Annual Report
and Financial
Statements
2013
157,000
Colleagues
23
Million customer
transactions per week
1,106
Stores
583 supermarkets
523 convenience stores
It’s an exciting time for
Sainsbury’s. Our long-term
strategy continues to deliver
quality, value and service to our
customers and has led to good
profit and sales growth together
with continuing outperformance
in a challenging market.
Our vision
To be the most
trusted retailer
where people
love to work
and shop
Our goal
To make all
our customers’
lives easier every
day by offering
great quality
and service at
fair prices
About Sainsbury’s
£25,632 million
annual sales:
• Convenience
over £1.5 billion
• General merchandise
over £1 billion
• Groceries online
nearly £1 billion
33 consecutive
quarters of like-
for-like sales
growth
16.8 per cent UK
market share
Our 144 year
heritage
Sainsbury’s was
founded in 1869
by John James
Sainsbury and
his wife Mary
Ann Sainsbury in
London, and has
grown to become
one of the UK’s
largest retailers
1869
First store
opened on
London’s
Drury Lane
1950s
First self-
service stores
opened
1914
Began
recruiting
women to
work in stores
during the
First World War
1970s
Introduced the
first bakeries,
fresh fish
counters, coffee
shops and
petrol stations
1994
First major
supermarket in
the UK to sell
Fairtrade food
Our business strategy
for growth: our five areas
of focus are underpinned
by our values and
operational excellence
O p e r a t i o nal excellence
Growing
space
& creating
property
value
Great
food
Developing
new
business
Compelling
general
merchandise
& clothing
Complementary
channels &
services
O
ur values make u s d i
n t
e
r
e
f
f
For more details
See pages 10 to 25
Helping customers
Live Well For Less
Strong own-brand
• Outperforming the market as well
as many branded equivalents
• bySainsbury’s named ‘Own Label
Brand of the Year’ in The Grocer
Gold Awards, with over 6,500 lines,
many new or improved
• TastetheDifference sales growing
at nearly 10 per cent and gaining
market share
• basics is the second largest value brand
in the market
Competitive pricing
• Brand Match reassures customers they
won’t pay more for brands than at Asda
or Tesco
• Around 350 million coupons issued
to date
• ‘Cheaper than’ coupons issued over
half of the time
Loyalty and insight
• Nearly 12 million Sainsbury’s customers
regularly use their Nectar card
• Data enables us to understand our
customers better and offer targeted
promotions that they value
• £213 million Nectar points redeemed
over the year
• New long-term partnership agreed
with Nectar
Our values make
us different
• Our 20x20SustainabilityPlan is
driving sector leading performance
• Dow Jones Sustainability Index Global
Sector Leader for sixth consecutive year
• Sustainable Retailer of the Year –
Retail Industry Awards
• Employer of the Year – Retail Week Awards
2004
Launched the
Tu fashion
range
2009
First major
retailer to
stop selling
eggs from
caged hens
1996
Began our
recycling
partnership with
Oxfam – from
November 2011
to October 2012
collecting over
nine million
items of clothing
2010
Opened the first
of our seven
food colleges –
with over 20,000
colleagues
since trained in
traditional skills
2012
First-ever
Paralympic–
only sponsor
and major
partner of
the Diamond
Jubilee
celebrations
For more about
Sainsbury’s
history visit
j-sainsbury.co.uk/
history
2013
Our colleagues
and customers
helped raise
over £10.5
million for
Comic Relief
Contents
Financial highlights
Financial highlights
Chairman’s letter
Chief Executive’s letter
Business review
1
2
4
6 Market overview
8
10 Our strategy
12 Great food
14
Compelling general
merchandise & clothing
Key performance indicators
16 Complementary channels & services
18 Developing new business
20
Growing space & creating
property value
22 Our values make us different
26 Financial review
Governance
34 Board of Directors
36 Operating Board
38 Corporate governance statement
43 Corporate Responsibility Committee
46 Audit Committee
51 Principal risks & uncertainties
54 Remuneration report
69 Other disclosures
71
Statement of Directors’
responsibilities
Financial statements
72
Independent Auditors’ report
to the members
of J Sainsbury plc
73 Group income statement
Group statement of
74
comprehensive income
75 Balance sheets
76 Cash flow statements
Group statement
77
of changes in equity
Company statement
of changes in equity
78
79 Notes to the financial statements
124 Five year financial record
125 Additional shareholder information
127 Financial calendar
128 Glossary
Find out more at
j-sainsbury.co.uk
Total sales
+4.3%
(including VAT, excluding fuel)
Like-for-like sales
+1.8%
(including VAT, excluding fuel)
Underlying operating profit
£829m
Up 5.1%
Underlying profit before tax
£756m
Up 6.2%
Return on capital employed
11.2%
Up 12 bps
Underlying basic earnings
30.7p
Up 9.3%
Full year dividend per share
16.7p
Up 3.7%
Financial summary
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
Full year dividend per share
2012/13
£m
25,632
23,303
829
756
788
614
30.7p
32.6p
16.7p
2011/12
£m
24,511
22,294
789
712
799
598
28.1p
32.0p
16.1p
Change
%
4.6%
4.5%
5.1%
6.2%
(1.4)%
2.7%
9.3%
1.9%
3.7%
J Sainsbury plc Annual Report and Financial Statements 2013
1
Business review
Chairman’s letter
David Tyler, Chairman
Dear Shareholder,
Your Board is pleased to report
on what has been another good
year for Sainsbury’s. We have
outperformed the market, as we
have done for a number of years,
by providing great quality, value
and service, and by remaining
true to our values and heritage.
We have improved profits while continuing to invest
significantly in strengthening the business for the
future. Underlying profit before tax was up 6.2 per
cent to £756 million. Underlying basic earnings per
share were up 9.3 per cent to 30.7 pence. This year
your Board recommends a final dividend of 11.9
pence per share, making a full year dividend of 16.7
pence, which is an increase of 3.7 per cent over the
previous year, and which is covered 1.83 times by
underlying earnings. Sainsbury’s remains focused
on delivering returns to shareholders and the Board
continues to plan to increase the dividend each
year while building cover to two times over the
medium term.
Sainsbury’s Bank
The Bank, started in 1997, has delivered five
consecutive years of profit growth. Its pre-tax
profit this year was £59 million, half of which
accrues to Sainsbury’s shareholders. The Bank
has built customer loyalty by offering good quality,
value-for-money financial products together
with attractive rewards and Nectar points.
We have now reached an agreement with
Lloyds Banking Group to acquire its 50 per cent
shareholding and take full ownership of Sainsbury’s
Bank. We are confident this is a move which will
benefit customers and shareholders, allowing
the full future potential of the Bank to be realised.
We have strengthened the management of the Bank
and its Board during the course of the last 12 months.
Peter Griffiths joined as CEO of Sainsbury’s Bank last
autumn and Roger Davis became Chairman in May
2013. Each brings wide retail banking experience
at a senior level to the Bank.
2
J Sainsbury plc Annual Report and Financial Statements 2013
£756m
Underlying profit
before tax, up 6.2%
£90m+
Record bonus awarded
to colleagues
16.7p
Proposed full year
dividend, up 3.7%
A winning team
I would like to thank all of our 157,000 colleagues
for their efforts in providing excellent service to our
customers. Our people are the face of Sainsbury’s
and are central to our success. We continue to invest
in their training and development, and in ensuring
Sainsbury’s is a great place to work. I am delighted
that they share in a record bonus of over £90 million
this year, meaning that over the last five years we
will have awarded over £350 million to colleagues
in this way.
The value of our values
Our unique values and strong culture are at the
heart of our success, and this remains as true today
as it was when we were founded 144 years ago.
Our ambitious 20x20 Sustainability Plan sets out
our future commitments and is key to the long-term
sustainability of our business. It is contributing to
greater efficiency, stronger supplier partnerships,
deeper customer loyalty and increased colleague
engagement, all of which ultimately generate and
enhance shareholder value.
Outlook
The wider economic situation looks likely to remain
challenging, but we have consistently demonstrated
we can succeed against this backdrop. Furthermore,
we see exciting growth opportunities as we bring
our great food, clothing and general merchandise
to more customers across multiple channels,
via our focused space, new technology and new
business programmes.
We remain committed to delivering value for
shareholders and growing profits while making
investments for the future. The foundations for
growth are in place and your Board believes this
positions us well to achieve our vision to be the most
trusted retailer, where people love to work and shop.
David Tyler
Chairman
In December 2012, Anna Ford stood down as a Non-
Executive Director of our plc Board. I would like to
thank Anna for the contribution she has made since
her appointment in 2006, both as a valued member
of the Board and as Chairman of our Corporate
Responsibility Committee. During her tenure,
Corporate Responsibility has become an integral
part of the Group’s business and we have benefited
tremendously from Anna’s experience and skills.
We appointed Jean Tomlin to the plc Board
in January 2013. She chairs the Group’s
Corporate Responsibility Committee and sits on
the Remuneration and Nomination Committees.
Jean’s experience and breadth of skills will be a
great addition to the Board and we welcome her
to Sainsbury’s.
In addition, we have appointed Lady Susan Rice
as a Non-Executive Director to the plc Board with
effect from June 2013. Her extensive retail banking
experience, mainly at NatWest and Lloyds Banking
Group, is particularly relevant to us given our
agreement to acquire full ownership of Sainsbury’s
Bank, and we also welcome her to Sainsbury’s.
Gwyn Burr, Customer Service and Colleague
Director, left the Operating Board in March 2013.
Gwyn played a key role in delivering our business
turn round and I am delighted that she will
continue in her role as a Non-Executive Director of
Sainsbury’s Bank. In January 2013, we welcomed
Angie Risley on to our Operating Board as Group HR
Director. Angie was previously Group HR Director at
Lloyds Banking Group and Whitbread, and brings a
wealth of experience having worked at Board level
in a number of large customer-facing companies.
J Sainsbury plc Annual Report and Financial Statements 2013
3
Business review
Chief Executive’s letter
Justin King, Chief Executive
Dear Shareholder,
We have delivered good sales and
profit growth, with significant market
outperformance. We are succeeding
because we work hard to understand
what our customers want, and we
offer them quality and value every day
through our promise to help people
Live Well For Less. We will continue
to invest in creating the best quality
own-brand products, delivering first-
rate service and bringing our food,
clothing and general merchandise
to more customers.
A year like no other
This truly has been a year like no other. The Queen’s
Diamond Jubilee festivities were not dampened
by the great British weather, and the endeavours
of our Olympians and Paralympians uplifted and
inspired us as a nation. We were enormously proud
to play our part in both events – as a partner for the
Queen’s Diamond Jubilee Beacons and Thames River
Pageant, and by becoming the first-ever Paralympic-
only sponsor of the London 2012 Paralympic Games.
For Sainsbury’s too, it has been a year like no other
as we helped more customers than ever before to
Live Well For Less. With 33 consecutive quarters of
like-for-like sales growth our market share is at its
highest level for a decade and we are outperforming
our major competitors. Our clear and proven long-
term strategy continues to drive good sales and
profit growth.
Our vision is to be the most trusted retailer, where
people love to work and shop. Our success rests
on the 157,000 colleagues working in our stores,
depots and support centres. It is due to their hard
work and dedication that we were once again named
Supermarket of the Year at the Retail Industry
Awards – the fifth time in seven years – as well
as Convenience Chain of the Year for the third
year running.
With 23 million customer transactions a week, an
increase of over 800,000 on last year, we believe
our promise to help people Live Well For Less is
more relevant than ever. Our customers trust us to
make their lives simpler and easier and to help them
save time and money. They are confident about the
quality, provenance and integrity of the products
they buy from us across all price brackets.
We have continued to address price perception.
Brand Match, now in its second year, is reassuring
customers that they won’t pay more for brands
at Sainsbury’s than at either Asda or Tesco. We
are also able to offer meaningful and targeted
promotions through Nectar – the UK’s largest loyalty
scheme – and our coupon-at-till technology. Nearly
12 million Sainsbury’s customers regularly use their
Nectar loyalty card when they shop with us and
the programme remains a source of considerable
competitive advantage.
Great food
Our great food offer, in particular the strength and
breadth of our own-brand products, is a key driver of
growth and loyalty. Own-brand is outperforming the
market as well as many branded equivalents, with
most customers buying across our ranges – from
basics to by Sainsbury’s and Taste the Difference.
The relaunch of our core by Sainsbury’s range,
which accounts for nearly 40 per cent of sales, is
now complete, with many products new or improved.
It has been very well received by our customers
and is growing ahead of our major competitors’
comparable products.
Compelling general
merchandise & clothing
Sales of general merchandise and clothing continue
to grow – at more than twice the rate of food over
the year. We offer customers high street quality and
style at supermarket prices and this is proving to
be very successful. We also know that our non-food
offer builds overall customer loyalty and, with only
around a third of the population – up from 11 per cent
five years ago – living within a 15 minute drive of our
full non-food range, there are plenty of opportunities
for future growth.
4
J Sainsbury plc Annual Report and Financial Statements 2013
Complementary channels & services
Our long-standing investment in complementary
channels and services continues to deliver. The
amount customers spend more than doubles
when they shop in our supermarkets, convenience
stores and online. Sainsbury’s Locals now account
for nearly a third of the UK’s convenience market
growth with sales of over £1.5 billion and year-on-
year growth of over 17 per cent. Annual sales in our
groceries online business are at nearly £1 billion and
continue to grow at around 20 per cent.
Sainsbury’s Bank has enjoyed another successful
year, with our share of joint venture post-tax profit
up 38 per cent to £22 million and an eight per cent
increase in active customer accounts over the
year. We have reached an agreement to take full
ownership of Sainsbury’s Bank by acquiring Lloyds
Banking Group’s 50 per cent shareholding for £248
million, which comprises cash consideration for
the shares of £193 million and the purchase of £55
million of loan stock. Developing complementary
channels and services is a core part of Sainsbury’s
long-term strategy for growth and our ownership of
the Bank will enable its full potential to be realised.
