that is described as having been audited.
Respective responsibilities of Directors and Auditors
The Directors’ responsibilities for preparing the Annual Report, the
Remuneration report and the financial statements in accordance
with applicable law and International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union are set out in the
Statement of Directors’ responsibilities.
Our responsibility is to audit the financial statements and the part
of the Remuneration report to be audited in accordance with
relevant legal and regulatory requirements and International
Standards on Auditing (UK and Ireland). This report, including
the opinion, has been prepared for and only for the Company’s
members as a body in accordance with Section 235 of the
Companies Act 1985 and for no other purpose. We do not, in giving
this opinion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior
consent in writing.
We report to you our opinion as to whether the financial statements
give a true and fair view and whether the financial statements and
the part of the Remuneration report to be audited have been
properly prepared in accordance with the Companies Act 1985 and,
as regards the Group financial statements, Article 4 of the IAS
Regulation. We also report to you whether in our opinion the
information given in the Directors’ report is consistent with the
financial statements. The information given in the Directors’
report includes the information presented in the Business review
that is cross referred from the Business review section of the
Directors’ report.
In addition we report to you if, in our opinion, the Company has
not kept proper accounting records, if we have not received all
the information and explanations we require for our audit, or if
information specified by law regarding Directors’ remuneration
and other transactions is not disclosed.
We review whether the Statement of corporate governance
reflects the Company’s compliance with the nine provisions of the
Combined Code (2006) specified for our review by the Listing Rules
of the Financial Services Authority, and we report if it does not.
We are not required to consider whether the Board’s statements on
internal control cover all risks and controls, or form an opinion on
the effectiveness of the Group’s corporate governance procedures
or its risk and control procedures.
We read other information contained in the Annual Report and
consider whether it is consistent with the audited financial
statements. The other information comprises only the Chairman’s
statement, the Business review, the Directors’ report, the Statement
of corporate governance, the unaudited part of the Remuneration
report and all of the other information listed on the contents page.
We consider the implications for our report if we become aware of
any apparent misstatements or material inconsistencies with the
financial statements. Our responsibilities do not extend to any
other information.
42
J Sainsbury plc Annual Report and Financial Statements 2009
i
c
l
p
y
r
u
b
s
n
a
S
J
f
o
s
r
e
b
m
e
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I
Group income statement
for the 52 weeks to 21 March 2009
Revenue
Cost of sales
Gross profit
Administrative expenses
Other income
Operating profit
Finance income
Finance costs
Share of post-tax loss from joint ventures
Profit before taxation
Analysed as:
Underlying profit before tax
Profit on sale of properties
Investment property fair value movements
Financing fair value movements
One-off items
Income tax expense
Profit for the financial year
Earnings per share
Basic
Diluted
Underlying basic
Underlying diluted
Dividends per share
Interim
Proposed final (not recognised as a liability at balance sheet date)
Note
3
2009
£m
2008
£m
18,911
(17,875)
17,837
(16,835)
1,036
(420)
57
673
52
(148)
(111)
466
543
57
(124)
(10)
—
466
1,002
(502)
30
530
83
(132)
(2)
479
488
7
—
(4)
(12)
479
(177)
(150)
289
329
pence
16.6
16.4
22.1
21.8
pence
3.60
9.60
pence
19.1
18.6
19.6
19.1
pence
3.00
9.00
4
5
5
14
7
7
7
7
8
9
10
G
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Annual Report and Financial Statements 2009 J Sainsbury plc
43
Statements of recognised income and expense
for the 52 weeks to 21 March 2009
Actuarial (losses)/gains on defined benefit pension schemes
Available-for-sale financial assets fair value movements
Group
Joint ventures
Cash flow hedges effective portion of fair value movements
Group
Joint ventures
Tax on share-based payments recognised directly in equity
Deferred tax credit/(charge) on items recognised directly in equity
Net (expense)/income recognised directly in equity
Profit for the financial year
Total recognised (expense)/income for the financial year
Note
31
8
8
Group
2009
£m
(903)
(16)
—
9
(32)
—
257
(685)
289
(396)
Group
2008
£m
542
(31)
48
2
(58)
(10)
(152)
341
329
670
Company
2009
£m
Company
restated
2008
£m
—
(1)
—
—
—
—
—
(1)
165
164
—
—
—
—
—
—
—
-
90
90
e
s
n
e
p
x
e
d
n
a
e
m
o
c
n
i
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e
s
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o
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r
f
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n
e
m
e
t
a
t
S
44
J Sainsbury plc Annual Report and Financial Statements 2009
Balance sheets
at 21 March 2009 and 22 March 2008
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Investments in joint ventures
Available-for-sale financial assets
Other receivables
Derivative financial instruments
Deferred income tax asset
Retirement benefit asset
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Non-current assets held for sale
Total assets
Current liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Taxes payable
Provisions
Net current liabilities
Non-current liabilities
Other payables
Borrowings
Derivative financial instruments
Deferred income tax liability
Provisions
Retirement benefit obligations
Net assets
Equity
Called up share capital
Share premium account
Capital redemption reserve
Other reserves
Retained earnings
Total equity
Group
2009
£m
7,821
160
—
288
97
45
31
—
—
8,442
689
195
59
627
1,570
21
1,591
Group
2008
£m
Company
2009
£m
7,424
165
—
148
106
55
-
-
495
8,393
681
206
4
719
1,610
112
1,722
42
—
7,262
91
7
1,050
31
1
—
8,484
—
380
37
460
877
—
877
Company
restated
2008
£m
109
—
7,169
91
—
976
—
1
—
8,346
-
359
-
324
683
-
683
10,033
10,115
9,361
9,029
(2,488)
(154)
(56)
(202)
(19)
(2,280)
(165)
(6)
(191)
(10)
(3,489)
(43)
(49)
111
(1)
(3,334)
(88)
(6)
21
(2)
(2,919)
(2,652)
(3,471)
(3,409)
(1,328)
(930)
(2,594)
(2,726)
(92)
(2,177)
(8)
(95)
(57)
(309)
(89)
(2,037)
(18)
(321)
(63)
—
(2,037)
—
—
—
(27)
—
(1,803)
-
(18)
-
(27)
—
(2,738)
(2,528)
(2,064)
(1,848)
4,376
4,935
3,826
3,772
501
909
680
(191)
2,477
4,376
499
896
680
494
2,366
4,935
501
909
680
(1)
1,737
3,826
499
896
680
-
1,697
3,772
Note
11
12
13
14
15
17
30
21
31
16
17
30
27
18
19
20
30
22
19
20
30
21
22
31
23
23
24
24
25
26
The financial statements were approved by the Board of Directors on 12 May 2009, and are signed on its behalf by:
Justin King Chief Executive
Darren Shapland Chief Financial Officer
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Annual Report and Financial Statements 2009 J Sainsbury plc
45
Cash flow statements
for the 52 weeks to 21 March 2009
Cash flows from operating activities
Cash generated from operations
Interest paid
Corporation tax paid
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of property, plant and equipment and other assets
Acquisition of and investment in subsidiaries and businesses,
net of cash acquired
Investment in joint ventures
Investment in financial assets
Costs of disposal of operations
Interest received
Dividends received
Net cash from investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Capital redemption
Proceeds from long-term borrowings
Proceeds from short-term borrowings
Repayment of long-term borrowings
Interest elements of obligations under finance lease payments
Dividends paid
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
Group
2009
£m
Group
2008
£m
Company
2009
£m
Company
2008
£m
1,206
(128)
(160)
918
(966)
(10)
390
(10)
(291)
(8)
—
13
3
(879)
15
—
152
43
(30)
(3)
(218)
(41)
(2)
601
599
998
(123)
(64)
811
(973)
(6)
198
(7)
(31)
-
(1)
29
-
(791)
43
(10)
-
-
(36)
(3)
(178)
(184)
(164)
765
601
203
(57)
(160)
(14)
—
—
86
—
—
(8)
—
70
250
398
15
—
—
35
—
—
(218)
(168)
216
236
452
(126)
(34)
(64)
(224)
—
—
1
(3)
(15)
-
(1)
116
250
348
43
(10)
-
-
(7)
—
(178)
(152)
(28)
264
236
Note
27
10
27
s
t
n
e
m
e
t
a
t
s
w
o
fl
h
s
a
C
46
J Sainsbury plc Annual Report and Financial Statements 2009
Notes to the financial statements
1 General information
J Sainsbury plc is a public limited company (“Company”)
incorporated in the United Kingdom, whose shares are publicly
traded on the London Stock Exchange. The Company is domiciled
in the United Kingdom and its registered address is 33 Holborn,
London EC1N 2HT, United Kingdom.
The financial year represents the 52 weeks to 21 March 2009
(prior financial year 52 weeks to 22 March 2008). The consolidated
financial statements for the 52 weeks to 21 March 2009 comprise
the financial statements of the Company and its subsidiaries
(“Group”) and the Group’s interests in joint ventures.
The Group’s principal activities are grocery and related retailing.
2 Accounting policies
(a) Statement of compliance
The Group’s financial statements have been prepared in accordance
with International Financial Reporting Standards (“IFRSs”) as
adopted by the European Union and International Financial
Reporting Interpretations Committee (“IFRICs”) interpretations
and with those parts of the Companies Act 1985 applicable to
companies reporting under IFRSs. The Company’s financial
statements have been prepared on the same basis and as permitted
by Section 230(3) of the Companies Act 1985, no income statement
is presented for the Company.
(b) Basis of preparation
The financial statements are presented in sterling, rounded to the
nearest million (£m) unless otherwise stated. They have been
prepared under the historical cost convention, except for derivative
financial instruments, investment properties and available-for-sale
financial assets that have been measured at fair value.
The preparation of financial statements in conformity with IFRSs
requires the use of judgements, estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. The estimates and associated
assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the financial statements are disclosed in note 2c.
New standards, interpretations and amendments to
published standards
Effective for the Group in these financial statements:
•
IFRIC 12 ‘Service Concession Arrangements’
The above interpretation to published standards has had no
material impact on the results or the financial position of the
Group for the 52 weeks to 21 March 2009.
Effective for the Group for the financial year beginning
22 March 2009:
•
•
•
•
•
•
•
•
Revised IAS 1 ‘Presentation of financial statements’,
amendments to IAS 1 relating to the disclosure of puttable
instruments and obligations arising on liquidation
Revised IAS 27 ‘Consolidated and separate financial statements’
relating to the cost of an investment on first time adoption
Amendments to IAS 32 ‘Financial instruments: Presentation’
relating to puttable instruments and obligations arising on
liquidation
Amendment to IFRS 2 ‘Share-based payment’
Amendment to IFRS 7 ‘Financial Instruments: Disclosures’
IFRS 8 ‘Operating Segments’
IFRIC 13 ‘Customer Loyalty Programmes’
IFRIC 14 ‘IAS 19 — The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction’
•
•
•
•
IFRIC 15 ‘Agreements for the Construction of Real Estate’
IFRIC 16 ‘Hedges of a Net Investment in a Foreign Operation’
IFRIC 18 ‘Transfer of Assets from Customers’
Amendments to various IFRSs and IASs arising from May 2008
Annual Improvements to IFRSs
The Group has considered the above new standards, interpretations
and amendments to published standards that are not yet effective
and concluded that except for the amendment to IFRS 2 ‘Share-
based payment’, they are either not relevant to the Group or that
they would not have a significant impact on the Group’s financial
statements, apart from additional disclosures. The Group is
currently assessing the potential effect of the amendment to IFRS 2
‘Share-based payment’. This will only impact the Save-As-You-Earn
schemes.
Effective for the Group for future financial years:
•
•
•
•
Revised IFRS 3 ’Business Combinations’ and consequential
amendments to IAS 27 ‘Consolidated and separate financial
statements’, IAS 28 ‘Investment in Associates’ and IAS 31
‘Interests in Joint Ventures’
Amendments to IAS 39 ‘Financial Instruments: Recognition
and Measurement’ relating to eligible hedged items, embedded
derivatives when reclassifying financial instruments
IFRIC 17 ‘Distributions of Non-cash Assets to Owners’
Amendments to various IFRSs and IASs arising from April 2009
Annual Improvements to IFRSs
The accounting policies set out below have been applied
consistently to all periods presented in the financial statements
and have been applied consistently by the Group and the Company
except as discussed below relating to investment properties.
Consolidation
The Group’s financial statements include the results of the Company
and all its subsidiaries, together with the Group’s share of the
post-tax results of its joint ventures.
Subsidiaries
Subsidiaries are all entities over which the Group has the power to
govern the financial and operating policies generally accompanying
a shareholding of more than one half of the voting rights. The
results of subsidiaries are included in the Group income statement
from the date of acquisition, or in the case of disposals, up to the
effective date of disposal. Intercompany transactions and balances
between Group companies are eliminated upon consolidation.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of acquisition is
measured as the fair value of the assets given, equity instruments
issued and liabilities incurred or assumed at the date of exchange,
plus costs directly attributable to the acquisition. Identifiable assets
and liabilities acquired are measured at fair value at the acquisition
date. The excess of cost over the fair value of the Group’s share of
identifiable assets and liabilities acquired is recorded as goodwill.
Joint ventures
Joint ventures are jointly controlled entities in which the Group has
an interest. The Group’s share of the results of its joint ventures are
included in the Group income statement using the equity method of
accounting. Where the Group transacts with a joint venture, profits
and losses are eliminated to the extent of the Group’s interest in
the joint venture. Losses may provide evidence of an impairment
of the assets transferred in which case appropriate provision is
made for impairment.
Investments in joint ventures are carried in the Group balance
sheet at cost plus post-acquisition changes in the Group’s share
of net assets of the entity, less any impairment in value.
Investments in subsidiaries and joint ventures are carried at cost
less any impairment loss in the financial statements of the
Company.
Annual Report and Financial Statements 2009 J Sainsbury plc
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Notes to the financial statements continued
2 Accounting policies continued
Foreign currencies
Foreign operations
On consolidation, assets and liabilities of foreign operations are
translated into sterling at year-end exchange rates. The results of
foreign operations are translated into sterling at average rates of
exchange for the year. The functional currency of the Company
is sterling.
Exchange differences arising from the retranslation at year-end
exchange rates of the net investment in foreign operations, less
exchange differences on foreign currency borrowings or forward
contracts which are in substance part of the net investment in a
foreign operation, are taken to equity and are reported in the
statement of recognised income and expense.
Foreign currency transactions
Transactions denominated in foreign currencies are translated at
the exchange rate at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the balance
sheet date are translated at the exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised
in the income statement.
Revenue
Revenue consists of sales through retail outlets and excludes Value
Added Tax. Sales through retail outlets are shown net of the cost
of Nectar reward points issued and redeemed, staff discounts,
vouchers and sales made on an agency basis. Commission income
is recognised in revenue based on the terms of the contract.
Revenue is recognised when the significant risks and rewards of
products and services have been passed to the buyer and can be
measured reliably.
Interest income is recognised in the income statement for all
instruments measured at amortised cost using the effective
interest method. This calculation takes into account interest
received or paid, fees and commissions received or paid, that are
integral to the yield as well as incremental transaction costs.
Fees and commissions earned by Sainsbury’s Bank, that are not
integral to the yield, are recognised in the income statement as the
service is provided. Where there is a risk of potential claw back, an
appropriate element of the insurance commission receivable is
deferred and amortised over the expected average life of the
underlying loan.
Cost of sales
Cost of sales consists of all costs to the point of sale including
warehouse and transportation costs and all the costs of operating
retail outlets.
Property, plant and equipment
Land and buildings
Land and buildings are stated at cost less accumulated depreciation
and any impairment loss. Properties in the course of construction
are held at cost less any recognised impairment loss. Cost includes
directly attributable costs and borrowing costs capitalised in
accordance with the Group’s accounting policy.
Fixtures, equipment and vehicles
Fixtures, equipment and vehicles are held at cost less accumulated
depreciation and any recognised impairment loss.
Depreciation
Depreciation is calculated to write down the cost of the assets to their
residual values, on a straight-line method on the following bases:
•
•
•
Freehold buildings and leasehold properties — 50 years, or the
lease term if shorter
Fixtures, equipment and vehicles — 3 to 15 years
Freehold land is not depreciated
48
J Sainsbury plc Annual Report and Financial Statements 2009
Land and buildings under construction and non-current assets held
for sale are not depreciated.
Gains and losses on disposal are determined by comparing
proceeds with the asset’s carrying amount and are recognised
within operating profit.
Intangible assets
Pharmacy licences
Pharmacy licences are carried at cost less accumulated
amortisation and any impairment loss and amortised on a straight-
line basis over their useful economic life of 15 years.
Computer software
Computer software is carried at cost less accumulated amortisation
and any impairment loss. Externally acquired computer software
and software licences are capitalised and amortised on a straight-
line basis over their useful economic lives of three to five years.
Costs relating to development of computer software for internal
use are capitalised once the recognition criteria of IAS 38
‘Intangible Assets’ are met. When the software is available for its
intended use, these costs are amortised over the estimated useful
life of the software.
Goodwill
Goodwill represents the excess of the fair value of the consideration
of an acquisition over the fair value of the Group’s share of the net
identifiable assets of the acquired subsidiary at the date of
acquisition. Goodwill is recognised as an asset on the Group’s
balance sheet in the year in which it arises. Goodwill is tested for
impairment annually and again whenever indicators of impairment
are detected and is carried at cost less accumulated impairment
losses.
Investment property
As a result of entering into our property joint venture with The
British Land Company PLC (“British Land”) during the period we
have reviewed our investment property accounting policy and
revised it from the historical cost to the fair value basis. No prior
period restatements are required as the cost at 22 March 2008
was equal to the fair value.
Investment properties are those properties held for capital
appreciation and/or to earn rental income. They are initially
measured at cost, including related transaction costs. After initial
recognition at cost, they are carried at their fair values based on
market value determined by professional valuers at each reporting
date. The difference between the fair value of an investment
property at the reporting date and its carrying amount prior to
re-measurement is included within the income statement but is
excluded from underlying profit in order to provide a clear and
consistent presentation of the underlying performance of
Sainsbury’s ongoing business for shareholders. Currently the
only investment properties the Group holds are those contained
within its joint ventures with Land Securities Group PLC
(“Land Securities”) and British Land.
Impairment of non-financial assets
At each full year balance sheet date, the Group reviews the carrying
amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset, which is the higher of its fair value less costs
to sell and its value in use, is estimated in order to determine the
extent of the impairment loss. Where the asset does not generate
cash flows that are independent from other assets, the Group
estimates the recoverable amount of the cash-generating unit
(“CGU”) to which the asset belongs. For tangible and intangible
assets excluding goodwill, the CGU is deemed to be each trading
store. For goodwill, the CGU is deemed to be each retail chain of
stores acquired.
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Notes to the financial statements continued
2 Accounting policies continued
Any impairment charge is recognised in the income statement in
the year in which it occurs. Where an impairment loss, other than
an impairment loss on goodwill, subsequently reverses due to a
change in the original estimate, the carrying amount of the asset
is increased to the revised estimate of its recoverable amount.
Current taxation
Current tax is accounted for on the basis of tax laws enacted or
substantively enacted at the balance sheet date. Current tax is
charged or credited to the income statement, except when it relates
to items charged to equity, in which case the current tax is also
dealt with in equity.
Capitalisation of interest
Interest costs that are directly attributable to the acquisition or
construction of qualifying assets are capitalised to the cost of the
asset, gross of tax relief.
Deferred taxation
Deferred tax is accounted for on the basis of temporary differences
arising from differences between the tax base and accounting base
of assets and liabilities.
Non-current assets held for sale
Non-current assets are classified as assets held for sale and stated
at the lower of the carrying amount and fair value less costs to sell
if their carrying amount is to be recovered principally through a
sale transaction rather than through continuing use.