Developing new business
Our targeted programme of new business
development continues, with Sainsbury’s pharmacies
now open in over 270 stores and in three hospitals.
Sainsbury’s Energy has achieved an 83 per cent
increase in customers over the year and we are
finding new ways to offer a range of digital products
and services, from eBooks to Mobile Scan & Go.
Growing space &
creating property value
We continue to deliver against our space growth
plans, with the return to what we consider to be a
prudent and steady state of growth. This year we
opened just over one million sq ft of space adding 14
new supermarkets, 87 convenience stores and eight
extensions to our estate. Our property portfolio is
now valued at £11.5 billion and we generated £66
million of property profit from sale and leaseback
activity in the year.
Our values make us different
We know that our values make us different from
other supermarkets, and our customers and
colleagues expect Sainsbury’s to do the right thing.
Our 20x20 Sustainability Plan, published in 2011, lays
out 20 commitments, each linked to one of our five
core values. The plan provides a clear focus to our
corporate responsibility programme – from doubling
the amount of British food we sell, to positive
commitments on the environment. In November,
we updated on the progress we have made so
far and further information is provided in this
annual report.
Our values continue to be a source of long-term
sustainable advantage and great pride. One example
is our involvement in the London 2012 Paralympic
Games. From the start we aimed to be much more
than a sponsor and to play our part in ensuring
the success of the Games, as well as creating a
lasting legacy. Our legacy programme has already
contributed £2 million of funding for schools, clubs
Market share
Source: Kantar Worldpanel total till roll for the 52 weeks to 17 March 2013
Asda
Tesco
Morrisons
Co-op
Waitrose
Lidl
Aldi
Other
16.8%
Sainsbury’s
and organisations to ensure that the next generation
of Paralympic athletes get the support and coaching
they need. Building on our support of British
Athletics’ Paralympic programme, I am delighted
that we are sponsoring the Sainsbury’s Summer
Series – three world-class athletics events being
held this summer in Birmingham and at the Queen
Elizabeth Olympic Park in London.
Being a great place to work is an essential part of
our business plan. This is not only important to us
but also to our customers – they consistently tell
us that how we treat our colleagues is their number
one priority for corporate responsibility. This
year we have seen our highest levels of colleague
engagement and commitment and we were
recognised as the Employer of the Year by
Retail Week.
In addition, Sainsbury’s was once again rated global
sector leader in the Dow Jones Sustainability Index
and continued to be listed in the FTSE4Good Index.
Looking forward
Looking forward to the year ahead, whilst the
economic climate is likely to remain challenging,
we are well positioned to succeed for you, our
shareholders, through the continued delivery of
our long-term strategy for growth and by helping
our customers Live Well For Less.
Justin King
Chief Executive
J Sainsbury plc Annual Report and Financial Statements 2013
5
Business review
Market overview
Our ‘Make Your Roast
Go Further’ campaign
encouraged customers
to put less food in the bin
and more money in their
pockets by using their
leftovers for an extra meal
Our
marketplace
Many commentators assumed
that the challenging economic
climate would lead to low prices
becoming the primary motivator
in supermarket shopping. Yet
consumer behaviour shows a
more complex picture – one where
quality and values remain an
important part of the ‘is it good
value?’ equation.
6
J Sainsbury plc Annual Report and Financial Statements 2013
As in previous years, the UK economic climate in
2012/13 continued to be challenging. Consumers
remained under pressure as inflation again
outstripped wage growth, as it has done for the last
four years, putting pressure on disposable income
and squeezing household budgets (chart 1).
There has been a slight improvement in consumer
confidence during the year due to low interest rates
and falling unemployment (chart 2); however, it
remains resolutely negative. Despite this slightly
increased confidence and a small increase in
discretionary spending power, there has not been
a commensurate increase in consumer spending
(chart 3). Although the outlook has improved over
the year, consumer confidence remains depressed,
largely due to rising living costs, limited wage
increases in real terms, job insecurity and changes
to tax and benefits (chart 4).
Over the past few years, we have seen significant
changes in consumer behaviour, changes that
we believe will continue over the coming years.
Consumers have adapted to economic challenges
by rediscovering the savvy housekeeping habits of
earlier generations, leading to fundamental changes
in the way they live and shop. There has been a shift
to people buying slightly less in their weekly grocery
shop and then topping it up locally in convenience
stores. Across all demographics customers are more
price conscious than ever, looking for discounts
and offers to help them save money and make their
household budget go further (chart 5). They are
saving money by planning their meals ahead, writing
and sticking to a shopping list, wasting less and using
leftovers creatively for an extra meal or packed
lunch (chart 6).
The credit crunch has not led to a values crunch.
Instead, the downturn has led to a strengthening of
values irrespective of income, as people carefully
consider their spending decisions. Consumers have
greater expectations of the goods and services
they buy and are more interested than ever in
the integrity of products and the companies they
buy from. They want complex questions solved on
their behalf and are prepared to pay a fair price
for quality products. Across all age ranges and all
demographics shoppers are looking for quality,
values and value from companies they trust (chart 7).
1: CEBR economic indicators
Inflation, earnings growth and household discretionary spending power
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
4
Q
7
0
0
2
1
Q
8
0
0
2
2
Q
8
0
0
2
3
Q
8
0
0
2
4
Q
8
0
0
2
1
Q
9
0
0
2
2
Q
9
0
0
2
3
Q
9
0
0
2
4
Q
9
0
0
2
1
Q
0
0
2
1
2
Q
0
0
2
1
3
Q
0
0
2
1
4
Q
0
0
2
1
1
Q
1
1
0
2
2
Q
1
1
0
2
3
Q
1
1
0
2
4
Q
1
1
0
2
1
Q
2
1
0
2
2
Q
2
1
0
2
3
Q
2
1
0
2
4
Q
2
1
0
2
1
Q
3
1
0
2
2
Q
3
1
0
2
3
Q
3
1
0
2
4
Q
3
1
0
2
1
Q
4
0
2
1
2
Q
4
0
2
1
3
Q
4
0
2
1
4
Q
4
0
2
1
CPI inflation
Regular earnings – 3 month year-on-year growth
Household disposable income
2: GfK Consumer Confidence Index
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
5: When thinking about your food and
grocery shopping, what are your priorities
for the year ahead?
Saving money on
my food and groceries
Reducing the amount
of food I waste
Keeping to a set budget
68%
48%
46%
Supporting local producers
28%
Reducing the amount of
packaging I throw out
Reducing the cost of getting
to and from the store
19%
18%
Source: IGD ShopperVista (all shoppers, January 2013)
6: Changes in consumer behaviour
in the post-crunch shopping era
Nine out of ten people
(90 per cent) say they now
write a shopping list before
they leave home
Nearly four out of ten
people (37 per cent) plan
meals for the full week
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Nearly two thirds
(64 per cent) look
out for special offers
More than one in four (28
per cent) are now taking a
packed lunch to work
3: CEBR change in consumer spending
Year-on-year change in consumer spending
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
0
0
0
2
1
0
0
2
2
0
0
2
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
1
0
0
2
1
1
0
2
2
1
0
2
3
1
0
2
45 per cent bulk buy food
when it’s on offer
4: Shoppers’ concerns
Which of these factors concern you?
The rising cost of living
The future of the British economy
My family’s or my health
The prospects for future generations
How to live within my means
Damage to the environment
Unemployment or job insecurity
Social unrest and breakdown in society
January 2012
January 2013
Source: IGD ShopperVista (all shoppers)
Source: ‘The Rise of New Fashioned Values’, Sainsbury’s, November 2012
72%
76%
57%
63%
52%
52%
7: Importance of ‘doing business
in a responsible manner’
Importance of ‘doing business in a responsible manner’
by socio-economic group
44%
44%
45%
44%
33%
41%
41%
38%
41%
35%
71%
AB
C1
C2
DE
71%
75%
70%
75%
% scoring 8-10 out of 10
Source: ‘The Rise of New Fashioned Values’, Sainsbury’s, November 2012
J Sainsbury plc Annual Report and Financial Statements 2013
7
Business review
Key performance indicators
Financial KPIs
Like-for-like sales1 2012/13
(%)
Total sales growth1 2012/13
(%)
Underlying EBITDAR2 margin
(%)
1.8
3.9
1-year-LFL
2-year-LFL
3-year-LFL
4-year-LFL
5-year-LFL
6.3
10.9
15.9
1-year
2-year
3-year
4-year
5-year
4.3
9.0
14.3
2008/09
2009/10
2010/11
2011/12
2012/13
22.0
27.8
7.62
7.79
7.81
7.80
7.83
Trading intensity per sq ft3,4
(£ per week)
Underlying operating margin5
(%)
Underlying profit before tax6
(£m)
2008/09
2009/10
2010/11
2011/12
2012/13
20.01
2008/09
20.42
2009/10
3.26
3.36
20.04
19.47
19.27
2010/11
2011/12
2012/13
2008/09
2009/10
2010/11
2011/12
2012/13
3.50
3.54
3.56
519
610
665
712
756
Non-financial KPIs
Delivering against our 20x20 Sustainability Plan
Our values Commitments Progress
Best for food
and health
Healthier baskets
• Promoted the consumption of fruit and vegetables through ‘Five-A-Day the basics way’
• Over the year, 30 per cent of fruit and vegetable sales were via promotion
• New My Goodness! ready meal range launched with controlled calories, fat and salt, as well as one of your five-a-day
Alcohol
• Since we set our target we have sold 17.5 per cent more bottles of lighter alcohol wine
• Started a roll-out programme for our front of pack labelling with clear labelling of alcohol by volume (‘ABV’) on our own
Sourcing with
integrity
Raw materials
No deforestation
label wines
• Top 30 raw materials sourcing plans in development
• Over 1.8 million trees planted with the Woodland Trust since 2004, including one million planted as part of Sainsbury’s
£1.5 million donation to the Jubilee Woods project
• Products continue to be converted to Forest Stewardship Council standards
Sustainable fish
• Largest retailer of Marine Stewardship Council (‘MSC’) certified seafood for the fourth year running, with sales of
£115 million
• 128 MSC products, including MSC pole and line caught tuna from the Maldives as of May 2013
• Five tonnes of lesser known British fish distributed in the Switch the Fish campaign
Fairly traded
British
Animal welfare
• World’s largest retailer of Fairtrade with sales of over £319 million
• 555 Fairtrade products, from our Sainsbury’s basics tea to our Taste the Difference chocolate
• £3 million commitment over four years to fund projects via Sainsbury’s Fair Development Fund with Comic Relief
• £1.2 million in research and development grants to 14 projects to drive innovation and sustainability in British farming
• Introduced a unique dairy pricing model voted for by our dairy farmers, reflecting the cost of production
• UK’s leading retailer of British apples and pears for the fourth year with 53 apple and 11 pear varieties
• Leading retailer of Freedom Food products with sales of £465 million
• RSPCA ‘Retailer of the Year’ and winner of the Good Business Engagement Award
• British Freedom Food range extended to veal, with male calves from Sainsbury’s Dairy Development Group
• ‘Leadership & Innovation in Retail’ award from Compassion in World Farming
Supplier standards
• Ethical training of suppliers, as well as conducting our fourth consecutive programme of African Supplier Conferences
• Supplier development projects directly impacting the lives of up to half a million small-scale producers and workers
within supply chains in Kenya and the Democratic Republic of Congo
Sales including VAT, excluding fuel.
1
2 Underlying EBITDAR: underlying profit before tax before underlying net finance costs,
underlying share of post-tax results from joint ventures, depreciation, amortisation and rent,
divided by sales excluding VAT, including fuel.
5 Underlying operating margin: underlying profit before tax before underlying net finance costs
and underlying share of post-tax results from joint ventures, divided by sales excluding VAT,
including fuel.
6 Underlying profit before tax: profit before tax before any profit or loss on the disposal of
3 Trading intensity per sq ft: sales per week (including VAT, excluding fuel) divided by sales area.
4 2008/09 and 2009/10 adjusted for comparative purposes to remove the dilutive effect of the
temporary VAT reduction to 15 per cent between 1 December 2008 and 31 December 2009.
properties, investment property fair value movements, impairment of goodwill, financing fair
value movements, IAS 19 pension financing element and one-off items that are material and
infrequent in nature.
8
J Sainsbury plc Annual Report and Financial Statements 2013
Business review
Key performance indicators continued
Operating cash flow
(£m)
Pre-tax return on capital
employed7 (%)
Underlying basic earnings
per share8 (pence)
2008/09
2009/10
2010/11
2011/12
2012/13
1,206
1,206
1,138
2008/09
2009/10
2010/11
2011/12
2012/13
1,291
1,268
10.1
11.0
11.1
11.1
11.2
2008/09
2009/10
2010/11
2011/12
2012/13
21.2
23.9
26.5
28.1
30.7
Net capital expenditure
(£m)
Gearing9
(%)
Dividend per share10
(pence)
2008/09
2009/10
2010/11
2011/12
2012/13
862
915
880
875
962
2008/09
2009/10
2010/11
2011/12
2012/13
38.2
31.2
33.4
35.2
37.7
2008/09
2009/10
2010/11
2011/12
2012/13
13.2
14.2
15.1
16.1
16.7
Our values Commitments Progress
Respect for our
environment
Positive waste
• 100 per cent of waste put to a positive use, with 75 per cent generating a positive income to the business
• All food waste generated in mainland UK goes to anaerobic digestion
• 14 per cent year-on-year absolute reduction in the amount of general waste produced in our logistics operations
• Over nine million items of clothing and 1.7 million books donated though store textile and book banks and recycled through Oxfam
Packaging
• Helped customers reduce food waste via amending ‘display until’ and ‘freeze by’ labelling
• 6.4 per cent of packaging removed from own-brand products in 2011/12
Operational carbon
• Investment in renewable energy with 19.3MW of photovoltaics installed in 189 stores, 67 biomass boilers and
12 geothermal ground source heat pumps
• Scored 82 and a ‘B’ rating in the Carbon Disclosure Project; up from 43 last year
• Ranked in the top ten of Carbon Clear’s FTSE 100 companies with the best carbon management
• 26 per cent reduction in C02 emissions per 1,000 cases from our transport operations against 2005/06 baseline
Supplier carbon
• Worked with farmers across ten development groups, saving over 70,000 tonnes of carbon since 2007
• New supplier sustainability scorecard, encouraging sustainable growth
Water
• 50 per cent reduction in relative water consumption against our baseline of 2005/06, including a 17 per cent absolute
water reduction in logistics operations from prior year
• First retailer to obtain Carbon Trust Water standard independent certification for action to measure, manage and reduce
water use
Making a
positive
difference to
our community
Active youth
• Ninth year of Active Kids programme to encourage children to lead healthier, more active lifestyles, with around
£123 million worth of sports equipment and experiences donated since 2005
• First-ever Paralympic-only sponsor and announced Active Kids for All programme for inclusive school sport
Community investment
• £41.5 million invested in communities by us, our colleagues, our customers and our suppliers
• Over two million meals donated in UK’s largest food drive; one million meals donated by customers, matched by Sainsbury’s
A great place
to work
Commitment and
engagement
• Two percentage points year-on-year increase in colleague engagement as measured in Talkback, our annual colleague survey
• Three percentage points increase in colleagues who say they would recommend Sainsbury’s as a great place to work
• Named Employer of the Year by Retail Week
Jobs and skills
• 26,000 colleagues visited Sainsbury’s food colleges, including over 20,000 receiving City & Guilds’ accredited training
• New apprentice scheme announced with 400 places available, developing future team leaders
Long service
• Over 15,000 colleagues with 20 years or more employment, with 178 reaching 40 years or more
Disadvantaged groups
• Over 17,000 people employed via You Can programme with Remploy, Mencap, A Fairer Chance, Shaw Trust and Job Centre
Plus since 2008
• One of a few companies to adopt a Carers Policy, as part of our Carers UK partnership
• Youth Can programme promoting employment to young people
Sharing success
• Eligible colleagues shared a record bonus pot of over £90 million, reflecting market beating performance
• 18,700 colleagues participated in this year’s Save-As-You-Earn offer, making 31,330 in total
• 11,000 colleagues shared a £23 million payout in savings and profit via two of our Sharesave schemes
7 Return on capital employed: underlying profit before interest and tax, divided by the average
of opening and closing capital employed (net assets before net debt).
9 Gearing: net debt divided by net assets.
10 Dividend per share: total proposed dividend per share in relation to the financial year.
8 Underlying basic earnings per share: underlying profit, net of attributable taxation, 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.
J Sainsbury plc Annual Report and Financial Statements 2013
9
Business review
Our business strategy for
growth: our five areas of focus
are underpinned by our values
and operational excellence
Our strategy
O p e r a t i o nal excellence
We have achieved over
£100 million of operational
cost savings over the year,
totalling over £500 million
over five years
Growing
space
& creating
property
value
Great
food
Developing
new
business
Compelling
general
merchandise
& clothing
Complementary
channels &
services
O
ur values make u s d i
n t
e
r
e
f
f
Our values set us apart from other
retailers.They underpin our strategy
and the way we operate our business,
and they govern the way we relate to
customers, colleagues and stakeholders.
Read more about our values on pages 22 to 25
10
10
J Sainsbury plc Annual Report and Financial Statements 2013
J Sainsbury plc Annual Report and Financial Statements 2013
Great food
Fresh food is at the heart of what we
do. The quality and value of our food,
combined with our strong ethical
standards and supplier relationships,
differentiate us from other
supermarkets and help our
customers to Live Well For Less.
Compelling
general merchandise
& clothing
Our strategy of offering customers high
street quality and style at supermarket
prices is proving to be highly successful,
with sales of general merchandise
and clothing growing at over twice
the rate of food.
Complementary
channels & services
People have more choice than ever
before of where, how and when to do
their shopping. We offer a winning mix
of supermarkets, convenience stores
and a full online grocery and general
merchandise offer.
We have a clear, long-term
strategy to deliver our vision
of being the most trusted
retailer where people love
to work and shop
Developing
new business
Developing new business and investing
beyond our core is an important part
of our long-term strategy for the
future. We are moving into areas that
are a natural extension of our brand –
such as pharmacy, energy and digital
entertainment.
Growing space
& creating
property value
We have a clearly defined strategy for
growing space and increasing property
value. This falls into three main areas
– new supermarkets, adding space to
existing stores through extensions and
new convenience stores.
J Sainsbury plc Annual Report and Financial Statements 2013
J Sainsbury plc Annual Report and Financial Statements 2013
11
11
Business review
Our strategy continued
Fresh food is at the heart of
what we do. The quality and
value of our food, combined
with our strong ethical standards
and supplier relationships,
differentiate us from other
supermarkets and help our
customers to Live Well For Less.
Great food
Great food
C h i p o t l e
ro a s t c h i c ke n
Fa m i ly
favo u r it e
SERVES 4
£ 3
PER PERSON
by Sainsbury’s
Re-launch now
complete with over
6,500 lines, many
new or improved
Own-
brand
Sales are growing
faster than brands,
accounting for half
of our food sales
1 0 / 0 9 / 2 0 1 2 1 6 : 2 4
C 2 7 2 3 R C 1 3 _ A M E N D S _ V 2 . i n d d 1
12
12
J Sainsbury plc Annual Report and Financial Statements 2013
20,000+
Colleagues with
City & Guilds’
accredited training
from our seven
food colleges
£1 in £5
Spent on fresh fruit
and vegetables
in UK supermarkets
is spent at Sainsbury’s
£40m
Invested
in Farmer
Development
Groups since
2006
We know people want to eat more local
food, and support British farmers. We
source food from the UK whenever it
is available and the quality is of the
standard our customers expect. We are
committed to doubling the amount of
British food we sell by 2020.
We are proud of our close and long-
standing relationships with our suppliers.
We operate 10 Development Groups
for farmers and growers across dairy,
beef, pork, lamb, veal, eggs, chicken,
cheese, wheat and produce and we
have invested over £40 million in these
groups since 2006. In May 2012, following
an overwhelming majority vote from
Sainsbury’s Dairy Development Group
farmers, we adopted a unique ‘Cost of
Production’ payment model for milk.
This increased the price we paid to dairy
farmers and continues to reward them for
good animal welfare and environmental
responsibility. We also paid a premium
to our Pork Development Group farmers
when they faced rising feed prices.
Customers increasingly buy into our
own-brand food offer, which has grown
by nearly five per cent in the year and
now accounts for half of our food sales.
The successful re-launch of our core by
Sainsbury’s range is now complete with
over 6,500 lines, many of which are new
or improved. Sales grew ahead of our
major competitors’ comparable ranges
and by Sainsbury’s won the prestigious
Grocer Gold Own Label Brand of the Year
award. Our Taste the Difference range
is also growing strongly at nearly 10 per
cent and is gaining market share. Basics
continues to be the second biggest selling
supermarket value brand in the UK,
purchased regularly by customers who
buy across our own-brand ranges.
Our customers trust us to provide high
quality food that is safe to eat, and
whose provenance is clear. We found no
horsemeat in any of our products. This
is testimony to our exacting standards
and to the DNA and other testing we have
been carrying out regularly for many
years to ensure the integrity and safety
of our food.
Sainsbury’s is committed to fishing
responsibly and helping to change
UK fish-eating habits. In January,
we launched our second ‘Switch the
Fish’ campaign. This was designed to
encourage people to try lesser-known
sustainable fish, with over five tonnes of
lemon sole, mussels, Cornish sardines,
coley fillets and loch trout fillets
distributed over the three day campaign.
Sales of these alternative species
increased by 59 per cent following the
campaign.
One pound in every five spent on fresh
fruit and vegetables in UK supermarkets
is spent at Sainsbury’s, because our
customers trust the quality, integrity and
provenance of our offer. We were the
biggest volume retailer of British apples
and pears for the fourth year running.
We offer a fresh counter service in over
500 of our stores and sales from these
counters are continuing to grow and
outperform the market. Much of this
success is driven by the enthusiasm,
skill and expertise of over 20,000
colleagues who have benefited from
City & Guilds’ accredited training in our
seven food colleges.
Ethical trading is a cornerstone of
our food offer and with sales this year
of £319 million we are once again the
largest Fairtrade retailer in the world.
All our bananas and own-brand tea,
coffee and sugar are Fairtrade. Since
2007 we have given over £20 million
to projects in developing countries from
sales of bananas alone.
J Sainsbury plc Annual Report and Financial Statements 2013
13
13
Business review
Our strategy continued
Our strategy of offering
customers high street quality
and style at supermarket
prices is proving to be highly
successful, with sales of general
merchandise and clothing
growing at more than twice
the rate of food
Compelling general
merchandise & clothing
Tu
7th largest clothing
retailer in the UK
2nd
In the UK
for children’s
fancy dress
14
14
J Sainsbury plc Annual Report and Financial Statements 2013
“We sell more
bakeware than our
ma jor competitors”
£1bn+
Annual general
merchandise sales
Parents appreciate the great value and
quality of our childrenswear ranges and
our biggest ever schoolwear event last
summer delivered a sales increase of
25 per cent. We sold over one million polo
shirts, 630,000 pairs of boys’ trousers
and 272,000 girls’ skirts, consolidating
our position of number four in the
schoolwear market by volume. Another
huge success has been our investment
in children’s fancy dress, where we are
second in the UK market by value.
General merchandise sales outperformed
the market, driven in part by strong sales
on occasions such as Mother’s Day, Back
to School and our bi-annual sales, as well
as by the events unique to the year – the
Queen’s Diamond Jubilee, Olympics and
Paralympics. We sell more bakeware than
our major competitors and as a result
of our compelling offer and improved
in-store experience, we are now the UK’s
seventh largest retailer for homeware
by value.
We have grown market share across all
four categories of entertainment – film,
music, games and books – in what is a
challenging market. We secured exclusive
versions of some of the biggest DVD
releases of the year including Avengers
Assemble, The Hunger Games, War Horse
and Ice Age 4. In the first week of its
release, we achieved over 25 per cent
market share on Skyfall – the biggest-
selling DVD in the market since Mamma
Mia in 2008.
Our non-food offer builds customer
loyalty – customers who buy clothing and
general merchandise, as well as food,
shop with us more frequently and spend
more than those who only buy food.
In February, we achieved the significant
milestone of £1 billion in annual general
merchandise sales, a reflection of the
investment we have made in space and
the quality of our offer.
Two thirds of the UK population are still
not within a 15 minute drive of our full
non-food offer and only one in five of our
supermarkets has a full non-food range.
Future store extensions therefore present
opportunities for growth in this area.
Our successful Tu clothing ranges are
increasingly popular with our customers
and have enjoyed strong double-digit
growth during the year. Tu is the seventh
biggest clothing line in the UK by volume
and has risen to twelfth place by value.
The sales of women’s jeans increased
by over 80 per cent after the successful
roll-out of our new Denim Shop format,
and our exclusive Gok for Tu collections,
designed to be versatile, fashionable and
flattering, continue to be hugely popular
with our customers.
We continue to increase direct sourcing
and to forge better relationships and
terms with our suppliers overseas
through our offices in Shanghai, Hong
Kong and most recently Bangladesh.
We have rigorous technical and ethical
processes to ensure we source with
integrity and help our customers to
Live Well For Less.
+25%
Last summer was
our biggest ever
schoolwear event,
with sales up 25%
J Sainsbury plc Annual Report and Financial Statements 2013
15
15
Business review
Our strategy continued
People have more choice than
ever before of where, when
and how to do their shopping
Complementary
channels & services
190,000+
Online grocery
orders per week
16
16
J Sainsbury plc Annual Report and Financial Statements 2013
J Sainsbury plc Annual Report and Financial Statements 2013
10,000
Convenience job
opportunities over
the next three years
We offer a winning mix of supermarkets,
convenience stores and a full online
grocery and general merchandise offer.
Where customers shop all three of these
channels, their total spend is more than
double that of the average supermarket-
only shopper.
The trend for local top-up shopping
remains, as customers conserve fuel,
minimise waste and manage their
budgets. Our convenience business, which
we have built and invested in over the past
15 years, is benefiting from this trend, with
five million customer transactions each
week and a turnover in excess of £1.5
billion. Convenience stores have delivered
sales growth of over 17 per cent year-on-
year, driven by both new space and like-
for-like sales growth. We have continued
to open one or two convenience stores
each week, 87 during the year, bringing
our total number of convenience stores
to 523. In the next year the number of
convenience stores will overtake that of
supermarkets, and over the next three
years this expansion will create 10,000
job opportunities.
We were named Convenience Chain of
the Year for the third year running at the
Retail Industry Awards in recognition of
our breadth of range, customer service
and community involvement.
5th
Consecutive year
of profit growth at
Sainsbury’s Bank
1st retailer
In the UK to trial
innovative ‘Mobile
Scan & Go’ technology
Our groceries online business, which has
been operating since 1999, is also growing
strongly at around 20 per cent year-on-
year. We have the ability to deliver to over
96 per cent of UK households. Grocery
orders now regularly exceed 190,000 per
week – 25,000 more than last year –
and customer feedback relating to
service and availability are at an all-time
high. We have also seen double-digit
improvements in the efficiency of our
picking and delivery operations.
Maximising new and existing
opportunities in the online and digital
space is a key part of our long-term
growth plans. This year, we were the
first retailer in the UK to trial innovative
‘Mobile Scan & Go’ technology in three
stores. It allows customers to track how
much they are spending as they shop and
view savings instantly on their mobile
phone. When they have finished shopping
they pay at the till without unloading their
trolley, basket or bag.
Our general merchandise website
continues to offer thousands of branded
and own-brand lines across home and
garden, appliances, technology, toys,
games, sport and leisure. Over half our
customers choose to collect their orders
via our Click & Collect service which is
available in nearly 1,000 of our stores.
Sainsbury’s Bank has enjoyed another
successful year, delivering its fifth
consecutive year of profit growth, with
our share of the joint venture post-tax
profit up 38 per cent to £22 million.