Leased assets
Leases are classified as finance leases when the terms of the lease
transfer substantially all the risks and rewards of ownership to the
Group. All other leases are classified as operating leases. For
property leases, the land and building elements are treated
separately to determine the appropriate lease classification.
Finance leases
Assets funded through finance leases are capitalised as property,
plant and equipment and depreciated over their estimated useful
lives or the lease term, whichever is shorter. The amount capitalised
is the lower of the fair value of the asset or the present value of the
minimum lease payments during the lease term at the inception of
the lease. The resulting lease obligations are included in liabilities
net of finance charges. Finance costs on finance leases are charged
directly to the income statement.
Operating leases
Assets leased under operating leases are not recorded on the
balance sheet. Rental payments are charged directly to the income
statement.
Lease incentives
Lease incentives primarily include up-front cash payments or
rent-free periods. Lease incentives are capitalised and spread over
the period of the lease term.
Leases with predetermined fixed rental increases
The Group has a number of leases with predetermined fixed rental
increases. These rental increases are accounted for on a straight-
line basis over the term of the lease.
Operating lease income
Operating lease income consists of rentals from sub-tenant
agreements and is recognised as earned.
Inventories
Inventories are valued at the lower of cost and net realisable value.
Inventories at warehouses are valued on a first-in, first-out basis.
Inventories at retail outlets are valued at calculated average cost
prices. Cost includes all direct expenditure and other appropriate
attributable costs incurred in bringing inventories to their present
location and condition.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand
deposits and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to
an insignificant risk of changes in value. Bank overdrafts that are
repayable on demand and form an integral part of the Group’s cash
management are included as a component of cash and cash
equivalents for the purposes of the cash flow statement.
Deferred tax is recognised for all temporary differences, except to
the extent where it arises from the initial recognition of an asset
or a liability in a transaction that is not a business combination and,
at the time of transaction, affects neither accounting profit nor
taxable profit. It is determined using tax rates (and laws) that have
been enacted or substantively enacted by the balance sheet date
and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable
that future taxable profits will be available against which the
temporary differences can be utilised.
Deferred tax is charged or credited to the income statement, except
when it relates to items charged or credited directly to equity, in
which case the deferred tax is also dealt with in equity.
Deferred tax is provided on temporary differences associated with
investments in subsidiaries, branches, and joint ventures except
where the Group is able to control the timing of the reversal of
the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
Provisions
Provisions are recognised when there is a present legal or
constructive obligation as a result of past events, for which it is
probable that an outflow of economic benefit will be required to
settle the obligation, and where the amount of the obligation can
be reliably estimated.
Onerous leases
Provisions for onerous leases, measured net of expected rental
income, are recognised when the property leased becomes vacant
and is no longer used in the operations of the business. Provisions
for dilapidation costs are recognised on a lease-by-lease basis.
Restructuring and disposal
Provisions for restructuring costs are recognised when the Group
has a detailed formal plan for the restructuring that has been
communicated to affected parties.
Employee benefits
Pensions
The Group operates various defined benefit and defined
contribution pension schemes for its employees. A defined benefit
scheme is a pension plan that defines an amount of pension benefit
that an employee will receive on retirement. A defined contribution
scheme is a pension plan under which the Group pays fixed
contributions into a separate entity.
In respect of defined benefit pension schemes, the pension scheme
surplus or deficit recognised in the balance sheet represents the
difference between the fair value of the plan assets and the present
value of the defined benefit obligation at the balance sheet date.
The defined benefit obligation is actuarially calculated on an annual
basis using the projected unit credit method. Plan assets are
recorded at fair value.
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Annual Report and Financial Statements 2009 J Sainsbury plc
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Notes to the financial statements continued
2 Accounting policies continued
The income statement charge is split between an operating service
cost and a financing charge, which is the net of interest cost on
pension scheme liabilities and expected return on plan assets.
Actuarial gains and losses are recognised in full in the period in which
they arise, in the statement of recognised income and expense.
Payments to defined contribution pension schemes are charged
as an expense as they fall due. Any contributions unpaid at the
balance sheet date are included as an accrual as at that date. The
Group has no further payment obligations once the contributions
have been paid.
Long service awards
The costs of long service awards are accrued over the period the
service is provided by the employee.
Share-based payments
The Group provides benefits to employees (including Directors)
of the Group in the form of equity-settled and cash-settled share-
based payment transactions, whereby employees render services in
exchange for shares, rights over shares or the value of those shares
in cash terms.
For equity-settled share-based payments the fair value of the
employee services rendered is determined by reference to the fair
value of the shares awarded or options granted, excluding the
impact of any non-market vesting conditions. All share options
are valued using an option-pricing model (Black-Scholes or Monte
Carlo). This fair value is charged to the income statement over the
vesting period of the share-based payment scheme, with the
corresponding increase in equity.
For cash-settled share-based payments the fair value of the
employee services rendered is determined at each balance sheet
date and the charge recognised through the income statement over
the vesting period of the share-based payment scheme, with the
corresponding increase in accruals.
The value of the charge is adjusted in the income statement over
the remainder of the vesting period to reflect expected and actual
levels of options vesting, with the corresponding adjustments made
in equity and accruals.
Financial instruments
Financial assets
The Group classifies its financial assets in the following categories:
at fair value through profit or loss, loans and receivables, and
available-for-sale (“AFS”). Purchases and sales of ‘financial assets
at fair value through profit or loss’, and AFS investments are
recognised on trade date. Financial assets are initially recognised at
fair value plus transaction costs for all financial assets not carried
at fair value through profit or loss.
‘Financial assets at fair value through profit or loss’ include
financial assets held for trading and those designated at fair value
through profit or loss at inception. Derivatives are classified as held
for trading unless they are accounted for as an effective hedging
instrument. ‘Financial assets at fair value through profit or loss’ are
recorded at fair value, with any gains or losses recognised in the
income statement in the period in which they arise.
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
The Group has no intention of trading these loans and receivables.
Subsequent to initial recognition, these assets are carried at
amortised cost less impairment using the effective interest method.
Income from these financial assets is calculated on an effective
yield basis and is recognised in the income statement.
Available-for-sale financial assets are non-derivatives that are
either designated in this category or not classified in any of the
other categories. They are included in non-current assets unless
management intends to dispose of the investment within 12 months
of the balance sheet date. Subsequent to initial recognition, these
assets are recorded at fair value with the movements in fair value
taken directly to equity until the financial asset is derecognised or
impaired at which time the cumulative gain or loss previously
recognised in equity is recognised in the income statement.
Dividends on AFS equity instruments are recognised in the income
statement when the entity’s right to receive payment is established.
Interest on AFS debt instruments is recognised using the effective
interest method.
Financial assets are derecognised when the rights to receive cash
flows from the financial assets have expired or where the Group
has transferred substantially all risks and rewards of ownership.
Trade receivables
Trade receivables are initially recognised at fair value and
subsequently at amortised cost using the effective interest method
less provision for impairment.
Financial liabilities
Interest-bearing bank loans and overdrafts are recorded initially
at fair value, which is generally the proceeds received, net of direct
issue costs. Subsequently, these liabilities are held at amortised
cost using the effective interest method.
Finance charges, including premiums payable on settlement or
redemption and direct issue costs, are accounted for on an accrual
basis to the income statement using the effective interest method
and are added to the carrying amount of the instrument to the
extent that they are not settled in the period in which they arise.
Trade payables
Trade payables are initially recognised at fair value and subsequently
at amortised cost using the effective interest method.
Impairment of financial assets
An assessment of whether there is objective evidence of
impairment is carried out for all financial assets or groups of
financial assets at the balance sheet date. This assessment may
be of individual assets (“individual impairment”) or of a portfolio
of assets (“collective impairment”). A financial asset or a group of
financial assets is considered to be impaired if, and only if, there is
objective evidence of impairment as a result of one or more events
that occurred after the initial recognition of the asset (a “loss
event”) and that loss event (or events) has an impact on the
estimated future cash flows of the financial asset or group of
financial assets that can be reliably estimated.
For individual impairment the principal loss event is one or more
missed payments, although other loss events can also be taken
into account, including arrangements in place to pay less than
the contractual payments, fraud and bankruptcy or other financial
difficulty indicators. An assessment of collective impairment will be
made of financial assets with similar risk characteristics. For these
assets, portfolio loss experience is used to provide objective
evidence of impairment.
Where there is objective evidence that an impairment loss exists
on loans and receivables, impairment provisions are made to
reduce the carrying value of financial assets to the present value
of estimated future cash flows discounted at the financial asset’s
original effective interest rate.
For financial assets carried at amortised cost, the charge to the
income statement reflects the movement in the level of provisions
made, together with amounts written off net of recoveries in
the year.
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Notes to the financial statements continued
2 Accounting policies continued
In the case of equity investments classified as available-for-sale,
a significant or prolonged decline in the fair value of the asset
below its cost is considered in determining whether the asset is
impaired. If any such evidence exists for available-for-sale financial
assets, the cumulative loss is removed from equity and recognised
in the income statement. The cumulative loss is measured as the
difference between the acquisition cost and the current fair value,
less any impairment loss on that financial asset previously
recognised in the income statement.
Impairment losses recognised in the income statement on equity
instruments are not reversed. If, in a subsequent period, the fair
value of a debt instrument classified as available-for-sale increases
and the increase can be objectively related to an event occurring
after the impairment loss was recognised in the income statement,
the impairment loss is reversed through the income statement.
Interest will continue to accrue on all financial assets, based on
the written down balance. Interest is calculated using the rate of
interest used to discount the future cash flows for the purpose of
measuring the impairment loss. To the extent that a provision may
be increased or decreased in subsequent periods, the recognition
of interest will be based on the latest balance net of provision.
Fair value estimation
The methods and assumptions applied in determining the fair
values of financial assets and financial liabilities are disclosed in
note 30.
Derivative financial instruments and hedge accounting
The Group’s activities expose it to financial risks associated with
movements in exchange rates and interest rates. The Group uses
foreign exchange forward contracts and interest rate swap
contracts to hedge these exposures. The use of financial derivatives
is governed by the Group’s treasury policies, as approved by the
Board. The Group does not use derivative financial instruments for
speculative purposes.
All derivative financial instruments are initially measured at fair
value on the contract date and are also measured at fair value at
subsequent reporting dates.
Hedge relationships are classified as cash flow hedges where the
derivative financial instruments hedge the exchange rate risk of
future highly probable inventory purchases denominated in foreign
currency. Changes in the fair value of derivative financial instruments
that are designated and effective as hedges of future cash flows
are recognised directly in equity and the ineffective portion is
recognised immediately in the income statement. If the cash flow
hedge of a firm commitment or forecasted transaction results in
the recognition of a non-financial asset or liability, then, at the time
the asset or liability is recognised, the associated gains or losses on
the derivative that had previously been recognised in equity are
included in the initial measurement of the asset or liability.
Hedge relationships are classified as fair value hedges where the
derivative financial instruments hedge the change in the fair value
of a financial asset or liability due to movements in interest rates.
The changes in fair value of the hedging instrument are recognised
in the income statement.
The hedged item is also adjusted for changes in fair value
attributable to the hedged risk, with the corresponding adjustment
made in the income statement.
To qualify for hedge accounting, the Group documents at the
inception of the hedge, the hedging risk management strategy, the
relationship between the hedging instrument and the hedged item
or transaction and the nature of the risks being hedged. The Group
also documents the assessment of the effectiveness of the hedging
relationship, to show that the hedge has been and will be highly
effective on an ongoing basis.
Changes in the fair value of derivative financial instruments that
do not qualify for hedge accounting are recognised in the income
statement as finance income or costs as they arise.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer qualifies
for hedge accounting. At that time, any cumulative gain or loss on
the hedging instrument recognised in equity is retained in equity
until the forecasted transaction occurs. If a hedged transaction
is no longer expected to occur, the net cumulative gain or loss
recognised in equity is transferred to the income statement for
the period.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the balance sheet when there is a legally enforceable
right to offset the recognised amounts and there is an intention
to settle on a net basis, or realise the asset and settle the liability
simultaneously.
Non-GAAP performance measures
The Directors believe that the ‘underlying’ profit before tax and
‘underlying’ diluted and basic earnings per share measures
presented provide a clear and consistent presentation of the
underlying performance of Sainsbury’s ongoing business for
shareholders. These measures are consistent with how the business
is measured internally. Underlying profit is not defined by IFRS and
therefore may not be directly comparable with the ‘adjusted’ profit
measures of other companies. The adjustments made to reported
profit before tax are:
•
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Profit/loss on sale of properties — these can vary from year
to year and therefore create volatility in reported earnings;
Investment property fair value movements — these reflect
the difference between the fair value of an investment
property at the reporting date and its carrying amount
prior to remeasurement;
Financing fair value movements — these fair value gains and
losses relate to fair value adjustments on derivatives relating
to financing activities and hedged items in fair value hedges.
The underlying profit measure removes the volatility of these
items within profit before tax;
Impairment of goodwill; and
One-off items — these are material and infrequent in nature,
creating volatility in reported earnings which does not reflect
Sainsbury’s underlying performance.
(c) Judgements and estimates
The Group makes judgements and assumptions concerning
the future that impact the application of policies and reported
amounts. The resulting accounting estimates calculated using these
judgements and assumptions will, by definition, seldom equal the
related actual results but are based on historical experience and
expectations of future events.
The judgements and key sources of estimation uncertainty that
have a significant effect on the amounts recognised in the financial
statements are discussed below.
Goodwill impairment
The Group is required to assess whether goodwill has suffered any
impairment loss, based on the recoverable amount of its CGUs.
The recoverable amounts of the CGUs have been determined based
on value in use calculations and these calculations require the use
of estimates in relation to future cash flows and suitable discount
rates as disclosed in note 12. Actual outcomes could vary from
these estimates.
Annual Report and Financial Statements 2009 J Sainsbury plc
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3 Segment reporting
The Group’s primary reporting format is business segments, with
each segment representing a business unit that offers different
products and serves different markets.
The businesses are organised into three operating divisions:
•
•
•
Retailing (Supermarkets, Convenience and Online);
Financial services (Sainsbury’s Bank joint venture); and
Property investments (British Land joint venture and Land
Securities joint venture).
All material operations are carried out in the UK.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated
on a reasonable basis. Segment capital expenditure is the total
cost incurred during the period to acquire segment assets that
are expected to be used for more than one period.
Notes to the financial statements continued
2 Accounting policies continued
Impairment of assets
Financial and non-financial assets are subject to impairment
reviews based on whether current or future events and
circumstances suggest that their recoverable amount may be
less than their carrying value. Recoverable amount is based
on a calculation of expected future cash flows which includes
management assumptions and estimates of future performance.
Post-employment benefits
The Group operates various defined benefit schemes for its
employees. The present value of the schemes’ liabilities recognised
at the balance sheet date is dependent on interest rates of high
quality corporate bonds. The net financing charge recognised in the
income statement is dependent on the interest rate of high quality
corporate bonds and an expectation of the weighted average
returns on the assets within the schemes. Other key assumptions
within this calculation are based on market conditions or estimates
of future events, including mortality rates, as set out in note 31.
Provisions
Provisions have been made for onerous leases, dilapidations,
restructuring and disposal costs. These provisions are estimates
and the actual costs and timing of future cash flows are dependent
on future events. Any difference between expectations and the
actual future liability will be accounted for in the period when such
determination is made. Detail of the Group’s and Company’s
provisions are set out in note 22.
Income taxes
The Group recognises expected liabilities for tax based on an
estimation of the likely taxes due, which requires significant
judgement as to the ultimate tax determination of certain items.
Where the actual liability arising from these issues differs from
these estimates, such differences will have an impact on income tax
and deferred tax provisions in the period when such determination
is made. Detail of the tax charge and deferred tax are set out in
notes 8 and 21 respectively.
Restatement of comparative financial statements — Company
During the year, it was identified that a sale of properties by the
Company to a Group entity was incorrectly recognised in the
financial statements for the 52 weeks to 25 March 2006.
The accounting for the transaction has now been corrected in the
financial statements of the Company with the following impacts:
•
•
•
•
the net book value of land and buildings at 25 March 2007 had
been overstated by £132 million;
the amounts due to Group entities at 25 March 2007 were
overstated by £188 million;
retained earnings as at 25 March 2007 were understated by
£55 million; and
the depreciation charge included in profit for the 52 weeks
to 22 March 2008 was overstated by £1 million.
As required by IAS 8 ‘Accounting Policies, changes in accounting
estimates and errors’, the relevant financial statements and the
related notes for the year to 22 March 2008 have been restated.
The restatement has no impact on the consolidated financial
statements.
52
J Sainsbury plc Annual Report and Financial Statements 2009
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Notes to the financial statements continued
3 Segment reporting continued
52 weeks to 21 March 2009
Segment revenue
Underlying operating profit
Underlying finance income
Underlying finance costs
Underlying share of post-tax profit from joint ventures
Underlying profit before tax
Profit on sale of properties
Investment property fair value movements
Financing fair value movements
Profit/(loss) before tax
Income tax expense
Profit for the financial year
Assets
Investment in joint ventures
Segment assets
Segment liabilities
Other segment items
Capital expenditure1
Depreciation expense
Amortisation expense
Provision for impairment of receivables
Share-based payments
52 weeks to 22 March 2008
Segment revenue
Underlying operating profit
Underlying finance income
Underlying finance costs
Underlying share of post-tax (loss)/profit from joint ventures
Underlying profit/(loss) before tax
Profit on sale of properties
Financing fair value movements
Fair value gain on other financial asset
Costs relating to approach from Delta Two
Costs associated with Office of Fair Trading dairy inquiry
Profit/(loss) before tax
Income tax expense
Profit for the financial year
Assets
Investment in joint ventures
Segment assets
Segment liabilities
Other segment items
Capital expenditure2
Depreciation expense
Amortisation expense
Release of provision for impairment on receivables
Share-based payments
Retailing
£m
18,911
616
52
(141)
-
527
57
-
(7)
577
9,745
1
9,746
5,657
1,105
453
15
1
40
83
(128)
—
490
7
(4)
22
(7)
(27)
17,837
535
481
(3)
9,967
9,968
5,180
1,006
1
89
463
18
(1)
53
Financial
services
£m
Property
investments
£m
-
-
-
-
12
12
-
(124)
(3)
(115)
Group
£m
18,911
616
52
(141)
16
543
57
(124)
(10)
466
(177)
289
-
215
215
9,745
288
10,033
-
5,657
-
-
-
-
-
—
—
—
—
1
1
—
—
—
—
—
479
1,105
453
15
1
40
17,837
535
83
(128)
(2)
488
7
(4)
22
(7)
(27)
(150)
329
—
58
9,967
148
10,115
—
5,180
—
—
—
—
—
1,006
463
18
(1)
53
-
-
-
-
4
4
-
-
-
4
-
72
72
-
-
-
-
-
-
—
—
—
—
(3)
(3)
—
—
—
—
—
1
—
89
58
—
—
—
—
—
—
1
Capital expenditure consists of property, plant and equipment additions of £1,081 million, property, plant and equipment acquired through business combinations of £4 million, intangibles additions of
£10 million and intangibles generated through business combinations of £10 million.
2 Capital expenditure consists of property, plant and equipment additions of £993 million, property, plant and equipment acquired through business combinations of £3 million, intangibles additions of
£6 million and intangibles generated through business combinations of £4 million.