Our strategy remains to offer customers
good quality financial services products
that offer value for money. The strong
performance is underpinned by a
competitive offering which combines
preferential deals on financial products
with Nectar points to be spent at
Sainsbury’s or elsewhere.
The Bank’s active accounts are up eight
per cent on the year to 1.5 million and
these customers spend more with us.
Our Nectar-based credit card, offering
our most attractive reward to date, has
exceeded all expectations and further
deepened our relationship with Nectar
and our customers. Growth in credit cards
overall was 17 per cent year-on-year.
The Bank enjoyed continued success with
car insurance with new business up 67
per cent year-on-year. Sainsbury’s Travel
Money increased turnover by 35 per cent,
with both in-store bureaux and online
ordering performing well.
The Bank was named Best Personal
Loan Provider by Consumer Moneyfacts,
Best Online Pet Insurance Provider by
Your Money Direct, Best Credit Card for
Rewards by Moneynet and Best Term
Assurance Provider Direct by Moneyfacts
Investment Life & Pensions.
We have reached an agreement to take
full ownership of Sainsbury’s Bank by
acquiring Lloyds Banking Group’s 50 per
cent shareholding for £248 million, which
comprises cash consideration for the
shares of £193 million and the purchase
of £55 million of loan stock. Developing
complementary channels and services
is a core part of our long-term strategy
for growth and ownership of the Bank
will enable its full potential to be realised.
As a consequence, given that loyal Bank
customers spend more in our stores than
non-Bank customers, and that customer
penetration is low, there is a significant
opportunity to grow the Bank and at the
same time in-store sales and customer
loyalty. As a result we expect strong
returns over time for the Group from
this investment.
J Sainsbury plc Annual Report and Financial Statements 2013
17
17
Business review
Our strategy continued
Developing new business and
investing beyond our core is an
important part of our long-term
strategy for the future
Developing
new business
270+
Pharmacies in our
stores and three hospital
outpatient pharmacies
18
18
J Sainsbury plc Annual Report and Financial Statements 2013
+83%
Customers signing
up to Sainsbury’s
Energy increased
by 83% year-on-year
150,000+
Books available on
eBooks by Sainsbury’s
One of our 20x20 sustainability
commitments is to be a leading provider
of health services. Research shows
that people are more likely to discuss
minor ailments with a pharmacist
than go to their GP and this is borne
out by the experience of our 270 plus
in-store pharmacies. Our highly trained,
professional pharmacists conducted
95,000 cholesterol checks, an increase
of 25 per cent year-on-year, gave 56,000
flu vaccinations and worked with the
Department of Health for the third year
to help people stop smoking by giving
out more than 30,000 Quit Kits. We
have also taken over the management
of the outpatient pharmacies at Guy’s
and St Thomas’ Hospitals in London
and James Cook University Hospital
in Middlesbrough.
Customers in 35 of our stores can benefit
from the NHS GP or nurse-led surgeries
we host. Private dental surgeries
also operate in 12 of our stores. Our
convenient locations and good parking
facilities lend themselves perfectly to
these services, which are appreciated
by our customers and the communities
we serve.
We have formed a joint venture with
Aimia, owner of the Nectar programme.
The new company, I2C (Insight 2
Communication), will benefit customers
through timely, relevant and accessible
offers, based on their likes and dislikes,
while brands benefit from insight-based
marketing solutions and a greater return
on investment.
Sainsbury’s Energy provides customers
with great value gas and electricity,
together with the reward of Nectar
points. We also offer advice on energy-
saving products such as solar panels and
insulation and home energy assessments.
The number of customers signing up
to Sainsbury’s Energy increased by 83
per cent in the last year, as people shop
around for the best deals in the market.
Our online sales channel accounts
for 36 per cent of the total number
of customers acquired.
We continue our drive into the online
and digital entertainment market with
the purchase of a majority stake in
Anobii, now operating as eBooks by
Sainsbury’s, and our partnership with
Rovi Corporation, an on-demand
video streaming service. These new
and exciting business relationships
underline our commitment to
become a key player in the digital
entertainment market.
J Sainsbury plc Annual Report and Financial Statements 2013
J Sainsbury plc Annual Report and Financial Statements 2013
19
19
Business review
Our strategy continued
In the last five years, we have
added £4 billion to the value
of our property portfolio, the
market value of which is now
£11.5 billion. Activity during
the year delivered profits of
£66 million and, over five years,
we have raised £1.3 billion
through disposals realising
property profits of £341 million.
Growing space
& creating
property value
New
space
This year we opened:
14 supermarkets
8 extensions
87 convenience stores
20
20
J Sainsbury plc Annual Report and Financial Statements 2013
Our store on Bellevue Road, Wandsworth,
is a good example of this effect. Local
traders were very supportive of us
opening as they anticipated the benefits
a Sainsbury’s store could bring to their
own businesses. This has been borne
out by research, which shows that since
our store opened footfall in the area has
increased by almost 40 per cent.
We have a pipeline of space ready
for development, including planning
consents for a number of supermarket
extensions, as well as a number of
opportunities for new supermarkets and
convenience stores. We ensure that all
our investments, individually and overall,
deliver good returns.
We work with joint venture partners to
add property value and trading space
to our estate. In April, as part of our
British Land joint venture, we opened
our newly extended store at Purley Way,
Croydon, giving us an additional 10,200
sq ft of selling space. We also extended
our store in Weedon Road, Northampton,
by 23,600 sq ft, in November. Over the
last few years, we have been successful
in both securing mixed use planning
permissions and ensuring we can get the
maximum value for our land holdings via
tactical sale and leaseback agreements.
Work on a site in Fulham Wharf started
in the summer and will deliver a
replacement 76,000 sq ft supermarket
and 267 residential apartments by
mid 2015. Our partnership with Land
Securities has seen work move forward
at our Wandsworth Garratt Lane store
where we are building an extension of
34,700 sq ft, a hotel and additional retail
space due to open this autumn.
We have a clearly defined strategy for
growing space and increasing our store
portfolio. This falls into three main areas:
1. New supermarkets
2. Adding space to existing stores
through extensions
3. New convenience stores
This year we have added 14 supermarkets,
87 convenience stores and eight
extensions to our property portfolio –
a total of just over one million sq ft, in line
with our target of around five per cent
gross space growth.
Some of this additional space has enabled
us to bring our increasingly popular
clothing and general merchandise ranges
to more customers. It has also enabled
us to expand our coverage of the UK to
areas where our presence was previously
limited – around 22 per cent of the UK
population does not live within a 15 minute
drive of a Sainsbury’s store and we have
less than five per cent market share in
35 per cent of UK postcodes.
A new Sainsbury’s store brings a number
of benefits to local communities. In
October, we opened a new 60,000 sq
ft supermarket in the Caldewgate area
of Carlisle. The store has given a major
regeneration boost to this area of the
city, which had been badly affected by
flooding and was becoming increasingly
run-down. Our store created around
300 new local jobs, increased parking
provision and brought a petrol filling
station to the area.
We opened our 500th convenience store
in Southsea, Hampshire in November and
in the coming year will see the number
of convenience stores we operate
exceed the number of supermarkets.
Convenience stores deliver particularly
good returns and make a positive
contribution to the regeneration of local
high streets in terms of footfall, increased
trade and employment opportunities.
£393m
2008/09
£57m
2009/ 10
£27m
2010/ 11
2011/ 12
£131m
£108m
£83m
£275m
£303m
£202m
£66m
2012/ 13
Proper ty proceeds
Proper ty profits
£341 million
property
profits in
five years
22%
Of the UK population
does not live within
a 15 minute drive
of a Sainsbury’s
£11.5bn
property
market value
in 2012/13
£11.5bn
2012/13
£11.2bn
2011/12
£10.5bn
2010/11
£9.8bn
2009/10
£7.5bn
2008/09
J Sainsbury plc Annual Report and Financial Statements 2013
J Sainsbury plc Annual Report and Financial Statements 2013
21
21
Business review
Our strategy continued
Our values set us apart from
other retailers. They underpin
our strategy and the way we
operate our business, and they
govern the way we relate to
customers, colleagues and
stakeholders. We see this as
a competitive strength as well
as a responsibility.
Our values make
us different
£123m+
Worth of equipment
and experiences
donated to nearly
50,000 organisations
through Active Kids
22
J Sainsbury plc Annual Report and Financial Statements 2013
“We continue to make
progress in reducing
salt, fat and sugar in
our own-brand food”
20x20 Sustainability Plan
In October 2011, we published our
20x20 Sustainability Plan comprising
20 ambitious goals, each linked to one
of our five values, which we aim to
achieve by the year 2020. It is our
roadmap towards a more sustainable
future and part of our promise to help
customers Live Well For Less.
Best for food and health
We play a key role in helping our
customers to achieve a healthier lifestyle,
as well as encouraging co-operation
between the food industry, Government,
health and nutrition groups, suppliers and
colleagues. We have been at the forefront
of this type of positive action for many
years: our innovative front-of-pack
traffic light labelling – now on over 9,000
products – has changed customer buying
patterns in favour of amber and green-
rated products over red-rated ones.
We continue to make progress in reducing
salt, fat and sugar in our own-brand
food. About 30 per cent of our fruit and
vegetable sales are through promotions
and we are active supporters of the
Government’s Responsibility Deal
‘Five-A-Day’ pledge.
Farm
to store
Our entire supply
chain is built
around long-
term sustainable
relationships
We are rolling out new ABV (alcohol
by volume) labelling on our own-brand
products to help customers identify
quickly and easily the alcoholic strength
of the products they buy. Since 2011
we have seen a 17.5 per cent increase
in the number of bottles of lighter
alcohol wine sold. This year we have
trained pharmacists in over 270 stores
as Healthy Eating Advisors to help our
customers eat more healthily, lose weight
and get active.
research and development grants to
support the future of British farming
through initiatives driven by our farmers,
growers and suppliers.
The weather was particularly bad for our
growers this winter, and by selling ‘ugly’
fruit and vegetables of different shapes
and sizes, that are just as nutritious and
tasty as our regular produce, we were
able to support British farmers and
reduce unnecessary waste.
Sourcing with integrity
Our entire supply chain, from farm
to store, is built around long-term
sustainable relationships to ensure the
best quality products at fair prices. We
have one of the most extensive quality
control programmes in the industry,
employing over 100 people to ensure
the integrity of our products. We apply
the same checks and exacting standards
across all our own-brand products – from
basics to Taste the Difference.
We work with over 2,200 British farmers
and growers and we are proud of the
strong relationships we have built with
them over time. We have invested over
£40 million in our 10 British Farmer
Development Groups since 2006 to
promote and support good animal
welfare, and improve environmental
and ethical standards. In December,
we awarded £1.2 million of agricultural
The sustainability of the fishing industry
is high on our agenda and we are the
largest retailer of Marine Stewardship
Council certified sustainable fish in the
UK, with around 130 products – from
basics fish fingers to Taste the Difference
Wild Alaskan Salmon and from fish
counters through to ready meals.
Respect for our environment
Using green energy and introducing
proven and next-generation renewable
technologies is fundamental to the
long-term sustainability of our business.
These technologies are helping to reduce
our overall energy use, lower our energy
bills and reduce our operational carbon
emissions, even as we continue to grow
floor space.
Investment in this area not only
improves the long-term sustainability
of our business, but also delivers a
strong financial return. It makes good
business sense for Sainsbury’s, helps
the environment and also supports job
creation in the renewable energy sector.
We are the UK’s leading retail user of
energy from anaerobic digestion (‘AD’).
Tamar Ltd, the strategic partnership we
set up with Tamar Energy to produce
energy from organic waste matter, is
developing a UK network of over 40
AD plants that will generate 100MW of
green electricity over the next five years.
J Sainsbury plc Annual Report and Financial Statements 2013
23
Business review
Our strategy continued
Our well-established zero food waste to
landfill policy means that any surplus
food from our stores that has not been
given to charity or used for animal feed
is sent for AD to generate green energy.
We are also working closely with our
suppliers to ensure they have access
to these AD plants to help them reduce
the environmental impact of their
operations, a key strand of our 20x20
Sustainability Plan.
In February, we became the first retailer
to achieve the Carbon Trust Water
Standard, showing that we are taking
action to measure, manage and reduce
water use year-on-year. We also saved
15,000 tonnes of carbon dioxide
by switching to natural refrigerants
in 150 stores.
We host the largest multi-roof solar
panel array in Europe, having installed
over 82,000 solar panels at 189 stores
producing renewable energy for
electricity.
We were awarded a number of
environmental accolades this year,
including the top award of ‘Sustainable
Business of the Year’ at the Energy
and Environmental Awards. This was
in recognition of our industry-leading
work on carbon and energy reduction,
constant technological innovation,
focus on recycling and water innovation.
Making a positive difference
to our community
As the first-ever Paralympic-only sponsor,
we played a full part in the London 2012
Games and experienced the power of
sport to bring people and communities
together. Over 18,000 Sainsbury’s
customers and colleagues were given
the opportunity to attend the Games
with our support, and 148 colleagues
were seconded to LOCOG or acted as
Games Makers. One hundred and fifty
customers and colleagues took part in
the Paralympic Torch Relay, generating
high levels of customer and colleague
engagement as it toured the UK – and
our supermarkets.
148
Colleagues seconded
to LOCOG or acted
as Games Makers
2m
meals
Donated to
disadvantaged people
in the UK’s biggest
ever single-charity
food drive
82,000
Solar panels on the
roofs of our stores
24
J Sainsbury plc Annual Report and Financial Statements 2013
Building on the success of Active Kids and
the ‘Million Kids Challenge’, we launched
our ‘Active Kids for All’ Paralympic legacy
plan. Our £1 million commitment will fund
teacher training to ensure that 500,000
children with a disability in mainstream
education are included in school sports
lessons. We are also extending our
sponsorship of the British Paralympic
Association to ensure that the next
generation of Paralympic athletes get the
support and coaching they need through
to the Sochi Winter Paralympic Games
in 2014 and Rio in 2016. Looking forward
to this summer, we are proud to sponsor
the Sainsbury’s Summer Series – three
world-class athletics events being held in
Birmingham and at the Queen Elizabeth
Olympic Park in London.
Working together with our customers, we
donated a record-breaking £41.5 million
to good causes in the year including our
sponsorship of Comic Relief, support
for the Royal British Legion Poppy
Appeal and our nationwide Local Charity
Partnership programme. Our second
Million Meals Appeal saw a record-
breaking two million meals donated to
disadvantaged people across the country,
with Sainsbury’s matching our customers’
donations, making it the UK’s biggest
ever single-charity food drive.
A great place to work
We have created 5,000 jobs this year,
as part of our commitment to create
50,000 new job opportunities by 2020.
Since 2011, we have recruited over 370
people on to our popular, fast-track
Trainee Manager Scheme. Attracted
by a long-term rewarding career and
benefits including a contributory
pension, discount card and eligibility
for the Sainsbury’s profit sharing and
bonus schemes, as well as first class
on and off-the-job training, they are
now making their mark on our business
across the country. We also created
400 apprenticeship places designed to
train and develop team leaders of the
future for our stores. Apprentices will be
equipped with new skills and offered City
& Guilds vocational training, including
nationally recognised qualifications that
are the equivalent of two A-levels.
To date over 20,000 colleagues who work
on fresh counters and bakeries and in our
in-store cafes have received job-related,
City & Guilds’ accredited training at our
seven food colleges.
5,000
Jobs created
this year
Over 80,000 colleagues are now saving
for their retirement in a company
Defined Contribution scheme. Last year,
we were one of the first companies
in the UK to introduce pension auto-
enrolment. In light of changes to
pensions over the last few years, and
in line with other businesses, we have
started a consultation about changes
to our Defined Benefit pension scheme.
The proposed changes will ensure
that pension arrangements for all our
colleagues are fair and sustainable for
the future.
Our colleagues shared in a bonus of over
£90 million this year, meaning that over
the last five years we will have awarded
over £350 million to colleagues in this
way. In addition, 11,000 colleagues shared
a £23 million payout in savings and
profit via two of our Sharesave schemes
which matured in March 2013, and nearly
19,000 colleagues participated in our
most recent Save-As-You-Earn offer.
Our focus on the value of our values
is an integral part of our business
strategy and has again been recognised
by key external benchmarks. We were
recognised as Employer of the Year at
the Retail Week Awards, highlighting
how we engaged our colleagues in every
aspect of the London 2012 Paralympic
Games. We maintained our position
in the FTSE4Good Index and we were
recognised as global sector leader, for
the sixth consecutive year, in the 2012
Dow Jones Sustainability Index review.
£350m+
Awarded in colleague
bonuses over the last
five years
J Sainsbury plc Annual Report and Financial Statements 2013
J Sainsbury plc Annual Report and Financial Statements 2013
25
25
Business review
Financial review
John Rogers, Chief Financial Officer
Dear Shareholder,
In an eventful year, while the
economic environment remained
tough, Sainsbury’s grew sales
(including VAT) by 4.6 per cent to
£25,632 million (2011/12: £24,511
million) and underlying profit
before tax (‘UPBT’) by 6.2 per
cent to £756 million (2011/12:
£712 million). In so doing, we
outperformed the market and
increased market share to 16.8
per cent, the highest for a decade.
26
J Sainsbury plc Annual Report and Financial Statements 2013
This performance was, in part, due to continued
progress in our multi-channel strategy allowing
customers to choose where, when and how they
shop. Our online grocery business grew at around
20 per cent and annual sales are nearly £1.0 billion.
Our convenience business grew at over 17 per cent
and annual sales are now over £1.5 billion. Own-
brand goes from strength to strength with not
only top-line sales growth across all three ranges,
basics, by Sainsbury’s and Taste the Difference, but
also good profit growth. Brand Match continued
to reinforce the competitiveness of Sainsbury’s
price position along with Nectar and coupon-at-till
technology, ensuring customers are rewarded with
relevant offers.
Sainsbury’s achieved over £100 million operational
cost savings which offset most of the impact of
inflationary pressures on costs during the year.
Underlying operating profit increased by 5.1 per
cent to £829 million (2011/12: £789 million), with
operating margin improvement of two basis points
(two basis points at constant fuel prices). UPBT
improved by 6.2 per cent to £756 million (2011/12:
£712 million). This growth was ahead of operating
profit growth due to strong performance in
underlying joint venture (‘JV’) profits, with our share
of JV post-tax profit at Sainsbury’s Bank up 38 per
cent from £16 million to £22 million.
We are pleased to announce that we have reached
an agreement with Lloyds Banking Group to acquire
their 50 per cent shareholding of Sainsbury’s Bank
and take sole ownership. Sainsbury’s intends to fund
the future consideration from internal resources.
As well as the stand-alone growth potential of the
Bank, full ownership will also allow future products
to be even more tailored to Sainsbury’s customers,
leveraging Nectar data to drive sales uplift in both
financial services and our supermarkets business.
After taking out a Bank product, Sainsbury’s
shoppers become more loyal and spend more
in-store, providing significant opportunity to unlock
further value.
The Bank’s results will be fully consolidated
within our financial services segment from when
the transaction completes, currently expected in
January 2014.
New space and the investments made over the past
few years continue to deliver an expected return
above the Group’s required hurdle rate, with core
capital expenditure this year of £1,040 million
(2011/12: £1,240 million). New space delivered a 2.5
per cent contribution to sales growth, slightly ahead
of expectations due to stores opening earlier than
anticipated and sales performing ahead of forecast
in both supermarkets and convenience.
The return on capital employed (‘ROCE’) increased
by 12 basis points to 11.2 per cent enhanced by the
movement in the net pension deficit, which reduces
capital employed. ROCE excluding the pension fund
deficit was 10.4 per cent, a 15 basis point decrease
year-on-year, held back by the cumulative effect of
the Group’s accelerated investment in space growth
since June 2009 and slower sector growth and
profitability.
Sainsbury’s took advantage of continued good
property yields and generated funds through the
selective sale and leaseback of supermarkets that have
no further development potential, generating £202
million of proceeds through property transactions
(2011/12: £303 million). This delivered a profit from
the disposal of properties of £66 million (2011/12: £83
million). The estimated market value of the Group’s
overall property portfolio increased by £0.3 billion,
to £11.5 billion (17 March 2012: £11.2 billion).
The balance sheet remained strong and the business
has funding in place of over £3 billion, including a
revolving credit facility of £0.7 billion that remained
un-drawn at the year-end. Net debt ended the year
at £2.2 billion, in line with expectations.
Underlying basic earnings per share increased to
30.7 pence (2011/12: 28.1 pence), a 9.3 per cent
improvement year-on-year. This was higher than the
increase in underlying profit, primarily due to the
impact of the reduction in the statutory corporation
tax rate. Basic earnings per share increased by
1.9 per cent to 32.6 pence (2011/12: 32.0 pence).
The Board has recommended a final dividend of 11.9
pence (2011/12: 11.6 pence), making a full year dividend
of 16.7 pence, up 3.7 per cent year-on-year (2011/12:
16.1 pence) and covered 1.83 times by underlying
earnings. The Board intends to continue to increase
the dividend each year and build dividend cover to
around two times over the medium term.
Whilst the economic climate is likely to remain
challenging, next year will be an exciting one for
Sainsbury’s as we take full ownership of Sainsbury’s
Bank and increase the pace of our convenience
opening programme. Alongside this, our priority is
to continue to drive returns from our investments,
improve operational cash flow and working capital
management, and maintain tight cost control.
John Rogers
Chief Financial Officer
Summary income statement
52 weeks to 16 March 2013
Sales (including VAT)
Sales (excluding VAT)
Underlying operating profit
Underlying net finance costs1
Underlying share of post-tax profit from JVs2
Underlying profit before tax
Profit on disposal of properties
Investment property fair value movements
Financing fair value movements
IAS 19 pension financing (charge)/credit
One-off items
Profit before tax
Income tax expense
Profit for the financial period
Underlying basic earnings per share
Basic earnings per share
Dividend per share
2013
£m
25,632
23,303
829
(111)
38
756
66
(10)
(10)
(5)
(9)
788
(174)
614
30.7p
32.6p
16.7p
2012
£m
24,511
22,294
789
(109)
32
712
83
–
(16)
17
3
799
(201)
598
28.1p
32.0p
16.1p
Change
%
4.6
4.5
5.1
(1.8)
18.8
6.2
(20.5)
n/a
37.5
(129.4)
(400.0)
(1.4)
13.4
2.7
9.3
1.9
3.7
Net finance costs before financing fair value movements and the IAS 19 pension financing element.
1
2 The underlying share of post-tax profit from JVs is stated before investment property fair value movements, financing fair value movements and profit on disposal
of properties.
J Sainsbury plc Annual Report and Financial Statements 2013
27
Business review
Financial review continued
Sales (including VAT) and space
Sales (including fuel) increased by 4.6 per cent to £25,632 million
(2011/12: £24,511 million).
This includes a 2.5 per cent contribution from new space
(excluding extensions and replacements) and like-for-like (‘LFL’)
sales growth of 2.1 per cent.
Sales growth (including VAT, including fuel)
52 weeks to 16 March 2013
Like-for-like sales
Net new space (excluding extensions and replacements)
Total sales growth
2013
%
2.1
2.5
4.6
2012
%
4.5
2.3
6.8
Sales (excluding fuel) grew by 4.3 per cent, with LFL growth
of 1.8 per cent, which was lower than the sales including
fuel number due to the growth in fuel volume and fuel price
inflation. The LFL increase was also below Sainsbury’s medium-
term planning objective of between three and four per cent,
reflecting the challenging market conditions. Sainsbury’s
growth was, however, 1.2 percentage points ahead of the
market, with market share growing by 19 basis points to 16.8 per
cent for the 52 weeks to 17 March 2013 (as measured by Kantar).
LFL sales growth (excluding fuel) improved from 1.7 per cent
in the first half to 1.9 per cent in the second half. Sainsbury’s
delivered growth of only 0.9 per cent in the third quarter, as
competition intensified over the Christmas period. This eased
off in the fourth quarter when Sainsbury’s recorded the highest
LFL growth of the year, at 3.6 per cent.
The contribution from net new space (excluding extensions
and replacements) of 2.5 per cent was slightly ahead of
Sainsbury’s expectations due to stores opening earlier than
anticipated and sales performing ahead of expectations in
both new supermarket and convenience stores.
The convenience business grew sales at over 17 per cent to
over £1.5 billion, well ahead of the market, and groceries
online delivered nearly £1.0 billion of sales, a year-on-year
increase of around 20 per cent. Our multi-channel strategy
enables customers to shop where, when and how they want.
Sainsbury’s non-food offer continued to be challenged by the
tough economic backdrop, and yet delivered growth ahead of
the market and over twice that of the food business. This growth
was supported by continued range development as well as
investments in extensions and new space.
Sales growth (including VAT, excluding fuel)
52 weeks to 16 March 2013
Like-for-like sales1
Net new space (excluding extensions and replacements)
Total sales growth
1 This includes a 0.7 per cent contribution from stores extended in 2012/13, net of disruptions.
2013
%
1.8
2.5
4.3
2012
%
2.1
2.4
4.5
Average trading intensity (‘TI’) excluding fuel declined to
£19.27 per sq ft per week (2011/12: £19.47 per sq ft), caused by:
the higher proportion of space for general merchandise and
clothing (which trades less intensively than food); an increasing
presence in those parts of the country where TI is likely to be
lower (albeit capital costs are also lower); and a drop in TI in the
underlying estate due to the challenging economic environment.
Convenience TIs continued to grow, as this offer meets changing
customer shopping behaviours, with new stores performing well
and sales from existing stores maturing.
634,000 sq ft of gross selling space (a net 551,000 sq ft), with
one store closure. In line with previous guidance, we stepped
up the number of supermarket refurbishments to 20 stores and
consequently reduced the number of extensions to eight, adding
185,000 sq ft of selling space (2011/12: 28 extensions and seven
refurbishments added 498,000 sq ft). Sainsbury’s continued to
open space in areas in which the brand is under-represented,
with strong growth in East and North West England. These
stores typically bring higher returns due to lower build costs,
although ultimate TI is lower than in other parts of the country.
New space, excluding extensions and replacements, contributed
a net 2.5 per cent to the sales growth (excluding fuel) of 4.3 per
cent. Sainsbury’s added a gross 1,007,000 sq ft of selling space
in the year (including replacements and extensions), an increase
of 4.9 per cent (2011/12: 1,401,000 sq ft and 7.3 per cent).
Including the impact of closures, this translated into net space
growth of 918,000 sq ft, an increase of 4.5 per cent since the
start of the year (2011/12: 1,239,000 sq ft and 6.5 per cent).
Space growth included 14 new supermarkets, of which two
were replacement stores (2011/12: 19 new supermarkets, of
which four were replacements). These generated an additional
Convenience continues to be a key area of growth, with 87
stores added during the year (2011/12: 73 stores). Four stores
were closed (2011/12: ten stores closed) and 15 refurbished
(2011/12: 28 stores), with net convenience space growth of
182,000 sq ft, an increase of 17.7 per cent since the start of
the year (2011/12: 118,000 sq ft and 13.0 per cent), meeting
our target of opening one to two new stores per week.
Net of replacements, closures and disposals, closing space
of 21,265,000 sq ft was 4.5 per cent higher than last year
(2011/12: 20,347,000 sq ft).