Annual Report and Financial Statements 2009 J Sainsbury plc
53
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Notes to the financial statements continued
4 Operating profit
Operating profit is stated after charging/(crediting) the following items:
Employee costs (note 6)
Depreciation expense (note 11)
Amortisation expense (included within cost of sales) (note 12)
Profit on sale of properties (note 7)
Costs relating to approach from Delta Two (note 7)
Costs associated with Office of Fair Trading dairy inquiry (note 7)
Fair value gain on other financial asset (note 7)
Charges/(credits) relating to the impairment of receivables
Operating lease rentals — land and buildings
— other leases
— sublease payments received
Foreign exchange gains
Group
Auditors’ remuneration
Audit services
Fees payable to the Company auditor for the audit of the Group and the Company financial statements
Audit of the Company’s subsidiaries pursuant to legislation
Audit-related services
Interim review pursuant to legislation
Non-audit services
Fees payable to the Company auditor and its associates for other services as detailed below:
Tax services
All other services
5 Finance income and finance costs
Interest on bank deposits
Net return on pension schemes (note 31)
Finance income
Borrowing costs
Bank loans and overdrafts
Other loans
Obligations under finance leases
Provisions — amortisation of discount (note 22)
Interest capitalised — qualifying assets
Financing fair value losses
Finance costs
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J Sainsbury plc Annual Report and Financial Statements 2009
2009
£m
2008
£m
2,003
453
15
(57)
—
—
—
1
344
52
(39)
(10)
1,957
463
18
(7)
7
27
(22)
(1)
304
51
(35)
(2)
2009
£m
2008
£m
0.2
0.5
0.3
0.4
0.1
0.1
0.6
0.3
1.7
2009
£m
28
24
52
(6)
(146)
(3)
(1)
(156)
15
(7)
0.5
0.2
1.5
2008
£m
29
54
83
—
(132)
(3)
(1)
(136)
8
(4)
(148)
(132)
Notes to the financial statements continued
6 Employee costs
Employee costs for the Group during the year amounted to:
Wages and salaries, including bonus and termination benefits
Social security costs
Pension costs — defined contribution schemes
Pension costs — defined benefit schemes (note 31)
Share-based payments expense (note 32)
The average number of employees, including Directors, during the year were:
Full-time
Part-time
Full-time equivalent
All employees were employed in the United Kingdom for the periods presented.
7 Non-GAAP performance measures
The adjustments made to reported profit before tax to arrive at underlying profit before tax are:
Underlying profit before tax
Profit on sale of properties
Investment property fair value movements
Financing fair value movements1
One-off items for the financial year comprised:
Costs relating to approach from Delta Two
Costs associated with Office of Fair Trading dairy inquiry
Fair value gain on other financial asset
Total adjustments
Profit before tax
1 Financing fair value movements for the financial year comprised £(7) million for the Group (2008: £(4) million) and £(3) million for the joint ventures (2008: £nil).
2009
£m
2008
£m
1,758
121
31
53
40
2,003
1,682
116
28
78
53
1,957
Number
000’s
Number
000’s
49.7
98.8
148.5
97.3
48.8
99.1
147.9
96.6
2009
£m
543
57
(124)
2008
£m
488
7
—
(10)
(4)
—
—
—
(77)
466
(7)
(27)
22
(9)
479
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Annual Report and Financial Statements 2009 J Sainsbury plc
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Notes to the financial statements continued
8 Income tax expense
Current tax expense
Current year
Over provision in prior years
Deferred tax expense
Origination and reversal of temporary differences
Deferred tax rate change from 30% to 28%
Under provision in prior years
Total income tax expense in income statement
Income tax expense on underlying profit1
Tax on items below:
Profit on sale of properties
Financing fair value movements
Costs relating to approach from Delta Two
Fair value gain on other financial asset
Total income tax expense in income statement
1 Tax charge attributable to underlying profit before tax.
2009
£m
171
(25)
146
24
—
7
31
177
2008
£m
173
(9)
164
(8)
(6)
—
(14)
150
158
151
21
(2)
—
—
—
(1)
(2)
2
177
150
The effective tax rate of 38.0 per cent (2008: 31.3 per cent) is higher than the standard rate of corporation tax in the UK. The differences
are explained below:
Profit before taxation
Income tax at UK corporation tax rate of 28.05%1 (2008: 30%)
Effects of:
Disallowed depreciation on UK properties
Non-deductible expenses
Investment property fair value movements
Capital losses utilised
Deferred tax rate change from 30% to 28%
Over provision in prior years
Total income tax expense in income statement
2009
£m
466
131
20
9
35
—
—
(18)
2008
£m
479
144
21
18
—
(10)
(8)
(15)
177
150
1 The income tax rate of 28.05 per cent is slightly higher than the 28 per cent statutory tax rate due to the historic rate of 30 per cent applying between 23 March 2008 and 31 March 2008 inclusive.
From 1 April 2008, the UK corporate income tax rate applied to large companies changed to 28 per cent from 30 per cent.
Income tax charged or credited to equity during the year is as follows:
Share-based payment tax recognised directly in equity
Current tax payable
Current tax prior year under provision
Deferred tax asset
Deferred tax prior year over provision
Deferred tax rate change from 30% to 28%
Deferred tax losses associated with share-based payment tax deduction
Deferred tax on items recognised directly in equity
Actuarial (losses)/gains on defined benefit pension schemes
Available-for-sale financial assets fair value movements
Deferred tax rate change from 30% to 28% — defined benefit pension scheme
Deferred tax rate change from 30% to 28% — available-for-sale financial assets
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56
J Sainsbury plc Annual Report and Financial Statements 2009
2009
£m
2008
£m
(3)
3
2
(2)
—
—
—
(253)
(4)
—
—
(257)
(257)
(5)
–
19
(13)
1
8
10
161
3
(10)
(2)
152
162
Notes to the financial statements continued
9 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the year, excluding those held by the Employee Share Ownership Plan trusts (note 25), which are treated
as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential
dilutive ordinary shares. These represent share options granted to employees where the exercise price is less than the average market
price of the Company’s ordinary shares during the year.
Underlying earnings per share is provided by excluding the effect of any gain or loss on the sale of properties, impairment of goodwill,
investment property fair value movements, financing fair value movements and one-off items that are material and infrequent in nature.
This alternative measure of earnings per share is presented to reflect the Group’s underlying trading performance.
All operations are continuing for the periods presented.
Weighted average number of shares in issue
Weighted average number of dilutive share options
Total number of shares for calculating diluted earnings per share
Profit for the financial year
(Less)/add: profit on sale of properties, net of tax
investment property fair value movements, net of tax
financing fair value movements, net of tax
costs relating to approach from Delta Two, net of tax
fair value gain on other financial asset, net of tax
costs associated with Office of Fair Trading dairy inquiry, net of tax
Underlying profit after tax
Basic earnings
Diluted earnings
Underlying basic earnings
Underlying diluted earnings
10 Dividend
2009
million
2008
million
1,738.5
24.7
1,718.7
48.5
1,763.2
1,767.2
£m
289
(36)
124
8
—
—
—
385
£m
329
(7)
—
3
5
(20)
27
337
pence
per share
pence
per share
16.6
16.4
22.1
21.8
19.1
18.6
19.6
19.1
Amounts recognised as distributions to equity holders in the year:
Final dividend of prior financial year
Interim dividend of current financial year
2009
pence
per share
2008
pence
per share
9.00
3.60
7.35
3.00
12.60
10.35
2009
£m
155
63
218
2008
£m
126
52
178
After the balance sheet date, a final dividend of 9.60 pence per share (2008: 9.00 pence per share) was proposed by the Directors
in respect of the 52 weeks to 21 March 2009, resulting in a total final proposed dividend of £167 million (2008: £155 million).
The proposed final dividend has not been included as a liability at 21 March 2009.
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Annual Report and Financial Statements 2009 J Sainsbury plc
57
Notes to the financial statements continued
11 Property, plant and equipment
Cost
At 23 March 2008
Additions
Acquisition of subsidiaries
Disposals
Transfer to assets held for resale
At 21 March 2009
Accumulated depreciation and impairment
At 23 March 2008
Depreciation expense for the year
Disposals
Transfer to assets held for resale
At 21 March 2009
Net book value at 21 March 2009
Group
Land and
buildings
£m
Group
Fixtures and
equipment
£m
Group
Total
£m
7,068
626
4
(225)
(19)
7,454
1,123
113
(28)
(2)
1,206
6,248
4,677
455
—
(233)
(2)
11,745
1,081
4
(458)
(21)
4,897
12,351
3,198
340
(212)
(2)
3,324
1,573
4,321
453
(240)
(4)
4,530
7,821
Capital work-in-progress included above
428
121
549
Cost
At 25 March 2007
Additions
Acquisition of subsidiary
Disposals
Transfer to assets held for sale
At 22 March 2008
Accumulated depreciation and impairment
At 25 March 2007
Depreciation expense for the year
Disposals
Part disposal of Sainsbury’s Bank
At 22 March 2008
Net book value at 22 March 2008
6,719
628
3
(182)
(100)
7,068
1,060
89
(19)
(7)
1,123
5,945
4,480
365
—
(153)
(15)
11,199
993
3
(335)
(115)
4,677
11,745
2,963
374
(133)
(6)
3,198
1,479
4,023
463
(152)
(13)
4,321
7,424
Company
restated1
Land and
buildings
£m
117
—
—
(72)
—
45
8
1
(6)
—
3
42
-
118
—
—
(1)
—
117
7
1
—
—
8
109
Capital work-in-progress included above
398
63
461
—
The net book value of land and buildings comprised:
Freehold land and building
Long leasehold
Short leasehold
1 The restatement of certain comparative amounts is explained in note 2 on page 52.
Group
2009
£m
4,777
951
520
6,248
Group
2008
£m
Company
2009
£m
4,502
938
505
5,945
42
-
-
42
Company
restated1
2008
£m
64
45
-
109
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Impairment of property, plant and equipment
In accordance with IAS 36 ‘Impairment of Assets’, the Group has determined that for the purposes of impairment testing, each store is
a cash-generating unit (“CGU”). CGUs are tested for impairment at each reporting date if there are indications of impairment.
The recoverable amounts for the CGUs are based on value in use which is calculated on the cash flows expected to be generated by the
units using the latest budget and forecast data, the results of which are reviewed by the Board. The key assumptions in the value in use
calculation are the discount rate, growth rates and expected changes in margin. Changes in income and expenditure are based on past
experience and expectations of future changes in the market. The forecasts are extrapolated beyond five years based on estimated
long-term growth rates of three per cent to four per cent. The discount rate is based on the Group’s pre-tax weighted average cost of
capital of ten per cent (2008: ten per cent).
Interest capitalised
Interest capitalised included in additions amounted to £15 million (2008: £8 million) for the Group and £nil (2008: £nil) for the Company.
Accumulated interest capitalised included in the cost total above net of disposals amounted to £255 million (2008: £255 million) for
the Group and £nil (2008: £nil) for the Company. The capitalisation rate used to determine the amount of borrowing costs eligible for
capitalisation is 6.5 per cent (2008: 5.7 per cent).
58
J Sainsbury plc Annual Report and Financial Statements 2009
Notes to the financial statements continued
11 Property, plant and equipment continued
Security
Property, plant and equipment of 128 (2008: 127) supermarket properties, with a net book value of £2,330 million (2008: £2,336 million)
has been pledged as security for the long-term financing (note 20).
In addition, property, plant and equipment of a further six supermarket properties, with a net book value of £71 million (2008: £73 million)
has been pledged as security to underpin the residual value guarantee given by the Group with regards to 16 supermarket properties sold
in March 2000 and ten supermarket properties sold in July 2000.
Analysis of assets held under finance leases — Group
Land and buildings
Cost
Accumulated depreciation and impairment
Net book value
12 Intangible assets
Cost
At 23 March 2008
Additions
Acquisition of subsidiaries and businesses
Disposals
At 21 March 2009
Accumulated amortisation and impairment
At 23 March 2008
Amortisation expense for the year
Disposals
At 21 March 2009
Net book value at 21 March 2009
Cost
At 25 March 2007
Additions
Acquisition of subsidiaries and businesses
Transfer to assets held for sale
At 22 March 2008
Accumulated amortisation and impairment
At 25 March 2007
Amortisation expense for the year
At 22 March 2008
Net book value at 22 March 2008
2009
£m
50
(21)
29
Goodwill
£m
Pharmacy
licences
£m
Software
£m
114
—
10
(10)
114
-
-
-
-
114
112
—
4
(2)
114
—
—
—
114
36
—
—
(1)
35
20
3
(1)
22
13
36
—
—
—
36
17
3
20
16
121
10
—
—
131
86
12
-
98
33
115
6
—
—
121
71
15
86
35
2008
£m
51
(21)
30
Total
£m
271
10
10
(11)
280
106
15
(1)
120
160
263
6
4
(2)
271
88
18
106
165
The goodwill balance above relates to the Group’s acquired subsidiaries — Bells Stores Ltd, Jacksons Stores Ltd, JB Beaumont Ltd,
SL Shaw Ltd and Culcheth Provision Stores Ltd — and is allocated to the respective cash-generating units (“CGUs”) within the retailing
segment. The CGUs for this purpose are deemed to be the respective acquired retail chains of stores. The value of the goodwill was
tested for impairment during the current financial year by means of comparing the recoverable amount of each CGU to the carrying
value of its goodwill.
To calculate the CGU’s value in use, Board approved cash flows for the following financial year are assumed to inflate at the long-term
average growth rate for the UK food retail sector and are discounted at a pre-tax rate of ten per cent (2008: ten per cent) over a 25-year
period. Changes in income and expenditure are based on past experience and expectations of future changes in the market. Based on
the operating performance of the respective CGUs, no impairment loss was deemed necessary in the current financial year (2008: £nil).
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Annual Report and Financial Statements 2009 J Sainsbury plc
59
Notes to the financial statements continued
13 Investments in subsidiaries
Shares in subsidiaries — Company
Beginning of year
Additions
Acquisition of subsidiaries
End of year
The Company’s principal operating subsidiaries, all of which are directly owned by the Company, are:
JS Insurance Ltd
JS Information Systems Ltd
Sainsbury’s Supermarkets Ltd
Swan Infrastructure Holdings Ltd
2009
£m
2008
£m
7,169
93
—
7,262
7,166
—
3
7,169
Share of
ordinary
allotted
capital and
voting rights
Country of
registration or
incorporation
100%
100%
100%
100%
Isle of Man
England
England
England
All principal operating subsidiaries operate in the countries of their registration or incorporation, and have been consolidated up to and
as at 21 March 2009. The Company has taken advantage of the exemption in s231 of the Companies Act 1985 to disclose a list comprising
solely the principal subsidiaries. A full list of subsidiaries will be sent to Companies House with the next annual return.
14 Investments in joint ventures
On 26 March 2008, the Group made a cash investment of £274 million to create a 50:50 property joint venture with The British Land
Company PLC.
In the financial period, a further capital contribution of £17 million was invested in the joint venture with Land Securities Group PLC.
At 23 March 2008
Additions in year
Share of retained loss
Underlying profit after tax
Investment property fair value movements
Financing fair value movements
Dividends received
Unrealised profit on disposal of property, plant and equipment
Movements in equity (note 24)
At 21 March 2009
At 25 March 2007
Additions in year
Share of retained loss
Movements in equity (note 24)
At 22 March 2008
Group
shares
at cost
£m
138
291
-
-
-
-
-
-
-
429
76
62
—
—
138
Group share
of post-
acquisition
reserves
£m
10
-
16
(124)
(3)
(111)
(3)
(5)
(32)
(141)
22
—
(2)
(10)
10
Group
Total
£m
148
291
16
(124)
(3)
(111)
(3)
(5)
(32)
288
98
62
(2)
(10)
148
Company
shares
at cost
£m
91
-
-
-
-
-
-
-
-
91
76
15
—
—
91
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J Sainsbury plc Annual Report and Financial Statements 2009
Notes to the financial statements continued
14 Investment in joint ventures continued
The Group’s principal joint ventures were:
BL Sainsbury Superstores Limited (property investment — UK)
The Harvest Limited Partnership (property investment — UK)
Sainsbury’s Bank plc (financial services — UK)
Share of
ordinary
Year-end allotted capital
Country of
registration or
incorporation
31 March
31 March
31 December
50%
50%
50%
England
England
England
Where relevant, management accounts for the joint ventures have been used to include the results up to 21 March 2009.
The Group’s share of the assets, liabilities, income and expenses of its joint ventures are detailed below:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Income
Expenses
Loss after tax
2009
£m
1,398
1,494
(1,800)
(809)
2008
£m
1,069
2,405
(2,896)
(430)
283
148
239
(350)
(111)
237
(239)
(2)
Investments in joint ventures at 21 March 2009 include £5 million of goodwill (2008: £nil).
15 Available-for-sale financial assets
Non–current
Unlisted equity investments
Interest bearing financial assets
Other financial asset
Group
2009
£m
-
7
90
97
Group
2008
£m
1
-
105
106
Company
2009
£m
Company
2008
£m
-
7
-
7
-
-
-
-
The majority of available-for-sale financial assets are denominated in sterling.
The other financial asset represents the Group’s beneficial interest in a commercial property investment pool. The fair value of
other financial asset is based on discounted cash flows assuming a property rental growth rate of 2.8 per cent (2008: 2.8 per cent)
and a weighted average cost of capital of ten per cent (2008: ten per cent). There were no disposals or impairment provisions on
available-for-sale financial assets in either the current or the previous financial year (see note 29 for sensitivity analysis).
16 Inventories
Goods held for resale
2009
£m
689
2008
£m
681
The amount of inventories recognised as an expense and charged to cost of sales for the 52 weeks to 21 March 2009 was
£14,490 million (2008: £13,557 million).
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Notes to the financial statements continued
17 Receivables
Trade and other receivables
Non-current
Amounts due from Group entities
Other receivables
Current
Trade receivables
Amounts due from Group entities
Other receivables
Prepayments and accrued income
Group
2009
£m
—
45
45
49
-
88
137
58
195
Group
2008
£m
Company
2009
£m
Company
2008
£m
-
55
55
32
-
83
115
91
206
1,005
45
1,050
-
369
11
380
-
380
921
55
976
-
358
1
359
-
359
Non-current other receivables of £45 million (2008: £55 million) comprise £15 million of floating rate subordinated undated loan capital
(2008: £25 million) and £30 million of floating rate subordinated dated loan capital due from Sainsbury’s Bank plc (2008: £30 million)
(note 34). Current other receivables include £10 million of floating rate subordinated undated loan capital due from Sainsbury’s Bank plc
(2008: £nil) (note 34).
Trade receivables are non-interest bearing and are on commercial terms. Current other receivables are generally non-interest bearing.
The Group’s exposure to credit risk arising from its retail operations is minimal given that the customer base is large and unrelated and
that the overwhelming majority of customer transactions are settled through cash or secure electronic means. New parties wishing to
obtain credit terms with the Group are credit checked by the accounts receivable credit control team prior to any invoices being raised,
credit limits are determined on an individual basis.
The Group has trade and other receivables of £5 million (2008: £3 million) that are past due but not impaired. These relate to a number
of independent receivables for whom there is no recent history of default. These have not been provided for as there has not been a
significant change in the credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over
these balances.
The ageing analysis of these trade and other receivables are as follows:
Up to 8 weeks
Over 8 weeks
2009
£m
2008
£m
5
-
5
3
—
3
Group trade and other receivables of £2 million (2008: £1 million) and Company amounts due from Group entities of £8 million
(2008: £14 million) are impaired and provided for. The ageing of these receivables are as follows:
Group
2009
£m
Group
2008
£m
Company
2009
£m
Company
2008
£m
-
-
-
2
2
-
-
-
1
1
8
-
-
-
8
14
—
-
-
14
Group
2009
£m
Group
2008
£m
Company
2009
£m
Company
2008
£m
1
1
-
2
2
-
(1)
1
14
-
(6)
8
14
-
-
14
Current
Up to 8 weeks
8 to 20 weeks
Over 20 weeks
Movements in the provision for impairment of trade and other receivables are as follows:
At beginning of year
Additional provision
Release of provision
End of year
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J Sainsbury plc Annual Report and Financial Statements 2009
Notes to the financial statements continued
17 Receivables continued
The carrying amounts of trade and other receivables are denominated in the following currencies:
Sterling
Euro
Group
2009
£m
240
-
240
Group
2008
£m
260
1
261
Company
2009
£m
1,430
-
1,430
Company
2008
£m
1,335
-
1,335
Concentrations of credit risk with respect to trade and current other receivables are limited due to the Group’s customer base being large
and unrelated. Major counterparties are identified as follows:
Trade receivables
Other receivables
Related parties
2009
Number of
counterparties
2009
Balance
2008
Number of
£m counterparties
1
1
1
8
18
56
1
2
1
2008
Balance
£m
9
30
61
Significant trade receivables identified above relate to amounts receivable from credit card companies. The balance is not considered past
due or impaired.