28
J Sainsbury plc Annual Report and Financial Statements 2013
Business review
Financial review continued
Store numbers and retailing space
52 weeks to 16 March 2013
At 17 March 2012
New stores
Disposals/closures
Extensions/refurbishments/downsizes
At 16 March 2013
Memorandum:
Extensions
Refurbishments/downsizes
Total projects
Supermarkets
Convenience
Total
Number
572
14
(3)
–
Area
000 sq ft
19,320
634
(83)
185
583
20,056
8
20
28
165
20
185
Number
440
87
(4)
–
523
–
15
15
Area
000 sq ft
1,027
190
(6)
(2)
Number
1,012
101
(7)
–
Area
000 sq ft
20,347
824
(89)
183
1,209
1,106
21,265
–
(2)
(2)
8
35
43
165
18
183
In 2013/14, Sainsbury’s expects LFL sales to be between
1.0 per cent and 1.5 per cent, reflecting the tough economic
environment and reduced contribution from extensions from
0.7 per cent in 2012/13 to 0.2 per cent. Contribution from new
space (excluding extensions and replacements) is expected to
be similar to 2012/13.
Sainsbury’s Bank joint venture (‘JV’)
Sainsbury’s underlying share of Sainsbury’s Bank post-tax profit
increased by £6 million to £22 million (2011/12: £16 million).
The Bank has continued to perform strongly, with profit growth
driven through increasing commission income, particularly in
car and home insurance, and lower bad debt levels.
In 2013/14, Sainsbury’s expects gross space growth of around
one million sq ft with circa two new convenience store openings
per week.
Sainsbury’s announced its intention to purchase the remaining
50 per cent of the Sainsbury’s Bank JV on 8 May 2013, with
expected completion in January 2014.
Underlying operating profit
Underlying operating profit increased by 5.1 per cent to
£829 million (2011/12: £789 million), reflecting a good sales
performance and cost savings of over £100 million in the year,
helping to offset most of the impact of cost inflation.
In 2013/14, Sainsbury’s Bank expects to make a similar profit
to 2012/13. 50 per cent of the Bank’s post-tax profits will be
included through equity accounting for around 46 weeks of
2013/14. The Bank’s profits will be fully consolidated in the last
six weeks of the financial year.
Underlying operating margin improved by two basis points year-
on-year to 3.56 per cent (2011/12: 3.54 per cent), which was also a
two basis point improvement at constant fuel prices. Underlying
EBITDAR margin increased by three basis points to 7.83 per
cent, a four basis point improvement at constant fuel prices.
Property joint ventures (‘JV’)
Sainsbury’s underlying share of post-tax profit from its JV with
British Land was £14 million (2011/12: £14 million). Its underlying
share of post-tax profits from the JV with Land Securities was
£2 million (2011/12: £2 million).
At the year-end, a loss on revaluation of £10 million was
recognised within the share of post-tax profit from the JVs in
the income statement (2011/12: £nil loss). This represents a
decrease on revaluation of properties in the JV to an average
yield of 5.1 per cent (2011/12: 5.0 per cent) as a result of shorter
lease terms within the portfolio.
In 2013/14, Sainsbury’s expects the property JVs to make
a similar profit to 2012/13.
In 2013/14, Sainsbury’s expects operating profit to grow in line
with sales.
Underlying operating profit
52 weeks to 16 March 2013
Underlying operating profit (£m)1
Underlying operating margin (%)2
829
3.56
5.1%
789
3.54 2 bps
2013
2012
Change
Underlying EBITDAR (£m)3
Underlying EBITDAR margin (%)4
1,824
7.83
1,740 4.8%
3 bps
7.80
Change at
constant
fuel prices
2 bps
4 bps
1 Underlying earnings before interest, tax, and before Sainsbury’s underlying share of post-tax
profits from JVs.
2 Underlying operating profit divided by sales excluding VAT.
3 Underlying operating profit before rent, depreciation and amortisation.
4 Underlying EBITDAR divided by sales excluding VAT.
In 2013/14, Sainsbury’s expects cost inflation at the middle
of its two to three per cent range and cost savings of around
£100 million.
J Sainsbury plc Annual Report and Financial Statements 2013
29
Business review
Financial review continued
Underlying net finance costs
Underlying net finance costs increased by £2 million to £111
million (2011/12: £109 million), mainly as a result of an increase
in average net debt and a reduction in capitalised interest,
partly offset by a decrease in the RPI rate which reduced the
rate on Sainsbury’s inflation-linked debt1.
Earnings per share
Underlying basic earnings per share increased by 9.3 per cent
to 30.7 pence (2011/12: 28.1 pence), reflecting the improvement
in underlying profit after tax and the lower underlying tax rate
year-on-year, partially offset by the effect of the additional
shares issued during the year.
Underlying net finance costs
52 weeks to 16 March 2013
Underlying finance income2
Interest costs
Capitalised interest
Underlying finance costs2
Underlying net finance costs2
2013
£m
19
(162)
32
(130)
(111)
2012
£m
18
(162)
35
(127)
(109)
1 The interest rate on the inflation-linked debt resets annually in April, by reference to the RPI
rate (capped at five per cent) prevailing in January.
2 Finance income/costs before financing fair value movements and IAS 19 pension financing
element.
Sainsbury’s expects underlying net finance costs in 2013/14 to
remain broadly flat, principally due to the effect of a decrease in
the RPI rate on the component of the Group’s inflation-linked debt,
partly offset by the higher forecast average net debt balance.
Taxation
The income tax charge was £174 million (2011/12: £201 million),
with an underlying tax rate of 23.7 per cent (2011/12: 26.1 per
cent) and an effective tax rate of 22.1 per cent (2011/12: 25.2
per cent). The underlying and effective tax rates were lower
than last year, primarily as a result of the two per cent lower
statutory corporation tax rate and the impact of this on the
revaluation of the deferred tax balances.
Underlying tax rate
52 weeks to 16 March 2013
Profit before tax, and tax thereon
Adjustments (and tax thereon) for:
Profit on disposal of properties
Investment property fair value
movements
Financing fair value movements
IAS 19 financing charge
One-off items
Deferred tax rate change
Underlying profit before tax,
and tax thereon
Profit
£m
788
Tax
£m
174
Rate
%
22.1
(66)
(11)
10
10
5
9
–
–
2
2
1
11
756
179
23.7
In 2013/14, Sainsbury’s expects the underlying tax rate to be
between 21 and 22 per cent, lower than 2012/13, principally due
to the impact of further reductions in the statutory corporation
tax rate.
The weighted average number of shares in issue was 1,881.5
million (2011/12: 1,870.3 million), an increase of 11.2 million
shares or 0.6 per cent. Basic earnings per share increased to
32.6 pence (2011/12: 32.0 pence). Basic earnings per share were
higher than the underlying basic earnings per share mainly due
to the profit on disposal of properties.
Underlying earnings per share
52 weeks to 16 March 2013
Basic earnings per share
Adjustments (net of tax) for:
Profit on disposal of properties
Investment property fair value movements
Financing fair value movements
IAS 19 financing charge/(credit)
One-off items
Deferred tax rate change
Underlying basic earnings per share
2013
pence per
share
2012
pence per
share
32.6
32.0
(2.8)
0.5
0.4
0.2
0.4
(0.6)
30.7
(4.3)
–
0.7
(0.7)
(0.2)
0.6
28.1
Dividends
The Board has recommended a final dividend of 11.9 pence per
share (2011/12: 11.6 pence), which will be paid on 12 July 2013
to shareholders on the Register of Members at the close of
business on 17 May 2013, subject to approval. This will increase
the full year dividend by 3.7 per cent to 16.7 pence per share
(2011/12: 16.1 pence). The dividend is covered 1.83 times by
underlying earnings (2011/12: 1.75 times).
The proposed final dividend was recommended by the Board
on 8 May 2013 and, as such, has not been included as a liability
as at 16 March 2013.
Sainsbury’s remains focused on delivering returns to
shareholders. The Board intends to continue to increase the
dividend each year and to build cover to two times over the
medium term.
30
J Sainsbury plc Annual Report and Financial Statements 2013
Business review
Financial review continued
Return on capital employed
The return on capital employed (‘ROCE’) over the 52 weeks
to 16 March 2013 was 11.2 per cent (2011/12: 11.1 per cent), an
increase of 12 basis points year-on-year, enhanced by the
increase in the net pension deficit, which reduces capital
employed.
ROCE excluding the net pension deficit, over the 52 weeks to
16 March 2013 was 10.4 per cent, a year-on-year decrease of
15 basis points. ROCE growth was held back by slower sector
growth, reduced industry profitability and the cumulative effect
of Sainsbury’s accelerated investment in space growth since
June 2009. This has an initially dilutive impact on profits as the
stores mature, whilst increasing the value of capital employed.
Return on capital employed
52 weeks to 16 March 2013
Underlying operating profit (£m)
Underlying share of post-tax profit from JVs (£m)
Underlying profit before interest and tax (£m)
Average capital employed1 (£m)
Return on capital employed (%)
Return on capital employed (%)
(excluding pension fund deficit)
52 week ROCE movement to 16 March 2013
52 week ROCE movement to 16 March 2013
(excluding pension fund deficit)
1 Average of opening and closing net assets before net debt.
2013
829
38
867
7,753
11.2
10.4
12 bps
2012
789
32
821
7,424
11.1
10.6
(15) bps
Net debt and cash flows
Sainsbury’s net debt as at 16 March 2013 was £2,162 million
(2011/12: £1,980 million), an increase of £182 million. This was
driven primarily by a small increase in working capital, an increase
in corporation tax payments and lower sale and leaseback activity.
This was offset by lower investments in estate development.
Operating cash flow before changes in working capital increased
4.5 per cent, but cash generated from operations decreased by
1.8 per cent to £1,268 million (2011/12: £1,291 million, 13.4 per
cent increase) due to an adverse movement in working capital.
Working capital increased by £26 million year-on-year (2011/12:
£53 million decrease) as inventory increased by £57 million,
offset by £31 million of other working capital improvements.
Summary cash flow statement
52 weeks to 16 March 2013
2013
£m
2012
£m
Operating cash flow before changes in
working capital
(Increase)/decrease in working capital
Cash generated from operations
Interest paid
Corporation tax paid
Net cash from operating activities
Net cash used in investing activities
Proceeds from issue of shares
Receipt of new debt
Repayment of borrowings
Dividends paid
(Decrease)/increase in cash and
cash equivalents
Increase/(decrease) in debt
Fair value and other non-cash movements
Movement in net debt
1,294
(26)
1,268
(143)
(144)
981
(862)
17
75
(138)
(308)
(235)
36
17
(182)
1,238
53
1,291
(142)
(82)
1,067
(883)
14
391
(65)
(285)
239
(386)
(19)
(166)
Sainsbury’s expects net debt to be around £2.4 billion at the end
of 2013/14, assuming the quantum of sale and leaseback activity to
be similar to previous years and excluding the consideration to be
paid for the Bank. Including this consideration net debt is expected
to increase to £2.6 billion. Future net debt guidance will exclude the
consolidation of balances attributable to Sainsbury’s Bank.
Financing
The Group’s key financing objectives are to diversify funding sources,
to minimise refinancing risk and maintain appropriate standby
liquidity. Sainsbury’s has drawn debt facilities of £2.7 billion and an
un-drawn, committed credit facility of £0.7 billion at its disposal.
The principal elements of Sainsbury’s core funding comprise two
long-term loans of £1,002 million, due 2018, and £841 million, due
2031, secured over property assets. In addition, Sainsbury’s has
unsecured loans totalling £510 million with maturities ranging from
2014 to 2018, a £190 million convertible bond due July 2014 and
£160 million of hire purchase facilities and other finance leases.
Sainsbury’s maintains a £690 million syndicated revolving credit
facility due October 2015 for standby purposes. There were £nil
drawings under the facility as at 16 March 2013 (2011/12: £nil drawings).
J Sainsbury plc Annual Report and Financial Statements 2013
31
Business review
Financial review continued
Capital expenditure
Core capital expenditure decreased by £200 million year-on-
year to £1,040 million (2011/12: £1,240 million), due to a reduced
supermarket opening and extension programme, partly offset
by an increase in convenience store openings and supermarket
refurbishments. Sainsbury’s stepped up its convenience
opening programme in the year with 87 new convenience
stores (2011/12: 73 convenience stores) and completed 35
refurbishments (2011/12: 35 refurbishments), including 20
supermarkets (2011/12: seven supermarkets) and 15 convenience
stores (2011/12: 28 convenience stores).
Core capital expenditure as a percentage of sales (including
fuel, including VAT) was 4.1 per cent (2011/12: 5.1 per cent).
Sainsbury’s also took advantage of continued good property
yields in the year to achieve £202 million in sale and leaseback
proceeds (2011/12: £303 million), although this was a reduction
of £101 million year-on-year. This contributed to a total profit on
disposal of properties of £66 million (2011/12: £83 million). Net
capital expenditure was £875 million (2011/12: £962 million).
Capital expenditure
52 weeks to 16 March 2013
New store development
Extensions and refurbishments
Other – including supply chain and IT
Core capital expenditure
Acquisition of freehold and trading properties
Proceeds from property transactions
Net capital expenditure
2013
£m
593
271
176
1,040
37
(202)
875
2012
£m
599
478
163
1,240
25
(303)
962
In 2013/14, Sainsbury’s expects core capital expenditure of
around £1.1 billion, before any capital investment associated with
Sainsbury’s Bank, with core capital expenditure as a percentage
of sales (including fuel, including VAT) to be similar to 2012/13.
In the medium term, the Group expects core capital expenditure
as a percentage of sales (including fuel, including VAT) to fall to
below 3.5 per cent.
Summary balance sheet
Shareholders’ funds as at 16 March 2013 were £5,734 million
(2011/12: £5,629 million), an increase of £105 million. This is
mainly attributable to the continued profitable growth of the
underlying business and investment in space to support future
growth, offset by the increase in the net retirement benefit
obligation (net of deferred tax) and net debt.
The book value of property, plant and equipment, including
land and buildings, has grown by £475 million, as a result of
increased space growth, offset by the sale and leaseback of
stores with no further development potential.
Net debt was £182 million higher than at 17 March 2012 due to
investment in property, plant and equipment and lower cash
balances at year-end as a result of lower sale and leaseback
proceeds, a small increase in working capital and higher
corporation tax payments.
Adjusted net debt to EBITDAR was in line with last year at
4.1 times (2011/12: 4.1 times) and interest cover improved to
7.8 times (2011/12: 7.5 times). Fixed charge cover was in line
with last year at 3.1 times (2011/12: 3.1 times). Gearing increased
year-on-year to 37.7 per cent (2011/12: 35.2 per cent) mainly as a
result of the increase in net debt. Excluding the pension deficit,
gearing reduces to 33.7 per cent (2011/12: 32.5 per cent).
Summary balance sheet
at 16 March 2013
Land and buildings (freehold
and long leasehold)
Land and buildings
(short leasehold)
Fixtures and fittings
Property, plant and equipment
Other non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Debt
Net debt
Trade and other payables
and provisions
Retirement benefit obligations,
net of deferred tax
Net assets
2013
£m
2012
£m
Movement
£m
7,156
6,802
354
675
1,973
9,804
909
987
306
517
(2,679)
648
1,879
9,329
911
938
286
739
(2,719)
(2,162)
(1,980)
27
94
475
(2)
49
20
(222)
40
(182)
(3,422)
(3,400)
(22)
(688)
5,734
(455)
5,629
(233)
105
Key financial ratios:
Adjusted net debt to EBITDAR1 4.1 times
7.8 times
Interest cover2
3.1 times
Fixed charge cover3
37.7%
Gearing4
Gearing (excluding pension
4.1 times
7.5 times
3.1 times
35.2%
deficit)5
33.7%
32.5%
1 Net debt plus capitalised lease obligations (5.5% NPV) divided by underlying EBITDAR,
calculated on a rolling 52 week basis.
2 Underlying profit before interest and tax divided by underlying net finance costs.
3 Underlying EBITDAR divided by net rent and underlying net finance costs.
4 Net debt divided by net assets.
5 Net debt divided by net assets, excluding pension deficit.
As at 16 March 2013, Sainsbury’s estimated market value of
properties, including our 50 per cent share of properties held
within property JVs, was £11.5 billion (2011/12: £11.2 billion). The
£0.3 billion increase year-on-year was driven by property value
added of £0.5 billion, partly offset by sale and leasebacks of
£0.2 billion. The yield remained constant at 4.9 per cent.
32
J Sainsbury plc Annual Report and Financial Statements 2013
The defined benefit pension scheme was subject to a triennial
actuarial valuation carried out by Towers Watson, the scheme’s
independent actuaries, at March 2012 on the projected unit
basis. The results of this valuation are expected to be finalised
in June 2013.
On 10 April 2013, the Group entered into a consultation period
regarding the proposed cessation of the future benefits accrual
within its defined benefit pension scheme. Under this proposal,
impacted colleagues will be offered membership to the Group’s
existing defined contribution plans.
If the proposal proceeds, it is expected to result in a decrease
in the defined benefit pension scheme service cost and an
increase in contributions to the defined contribution plans,
as well as a reduction in the defined benefit pension liability.
Subject to the proposal being accepted, the financial impact
will depend on both the implementation date and the extent to
which impacted colleagues continue membership of the defined
contribution plans and therefore until consultation completes,
cannot be estimated with any degree of certainty.
Business review
Financial review continued
Pensions
As at 16 March 2013, the post-tax pension deficit was £233
million higher at £688 million (17 March 2012: £455 million)
mainly due to a fall in the discount rate from 5.0 per cent to
4.6 per cent and a rise in RPI inflation expectations from 3.3 per
cent to 3.5 per cent, partially offset by a 12.5 per cent increase
in the value of plan assets.
Retirement benefit obligations
at 16 March 2013
Present value of funded obligations
Fair value of plan assets
Pension deficit
Present value of unfunded obligations
Retirement benefit obligations
Deferred income tax asset
Net retirement benefit obligations
2013
£m
2012
£m
(6,594)
5,841
(5,654)
5,192
(753)
(13)
(766)
78
(688)
(462)
(9)
(471)
16
(455)
The IAS 19 pension current service cost included within UPBT
for the 52 weeks to 16 March 2013 was £59 million (52 weeks to
17 March 2012: £59 million).
In 2013/14, including the effect of the application of IAS 19
Revised, Sainsbury’s expects the pension service cost to
increase by circa £5 million to £64 million; the pension financing
charge reported outside of UPBT is expected to increase by
£22 million to £27 million. Furthermore, all pension scheme
expenses will now be shown as a charge outside of UPBT;
Sainsbury’s expects this cost to be circa £6 million in 2013/14.
These changes are also expected to reduce the balance sheet
pension deficit before tax by circa £135 million in 2013/14.
Pension costs
Current service cost – defined benefit
scheme
Charge within underlying profit
Interest cost
Interest income on assets
Financing charge (outside underlying profit)
2014 forecast
IAS 19 Revised
£m
(64)
(64)
(294)
267
(27)
2013
IAS 19
£m
(59)
(59)
(280)
275
(5)
Scheme expenses (charge outside
underlying profit)
Total charge to income statement
(6)
(97)
–
(64)
J Sainsbury plc Annual Report and Financial Statements 2013
33
Governance
J Sainsbury plc: Board of Directors
1
4
7
2
5
8
3
6
9
34
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
J Sainsbury plc: Board of Directors continued
4. John Rogers Chief Financial Officer
Appointed Chief Financial Officer on 19
July 2010, John is also a member of the
Board of Sainsbury’s Bank plc. John joined
Sainsbury’s in November 2005 as Director of
Corporate Finance and then became Director
of Group Finance from March 2007 to July
2008. In July 2008, he was appointed to the
Operating Board as Property Director. 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. Age 44.
7. Jean Tomlin Non-Executive Director
Appointed to the Board on 1 January 2013,
Jean is a Non-Executive Director of Michael
Kors Holdings Limited. Formerly, she was
the HR Director for The London Organising
Committee of the Olympic and Paralympic
Games where she oversaw the creation and
execution of the hugely successful Games
Maker volunteering programme. She was
previously Group HR Director at Marks and
Spencer Group plc, HR Director of Egg plc
and Sales & Operations Director of Prudential
Direct. Age 58.
5. Gary Hughes Non-Executive Director
8. Mary Harris Non-Executive Director
Appointed to the Board on 1 January 2005,
Gary is a Senior Advisor within the Portfolio
Support Group of Apax Partners LLP, the
global equity firm, and a Director of the
Scottish Exhibition Centre Limited. He is
also Chairman of Get Me Media Limited.
Formerly he was Chief Financial Officer of
Gala Coral (2008-11) and Chief Executive of
CMP Information Limited – a division of United
Business Media plc (2006-08), Group Finance
Director of Emap plc (2000-05), Group
Finance Director of SMG plc (1996-00), and
Deputy Finance Director of Forte plc (1994-
96). Prior to this Gary held a number of senior
management positions with Guinness plc in the
UK and in North America. Age 51.
6. John McAdam Non-Executive Director
Appointed to the Board on 1 September 2005,
John is the Senior Independent Director. He
is Chairman of Rentokil Initial plc and United
Utilities plc and also a Non-Executive Director
of Rolls-Royce Group plc. John joined Unilever
PLC 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 a Non-Executive Director of Sara Lee
Corporation (2008-12) and Severn Trent plc
(2000-05). Age 65.
Appointed to the Board on 1 August 2007,
Mary is a member of the supervisory boards
of TNT Express NV and Unibail-Rodamco S.E.
She previously spent much of her career with
McKinsey & Company, most recently as a
partner, where she worked primarily with
retail/consumer clients in China, South East
Asia and Europe. Her previous work experience
includes working for PepsiCo in Greece and the
UK, as a sales and marketing executive. Age 47.
9. Matt Brittin Non-Executive Director
Appointed to the Board on 27 January 2011,
Matt is Google’s Vice President – Northern &
Central Europe. Previously, he was Managing
Director of Google in the UK & Ireland.
Before joining Google at the start of 2007,
Matt spent much of his career in media
and marketing, with particular interests in
strategy, commercial development and sales
performance. This included commercial and
digital leadership roles in UK media. He is also
a Director of two charities, The Climate Group
and The Media Trust. Age 44.
Key to Committee members
Remuneration Committee
Audit Committee
Nomination Committee
Corporate Responsibility Committee
Denotes Chairman of Committee
Life President
Lord Sainsbury of Preston Candover KG
1. David Tyler Chairman
Appointed to the Board on 1 October 2009,
David became Chairman on 1 November
2009. He is also Non-Executive Chairman of
Hammerson plc and a Non-Executive Director
of Burberry Group plc. He was previously
Finance Director of GUS plc (1997-2006)
and has held senior financial and general
management roles with Christie’s International
plc (1989-96), County NatWest Limited
(1986-89) and Unilever PLC (1974-86). He was
Chairman of Logica plc (2006-12) and of 3i
Quoted Private Equity plc (2007-09), and a
Non-Executive Director of Experian plc (2006-
12) and of Reckitt Benckiser Group plc (2007-
09). He has also been Chairman of Hampstead
Theatre since September 2012. Age 60.
2. Justin King Chief Executive Officer
Appointed Chief Executive Officer on 29 March
2004, Justin 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
is a member of the CBI President’s Committee
and a Visiting Fellow of Oxford University’s
Centre for Corporate Reputation. Justin is
a former member of the Prime Minister’s
Business Advisory Group (2010-12) and was
previously the Director of Food at Marks and
Spencer Group plc. Prior to this he held a
number of senior positions at ASDA/WalMart
and Häagen Dazs UK. He spent much of his
early career with Mars Confectionery and
Pepsi International. Age 51.
3. Mike Coupe Group Commercial Director
Appointed Group Commercial Director on
19 July 2010, Mike is responsible for Trading,
Marketing, IT and Online. He has been a
member of the Operating Board since October
2004 and an Executive Director since 1 August
2007. 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. He previously worked
for both ASDA and Tesco, where he served in
a variety of senior management roles. Mike
was appointed to the board of directors at
Insight 2 Communication at its inception and
he is also a Non-Executive Director at Greene
King plc. Age 52.
Board of Directors as at 16 March 2013.
J Sainsbury plc Annual Report and Financial Statements 2013
35
Governance
Operating Board
3
6
9
1
4
7
10
2
5
8
11
36
J Sainsbury plc Annual Report and Financial Statements 2013
10. Neil Sachdev Property Director
Neil was appointed Property Director in July
2010 and is also responsible for Sainsbury’s
environmental strategy. He joined the
Company as Commercial Director in 2007,
where he helped drive the growth of the
Company as well as reduce running costs. Neil
has a wealth of retail experience following 28
years at Tesco. He was appointed to the Joint
Advisory Board of the Grantham Institute
for Climate Change in 2010 and since 2008
has been a member of the Business in the
Community Mayday Leadership team focusing
on the climate change sector. Neil is also
a Non-Executive Director, Chairman of the
Remuneration Committee and member of
the Audit Committee of Intu Properties PLC.
Currently, Neil is Chairman of the IGD Board,
a Director of the board of IGD Services Limited,
a member of the Business, Innovation & Skills
Board on Green Construction and a member
of the Construction Advisory Council.
11. Sarah Warby Marketing Director
Sarah joined Sainsbury’s and the Operating
Board on 30 January 2012 as Marketing
Director. She has responsibility for all
Sainsbury’s marketing activity and Brand
Communications, Non-Food Marketing, Digital
Marketing, Customer Insights and Loyalty. She
also has responsibility for Corporate Social
Responsibility and Corporate Affairs. Sarah
previously held a number of senior positions at
Heineken and was their UK Marketing Director
where she was responsible for a number of the
UK’s most high-profile FMCG brands. Prior to
this, she was Innovation Director at Heineken
where she led the combined technical and
marketing team. Earlier in her career, Sarah
worked for several marketing agencies and
was a graduate at Unilever PLC.
7. Tim Fallowfield Company Secretary &
Corporate Services Director
Tim joined Sainsbury’s in 2001 as Company
Secretary and is a member of the Operating
Board. In addition to his role as Company
Secretary, Tim is responsible for the Corporate
Services Division comprising Central Security,
Insurance, Legal Services, Public Affairs,
Safety and Shareholder Services. Tim joined
Sainsbury’s 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 the international law firm
Clifford Chance for six years and is a qualified
solicitor.
8. Rob Fraser IT Director
Rob joined the Operating Board as IT Director
in July 2009, bringing many years of both
IT and retail experience to the role. Rob was
previously Vice President, Retail, Consumer
& Transport at CSC and spent ten years at
Boots where he undertook a variety of IT
roles including Group IT Director. He was
also a member of the Boots Executive
Committee and has worked for Rank Xerox
and Marks and Spencer Group plc.
9. Luke Jensen Group Development
Director
Luke joined Sainsbury’s and the Operating
Board in June 2008 as Director of Strategy.
He was appointed to the position of Managing
Director Non-Food in 2009, with responsibility
for Clothing, General Merchandise and
Entertainment. He was appointed Group
Development Director in September 2011.
In this role he is responsible for the online
businesses, new business development, digital
and oversees the group strategy. He is also
Chairman of Insight 2 Communication, our
shopper marketing services joint venture
with Aimia, and Chairman of Anobii. Previous
roles include Director/Partner and Head of
the Consumer and Retail Practice of OC&C
Strategy Consultants (2004-08) and Founder
and Group FD/Executive Director of M8 Group
(2002-04).
Governance
Operating Board continued
Justin King Chief Executive
1.
See page 35
2. John Rogers Chief Financial Officer
See page 35
3. Mike Coupe Group Commercial Director
See page 35
4. Helen Buck Retail Director
Helen was appointed to the Operating Board
on 19 July 2010 as Convenience Director
and was appointed Retail Director in March
2012. Helen joined Sainsbury’s in 2005
and, after spending four years running
Brand Communications, moved to Trading
as Business Unit Director, Grocery in 2009.
Before joining Sainsbury’s, Helen held a
number of senior positions at Marks and
Spencer Group plc, Woolworths and Safeway
and was a senior manager at McKinsey &
Company. Since December 2011, Helen has
been a Non-Executive Director of LSL Property
Services PLC.