At 21 March 2009, major other receivables include amounts due from the National Health Service of £18 million. At 22 March 2008 major
other receivables included amounts due from the National Health Service of £16 million for pharmacy sales, and loans to developers of
£14 million for capital expenditure.
Related party receivables are from the Group’s joint venture, Sainsbury’s Bank plc. Loans are approved by the Investment Committee and
are determined by the Financial Services Authority’s capital funding requirements.
No major counterparty balances are considered overdue or impaired.
18 Non-current assets held for sale
Non-current assets held for sale of £21 million (2008: £112 million) consist of non-current assets relating to properties held in the retail
operations division. Sale of these assets is expected to occur in the next financial year beginning 22 March 2009.
19 Payables
Trade and other payables
Current
Trade payables
Amounts due to Group entities
Other payables
Accruals and deferred income
Non–current
Amounts due to Group entities
Accruals and deferred income
Group
2009
£m
1,728
-
508
252
2,488
-
92
92
Group
2008
£m
Company
2009
£m
1,703
—
329
248
2,280
-
3,479
10
-
3,489
—
89
89
2,037
-
2,037
Company
restated1
2008
£m
—
3,324
10
—
3,334
1,803
—
1,803
1 The restatement of certain comparative amounts is explained in note 2 on page 52.
The Group’s policy on payment of creditors is to agree terms of payment prior to commencing trade with a supplier and to abide by those
terms on the timely submission of satisfactory invoices.
Deferred income relates to the accounting for leases with fixed rental increases and lease incentives on a straight-line basis over the term
of the lease.
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Notes to the financial statements continued
20 Borrowings
Bank overdrafts
Bank loans
Secured loans
Loan due 20181
Loan due 20311
Term loan due 2015
Loan notes
Obligations under finance leases
Total borrowings
Bank overdrafts
Bank loans
Total borrowings
Group
2009
Within
one year
£m
28
35
37
33
12
8
1
154
Group
2009
After
one year
£m
-
-
1,105
872
150
2
48
2,177
Company
2009
Within
one year
£m
Company
2009
After
one year
£m
8
35
43
-
-
-
Group
2009
Total
£m
28
35
1,142
905
162
10
49
2,331
Company
2009
Total
£m
8
35
43
Group
2008
Within
one year
£m
118
—
36
11
-
-
-
165
Company
2008
Within
one year
£m
88
—
88
Group
2008
After
one year
£m
—
—
1,097
891
-
-
49
2,037
Company
2008
After
one year
£m
-
-
-
Group
2009
Total
£m
118
—
1,133
902
-
-
49
2,202
Company
2008
Total
£m
88
—
88
1
The financial statements for the 52 weeks to 22 March 2008 included all long-term borrowings within non-current liabilities. £47 million of the long-term borrowings (included in non-current borrowings)
at 22 March 2008 were due within one year and have been reclassified within the comparative amounts.
Bank overdrafts
Bank overdrafts are repayable on demand and bear interest at a spread above bank base rate.
Bank loans
On 9 May 2008, the Group entered a 12-month £35 million bilateral loan facility which bears interest at a spread above LIBOR.
•
Secured loans
Secured loans are secured on 128 (2008: 127) supermarket properties (note 11) and comprise loans from two finance companies:
a fixed rate loan with an outstanding principal value of £1,130 million (2008: £1,159 million) at a weighted average rate of
4.97 per cent stepping up to 5.36 per cent from April 2013 (effective interest rate of 5.23 per cent and carrying amount of £1,142 million
(2008: £1,133 million)) repayable over nine years; and
an inflation linked loan with an outstanding principal value of £872 million (2008: £867 million) at a fixed real rate of 2.36 per cent
where principal and interest are uplifted annually by RPI subject to a cap at five per cent and floor at nil per cent with a carrying amount
of £905 million (2008: £902 million) repayable over 22 years.
•
The Group has entered into interest rate swaps to convert £211 million (2008: £602 million) of the £1,130 million (2008: £1,159 million) loan
due 2018 from fixed to floating rates of interest. These transactions have been accounted for as fair value hedges (note 30). During the
year, £391 million of the £602 million swaps accounted for as fair value hedges as at March 2008 were de-designated from their fair value
hedging relationship. The fair value of the debt previously hedged by these swaps will be amortised over the remaining life of the loans,
resulting in an amortisation charge to the income statement in the current financial year of £770,000 (2008: £136,000).
Term loans due 2015
On 23 May 2008, the Group entered into a £150 million seven-year term loan. The coupon on the loan comprises a fixed rate and a floating
rate. The carrying amount of the loan is £162 million and the loan is repayable over six years.
Undrawn borrowing facilities
£400 million revolving credit facility
£163 million revolving credit facility1
1 The £163 million revolving credit facility was entered into on 9 May 2008.
Expiry of
facility
February 2012
May 2011
No amounts were drawn down on the facilities at either 21 March 2009 or 22 March 2008.
Subsequent to 21 March 2009, the Group entered into agreements to extend the £35 million bank loan to £50 million with an expiry date
of May 2012 and to enter into a revolving credit facility of £50 million with an expiry date of May 2012.
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Notes to the financial statements continued
20 Borrowings continued
Obligations under finance leases
Amounts payable under finance leases:
Within 1 year
Within 2 to 5 years inclusive
After 5 years
Less: future finance charges
Present value of lease obligations
Disclosed as:
Current
Non-current
Minimum
lease
payments
2009
£m
Minimum
lease
payments
2008
£m
Present
value of
minimum
lease
payments
2009
£m
Present
value of
minimum
lease
payments
2008
£m
1
1
47
49
-
1
48
49
3
12
177
192
(143)
49
1
48
49
3
12
188
203
(154)
49
-
49
49
Finance leases have effective interest rates of 4.30 per cent to 8.50 per cent (2008: 4.30 per cent to 8.50 per cent). The average
remaining lease term is 77 years (2008: 77 years).
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Notes to the financial statements continued
21 Deferred taxation
The movements in deferred income tax assets and liabilities during the financial year, prior to the offsetting of the balances within the
same tax jurisdiction, are shown below.
Group
Deferred income tax liabilities
At 23 March 2008
Credit/(charge) to income statement
Credit to equity
At 21 March 2009
At 25 March 2007
Credit/(charge) to income statement
Charge to equity
Rate change adjustment to income statement
Rate change adjustment to equity
At 22 March 2008
Deferred income tax assets
At 23 March 2008
(Charge)/credit to income statement
Credit to equity
At 21 March 2009
At 25 March 2007
(Charge)/credit to income statement
Charge to equity
Prior year adjustment to equity
Rate change adjustment to income statement
Rate change adjustment to equity
At 22 March 2008
Net deferred income tax liability
At 21 March 2009
At 22 March 2008
Accelerated tax
depreciation
£m
Fair value
gains
£m
Other
property1
£m
Other
£m
Total
£m
(165)
27
-
(138)
(200)
28
—
7
—
(165)
(30)
-
4
(26)
(29)
-
(3)
—
2
(30)
(68)
(25)
-
(93)
(72)
(2)
-
6
—
(68)
(39)
12
-
(27)
(39)
(2)
—
2
-
(39)
Provisions
£m
Retirement
benefit
obligations
£m
Share-based
payment
£m
Capital
losses1
£m
Tax losses
£m
11
(8)
-
3
14
(3)
-
-
-
-
11
(129)
(37)
253
87
48
(26)
(161)
-
-
10
(129)
31
(4)
-
27
30
9
(19)
13
(1)
(1)
31
68
4
-
72
72
2
-
-
(6)
-
68
-
-
-
-
8
-
(8)
-
-
-
-
(302)
14
4
(284)
(340)
24
(3)
15
2
(302)
Total
£m
(19)
(45)
253
189
172
(18)
(188)
13
(7)
9
(19)
(95)
(321)
1
In prior years, the deferred tax liability in relation to other property was offset by the deferred tax asset on capital losses. This year the balances have been disclosed separately, with the prior year values
reclassified for comparative purposes.
Company
Deferred income tax liabilities
At 23 March 2008
Charge to income statement
At 21 March 2009
At 25 March 2007
Charge to income statement
Rate change adjustment to income statement
At 22 March 2008
Other
property1
£m
(65)
—
(65)
(70)
-
5
(65)
Total
£m
(65)
—
(65)
(70)
-
5
(65)
1
In prior years, the deferred tax liability in relation to other property was offset by the deferred tax asset on capital losses. This year the balances have been disclosed separately, with the prior year values
reclassified for comparative purposes.
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J Sainsbury plc Annual Report and Financial Statements 2009
Notes to the financial statements continued
21 Deferred taxation continued
Deferred income tax assets
At 23 March 2008
Charge to income statement
At 21 March 2009
At 25 March 2007
Charge to income statement
Rate change adjustment to income statement
At 22 March 2008
Net deferred income tax asset
At 21 March 2009
At 22 March 2008
Fair value
losses
£m
Capital
losses1
£m
Total
£m
1
-
1
1
-
-
1
65
-
65
70
-
(5)
65
66
-
66
71
-
(5)
66
1
1
1
In prior years, the deferred tax liability in relation to other property was offset by the deferred tax asset on capital losses. This year the balances have been disclosed separately, with the prior year values
reclassified for comparative purposes.
Deferred income tax assets have been recognised in respect of all income tax losses and other temporary differences giving rise to
deferred income tax assets because it is probable that these assets will be recovered. Deferred income tax assets and liabilities are only
offset where there is a legally enforceable right of offset and there is an intention to settle the balances on a net basis.
22 Provisions
At 23 March 2008
Charge to income statement
Additional provisions
Unused amounts reversed
Utilisation of provision
Amortisation of discount
At 21 March 2009
At 25 March 2007
Charge to income statement
Additional provisions
Unused amounts reversed
Utilisation of provision
Amortisation of discount
Transfer to retirement benefit obligations (note 31)
At 22 March 2008
Disclosed as:
Current
Non-current
Group
onerous
leases
£m
Group
restructuring
and disposal
provisions
£m
Group
long
service
awards
£m
40
11
(8)
(7)
1
37
46
10
(4)
(13)
1
-
40
26
7
-
(1)
-
32
30
-
-
(2)
-
(2)
26
7
-
-
-
-
7
7
-
-
-
-
-
7
Group
total
£m
73
18
(8)
(8)
1
76
83
10
(4)
(15)
1
(2)
73
Group
2009
£m
19
57
76
Company
onerous
leases
£m
Company
disposal
provision
£m
Company
total
£m
4
-
-
-
-
4
7
-
(2)
(1)
-
-
4
25
-
-
(1)
-
24
25
-
-
-
-
-
25
29
-
-
(1)
-
28
32
-
(2)
(1)
-
-
29
Group
2008
£m
Company
2009
£m
Company
2008
£m
10
63
73
1
27
28
2
27
29
The onerous lease provision covers residual lease commitments of up to an average of 30 years (2008: 30 years), after allowance for
existing or anticipated sublet rental income.
The restructuring provisions are expected to be utilised in the financial year beginning 22 March 2009. The disposal provisions relate to
indemnities arising from the disposal of subsidiaries, the timing of utilisation of which is uncertain.
Long service awards are accrued over the period the service is provided by the employee.
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Notes to the financial statements continued
23 Called up share capital and share premium account
Group and Company
Authorised share capital
Ordinary shares of 284/7 pence each (2008: 284/7 pence)
Preference B shares of 35 pence each (2008: 35 pence)
Called up share capital
Allotted and fully paid — ordinary shares
Share premium account
Share premium
The movements in the called up share capital and share premium account are set out below:
At 23 March 2008
Allotted in respect of share option schemes
At 21 March 2009
At 25 March 2007
Allotted in respect of share option schemes
At 22 March 2008
24 Capital redemption and other reserves
2009
million
2008
million
2009
£m
2008
£m
2,450
2,100
2,450
2,100
700
735
700
735
1,753
1,747
501
499
909
896
Ordinary
shares
million
1,747
6
1,753
1,734
13
1,747
Ordinary
shares
£m
Share
premium
£m
499
2
501
495
4
499
896
13
909
857
39
896
Group and
Company
Capital
redemption
reserve
£m
Group
Currency
translation
reserve
£m
Group
Actuarial
(losses)/
gains
£m
Group
Available-
for-sale
assets
£m
Group
Cash flow
hedge
reserve
£m
Group
Total
other
reserves
£m
Company
Other
reserves
£m
680
(1)
427
124
(56)
494
At 23 March 2008
Actuarial losses on defined benefit pension
schemes (net of tax)
Available-for-sale financial assets fair value
movements (net of tax)
Group
Joint ventures (note 14)
Cash flow hedges effective portion of fair
value movements (net of tax)
Group
Joint ventures (note 14)
At 21 March 2009
At 25 March 2007
B shares redemption
Actuarial gains on defined benefit pension
schemes (net of tax)
Available-for-sale financial assets fair value
movements (net of tax)
Group
Joint ventures (note 14)
Cash flow hedges effective portion of fair value
movements (net of tax)
Group
Joint ventures (note 14)
-
-
-
-
-
680
670
10
-
-
-
-
-
-
-
-
-
-
(1)
(1)
-
-
-
-
-
-
(650)
-
-
-
-
-
(12)
-
-
-
(223)
112
37
-
107
-
390
-
-
-
-
-
(31)
48
-
-
-
-
-
9
(32)
(79)
-
-
-
-
-
2
(58)
(56)
(650)
(12)
-
9
(32)
(191)
143
-
390
(31)
48
2
(58)
494
-
-
(1)
-
-
-
(1)
-
-
-
-
-
-
-
-
At 22 March 2008
680
(1)
427
124
Capital redemption reserve represents the redemption of B shares. Shareholders approved a £680 million return of share capital,
by way of a B share scheme, at the Company’s Extraordinary General Meeting on 12 July 2004. 1,943,173,266 B shares were issued
on 19 July 2004. Shareholders owning 320,050,073 B shares elected to receive the initial dividend payment of 35 pence each and
these shares were subsequently converted to deferred shares. The remaining shares were redeemed at a later date for 35 pence each.
The final redemption date for B Shares was 18 July 2007 and all transactions relating to the B shares have now been completed.
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J Sainsbury plc Annual Report and Financial Statements 2009
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Notes to the financial statements continued
24 Capital redemption and other reserves continued
Currency translation reserve represents the foreign exchange differences on the translation of the net assets of the Group’s foreign
operations from their functional currency to the presentation currency of the parent.
Actuarial gains/losses reserve represents the actuarial gains and losses on the defined benefit pension schemes operated by the Group.
Available-for-sale assets reserve represents the fair value gains and losses on the available-for-sale financial assets held by the Group.
Cash flow hedge reserve represents the cumulative effective fair value gains and losses on cash flow hedges in the Group.
25 Retained earnings
At 23 March 2008
Profit for the year
Dividends paid
Share-based payment
Shares vested
Allotted in respect of share option schemes
At 21 March 2009
At 25 March 2007
Profit for the year
Dividends paid
Share-based payment
B shares redemption
Shares vested
Allotted in respect of share option schemes
At 22 March 2008
Group
Own shares
£m
(79)
-
-
-
45
-
(34)
(83)
-
-
-
-
4
-
(79)
Group
Group
Profit and Total retained
earnings
£m
loss account
£m
2,445
289
(218)
40
-
(45)
2,366
289
(218)
40
45
(45)
2,511
2,477
2,267
329
(178)
41
(10)
-
(4)
2,184
329
(178)
41
(10)
4
(4)
Company
Retained
earnings
restated1
£m
1,697
165
(218)
-
-
93
1,737
1,795
90
(178)
-
(10)
-
-
2,445
2,366
1,697
1
The restatement of certain comparative amounts is explained in note 2 on page 52.
Own shares held by Employee Share Ownership Plan (“ESOP”) trusts
The Group owned 9,650,780 (2008: 22,497,295) of its ordinary shares of 284/7 pence nominal value each. At 21 March 2009, the total
nominal value of the own shares was £2.8 million (2008: £6.4 million).
As at 21 March 2009 none of the own shares are held by an ESOP trust on behalf of certain Directors and senior employees under the
Group’s Performance Share Plan (2008: 37,627). All shares (2008: 22,459,668) are held by an ESOP trust for the Executive Share Option
Plan. The ESOP trusts waive the rights to the dividends receivable in respect of the shareholder under the above schemes.
The cost of the own shares is deducted from equity in the Group financial statements. The market value of the own shares at 21 March 2009
was £30.2 million (2008: £74.9 million).
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Notes to the financial statements continued
26 Reconciliation of movements in equity
Group
At 23 March 2008
Profit for the year
Dividends paid
Share-based payments
Actuarial losses on defined benefit pension schemes (net of tax)
Available-for-sale financial assets fair value movements (net of tax)
Group
Joint ventures
Cash flow hedges effective portion of fair value movements (net of tax)
Group
Joint ventures
Shares vested
Allotted in respect of share option schemes
Called up
share
capital
£m
Share
premium
account
£m
499
-
-
-
-
-
-
-
-
-
2
896
-
-
-
-
-
-
-
-
-
13
Capital
redemption
and other
reserves
£m
1,174
-
-
-
(650)
(12)
-
9
(32)
-
-
Equity
Retained shareholders’
funds
earnings
£m
£m
2,366
289
(218)
40
-
4,935
289
(218)
40
(650)
-
-
-
-
45
(45)
(12)
-
9
(32)
45
(30)
At 21 March 2009
501
909
489
2,477
4,376
At 25 March 2007
Profit for the year
Dividends paid
Share-based payments
Actuarial gains on defined benefit pension schemes (net of tax)
Available-for-sale financial assets fair value movements (net of tax)
Group
Joint ventures
Cash flow hedges effective portion of fair value movements (net of tax)
Group
Joint ventures
B shares redemption
Shares vested
Allotted in respect of share option schemes
495
-
-
-
-
-
-
-
-
-
-
4
857
-
-
-
-
-
-
-
-
-
-
39
813
-
-
-
390
(31)
48
2
(58)
10
-
-
2,184
329
(178)
41
-
4,349
329
(178)
41
390
-
-
-
-
(10)
4
(4)
(31)
48
2
(58)
-
4
39
At 22 March 2008
499
896
1,174
2,366
4,935
Company
At 23 March 2008
Profit for the year
Dividends paid
Available-for-sale financial assets fair value movement (net of tax)
Allotted in respect of share option schemes
At 21 March 2009
At 25 March 2007
Profit for the year
Dividends paid
B shares redemption
Allotted in respect of share option schemes
At 22 March 2008
1 The restatement of certain comparative amounts is explained in note 2 on page 52.
Called up
share
capital
£m
Share
premium
account
£m
Capital
redemption
and other
reserves
£m
Equity
Retained shareholders’
earnings
funds
restated1
restated1
£m
£m
499
-
-
-
2
501
495
-
-
-
4
499
896
-
-
-
13
909
857
-
-
-
39
896
680
-
-
(1)
-
679
670
-
-
10
-
680
1,697
165
(218)
-
93
3,772
165
(218)
(1)
108
1,737
3,826
1,795
90
(178)
(10)
-
3,817
90
(178)
-
43
1,697
3,772
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J Sainsbury plc Annual Report and Financial Statements 2009
Notes to the financial statements continued
27 Notes to the cash flow statements
(a) Reconciliation of operating profit to cash generated from operations
Operating profit
Adjustments for
Depreciation expense
Amortisation expense
Profit on sale of properties
Fair value gain on other financial asset
Foreign exchange differences
Share-based payments expense
Operating cash flows before changes in working capital
Changes in working capital
Increase in inventories
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Increase/(decrease) in provisions and other liabilities
Adjustment for retirement benefit obligations1
Cash generated from operations
Group
2009
£m
673
453
15
(57)
-
(10)
40
Group
2008
£m
530
463
18
(7)
(22)
(2)
53
1,114
1,033
(8)
23
148
4
(75)
(94)
(26)
96
(7)
(4)
1,206
998
Company
2009
£m
Company
restated2
2008
£m
(18)
1
-
(21)
-
-
-
(38)
-
(60)
301
-
-
203
(3)
1
-
-
-
-
-
(2)
-
19
(141)
(2)
-
(126)
1
The adjustment for retirement benefit obligations reflects the difference between the service charges of £53 million (2008: £78 million) for the defined benefit schemes and the cash contributions of
£128 million made by the Group to the defined benefit schemes (2008: £82 million).
2 The restatement of certain comparative amounts are explained in note 2 on page 52.
(b) Cash and cash equivalents
For the purposes of the cash flow statements, cash and cash equivalents comprise the following:
Cash and cash equivalents
Bank overdrafts (note 20)
Group
2009
£m
627
(28)
599
Group
2008
£m
719
(118)
601
Company
2009
£m
Company
2008
£m
460
(8)
452
324
(88)
236
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Notes to the financial statements continued
28 Analysis of net debt
Non-current assets
Interest bearing available-for-sale financial assets
Derivative financial instruments
Current assets
Cash and cash equivalents
Derivative financial instruments
Current liabilities
Bank overdrafts
Borrowings1
Obligations under finance leases
Derivative financial instruments
Non–current liabilities
Borrowings1
Obligations under finance leases
Derivative financial instruments
Total net debt
23 March
2008
£m
Cash flow
£m
Other
non-cash
movements
£m
21 March
2009
£m
-
-
-
719
4
723
(118)
(47)
-
(6)
(171)
(1,988)
(49)
(18)
(2,055)
(1,503)
8
-
8
(92)
-
(92)
90
(13)
-
-
77
(152)
-
-
(152)
(159)
(1)
31
30
-
55
55
-
(65)
(1)
(50)
(116)
11
1
10
22
7
31
38
627
59
686
(28)
(125)
(1)
(56)
(210)
(2,129)
(48)
(8)
(2,185)
(9)
(1,671)
1
The financial statements for the 52 weeks to 22 March 2008 included all long-term borrowings within non-current liabilities. £47 million of the long-term borrowings (included in non-current borrowings) at
22 March 2008 were due within one year and have been reclassified within the comparative amounts.
Net debt incorporates the Group’s borrowings (including accrued interest), bank overdrafts, interest bearing available-for-sale financial
assets, fair value of derivatives and obligations under finance leases, less cash and cash equivalents.
Reconciliation of net cash flow to movement in net debt
Decrease in cash and cash equivalents
(Increase)/decrease in debt
Disposal of derivative financial instruments
Other non-cash movements
Increase in net debt in the year
Opening net debt at the beginning of the year
Closing net debt at the end of the year
2009
£m
(2)
(157)
-
(9)
2008
£m
(164)
39
7
(5)
(168)
(1,503)
(123)
(1,380)
(1,671)
(1,503)
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J Sainsbury plc Annual Report and Financial Statements 2009
Notes to the financial statements continued
29 Financial risk management
The Group’s activities expose it to a variety of financial risks including liquidity risk, credit risk and market risk.
Funding and financial risk management are managed by a central treasury department in accordance with policies and guidelines approved
by the Board of Directors. The risk management policies are designed to minimise potential adverse effects on the Group’s financial
performance by identifying the various risks and setting appropriate risk limits and controls. The Finance Committee of the Board of
Directors has responsibility for approving specific financial transactions. The Treasury Committee, chaired by the Chief Financial Officer,
regularly reviews risk positions and monitors performance. The Group Audit Committee oversees management compliance with risk
management policies and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group
Audit Committee is assisted by Group Internal Audit who regularly review the Group’s risk management controls and procedures.
The Group only uses derivative financial instruments to hedge exposures arising in respect of underlying business requirements and not
for any speculative purpose.
Treasury operations in respect of Sainsbury’s Bank are managed separately through Lloyds Banking Group, the Group’s joint
venture partner.
Liquidity risk
The Group’s operational cash flow is largely stable and predictable, reflecting the low business risk profile of the food retail business.
Cash flow forecasts are produced regularly to assist management in identifying future liquidity requirements.
The Group’s liquidity policy requires that it maintains committed funding to cover cash flow requirements over an 18-month period.
This is achieved by structuring core debt with long-term maturities, pre-funding operational cash flows and maturing debt obligations
and maintaining a portfolio of committed standby credit facilities.
Core funding is mainly comprised of two long-term loans entered into in March 2006 and secured over property assets held in two
subsidiary companies. The loans comprise £1,130 million with a legal maturity of April 2018 and £872 million with a legal maturity of 2031.
During the year the Company also entered into a £150 million loan maturing 2015 and a £35 million bank loan maturing May 2009.
Short-term and seasonal funding is sourced from the wholesale inter-bank money market where interest is charged at various spreads
over LIBOR. The Group also maintains a £35 million net overdraft facility under which debit and credit balances of the various subsidiary
accounts covered by the facility are netted for the purpose of charging interest. The table below includes the gross overdrawn balances
within this facility and the offsetting cash balances under this arrangement are included within cash and cash equivalents (see note 27b).
Interest arising on any net overdraft balances is charged at a margin above bank base rate.
For standby purposes the Group maintains a £400 million committed revolving credit facility maturing February 2012 and a £163 million
committed revolving credit facility maturing May 2011. Interest on drawings under these facilities is charged at margins above LIBOR.
There are £nil drawings under the committed facilities as at 21 March 2009 (2008: £nil drawings).
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance
sheet date to the contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash flows or an
estimate in respect of floating interest rate liabilities.
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Notes to the financial statements continued
29 Financial risk management continued
Group
At 21 March 2009
Notional overdraft
Borrowings
Bank loan
Secured loan due 2018
Secured loan due 20311
Term loan due 2015
Loan notes
Obligations under finance leases
Trade and other payables
At 22 March 2008
Notional overdraft
Borrowings
Secured loan due 2018
Secured loan due 20311
Obligations under finance leases
Trade and other payables
Company
At 21 March 2009
Notional overdraft
Bank loan
Amounts due to Group entities2
Other payables
At 22 March 2008
Notional overdraft
Amounts due to Group entities2
Other payables
Less than
one year
£m
One to two
years
£m
Two to five
years
£m
More than
five years
£m
28
35
85
53
13
8
3
2,487
118
86
53
3
2,272
-
-
85
54
12
2
3
-
-
85
170
3
-
-
-
224
170
37
-
9
-
-
-
1,221
1,239
175
-
177
-
-
-
256
1,302
9
-
1,276
188
-
52
Less than
one year
£m
One to two
years
£m
Two to five
years
£m
More than
five years
£m
8
35
3,540
10
-
-
1,139
-
88
3,761
10
-
1,135
-
-
-
118
-
-
113
-
-
-
952
-
-
946
-
Assumptions
1
2 Cash flows relating to debt bearing a floating interest rate have been calculated using the prevailing interest rates at 21 March 2009 and 22 March 2008.
Cash flows relating to debt linked to inflation rates have been calculated at projected RPI.
The table below analyses the Group’s net settled derivative financial instruments into relevant maturity groupings based on the period
remaining from the balance sheet date to the contractual maturity date. The amounts disclosed in the tables are the net contractual
undiscounted cash flows.
At 21 March 2009
Commodity contracts
Outflow
Interest rate swaps on secured loan due 2018
Inflow1
Other interest rate swaps:
(Inflow)1/outflow
At 22 March 2008
Interest rate swaps on secured loan due 2018
Outflow1
Other interest rate swaps
Inflow
Less than
one year
£m
One to two
years
£m
Two to five
years
£m
More than
five years
£m
(2)
-
7
(2)
(2)
-
(1)
-
(7)
(2)
1
(1)
-
(11)
(4)
1
(1)
-
6
(7)
Assumption
1 The ten-year swap rate at 19 January 2009 has been used to calculate the floating rate cash flows over the life of the interest rate swaps shown above (2008: 19 January 2008).
The Group holds commodity contracts, for which the outflow figures in the table above have been calculated. The commodity contracts are
at fair values prevailing at the reporting dates. At 21 March 2009, £5 million relating to these financial instruments has been recognised
in equity.
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Notes to the financial statements continued
29 Financial risk management continued
The table below analyses the Group’s gross settled derivative financial instruments into relevant maturity groupings based on the
period remaining from the balance sheet date to the contractual maturity date. The amounts disclosed in the tables are the contractual
undiscounted cash flows.
At 21 March 2009
Forward foreign exchange contracts — cash flow hedges
Outflow
Inflow
At 22 March 2008
Forward foreign exchange contracts — cash flow hedges
Outflow
Inflow
Less than
one year
£m
One to two
years
£m
Two to five
years
£m
More than
five years
£m
120
(142)
22
(22)
134
(137)
4
(4)
-
-
-
-
-
-
-
-
The Group holds foreign exchange forward contracts, for which the inflow figures in the table above have been calculated by translating
the foreign currency forward commitments at spot exchange rates prevailing at the reporting dates. At 21 March 2009, £17 million relating
to these financial instruments has been recognised in equity (2008: £2 million).
Credit risk
The Group’s exposures to credit risk arise from holdings of cash and cash equivalents, derivative financial assets, deposits with banks,
investments in marketable securities and trade receivables (note 17).
The Group deposits surplus funds on the wholesale inter-bank money markets with approved banks or into pooled money market funds.
The Group’s credit policy limits investments to banks or liquid securities which carry minimum short-term credit ratings of A1 from
Standard & Poor’s and P1 from Moody’s Investors Service or, in the case of money market funds, AAAm from Standard & Poor’s and Aaa
from Moody’s Investors Service.
The table below analyses the Group’s cash and cash equivalents by credit exposure excluding bank balances, store cash and cash in transit:
Counterparty
Financial institutions - Money Market Funds
Financial institutions — Money Market Deposits
Rating
AAAm/Aaa
A1+/P1
2009
£m
410
28
2008
£m
300
11
During the year there were no breaches of deposit limits and management does not expect any losses from non-performance of deposit
counterparties.
Interest rate swaps and foreign exchange contracts are used by the Group to hedge interest rate and currency exposures. The table below
analyses the fair value of the Group’s derivative financial assets by credit exposure.
Counterparty
Interest rate swaps
Interest rate swaps
FX forward contracts
FX forward contracts
Short
rating
Long
rating
2009
£m
2008
£m
A1/P1
A1/P1
A1+/P1
A1/P1
A/A2
A+/Aa2
-
-
19
37
4
18
-
-
4
-
Market risk
(a) Currency risk
The Group is exposed to currency risk principally on future inventory purchases denominated in currencies other than pound sterling,
primarily euros and US dollars but also Hong Kong dollars, Polish zloty, Australian dollars and New Zealand dollars. The Group also has
limited exposure in respect of recognised foreign currency assets and liabilities.
The Group’s risk management policy seeks to limit the impact of movements in exchange rates on Group income by requiring anticipated
foreign currency cash flows in US dollars and euros to be hedged. The future cash flows, which may be either contracted or un-contracted,
are hedged on a layered basis between 80 per cent and 20 per cent using forward contracts.
The Group has limited exposure to currency risk on balances held on foreign currency denominated bank accounts, which may arise due
to short-term timing differences on maturing hedges and underlying supplier payments.
A 20 per cent change in the value of the US dollar versus sterling at the balance sheet date with all other variables held constant would
have increased or decreased post-tax profit or loss for the year by £2 million (ten per cent change 2008: £20,000), as a result of gains or
losses on translation of US dollar cash balances and US dollar denominated trade payables and receivables.
A 20 per cent change in the value of euro versus sterling at the balance sheet date with all other variables held constant would have
increased or decreased post-tax profit or loss for the year by £1 million (ten per cent change 2008: £500,000), as a result of gains or
losses on translation of euro cash balances and euro denominated trade payables and receivables.
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Notes to the financial statements continued
29 Financial risk management continued
Movements of this magnitude in the other currencies noted above would have an immaterial impact on both the income statement
and equity.
(b) Interest rate risk
The Group is exposed to interest rate risk on its portfolio of interest bearing borrowings and deposits. The Group’s interest rate policy
seeks to minimise interest expense and volatility by structuring the interest rate profile into a diversified portfolio of fixed rate, floating
rate and inflation-linked liabilities.
Inflation-linked cash flows arising on the Group’s long-term borrowings remain an effective source of diversification within the liability
portfolio, a hedge of the Group’s revenues as well as a means of reducing balance sheet risk. These cash flows arose as part of a general
refinancing exercise undertaken in March 2006.
(i) Fair value sensitivity for fixed rate instruments
The Group holds £1,130 million of fixed rate debt (2008: £1,159 million), of which £211 million (2008: £602 million) has been swapped
into floating rate debt with interest rate swaps. The remaining £919 million (2008: £557 million) portion of fixed rate debt is recorded
at amortised cost and a change in interest rates at the reporting date would not affect the income statement.
(ii) Cash flow sensitivity for variable rate instruments
The £211 million portion of fixed rate debt swapped to floating rates (2008: £602 million) and the associated interest rate swaps have been
designated as being in a hedging relationship. The interest rate swaps and the gain or loss on the hedged item attributable to the hedged
risk are recognised at fair value through profit or loss.
The two movements in fair values on the underlying fixed rate debt and the interest rate swaps largely offset one another in the income
statement. A change of 200 basis points in interest rates at the balance sheet date would have increased or decreased post-tax profit or
loss by £3 million (a change of 100 basis points 2008: £4 million) representing the increased cost of the floating rate leg of the swaps.
For the year, the fair value movement in the interest rate swaps has resulted in a credit to the income statement of £35 million
(2008: £25 million). The fair value movement in the underlying fixed rate debt has resulted in a charge to the income statement of
£35 million (2008: £25 million). The net movement is a credit to the income statement of £691,000 which represents the ineffectiveness
on the hedging relationship (2008: £282,000).
At the balance sheet date the Group held the following interest rate swaps not in a hedging relationship; a notional value of £256 million
(2008: £75 million) of fixed rate borrowings into floating rates of interest and a notional value of £391 million (2008: £nil) of floating
borrowings into fixed rates of interest. Interest rate swaps not held in a hedging relationship are recognised at fair value through profit
or loss. An increase of 200 basis points in interest rates would have decreased post-tax profit or loss by £3 million (2008: £4 million).
A decrease of 200 basis points in interest rates would have decreased post-tax profit or loss by £7 million (2008: £10 million) represented
by a movement in the fair value and interest rates for the year.
For the year, the fair value movement in the interest rate swaps has resulted in a charge to the income statement of £6 million (2008:
£4 million).
(iii) Cash flow sensitivity for inflation-linked variable instruments
The Group holds £872 million of inflation-linked debt (2008: £867 million) which is recorded at amortised cost. A change of 100 basis
points in the RPI at the balance sheet date would have increased or decreased post-tax profit or loss by £6 million (a change of 50 basis
points in the RPI 2008: £3 million).
(iv) Cash flow sensitivity for term loan due 2015
The Group holds £150 million of borrowings and associated swaps where the variable rate coupon is subject to a cap and floor. A change of
100 basis points in the coupon would have an immaterial impact on the post-tax income statement taking the loan and swaps as a whole.
(v) Fair value sensitivity for available-for-sale assets
Included within available-for-sale financial assets is £90 million (2008: £105 million) relating 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 2.8 per cent per annum (2008: 2.8 per cent) and a discount rate of ten per cent
(2008: ten per cent), (see note 15).
A change of 0.8 per cent in the assumed rate of property rental growth to 2.0 per cent and 3.6 per cent, holding other assumptions
constant, would result in values for this asset of £77 million (2008: £90 million) and £103 million (2008: £121 million) respectively.
A change of one per cent in the discount rate to nine per cent and 11 per cent, holding other assumptions constant, would result in
values of £103 million (2008: £121 million) and £79 million (2008: £92 million) respectively.
Commodity risk
The Group is exposed to commodity price risk on its own use consumption of electricity, gas and fuel.
The Group’s Energy Price Risk Committee seeks to limit the impact of movements in commodity prices on Group income by requiring
forecast purchases of power and fuel be hedged.
The Group uses financial derivatives to hedge fuel exposures on a layered basis using contracts for difference. A 20 per cent change in the
fair value of the commodity price at the balance sheet date would have increased or decreased the cash flow equity reserve by £2 million.
The Group hedges electricity and gas exposures via forward purchases under flexible purchasing arrangements with the relevant suppliers.
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Notes to the financial statements continued
29 Financial risk management continued
Capital risk management
The Board’s policy is to maintain a strong capital structure consistent with the size and nature of the Group. The Group’s current credit
ratings comprise a Corporate Family rating of Baa3 from Moody’s and a Corporate Credit rating of BBB- from Standard & Poor’s.
The Board monitors a range of financial metrics including return on capital and gearing to measure the efficiency of the Group’s capital
structure, the returns for shareholders and benefits for other stakeholders.
The Board has a policy to maintain the underlying earnings cover for the ordinary dividend at a minimum of 1.50 times and to grow the
dividend cover over time to between 1.50 and 1.75 times.
From time to time the Company purchases its own shares in the market for the purpose of issuing shares under the Group’s share option
programmes. Outside of this practice the Group does not have a defined share buy-back plan.
30 Financial instruments
Derivative assets
Current
Foreign exchange forward contract — cash flow hedge
Interest rate swaps — fair value through profit or loss
Non-current
Contract for difference — fair value through profit or loss
Interest rate swaps — fair value hedge
Derivative liabilities
Current
Commodity forward contract — cash flow hedge
Interest rate swaps — fair value through profit or loss
Non-current
Interest rate swaps — fair value through profit or loss
Interest rate swaps — fair value hedge
Group
2009
£m
Group
2008
£m
Company
2009
£m
Company
2008
£m
22
37
59
12
19
31
(7)
(49)
(56)
(8)
-
(8)
4
-
4
-
-
-
-
(6)
(6)
-
(18)
(18)
-
37
37
12
19
31
-
(49)
(49)
-
-
-
-
-
-
-
-
-
-
(6)
(6)
-
(18)
(18)
Foreign exchange forward contracts — cash flow hedges
At 21 March 2009, the Group held a portfolio of foreign exchange forward contracts with a fair value of £22 million (2008: £4 million)
to hedge its future foreign currency denominated trade purchases. The Group had purchased -55 million (2008: -144 million) and sold
sterling at rates ranging from 0.78 to 0.94 (2008: 0.68 to 0.97) with maturities from March 2009 to March 2010 (2008: April 2008 to
November 2008) and purchased US$161 million (2008: US$237 million) and sold sterling at rates ranging from 1.40 to 2.00
(2008: 1.93 to 2.05) with maturities from March 2009 to September 2010 (2008: April 2008 to May 2009).
At 21 March 2009, an unrealised gain of £17 million (2008: gain of £2 million) is included in equity in respect of the forward contracts.
This gain will be transferred to the income statement over the next 18 months. During the year a credit to the profit or loss of £31 million
was transferred from the cash flow equity reserve and included in cost of sales.
Commodity contracts — cash flow hedges
At 21 March 2009, the Group held a portfolio of commodity forward contracts with a fair value of £(7) million (2008: £nil) to hedge
its future own use fuel consumption over the next 12 months.
At 21 March 2009, an unrealised loss of £5 million (2008: £nil) is included in equity in respect of these contracts. This loss will be
transferred to the income statement over the next 12 months.
Interest rate swaps — fair value hedge
The Group holds a portfolio of £211 million of interest rate swaps (2008: £602 million) to hedge a portion of the fixed rate secured loan due
in 2018. Under the terms of the swaps, the Group receives fixed interest and pays floating rate interest at a fixed spread above three-month
LIBOR. The notional principal amount of the interest rate swaps amortises from £211 million to £111 million from April 2016 to April 2018.
Derivative financial instruments — fair value through profit and loss
At 21 March 2009, the Group held a portfolio of interest rate swaps at fair value through profit or loss which convert £256 million of the
Group’s floating rate obligations into fixed rates (2008: £75 million). Under the terms of these swaps the Group pays fixed rates of interest
and receives three-month LIBOR for periods ranging from 19 April 2018 to 19 April 2031. Included in this portfolio is a £75 million swap
under which the counterparty has a once only option to cancel the swap or double the notional principal value of the swap on 19 July 2010
and thereafter a recurring option to cancel the swap on quarterly dates through to August 2030.
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Notes to the financial statements continued
30 Financial instruments continued
The Group holds a portfolio of non-designated interest rate swaps which convert £391 million of fixed rate borrowings into floating
rates (2008: £nil). Under the terms of the swap the Group receives fixed rates of interest and pays interest at various spreads above
three-month LIBOR until 19 April 2018.
The Group maintains a contract for difference with a fair value of £12 million (2008: £nil) and a non-current interest rate swap with a fair
value of £(8) million (2008: £nil) which are related to the £150 million term loan due 2015.
Interest rate risk
Financial instruments where interest is repriced at intervals of less than one year or less are classified as floating rate. Interest on financial
instruments classified as fixed rate is fixed until maturity of the instrument.
Foreign currency risk
The Group has net euro denominated trade creditors of £9 million (2008: £12 million) and US dollar denominated trade creditors of
£15 million (2008: £4 million).
Fair value
Set out below is a comparison by category of carrying amounts and fair values of all financial instruments that are carried in the financial
statements at amounts other than fair values. The fair value of financial assets and liabilities are based on prices available from the
market on which the instruments are traded where available. The fair value of all other financial assets and liabilities have been calculated
by discounting expected future cash flows at prevailing interest rates. The fair values of short-term deposits, receivables, overdrafts,
payables and loans of a maturity of less than one year are assumed to approximate to their book values, and are excluded from the
analysis below.
2009
Financial assets
Amounts due from Group entities
Other receivables
Financial liabilities
Amounts due to Group entities
Secured loans1
Term loan due 2015
Loan notes
Obligations under finance leases
2008
Financial assets
Amounts due from Group entities
Other receivables
Financial liabilities
Amounts due to Group entities
Secured loans1
Obligations under finance leases
Group
Carrying
amount
£m
Group
Fair value
£m
Company
Carrying
amount
£m
Company
Fair value
£m
-
55
-
55
1,005
55
1,110
55
(2,047)
-
(2,224)
(162)
(10)
(48)
-
-
(191)
(10)
(48)
(2,037)
-
-
-
-
(2,087)
-
-
-
-
55
-
(1,782)
(49)
-
55
-
-
(49)
921
55
860
55
(1,803)
-
-
(1,701)
-
(2,035)
1
Includes £211 million accounted for as a fair value hedge (2008: £782 million).
Financial assets and liabilities by category
Set out below are the accounting classification of each class of financial assets and liabilities as at 21 March 2009 and 22 March 2008.
Loans and
receivables
£m
Available-
for-sale
£m
Fair value
through
profit or
loss
£m
Derivatives
used for
hedging
£m
Other
financial
liabilities
£m
Group
2009
Cash and cash equivalents
Trade and other receivables
Available-for-sale financial assets
Trade and other payables
Current borrowings
Non-current borrowings
Derivative financial instruments
Cash flow hedges1
Interest rate swaps2
Contract for difference
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1 Cash flow hedges are deferred through equity.
2 Interest rate swaps used for hedging are at fair value through profit or loss.
627
187
-
-
-
-
-
-
-
814
-
-
97
-
-
-
-
-
-
97
-
-
-
-
-
-
-
(20)
12
(8)
-
-
-
-
-
-
15
19
-
34
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J Sainsbury plc Annual Report and Financial Statements 2009
Total
£m
627
187
97
(2,490)
(154)
(2,177)
15
(1)
12
-
-
-
(2,490)
(154)
(2,177)
-
-
-
(4,821)
(3,884)
Notes to the financial statements continued
30 Financial instruments continued
2008
Cash and cash equivalents
Trade and other receivables
Available–for–sale financial assets
Trade and other payables
Current borrowings1
Non–current borrowings1
Derivative financial instruments
Cash flow hedges2
Interest rate swaps3
Loans and
receivables
£m
Available-
for-sale
£m
Fair value
through
profit or
loss
£m
Derivatives
used for
hedging
£m
Other
financial
liabilities
£m
719
171
-
-
-
-
-
-
-
-
106
-
-
-
-
-
890
106
-
-
-
-
-
-
-
(6)
(6)
-
-
-
-
-
-
4
(18)
(14)
-
-
-
(2,274)
(165)
(2,037)
-
-
(4,476)
(3,500)
Total
£m
719
171
106
(2,274)
(165)
(2,037)
4
(24)
1
The financial statements for the 52 weeks to 21 March 2008 included all long-term borrowings within non-current liabilities. £47 million of the long-term borrowings (included in non-current borrowings)
at 22 March 2008 were due within one year and have been reclassified within the comparative amounts.
2 Cash flow hedges are deferred through equity.
3 Interest rate swaps used for hedging are at fair value through profit or loss.
Company
2009
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Current borrowings
Derivative financial instruments
Interest rate swaps1
Contract for difference
2008 restated2
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Current borrowings
Derivative financial instruments
Interest rate swaps1
Interest rate swaps used for hedging are at fair value through profit or loss.
1
2 The restatement of certain comparative amounts is explained in note 2 on page 52.
Loans and
receivables
£m
Available-
for-sale
£m
Fair value
through
profit or
loss
£m
Derivatives
used for
hedging
£m
Other
financial
liabilities
£m
Total
£m
460
1,430
-
-
-
-
1,890
324
1,335
-
-
-
1,659
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(12)
12
-
-
-
-
-
(6)
(6)
-
-
-
-
19
-
19
-
-
-
-
-
-
(5,526)
(43)
460
1,430
(5,526)
(43)
-
-
7
12
(5,569)
(3,660)
-
-
(5,137)
(88)
324
1,335
(5,137)
(88)
(18)
(18)
-
(24)
(5,225)
(3,590)
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Notes to the financial statements continued
31 Retirement benefit obligations
Retirement benefit obligations relate to two funded defined benefit schemes, the J Sainsbury Pension and Death Benefit Scheme
(“JSPDBS”) and the J Sainsbury Executive Pension Scheme (“JSEPS”) and an unfunded pension liability relating to senior employees.
The defined benefit schemes were closed to new employees on 31 January 2002. The assets of these schemes are held separately from
the Group’s assets.
The defined benefit schemes were subject to a triennial valuation carried out by Watson Wyatt, the schemes’ independent actuaries,
at March 2006 on the projected unit basis. The results of this valuation were approved by the schemes’ trustees in June 2007.
The retirement benefit obligations at 21 March 2009 have been calculated, where appropriate, on a basis consistent with this valuation.
A triennial valuation will be carried out at March 2009 by Watson Wyatt, the schemes’ independent actuaries on the projected unit basis
with a statutory completion date of June 2010.
The unfunded pension liability is unwound when each employee reaches retirement and takes their pension from the Group payroll or is
crystallised in the event of an employee leaving or retiring and choosing to take the provision as a one-off cash payment.
The amounts recognised in the balance sheet are as follows:
Present value of funded obligations
Fair value of plan assets
Present value of unfunded obligations
Retirement benefit (obligations)/assets
Deferred income tax asset/(liability)
Net retirement benefit (obligations)/assets
2009
£m
2008
£m
(3,610)
3,310
(3,668)
4,171
(300)
(9)
(309)
87
(222)
503
(8)
495
(129)
366
The retirement benefit assets or obligations and the associated deferred income tax balance are shown within different line items on the
face of the balance sheet.
(a) Income statement
The amounts recognised in the income statement are as follows:
Current service cost — funded schemes
Current service cost — unfunded scheme
Past service cost
Included in employee costs (note 6)
Interest cost on pension scheme liabilities
Expected return on plan assets
Total included in finance income (note 5)
Total income statement expense
2009
£m
(50)
(1)
(2)
(53)
(249)
273
24
(29)
2008
£m
(74)
(2)
(2)
(78)
(230)
284
54
(24)
Of the expense recognised in operating profit, £48 million (2008: £70 million) is included in cost of sales and £5 million (2008: £8 million)
is included in administrative expenses.
The actual return on pension scheme assets net of expenses was a loss of £876 million (2008: a loss of £96 million).
(b) Equity
The amounts recognised in the statement of recognised income and expense are as follows:
Net actuarial (losses)/gains recognised during the year
Cumulative actuarial (losses)/gains recognised
2009
£m
(903)
(309)
2008
£m
542
594
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J Sainsbury plc Annual Report and Financial Statements 2009
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Notes to the financial statements continued
31 Retirement benefit obligations continued
(c) Valuations
The movements in the funded retirement benefit obligations are as follows:
Beginning of year
Current service cost
Past service cost
Interest cost
Contributions by plan participants
Actuarial gains
Benefits paid
Transfer from provisions (note 22)
End of year
The movements in the fair value of plan assets are as follows:
Beginning of year
Expected return on plan assets
Actuarial losses
Contributions by employer
Contributions by plan participants
Benefits paid
End of year
The major categories of plan assets as a percentage of total plan assets are as follows:
Equities
Bonds
Property
Other
(d) Assumptions
The principal actuarial assumptions used at the balance sheet date are as follows:
Discount rate
Inflation rate
Future salary increases
Future pension increases
2009
£m
(3,668)
(50)
(2)
(249)
(7)
246
120
-
2008
£m
(4,395)
(74)
(2)
(230)
(10)
922
123
(2)
(3,610)
(3,668)
2009
£m
4,171
273
(1,149)
128
7
(120)
2008
£m
4,298
284
(380)
82
10
(123)
3,310
4,171
2009
%
39
50
3
8
2008
%
45
46
4
5
100
100
2009
%
6.5
2.8
2.8
2.0–2.8
2008
%
6.9
3.5
3.5
2.4–3.5
Consistent with the prior year, the discount rate is based on the annualised yield on an AA-rated sterling corporate bond index.
The average expected return on assets has been derived as the weighted average of the expected returns from each of the main asset
classes. The expected return for each asset class reflects a combination of historical performance analysis, the forward-looking view of
the financial markets (as suggested by the yield available) and the views of investment organisations.
Equities
Bonds
Property
Other
2009
Fair
value
£m
1,279
1,662
105
264
3,310
2009
Expected
return
%
8.0
5.1
7.0
4.0-7.0
6.3
2008
Fair
value
£m
1,893
1,922
160
196
4,171
2008
Expected
return
%
8.0
5.1
7.0
4.0-7.0
6.6
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Notes to the financial statements continued
31 Retirement benefit obligations continued
The combined life expectancy for both the schemes operated at the balance sheet date for a pensioner at normal retirement age
(now 65 years for men and women), is as follows:
Male pensioner
Female pensioner
2009
years
21.7
23.2
2008
years
21.6
23.1
The mortality assumptions used are the same as those adopted in the prior year.
(e) Sensitivities
A movement of 0.5 per cent in the discount rate would increase or decrease the retirement benefit obligations by £317 million.
A movement of 0.5 per cent in the inflation rate would increase or decrease the retirement benefit obligations by £321 million.
An increase of one year to the life expectancy would increase the retirement benefit obligations by £64 million.
(f) Experienced gains and losses
The history of experience adjustments on the plans for the current and previous financial years is as follows:
Present value of retirement benefit obligations
Fair value of plan assets
Retirement benefit (obligations)/assets
Experience gain/(loss) on plan liabilities
Experience (loss)/gain on plan assets
2009
£m
(3,619)
3,310
(309)
2008
£m
(3,676)
4,171
495
2007
£m
(4,401)
4,298
(103)
2006
£m
(4,368)
3,710
(658)
2005
£m
(3,512)
2,976
(536)
171
(1,149)
(79)
(380)
(236)
89
(27)
428
(6)
134
The expected contributions to defined benefit schemes for the next financial year beginning 22 March 2009 are £93 million
(2008: £125 million).
32 Share-based payments
The Group recognised £40 million (2008: £53 million) of employee costs (note 6) related to share-based payment transactions made
during the financial year. Of these, £nil (2008: £2 million) were cash-settled.
National insurance contributions are payable in respect of certain share-based payment transactions and are treated as cash-settled
transactions. At 21 March 2009, the carrying amount of national insurance contributions payable was £13 million (2008: £13 million)
of which £3 million (2008: £nil) was in respect of vested grants.
The Group operates various share-based payment schemes as set out below:
(a) Savings Related Share Option Scheme (“SAYE”)
The Group operates a Savings Related Share Option Scheme, which is open to all UK employees with more than three months’ continuous
service. This is an approved HMRC Scheme and was established in 1980. Under the SAYE scheme, participants remaining in the Group’s
employment at the end of the three-year or five-year savings period are entitled to use their savings to purchase shares in the Company
at a stated exercise price. Employees leaving for certain reasons are able to use their savings to purchase shares within six months of
their leaving.
At 21 March 2009, UK employees held 21,416 five-year savings contracts (2008: 22,074) in respect of options over 22.0 million shares
(2008: 20.6 million) and 29,281 three-year savings contracts (2008: 28,332) in respect of options over 18.1 million shares (2008: 15.3 million).
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J Sainsbury plc Annual Report and Financial Statements 2009
Notes to the financial statements continued
32 Share-based payments continued
A reconciliation of option movements is shown below:
Outstanding at beginning of year
Granted
Forfeited
Exercised
Expired
Outstanding at end of year
2009
Number of
options
million
35.9
15.7
(5.5)
(6.1)
-
40.0
2009
Weighted
average
exercise
price
pence
278
224
292
233
-
262
2008
Number of
options
million
34.5
10.0
(3.4)
(4.9)
(0.3)
35.9
2008
Weighted
average
exercise
price
pence
256
331
272
233
266
278
Exercisable at end of year
2.4
235
2.0
227
The weighted average share price during the period for options exercised over the year was 293 pence (2008: 377 pence).
Details of options at 21 March 2009 are set out below:
Date of grant
Date of expiry
3 January 2003 (5 year period)
17 December 2003 (5 year period)
15 December 2004 (3 year period)
15 December 2004 (5 year period)
15 December 2005 (3 year period)
15 December 2005 (5 year period)
15 December 2006 (3 year period)
15 December 2006 (5 year period)
20 December 2007 (3 year period)
20 December 2007 (5 year period)
17 December 2008 (3 year period)
17 December 2008 (5 year period)
31 August 2008
31 August 2009
31 August 2008
31 August 2010
31 August 2009
31 August 2011
31 August 2010
31 August 2012
31 August 2011
31 August 2013
31 August 2012
31 August 2014
Exercise
price
pence
Options
outstanding
2009
million
Options
outstanding
2008
million
239
241
217
217
231
231
328
328
331
331
224
224
-
0.9
-
3.7
1.5
4.5
3.2
3.1
4.3
3.3
9.1
6.4
0.9
2.8
1.1
4.0
4.6
5.0
4.0
3.7
5.6
4.2
-
-
40.0
35.9
Options granted during the year were valued using the Black-Scholes option-pricing model. No performance conditions were included in
the fair value calculations. The fair value per option granted during the year and the assumptions used in the calculation are as follows:
Share price at grant date (pence)
Exercise price (pence)
Expected volatility
Option life
— 3 year period (%)
— 5 year period (%)
— 3 year period (years)
— 5 year period (years)
Expected dividends (expressed as dividend yield %)
Risk-free interest rate — 3 year period (%)
— 5 year period (%)
Fair value per option — 3 year period (pence)
— 5 year period (pence)
2009
280
224
35.7
30.4
3.2
5.2
3.6
3.8
4.0
86
85
2008
413
331
23.5
25.3
3.2
5.2
1.9
4.5
4.7
122
144
The expected volatility is based on the standard deviation of the Group’s share price for the period immediately prior to the date of grant of
award, over the period identical to the vesting period of the award, adjusted for management’s view of future volatility of the share price.
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Notes to the financial statements continued
32 Share-based payments continued
(b) Colleague Share Option Plan (“CSOP”)
The Colleague Share Option Plan operates under the rules of the HMRC Approved Discretionary Share Option Scheme. Under the CSOP,
participants are granted options to purchase shares of the Company at a stated exercise price. The exercise of options is conditional upon
participants remaining in the employment of the Group for a three-year period after date of grant. Colleagues leaving employment for
certain reasons have six months from their leaving date to exercise their options.
At 21 March 2009, a total of 10,034 UK employees (2008: 10,547) participated in the plan and held options over 3.2 million shares
(2008: 3.4 million). Options are exercisable between three and ten years from the date of the grant of option. It is intended that there
will be no further options granted under this plan.
A reconciliation of option movements is shown below:
Outstanding at beginning of year
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
2009
Number of
options
million
3.4
(0.2)
-
3.2
3.2
2009
Weighted
average
exercise
price
pence
363
356
-
363
363
2008
Number of
options
million
5.7
(0.3)
(2.0)
3.4
2008
Weighted
average
exercise
price
pence
365
352
370
363
3.4
363
The weighted average share price during the period for options exercised over the year was 372 pence (2008: 553 pence).
Details of options at 21 March 2009 are set out below:
Date of grant
2 August 1999
2 June 2000
Date of expiry
1 August 2009
1 June 2010
Exercise
price
pence
378
272
Options
outstanding
2009
million
Options
outstanding
2008
million
2.7
0.5
3.2
2.9
0.5
3.4
(c) Executive Share Option Plan (“ESOP”)
Under the Executive Share Option Plan, participants were granted options to purchase shares in the Company at a stated exercise price.
The maximum annual option award was two times basic salary and the grants were agreed by the Remuneration Committee according to
the assessed performance and potential of participants.
The exercise of options is conditional upon a performance target based on the growth in the Company’s underlying earnings per share
(“EPS”) relative to inflation over a three-year period. EPS is measured against a fixed starting point over the performance period beginning
with the year in which the option was granted. To the extent that the condition is not satisfied in full after three years, it will be retested
on a fixed-point basis over four and then five financial years. To the extent the condition is not met after five financial years, the option
will lapse.
Once the options vest, participants remaining in the Group’s employment or leaving for certain reasons, are entitled to exercise the options
between vesting date (normally at the end of the three-year performance period) and the option expiry date, which is ten years from date
of grant.
It is intended that there will be no further options granted under this plan.
A reconciliation of option movements is shown below:
Outstanding at beginning of year
Forfeited
Exercised
Expired
Outstanding at end of year
Exercisable at end of year
2009
Number of
options
million
4.1
(0.4)
-
(1.3)
2.4
2.2
2009
Weighted
average
exercise
price
pence
411
356
-
482
387
395
2008
Number of
options
million
20.4
(6.3)
(5.9)
(4.1)
4.1
2008
Weighted
average
exercise
price
pence
362
332
405
294
411
3.5
437
The weighted average share price during the period for options exercised over the year was 321 pence (2008: 546 pence).
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Notes to the financial statements continued
32 Share-based payments continued
Details of options at 21 March 2009 are set out below:
Date of grant
10 November 1998
2 August 1999
2 June 2000
7 June 2001
26 July 2001
22 May 2003
20 May 2004
Date of expiry
9 November 2008
1 August 2009
1 June 2010
6 June 2011
25 July 2011
21 May 2013
19 May 2014
Exercise
price
pence
Options
outstanding
2009
million
Options
outstanding
2008
million
545
378
272
427
407
257
275
-
0.3
0.2
0.8
0.9
-
0.2
2.4
1.0
0.4
0.3
0.9
0.9
0.4
0.2
4.1
(d) Performance Share Plan (“PSP”)
The Performance Share Plan was a long-term incentive scheme through which shares were awarded to senior managers on a conditional
basis. Under the PSP, participants remaining in the Group’s employment or leaving for certain reasons, were entitled to receive a grant of
options after a performance period of three years to acquire the shares awarded to them, at any time during the ten years following the
date of grant.
The participant’s entitlement to receive the grant depended on the Company’s Total Shareholder Return (“TSR”) — being the increase in
the value of a share, including reinvested dividends, compared with a peer group of 11 companies (namely Ahold, Alliance Boots, Carrefour,
Casino, DSG International, Kingfisher, Loblaw, Marks & Spencer, Morrisons, Next and Tesco), over the three-year performance period.
If the median performance of the TSR against the comparator group was not achieved at the end of the three-year performance period,
the entitlement to receive the grant of options lapsed. At median level, shares to the value of 30 per cent of salary will be released and
the award would be pro-rated at every position between the median and first position in the comparator group. The maximum allocation
for Directors was a conditional grant of shares equal to 75 per cent of salary.
No further allocations will be made under this plan.
A reconciliation of the number of shares conditionally allocated is shown below:
Outstanding at beginning of year
Released to participants
Lapsed
Outstanding at end of year
Number
of shares
2009
million
Number
of shares
2008
million
-
-
-
—
0.9
(0.7)
(0.2)
—
There were no shares conditionally allocated at 21 March 2009 and at 22 March 2008.
Conditional awards of shares that have fulfilled all conditions at the end of the performance period are represented by options granted to
participants to acquire the shares awarded to them. Details of the options outstanding at year-end are set out below:
Date of grant
16 May 2007
Date of expiry
15 May 2017
Exercise
price
pence
2009
Options
2009
Shares
in respect
of options
granted
2008
Shares
in respect
of options
granted
2008
Options
—
-
-
2
37,627
(e) All-Employee Share Ownership Plan
(i) In June 2003, under the All-Employee Share Ownership Plan, free shares were awarded to UK employees with more than 12 months’
continuous service. The free shares are being held in a trust on behalf of participants and will be forfeited if participants cease to remain
in the Group’s employment for a period of three years. Shares are released to participants within the first three years for certain reasons.
After the three-year period, the shares continue to be held by the trust for a further holding period of two years, unless they are released
to participants upon cessation of employment with the Group.
A reconciliation of shares held in the trust is shown below:
Outstanding at beginning of year
Released to participants
Outstanding at end of year
Number
of shares
2009
million
Number
of shares
2008
million
1.4
(1.0)
0.4
1.5
(0.1)
1.4
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Annual Report and Financial Statements 2009 J Sainsbury plc
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Notes to the financial statements continued
32 Share-based payments continued
(ii) From 18 September 2008, under the Sainsbury’s share purchase plan, all employees were offered the opportunity to receive one free
matching share for every four shares purchased through the savings share purchase plan. Under this scheme, 95,258 matching shares
have been awarded, all of which are outstanding at 21 March 2009.
Options to acquire the award of shares were valued using the Black-Scholes option-pricing model. No performance conditions were
included in the fair value calculations. The fair value per option granted during the year and the assumptions used in the calculation are
as follows:
Share price at grant date (pence)
Exercise price (pence)
Expected volatility (%)
Option life (years)
Expected dividends (expressed as dividend yield %)
Risk-free interest rate (%)
Fair value per option (pence)
2009
2008
292
-
26.8
3.0
2.6
5.7
271
-
-
-
-
-
-
-
The expected volatility is based on the standard deviation of the Group’s share price for the period immediately prior to the date of grant
of award, over the period identical to the vesting period of the award, adjusted for management’s view of future volatility of the share price.
(f) J Sainsbury plc Share Plan 2005
Under the J Sainsbury plc Share Plan 2005, shares were awarded to participants on the conditional basis that the performance targets
are achieved within the four-year performance period, from the financial year beginning 27 March 2005 until the financial year ending
March 2009. The levels of awards are scaled according to seniority and there is an opportunity for Executive Directors and eligible
Operating Board members to make a personal investment of up to 50 per cent of salary in the plan.
The awards will vest if stretching sales and earnings per share (“EPS”) targets are achieved, as shown in table 1 below. The relevant
performance multiplier, which is on a sliding scale up to a maximum of five times, will be calculated and applied to the core award of
shares, as well as the personal investment of shares, i.e. shares acquired by Executive Directors and eligible Operating Board members.
Further, there is an opportunity for partial vesting of up to half the award, if the accelerated performance targets have been met at the
end of year three (i.e. financial year ending March 2008) as shown in table 2. No awards will vest unless threshold levels of growth in
both sales and EPS are achieved.
Once performance targets have been achieved, options will be granted to participants remaining in the Group’s employment or leaving for
certain reasons to acquire the shares awarded to them, at nil cost. The options will expire within a year after the end of the four-year
performance period. Dividends will accrue on the shares that vest in the form of additional shares.
In order to participate in the plan, participants agreed to surrender options granted to them under the Company’s Executive Share Option
Plan in 2002, 2003 and 2004.
Table 1 — Maturity vesting (multiplier applied to the shares)
4 year EPS growth (compound annual)
Sales growth in £ billion
2.50
2.25
2.00
1.75
1.50
1.25
1.00
<5%
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Table 2 — Interim vesting (multiplier applied to 50 per cent of the shares)
3 year EPS growth (compound annual)
Sales growth in £ billion
2.50
2.25
2.00
1.75
1.50
1.25
1.00
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<5%
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5%
1.0
1.0
0.0
0.0
0.0
0.0
0.0
5%
1.0
1.0
0.0
0.0
0.0
0.0
0.0
10%
2.0
1.5
1.5
1.5
1.0
0.0
0.0
10%
2.0
1.5
1.5
1.5
1.0
0.0
0.0
14%
3.0
2.5
2.0
2.0
1.5
1.0
0.0
15%
3.0
2.5
2.0
2.0
1.5
1.0
0.0
17%
4.5
4.0
3.0
2.5
2.0
1.5
1.0
20%
4.5
4.0
3.0
2.5
2.0
1.5
1.0
21%
5.0
5.0
4.5
4.0
3.0
2.5
2.0
25%
5.0
5.0
4.5
4.0
3.0
2.5
2.0
86
J Sainsbury plc Annual Report and Financial Statements 2009
Notes to the financial statements continued
32 Share-based payments continued
A reconciliation of the number of shares conditionally allocated is shown below:
Outstanding at beginning of year
Forfeited
Outstanding at end of year
Details of shares conditionally allocated at 21 March 2009 are set out below:
Date of conditional award
13 July 2005
Number
of shares
2009
million
Number
of shares
2008
million
6.1
(0.1)
6.0
6.5
(0.4)
6.1
Shares
conditionally
allocated
2009
million
Shares
conditionally
allocated
2008
million
6.0
6.1
In March 2008, the three-year accelerated performance targets were met. In May 2008 a total number of 15.5 million shares were granted
to employees as a result of achieving the performance target. During the year 12.4 million options were exercised. The weighted average
share price during the period for options exercised was 332 pence.
A reconciliation of the number of shares is shown below:
Outstanding at beginning of year
Granted
Exercised
Expired
Outstanding at end of year
Number
of shares
2009
million
Number
of shares
2008
million
-
15.5
(12.4)
(0.2)
2.9
-
-
-
-
-
(g) Long-Term Incentive Plan 2006
Under the Long-Term Incentive Plan 2006, shares were conditionally awarded to the top 1,000 managers in the Company, from the
Chief Executive to the supermarket store managers. The core awards are calculated as a percentage of the participants’ salaries and
scaled according to grades.
The awards will vest if the threshold levels of two co-dependent performance conditions — Return on Capital Employed (“ROCE”) and
growth in cash flow per share, are achieved over the three-year performance period. The core award can grow by up to four times,
dependent on the level of performance. Straight-line vesting will apply if performance falls between two points.
To achieve the maximum multiplier of four, the following criteria are required to be met.
Date of conditional award
13 July 2006
20 June 2007
28 May 2008
Percentage increase to
achieve maximum multiplier
Cash flow per share
%
Return on capital employed
%
18
18
15
14
14
15
Performance will be measured at the end of the three-year performance period. If the required level of performance has been reached, the
awards vest and 50 per cent of the award will be released. Subject to participants remaining in employment for a further year, the balance
will then be released on the fourth anniversary of the date of award. Options granted to acquire the award of shares will expire two years
from vesting date. Dividends will accrue on the shares that vest in the form of additional shares.
A reconciliation of the number of shares conditionally allocated is shown below:
Outstanding at beginning of year
Conditionally allocated
Forfeited
Outstanding at end of year
Number of
shares
2009
million
Number of
shares
2008
million
4.5
3.3
(0.4)
7.4
2.5
2.1
(0.1)
4.5
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Annual Report and Financial Statements 2009 J Sainsbury plc
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Notes to the financial statements continued
32 Share-based payments continued
Details of shares conditionally awarded at 21 March 2009 are set out below:
Date of conditional award
13 July 2006
20 June 2007
28 May 2008
Shares
conditionally
allocated
2009
million
Shares
conditionally
allocated
2008
million
2.3
1.9
3.2
7.4
2.4
2.1
-
4.5
Options to acquire the award of shares were valued using the Black-Scholes option-pricing model. No performance conditions were
included in the fair value calculations. The fair value per option granted during the year and the assumptions used in the calculation are
as follows:
Share price at grant date (pence)
Exercise price (pence)
Expected volatility (%)
Option life (years)
Expected dividends (expressed as dividend yield %)
Risk-free interest rate (%)
Fair value per option (pence)
2009
346
-
38.8
4.2
-
4.9
346
2008
558
-
19.0
4.2
-
5.6
558
The expected volatility is based on the standard deviation of the Group’s share price for the period immediately prior to the date of
grant of award, over the period identical to the vesting period of the award, adjusted for management’s view of future volatility of the
share price.
(h) Deferred Annual Bonus Plan
The Deferred Annual Bonus Plan applies to the top levels of management including Executive Directors and currently comprises around
40 participants in total. The first deferral took place in June 2007, in respect of the bonus awards for the financial year ended 22 March 2008.
The second deferral took place in June 2008, in respect of the bonus awards for the financial year ended 22 March 2008. The next deferral
will take place in June 2009.
The Plan measures the Company’s TSR performance over a three-year period against a bespoke UK and European retail comparator group
comprising: Tesco, Morrisons, DSG International, Kingfisher, Home Retail Group, Marks & Spencer, Next, Ahold, Carrefour, Casino, Delhaize
and Metro. Alliance Boots was removed from the comparator group following its de-listing.
Up to two matched shares may be awarded for each share deferred depending on the extent to which the TSR measure is achieved.
No shares are awarded for below median performance, and the full match will only apply where the Company achieves first place within
the comparator group. At median position the match will be 0.5 shares for each deferred bonus share and the share match will be pro-rated
at every position between median and first place.
To the extent that the performance condition is met at the end of the three-year performance period, the matched shares will be added to
the deferred bonus shares. The deferred bonus shares and half of the matched shares can be accessed immediately, while the remainder
will be held over for a further year. Dividends or their equivalents will accrue on shares that vest.
A reconciliation of the number of shares conditionally allocated is shown below:
Outstanding at beginning of year
Granted during the year
Outstanding at end of year
Details of shares allocated at 21 March 2009 are set out below:
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20 June 2007
20 June 2008
88
J Sainsbury plc Annual Report and Financial Statements 2009
Number of
shares
2009
million
Number of
shares
2008
million
0.6
0.5
1.1
-
0.6
0.6
Share
conditionally
allocated
2009
million
Share
conditionally
allocated
2008
million
0.6
0.5
1.1
0.6
-
0.6
Notes to the financial statements continued
33 Acquisition of subsidiaries
On 20 August 2008, the Group acquired 100 per cent of the shares in Portfolio Investments Limited for a total consideration of £10 million.
The carrying amount of the Company’s net assets at the date of acquisition was £nil and the fair value adjustment on acquisition was made
to increase the net assets to £2 million. Goodwill of £8 million was recognised on the acquisition.
On 18 February 2009, the Group acquired 100 per cent of the shares in Town Centre Retail (Bicester) Limited for a total consideration of £1.
The carrying amount of the Company’s net liabilities at the date of acquisition was £(1) million and a fair value adjustment on acquisition
was made to increase the net liabilities to £(2) million. Goodwill of £2 million was recognised on the acquisition.
34 Related party transactions
Group
(a) Key management personnel
The key management personnel of the Group comprise members of the J Sainsbury plc's Board of Directors and the Operating Board.
The key management personnel compensation is as follows:
Short-term employee benefits
Post-employment employee benefits
Share-based payments
2009
£m
2008
£m
11
1
10
22
7
1
9
17
Details of transactions, in the normal course of business, with the key management personnel are provided below. The transactions
occured with Sainsbury's Bank plc. For this purpose, key management personnel include Group key management personnel and members
of their close family.
Credit
card
balances
Number
of key
management
personnel
Saving
deposit
accounts
Number
of key
balances management
personnel
Credit
card
£m
At 23 March 2008
Amounts advanced/(received)1
Interest earned
Amounts withdrawn
At 21 March 2009
At 25 March 2007
Amounts received1
Interest earned/(paid)
Amounts withdrawn2
At 22 March 2008
Includes existing balances of new appointments.
1
2 Includes existing balances of resignations.
4
6
2
6
5
4
3
1
-
4
-
-
-
-
-
-
-
-
3
-
2
5
7
3
7
2
4
1
-
2
4
Saving
deposit
accounts
£m
(1)
(1)
-
1
(1)
-
(1)
-
(1)
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89
Notes to the financial statements continued
34 Related party transactions continued
(b) Joint ventures
Transactions with joint ventures
For the 52 weeks to 21 March 2009, the Group entered into various transactions with joint ventures as set out below.
Sales of inventories
Management services provided
Interest income received in respect of interest bearing loans
Sale of assets
Management services received
Rental expenses paid
Year-end balances arising from transactions with joint ventures
Receivables
Other receivables
Loans due from joint ventures
Floating rate subordinated undated loan capital1
Floating rate subordinated dated loan capital2
Payables
Loans due to joint ventures
2009
£m
3
17
3
34
(1)
(67)
2008
£m
6
20
3
74
-
(4)
2009
£m
2008
£m
2
25
30
7
25
30
(48)
(5)
1
The undated subordinated loan capital shall be repaid on such date as the Financial Services Authority shall agree in writing for such repayment and in any event not less than five years and one day from
the dates of draw down. In the event of a winding up of Sainsbury’s Bank plc, the loan is subordinated to ordinary unsecured liabilities. Interest is payable three months in arrears at LIBOR plus a margin of
1.0 per cent per annum for the duration of the loan.
2 No repayment of dated subordinated debt prior to its stated maturity may be made without the consent of the Financial Services Authority. In the event of a winding up of Sainsbury’s Bank plc, the loan is
subordinated to ordinary unsecured liabilities. Interest is payable three months in arrears at LIBOR plus a margin of 0.6 per cent per annum for the duration of the loan.
Company
(a) Key management personnel
The key management personnel of the Company comprise members of the J Sainsbury plc’s Board of Directors. The Directors do not
receive any remuneration from the Company (2008: £nil) as their emoluments are borne by subsidiaries. The Company did not have any
transactions with the Directors during the financial year (2008: £nil).
(b) Subsidiaries
The Company enters into loans with its subsidiaries at both fixed and floating rates of interest on a commercial basis. Hence, the Company
incurs interest expense and earns interest income on these loans and advances. The Company also received dividend income from its
subsidiaries during the financial year.
Transactions with subsidiaries
Loans and advances given to, and dividend income received from subsidiaries
Loans and advances given
Loans and advances repaid by subsidiaries
Interest income received in respect of interest bearing loans and advances
Dividend income received
Loans and advances received from subsidiaries
Loans and advances received
Loans and advances repaid
Interest expense paid in respect of interest bearing loans and advances
2009
£m
2008
£m
402
(423)
119
250
(944)
689
(201)
284
(360)
115
250
(321)
202
(277)
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J Sainsbury plc Annual Report and Financial Statements 2009
Notes to the financial statements continued
34 Related party transactions continued
Year-end balances arising from transactions with subsidiaries
Receivables
Loans and advances due from subsidiaries
Payables
Loans and advances due to subsidiaries
1 The restatement of certain comparative amounts is explained in note 2 on page 52.
(c) Joint ventures
Transactions with joint ventures
For the 52 weeks to 21 March 2009, the Company entered into transactions with joint ventures as set out below.
Services and loans provided to joint ventures
Management services received
Interest income received in respect of interest bearing loans
Year-end balances arising from transactions with joint ventures
Receivables
Other receivables
Loans due from joint ventures
Floating rate subordinated undated loan capital1
Floating rate subordinated dated loan capital2
Payables
Loans due to joint ventures
2009
£m
2008
restated1
£m
1,374
1,279
(5,516)
(5,127)
2009
£m
2008
£m
(1)
3
-
3
2009
£m
2008
£m
-
25
30
1
25
30
(5)
(5)
1
The undated subordinated loan capital shall be repaid on such date as the Financial Services Authority shall agree in writing for such repayment and in any event not less than five years and one day from
the dates of draw down. In the event of a winding up of Sainsbury’s Bank plc, the loan is subordinated to ordinary unsecured liabilities. Interest is payable three months in arrears at LIBOR plus a margin of
1.0 per cent per annum for the duration of the loan.
2 No repayment of dated subordinated debt prior to its stated maturity may be made without the consent of the Financial Services Authority. In the event of a winding up of Sainsbury’s Bank plc, the loan is
subordinated to ordinary unsecured liabilities. Interest is payable three months in arrears at LIBOR plus a margin of 0.6 per cent per annum for the duration of the loan.
35 Operating lease commitments
The Group leases various retail stores, offices, depots and equipment under non-cancellable operating leases. The leases have varying
terms, escalation clauses and renewal rights.
Commitments under non-cancellable operating leases payable as follows:
Within 1 year
Within 2 to 5 years inclusive
After 5 years
Land and
Land and
buildings
2009
£m
348
1,358
5,253
6,959
buildings
2008
£m
Other leases
2009
£m
Other leases
2008
£m
305
1,187
4,686
6,178
48
77
-
48
82
2
125
132
The Group sublets certain leased properties and the total future minimum sublease payments to be received under non-cancellable
subleases at 21 March 2009 are £264 million (2008: £254 million).
The Company does not have any operating lease commitments (2008: £nil).
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Notes to the financial statements continued
36 Capital commitments
During the current financial year, the Group entered into contracts of £327 million (2008: £316 million) for future capital expenditure not
provided for in the financial statements.
The Company does not have any capital commitments (2008: £nil).
37 Contingent liabilities and financial commitments
Financial commitments
The financial commitments of Sainsbury’s Bank plc, a 50 per cent joint venture of the Group, are set out below.
The amounts noted below indicate the volume of business outstanding at the balance sheet date in respect of the off-balance sheet
financial instruments that commit Sainsbury’s Bank plc to extend credit to customers.
Commitments to extend credit
2009
£m
25.5
2008
£m
24.6
38 Post balance sheet events
The Group acquired 24 stores from the Co-operative Group comprising 22 Somerfield branded stores and two Co-operative branded stores.
The stores will be purchased for £83 million and at the balance sheet date a £4 million deposit had been paid. Completion on these stores,
for which one store is awaiting OFT approval, will commence in May 2009.
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J Sainsbury plc Annual Report and Financial Statements 2009
Five year financial record
Financial results (£m)
Revenue1
Revenue (inc VAT) — continuing operations
Underlying operating profit
Sainsbury’s Supermarkets
Sainsbury’s Bank
Underlying net finance costs2
Share of post-tax profit/(loss) from joint ventures
Underlying profit from continuing operations3
(Decrease)/increase on previous year (%)
Underlying profit from discontinued operations
Underlying profit before tax
Increase on previous year (%)
Underlying operating profit margin
excluding Sainsbury’s Bank (%)
Earnings per share
Underlying basic (pence)
Increase on previous year (%)
Proposed dividend per share (pence)4
Retail statistics for UK food retailing
Number of outlets at financial year-end excluding
checkout space5
Sainsbury’s Supermarkets
over 55,000 sq ft sales area
40,001 — 55,000 sq ft sales area
25,001 — 40,000 sq ft sales area
15,000 — 25,000 sq ft sales area
under 15,000 sq ft sales area
Sales area excluding checkout space (000 sq ft)
Sainsbury’s Supermarkets5
Net increase on previous year:
Sainsbury’s Supermarkets (%)5
New Sainsbury’s Supermarkets openings5
Sainsbury’s Supermarkets’ sales intensity
excluding checkout space (including VAT)5 6
Per square foot (£ per week)
2009
2008
2007
2006
2005
20,383
20,383
19,287
19,287
18,518
18,518
17,317
17,317
16,573
16,364
616
-
616
(89)
16
543
11.3
-
543
535
-
535
(45)
(2)
488
28.4
-
488
429
2
431
(51)
—
380
42.3
—
380
352
(10)
342
(75)
—
267
12.2
—
267
11.3
28.4
42.3
7.2
308
17
325
(88)
1
238
n/a
11
249
n/a
3.26
3.00
2.54
2.24
2.07
22.1
12.8
13.20
19.6
33.3
12.00
14.7
40.0
9.75
10.5
26.5
8.00
8.3
n/a
7.80
34
130
153
108
367
792
24
130
161
100
408
823
20
124
167
98
379
788
15
116
177
92
352
752
15
110
182
83
337
727
16,703
16,191
15,715
15,166
14,891
3.2
29
3.0
35
3.6
40
1.8
34
5.4
36
20.017
19.69
19.30
18.40
17.99
Includes VAT at Sainsbury’s Supermarkets and sales tax at Shaw’s Supermarkets.
1
2 Net finance costs pre-financing fair value movements and one-off items that are material and infrequent in nature.
3 Profit before tax from continuing operations before any gain or loss on the sale of properties, investment property fair value movements, impairment of goodwill, financing fair value movements and one-off
items that are material and infrequent in nature.
4 Total proposed dividend in relation to the financial year.
5 Includes all convenience stores and convenience acquisitions.
6 The 2009 figure has been adjusted for the effect of the VAT change from 17.5 per cent to 15 per cent on 1 December 2008 to ensure the data is presented on a like-for-like basis.
7 Adjusted for comparative purposes for the effect of the VAT change on 1 December 2008.
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Additional shareholder information
End of year information at 21 March 2009
Number of shareholders:
Number of shares in issue:
By size of holding
500 and under
501 to 1,000
1,001 to 10,000
10,001 to 100,000
100,001 to 1,000,000
Over 1,000,000
By category of shareholder
Individual and other shareholders
Insurance companies
Banks and Nominees
Investment Trusts
Pension Funds
Other Corporate Bodies
126,423 (2008: 123,214)
1,753,155,824 (2008: 1,747,013,518)
Shareholders
%
2009
Shareholders
%
2008
67.35
12.60
18.58
1.01
0.33
0.13
67.90
12.64
18.13
0.90
0.28
0.15
Shares
%
2009
0.55
0.68
3.40
1.87
8.52
84.98
Shares
%
2008
0.54
0.66
3.15
1.68
6.96
87.01
100.00
100.00
100.00
100.00
Shareholders
%
2009
Shareholders
%
2008
95.21
0.03
4.38
0.03
0.01
0.34
95.64
0.04
3.93
0.03
0.01
0.35
Shares
%
2009
12.38
0.02
78.13
0.01
0.00
9.46
Shares
%
2008
18.12
0.02
70.27
0.01
0.08
11.50
100.00
100.00
100.00
100.00
Annual Report and Financial Statements
The Annual Report and Financial Statements is published on our
website at www.j-sainsbury.co.uk/report2009 and has only been
sent to those shareholders who have asked for a copy. Shareholders
who have not requested a paper copy of the Annual Report have
been notified of its availability on the website.
A paper copy of the Annual Report is available by writing to the
Company Secretary, J Sainsbury plc, 33 Holborn, London EC1N 2HT
or you can email your request to investor.relations2@sainsburys.co.uk.
Annual General Meeting (“AGM”)
The AGM will be held at 11.00am on Wednesday, 15 July 2009
at The Queen Elizabeth II Conference Centre, Broad Sanctuary,
Westminster, London SW1P 3EE. The Notice of the Meeting and
the proxy card for the meeting are enclosed with this report.
Company website
J Sainsbury plc Interim and Annual Reports and results
announcements are available via the internet on our website
(www.j-sainsbury.co.uk). As well as providing share price data
and financial history, the site also provides background information
about the Company, regulatory and news releases and current
issues. Shareholders can receive email notification of results
and press announcements as they are released by registering
on the page called Email news service in the Investor section
of the website.
Registrar
For information about the AGM, shareholdings, dividends and to
report changes to personal details, shareholders should contact:
Computershare Investor Services PLC, PO Box 82, The Pavilions,
Bridgwater Road, Bristol BS99 7NH.
Telephone: 0870 702 0106 (www.computershare.com).
Dividend Reinvestment Plan (“DRIP”)
The Company has a DRIP, which allows shareholders to reinvest
their cash dividends in the Company’s shares bought in the market
through a specially arranged share dealing service. No new shares
are allotted under this DRIP and some 32,562 shareholders
participate in it. Full details of the DRIP and its charges, together
with mandate forms, are available from the Registrars.
Key dates for the final dividend are as follows:
Last date for return or revocation of
DRIP mandates
DRIP shares purchased for participants
DRIP share certificates issued
26 June 2009
17 July 2009
30 July 2009
Individual Savings Account (“ISA”)
A corporate ISA is available from The Share Centre Ltd and offers a
tax efficient way of holding shares in the Company. Both a Maxi and
Mini ISA are available. For further information contact: The Share
Centre, PO Box 2000, Oxford Road, Aylesbury, Buckinghamshire
HP21 8ZB. Telephone: 01296 414141 or freephone 08000 282812
and quote ‘Sainsbury’s’.
Low cost share dealing service
The Company offers a low cost share dealing service for
J Sainsbury plc ordinary shares through The Share Centre Ltd.
For further information contact: The Share Centre, PO Box 2000,
Oxford Road, Aylesbury, Buckinghamshire HP21 8ZB. Telephone:
01296 414141 or freephone: 08000 282812 and quote ‘Sainsbury’s’.
94
J Sainsbury plc Annual Report and Financial Statements 2009
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Additional shareholder information continued
ShareGift
Shareholders who wish to donate shares to charity can do so
through ShareGift, the independent charity share donation scheme
(registered charity no. 1052686). Further information about
ShareGift may be obtained from Computershare Investor Services
PLC or from ShareGift on 020 7930 3737 or at www.sharegift.org.
There are no implications for capital gains tax purposes (on gain
or loss) on gifts of shares to charity and it is also possible to claim
income tax relief.
Tax information — Capital Gains Tax (“CGT”)
For CGT purposes, the market value of ordinary shares on
31 March 1982 adjusted for all capital adjustments was
91.99 pence and B shares 10.941 pence.
Share capital consolidation
The original base cost of shares apportioned between ordinary
shares of 284/7 pence and B shares is made by reference to the
market value of each class of shares on the first day for which a
market value is quoted after the new holding comes into existence.
The market value for CGT purposes of any share or security quoted
on the Stock Exchange Daily Official List is generally the lower of
the two quotations on any day plus one quarter of the difference
between the values.
On Monday, 19 July 2004 the values were determined as follows:
New ordinary shares 257.5 pence
B shares 35 pence
Investor relations
For investor enquiries please contact: Elliot Jordan, Head
of Investor Relations, J Sainsbury plc, Store Support Centre,
33 Holborn, London EC1N 2HT.
American Depositary Receipts (“ADRs”)
The Company has a sponsored Level I ADR programme for which
The Bank of New York acts as depositary.
The ADRs are traded on the over-the-counter (“OTC”) market in
the US under the symbol JSYNSY, where one ADR is equal to four
ordinary shares.
All enquiries relating to ADRs should be addressed to:
The Bank of New York, Investor Relations, PO Box 11258,
Church Street Station, New York, NY 10286-1258. Toll Free
Telephone # for domestic callers: 1-888-BNY-ADRS
International callers can call: +1-610-382-7836
Email: shareowners@bankofny.com
General contact details
An audio tape of the Chairman’s statement and the Business review
can be obtained by calling: 01435 862 737.
Share price information is available on the Company’s website,
in the financial press and the Cityline service operated by the
Financial Times (Telephone: 0906 003 3904).
For general enquiries about Sainsbury’s Bank call: 0500 405 060.
For any customer enquiries please contact our Customer Careline
by calling: 0800 636 262.
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Annual Report and Financial Statements 2009 J Sainsbury plc
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Additional shareholder information continued
Financial calendar 2009/10
Dividend payments
Ordinary dividend
Ex-dividend date
Record date
Final dividend payable
Interim dividend payable
Other dates
Annual General Meeting — London
Interim results announced
Interim report available
Annual General Meeting — London
Registered office
J Sainsbury plc
33 Holborn
London EC1N 2HT
Registered number 185647
Solicitors
Linklaters
One Silk Street
London EC2Y 8HQ
Auditors
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
Stockbrokers
UBS
1 Finsbury Avenue
London EC2M 2PP
Morgan Stanley
25 Cabot Square
Canary Wharf
London E14 4QA
20 May 2009
22 May 2009
17 July 2009
January 2010
15 July 2009
11 November 2009
November 2009
14 July 2010
Electronic communications for shareholders
The Company has set up a facility for shareholders to take advantage of electronic communications.
If you would like to:
• view the Annual Report and Accounts on the day it is published
• receive electronic notification of the availability of future shareholder information (you must register your
email for this service)
• check the balance and current value of your shareholding and view your dividend history
• submit your vote online prior to a general meeting
For more information, to view the terms and conditions and to register for the service, log on to
www.j-sainsbury.co.uk/investors, click on ‘Shareholder Services’ and then follow the instructions on screen.
Alternatively, register by visiting www-uk.computershare.com/investor. For both methods, you will require your
11 character shareholder reference number which can be found on your share certificate or latest tax voucher.
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J Sainsbury plc Annual Report and Financial Statements 2009
Glossary
‘Active Kids’ — Our nationwide scheme to
help inspire school children to take more
exercise and to eat more healthily. Launched
in 2005, Active Kids is open to all nursery,
primary and secondary schools as well
as Scouts and Girl Guides in the UK.
www.sainsburys.co.uk/activekids
AGM — Annual General Meeting — This year
the AGM will be held on Wednesday 15 July
2009 at The Queen Elizabeth II Conference
Centre, Broad Sanctuary, London SW1P 3EE
at 11.00am.
B shares — Preference B shares issued on
12 July 2004 as part of the Return of Capital
scheme in 2004/05.
‘basics’ — Sainsbury’s entry level sub-brand
range of products.
‘BGTY’ — ‘Be Good to Yourself’ —
Sainsbury’s healthier alternative sub-brand
range of products. Products are either:
those with less than three per cent fat or
those with fewer calories, salt and saturated
fat than standard lines.
CMBS — Commercial Mortgage Backed
Securities.
Company — J Sainsbury plc.
CC — Competition Commission — An
independent public body which conducts
in-depth inquiries into mergers, markets and
the major regulated industries. The CC has
undertaken an investigation into the supply
of groceries by retailers in the UK.
www.competition-commission.org.uk
CR — Corporate responsibility — The need
to act responsibly in managing the impact
on a range of stakeholders: customers,
colleagues, investors, suppliers, the
community and the environment.
‘Different by design’ — Sainsbury’s general
merchandise brand which mirrors the
premium ‘Taste the difference’ food range.
‘Different values’ — Campaign launched
in 2007 to emphasise the higher quality
specifications and great value of Sainsbury’s
own brand products.
Dividend cover — Underlying profit after tax
from continuing operations attributable to
equity shareholders divided by total value
of dividends declared during the year.
DRIP — Dividend Reinvestment Plan —
Allows shareholders to reinvest their cash
dividend in shares of the Company through
a specially arranged share dealing service.
EBITDAR — Earnings before income tax,
depreciation, amortisation and rent.
EPS — Earnings per share — Earnings
attributable to ordinary shareholders
divided by the weighted average number
of ordinary shares in issue during the year,
excluding those held by ESOP trusts, which
are treated as cancelled.
Easter adjustment — To adjust for the
timing of Easter: 2008/09 included an
Easter Sunday trading week. 2007/08
included two Good Friday trading weeks
and an Easter Sunday trading week.
MTL — Multiple traffic lights — Nutritional
labels which provide effective ‘at-a-glance’
information customers need to make
healthier choices when shopping. Around
5,000 Sainsbury’s products carry our Wheel
of Health MTL label.
ESOP trusts — Employee Share Ownership
Plan trusts.
OFT — Office of Fair Trading.
Fairtrade — The Fairtrade label is an
independent consumer label that
guarantees a fair deal for marginalised
workers and small scale farmers in
developing countries. Producers receive
a minimum price that covers the cost of
production and an extra premium that
is invested in the local community.
www.fairtrade.org.uk
Fair value — The amount for which an asset
could be exchanged, or a liability settled,
between knowledgeable, willing parties in
an arm’s length transaction.
‘freefrom’ — Sainsbury’s range of products
guaranteed to be wheat, gluten or dairy free.
FSA — Food Standards Agency.
www.food.gov.uk
FTSE4Good — The FTSE Group, an indexing
company, runs the FTSE4Good index series
to measure the performance of companies
that meet CR standards, and to facilitate
investment in those companies.
www.ftse.com/ftse4good
GDAs — Guideline Daily Amounts.
Gearing — Net debt divided by total equity.
Group — The Company and its subsidiaries.
IFRIC — International Financial Reporting
Interpretations Committee.
IFRS — International Financial Reporting
Standard(s).
IGD — Institute of Grocery Distribution.
www.igd.com
Income statement — Formerly known as the
profit and loss account under UK GAAP.
ISA — Individual Savings Account.
JV — Joint venture — A business jointly
owned by two or more parties.
Like-for-like sales — The measure of year
on year same store sales growth.
LTIP — Long-Term Incentive Plan.
‘Mtdd’ — ‘Make the difference days’ —
Launched in April 2007 to raise awareness
and action around different social,
environmental and ethical issues and
working partnership with customers to make
a sustained difference.
Organic — Organic farming prohibits the
use of artificial fertilisers, pesticides, growth
regulators and additives in livestock feed.
The International Federation of Organic
Agriculture Movements (IFOAM) accredits
national organic certifying bodies.
Pipeline — Sites which the Group has
an interest in developing in the future.
ROCE — Return on Capital Employed.
RPI — Retail Price Index.
‘Sainsbury’s SO organic’ — Sainsbury’s
organic sub-brand range of products.
SORIE — Statement of recognised income
and expense.
TSR — Total Shareholder Return — The
growth in value of a shareholding over a
specified period, assuming that dividends
are reinvested to purchase additional units
of the stock.
‘Ttd’ — ‘Taste the difference’ — Sainsbury’s
premium sub-brand range of products.
‘Try something new today’ — The marketing
campaign in support of Making Sainsbury’s
Great Again.
‘TU’ — Sainsbury’s own label clothing range.
‘TU home’ — Sainsbury’s sub-brand
homeware range of products.
Underlying basic earnings per share —
Profit after tax from continuing operations
attributable to equity holders before any
gain or loss on the sale of properties,
investment property fair value movements,
impairment of goodwill, financing fair value
movements and one-off items that are
material and infrequent in nature, divided by
the weighted average number of ordinary
shares in issue during the year, excluding
those held by the ESOP trusts, which are
treated as cancelled.
Underlying profit before tax — Profit
before tax from continuing operations
before any gain or loss on the sale of
properties, investment property fair value
movements, impairment of goodwill,
financing fair value movements and
one-off items that are material and
infrequent in nature.
Underlying operating profit/(loss) —
Underlying profit before tax from continuing
operations before underlying net finance
costs and underlying share of post-tax profit
or loss from joint ventures.
Annual Report and Financial Statements 2009 J Sainsbury plc
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J Sainsbury plc Annual Report and Financial Statements 2009
Notes
Annual Report and Financial Statements 2009 J Sainsbury plc
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Did you spot
the gorilla?
The average supermarket stocks approximately
30,000 products but customers tend to buy
from the same 150 items each week. They don’t
seem to notice what’s going on around them
in store.
Sainsbury’s tested this idea in 2005 by reworking research originally carried out in America*.
We dressed someone in a gorilla suit and sent them into a store to see if customers noticed it.
When we asked them if they had noticed anything unusual while doing their shopping most said
they had not. The concept of ‘sleep-shopping’ was born.
We launched our ‘Try Something New’ strapline and campaign to inspire customers to think beyond
their normal range of products. Innovation has been a constant theme throughout our 140 year
history but the campaign provides simple ways to make small but signifi cant changes to the food
we buy and eat. The campaign has been incredibly well received by colleagues and customers.
Simple ideas are available on ‘tip cards’ available in our stores. Customers now collect around
75 million tip cards a year, double the number collected in the previous year.
* The experiment asked volunteers to count the number of times a group of people in a video threw a basketball to each other, and then asked what
else the volunteers had seen. A large number had not noticed a woman in a gorilla suit walking through the scene.
100
J Sainsbury plc Annual Report and Financial Statements 2009
Annual Review
Business review
— Chairman’s statement
— Corporate objectives
— Key fi nancial performance indicators
— Key progress and achievements
— Operating review
— Corporate responsibility review
— Financial review
— Principal risks and uncertainties
Board of Directors
Operating Board
Governance
Directors’ report
Statement of corporate governance
Remuneration report
Statement of Directors’ responsibilities
Financial Statements & additional information
Independent auditors’ report to the members
of J Sainsbury plc
Group income statement
Statements of recognised income and expense
Balance sheets
Cash fl ow statements
Notes to the fi nancial statements
Five year fi nancial record
Additional shareholder information
Financial calendar
Glossary
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Also online...
An illustrated review of Sainsbury’s
during the 2008/09 fi nancial year is
also online at our corporate website
or through the direct website address
www.j-sainsbury.co.uk/illustratedreview
This annual report is also available online
at www.j-sainsbury.co.uk. By providing
information online we are reducing the
amount of paper printed and distributed
and last year the majority of our
shareholders chose to receive information
online helping us to save 26 tonnes of
paper. If you would like to receive this
document electronically in the future
rather than in print please contact
Computershare (see page 94 for details).
Designed by sasdesign.co.uk. Printed by royle print.
This Report is printed on Revive Pure White Offset, a recycled
paper containing 100% post consumer collected waste.
The paper is FSC accredited as a recycled grade.
The printer is certifi ed to the environmental management
system ISO14001 and is also Carbon Neutral.
The FSC Logo identifi es products which
contain wood from well managed forests
certifi ed in accordance with the rules of
Forest Stewardship Council. FSC Trademark
© 1996 Forest Stewardship Council, A.C.
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www.sainsburys.co.uk
J Sainsbury plc, 33 Holborn, London EC1N 2HT