5. Roger Burnley Managing Director of
General Merchandise, Clothing & Logistics
Roger joined Sainsbury’s Operating Board in
March 2006 as Supply Chain Director before
assuming the role of Retail and Logistics
Director (2008-12). He was then appointed
Managing Director of General Merchandise,
Clothing and Logistics in March 2012. Roger
was previously Supply Chain Director at
Matalan. He spent his early career in retail
management and buying at B&Q before joining
ASDA/WalMart, where he held a number
of positions before becoming their Supply
Chain Director in 2001. Roger is currently
Vice President of the Chartered Institute of
Logistics and Transport (UK) and in September
2012 he joined the board of Transport for
London, for which he is also a member of the
Projects and Planning Panel.
6. Angie Risley Group HR Director
Angie was appointed Group HR Director
and a member of the Operating Board in
January 2013. She was most recently Group
HR Director at Lloyds Banking Group and
prior to this Angie was Group HR Director
at Whitbread. She is also a Non-Executive
Director of Serco Group plc and chairs their
Remuneration Committee.
Operating Board as at 16 March 2013.
J Sainsbury plc Annual Report and Financial Statements 2013
37
Governance
Corporate governance
statement
David Tyler, Chairman
Dear Shareholder,
This has been another good year
for Sainsbury’s. We have made
progress on many different fronts.
I firmly believe that our strong and
established governance described
in the following pages has played
an important part in our progress.
Sainsbury’s has again this year complied with all provisions of the UK
Corporate Governance Code.
We take succession at Board and senior management level very
seriously and we believe that we have a good record of identifying the
resourcing needs of the business, developing our own people, attracting
external talent and planning and implementing change over a number
of years.
I have referred to our Board and management team changes in my
introductory statement. Our new appointees during the year, Jean
Tomlin at plc level, and Angie Risley on the Operating Board, are already
bringing new skills and experience to our established teams. In addition,
following the announcement that we plan to acquire the 50 per cent
of Sainsbury’s Bank that we currently do not own, we are pleased that
Lady Susan Rice will join the Board on 1 June 2013 as a Non-Executive
Director. Susan has wide experience as a Non-Executive Director
and her career in retail banking is particularly relevant in light of our
announcement about our plans to take full ownership of Sainsbury’s
Bank. I am sure she will make a very strong contribution to the Board.
Jean, Angie and Susan will also add to our broad diversity which has
always been one of Sainsbury’s strengths. As set out below, we have
a high proportion of women in Board and senior positions who have
been appointed on merit throughout the organisation. From 1 June,
we will have three women on our Board (30 per cent), exceeding the
aspirational target of the Davies report that 25 per cent of board
positions at FTSE 100 companies should be filled by women by 2015.
We have made further change by appointing one of our established
Non-Executive Directors, Mary Harris, as Chairman of our Remuneration
Committee. Mary’s first letter to you in her new role is set out on
page 54. There has never been more external focus on executive
remuneration in the UK’s largest companies. Under Mary’s leadership
the Remuneration Committee has ensured that our consistent efforts
to ensure a direct link between pay and performance in the areas most
valued by our shareholders have contributed to building a focused
leadership team.
The Board received a broad range of presentations from the senior
management team during the year (see below), one of which was on
colleague engagement. We know that setting the right culture and
values throughout the business really helps to drive customer service
and sales. As a Board, we take our own culture very seriously and
always review it as part of our annual evaluation. We conducted an
external review of our performance in 2011 when Manchester Square
Partners confirmed that the Board was seen as effective, with a number
of specific strengths as regards ethics, organisation, information and
decision making. We have looked to build on these strengths to ensure
that we have a consistent culture throughout the business. This year’s
evaluation, carried out internally, concluded that we have shared values
and a common purpose and are able to debate matters openly and
honestly, with a high degree of trust and integrity.
We believe that our strong culture and values will continue to hold
us in good stead for the future.
I am delighted that Jean Tomlin has taken on the role of Chairman of
our Corporate Responsibility (‘CR’) Committee. The Board takes CR very
seriously as it is an integral part of Sainsbury’s business. I am sure that
Jean’s unique experience and breadth of skills will be a great addition
to the Board and provide inspirational leadership of the Committee.
Sainsbury’s was one of the first companies to establish a CR Committee
at plc level, reflecting the key role that our five values play in achieving
our vision to be the most trusted retailer where people love to work and
shop. Jean’s first letter to shareholders is on page 43.
David Tyler
Chairman
38
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Corporate governance statement continued
Compliance
The following sections explain how the Company applies the main
principles of Section 1 of the UK Corporate Governance Code (the
‘Code’). The Board is committed to strong governance and, during
the year, the Company has complied with all the provisions of
the Code.
The role of the Board
The Board is chaired by David Tyler and, at the year-end, there were
three Executive Directors and five Non-Executive Directors. John
McAdam is the Senior Independent Director. The Directors’ biographical
details are set out on page 35. Susan Rice will join the Board as a Non-
Executive Director with effect from 1 June 2013.
The Board’s key focus in helping to create long-term sustainable value
for shareholders is on strategic leadership, performance management,
investor relations, risk management, governance and succession
planning, each of which is described below. The Board has a scheduled
forward programme of meetings to ensure that we can allocate
sufficient time to each of these key areas. This enables us to plan
Board and Committee meetings appropriately and use the time most
effectively. There is sufficient flexibility in the programme for specific
items to be added to any particular agenda and this ensures that the
Board can focus on the key matters relating to the business at the
appropriate time.
The Board’s scheduled forward programme includes the following items,
some of which are considered at each meeting and others are reviewed
periodically throughout the year:
• Annual budget
• Corporate plan
• CEO Report and
trading update
• Financial items
• Preliminary and
Interim results
• Annual Report
• Dividend policy and
recommendations
• Committee reports
• Investor relations
• Strategic items
• Safety reports
(Health & Safety
and Food)
• Customer insights
• Pensions
• Project updates
• Treasury
• Governance
• Risk management
• Board evaluation
There are also a number of informal meetings of the Board, which
enable all the Directors to spend more time together and to discuss
specific areas of the business with individual Operating Board members.
Our annual Board evaluation exercise enables us to review whether
Board meetings are structured with a clear focus on the key issues
facing the Company, with a full and open debate before major decisions
are taken. We ensure that all Directors are aware of the key discussions
and decisions of each of the four principal Committees – the Chairman
of each Committee provides a detailed summary to all Directors at the
Board meeting following the relevant Committee meeting. Minutes
of Board and Committee meetings are circulated to Directors shortly
after those meetings take place. The Board has a schedule of formally
reserved powers, which it reviews each year, and receives a number of
in-depth presentations during the year.
Strategic leadership
The Board continued to focus on strategic matters during the year.
We hold a two-day Strategy Conference in the autumn, which the
Operating Board Directors attend. This enables the Board to conduct an
in-depth review of relevant economic factors and their likely impact on
customers and the market, to evaluate key opportunities and threats,
consider the corporate plan and agree the strategic goals for the
short-term and longer term perspectives, and the five areas of focus
described on pages 10 to 21. The Board receives a detailed half-year
update on progress against the agreed priorities and then, to complete
the cycle in July, agrees the objectives and principal areas of focus for
the next conference. Specific projects are considered at other meetings
during the year as necessary. Our 2013 Board evaluation exercise
concluded that the Board continued to make good progress in driving
the strategic debate during the year.
The Board was fully involved in the decision to acquire full ownership
of Sainsbury’s Bank, announced in May 2013. In-depth reviews
were presented at a number of meetings setting out the strategic
opportunity, the risks and the funding options, together with the
related regulatory requirements. In June 2012 the Board held one of its
scheduled meetings at Sainsbury’s Bank’s offices in Edinburgh which
provided the opportunity to meet the Bank’s leadership team and senior
management, and to review the Bank’s operations and product range.
Performance management and operational matters
Performance against delivery of the agreed key targets is reviewed
at every meeting with particular reference to the detailed Group
management accounts. The Chief Executive, Group Commercial Director
and Chief Financial Officer comment on the market and current trading
at each meeting and present comparative data and customer insight.
One of the Board’s key roles is to ensure that Sainsbury’s unique values
and strong culture are safeguarded so that they remain at the heart
of the Company’s success, as they have been throughout the last 144
years. The Board reviewed our colleague engagement in September,
as our colleagues are key to our success. The Board was pleased that
Sainsbury’s was a sponsor of the Paralympics and was delighted to host
a reception for over 130 of our key suppliers and other stakeholders to
mark the successful partnership.
Risk management
The Board reviews the Company’s principal risks on an annual basis,
in addition to receiving regular updates on risk management and
internal controls from the Chairman of the Audit Committee after each
Committee meeting. The Board also receives an annual update on all
matters relating to safety, supported by quarterly updates, together
with updates on relevant controls and governance. Any specific
issues on these and other matters which might affect the Company’s
reputation are reported to the Board as they occur. See page 48 for
further details.
Investor relations
Turning to investor relations (‘IR’), the Board receives an annual
independent survey at the Strategy Conference from Makinson
Cowell which reports on the views of major shareholders and analysts,
together with updates at each Board meeting on the IR programme and
feedback from major shareholders, particularly following each major
announcement of the Company’s results. See page 42 for further details.
Succession planning/Nomination Committee
The Board takes succession planning for both Board members and
senior management very seriously. All of the Non-Executive Directors
are members of the Nomination Committee which is chaired by David
Tyler. Justin King is not a member of the Committee although he is
invited to attend meetings.
As stated below, our Board evaluations consider the balance, skills
and diversity of the Board. They also consider succession planning,
reviewing whether it is working effectively. The evaluation reviews any
senior appointment processes during the year and identifies priorities
for the year ahead.
The changes to the Board which have been announced during the year
are part of the succession planning process. In May 2012, we announced
that Bob Stack had decided to stand down from the Board with
effect from our Annual General Meeting (‘AGM’) in July. Mary Harris,
who joined the Remuneration Committee in July 2011, then became
Chairman of the Committee. The Nomination Committee instructed
consultancy Egon Zehnder in connection with the recruitment of a
new Non-Executive Director. The Committee considered the balance of
skills, experience and diversity on the Board in determining the types
of candidate who might best fit the specification of this role. The Board
were delighted to be able to appoint Jean Tomlin as a Non-Executive
Director on 1 January 2013.
J Sainsbury plc Annual Report and Financial Statements 2013
39
Governance
Corporate governance statement continued
We believe we have a good balance and diversity amongst our Non-
Executive Directors with several having deep experience of consumer
facing businesses and other highly relevant skills partly derived from
serving in a range of major executive and non-executive positions
throughout their careers. Following the appointment of Jean Tomlin,
our Non-Executive Directors’ tenure on our Board as at the year-end
is as follows:
Board
Operating Board
Senior executive positions
Company
Male
Female
70%
73%
68%
46%
30%
27%
32%
54%
Board tenure
Non-Executive
0–1 years
2–3 years
4–5 years
6–8 years
Number
Percentage
1
2
1
2
17
33
17
33
The above table includes the Chairman.
Following the announcement that we plan to acquire the 50 per cent
of Sainsbury’s Bank that we currently do not own, Susan Rice will join
the Board on 1 June 2013 as a Non-Executive Director. Egon Zehnder
facilitated the recruitment process that led to Susan’s appointment.
At the time of the annual Strategy Conference the Committee reviews
succession plans for the Operating Board, as well as Divisional Director
development, talent management and the graduate programme.
The Committee’s terms of reference are available on the website and
set out the Committee’s responsibilities. The Committee meets on such
occasions as are necessary and in 2012/13 held five meetings in total,
particularly relating to the process which led to Jean Tomlin’s appointment.
The terms of reference of the Committee are available on the website
at www.j-sainsbury.co.uk/investor-centre/corporate-governance.
Diversity
Fairness, diversity and inclusion are a core part of our values and
heritage at Sainsbury’s. For more information on our progress, see
‘A great place to work’ on page 25. We continue to work to ensure
that colleagues from all backgrounds can progress in their careers.
As part of ‘A great place to work’ the Company has well-developed
policies for fair and equal treatment of all colleagues. We encourage
applications from all backgrounds to ensure a diverse and inclusive
workforce. It is our policy that people with disabilities are given full and
just consideration for vacancies and over the year we have conducted
a number of training sessions to raise awareness and understanding of
our customers and colleagues with disabilities and how we can better
support them. If a colleague were to become disabled while working
for Sainsbury’s we are committed to making reasonable adjustments
to support them. Under the banner of ‘You Can’, the Company also
actively works with a number of organisations which seek to promote
employment for disadvantaged persons and inclusion within the
workplace. One of our 20x20 Sustainability Plan commitments is that by
2020 we will provide 30,000 people from disadvantaged groups with
work opportunities. These include Job Centre Plus, A Fairer Chance,
Shaw Trust, Remploy and Mencap. Sainsbury’s is a Gold partner of the
Business Disability Forum. The Company also has a flexible working
and carers policy making it possible for colleagues to achieve a balance
between work and home. Further details of Sainsbury’s diversity policy
can be found at www.j-sainsbury.co.uk/diversity. Our focus for the year
ahead is on gender and race equality in employment, and a legacy of
inclusion following our sponsorship of the 2012 Paralympics.
One of our strengths is the diversity that results from having a high
proportion of women in senior management positions and throughout
the organisation who have been appointed on merit. Following the
appointments of Jean Tomlin and Susan Rice to the Board, and of
Angie Risley to the Operating Board, 30 per cent of our Board and
27 per cent of our Operating Board are women. Thirty two per cent of
our most senior executive positions are filled by women, providing a
strong pipeline of female leaders for the future. Overall 54 per cent of
our 157,000 colleagues are female.
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. The Chairman is responsible for leadership of the Board, ensuring
its effectiveness and setting its agenda to enable the Board to fulfil
all aspects of its role. As set out above, we ensure that the Board has
sufficient time to allocate to its key areas of focus throughout the annual
cycle of Board meetings. The Chairman ensures effective communication
with shareholders and that the Board is aware of the views of major
shareholders. He facilitates the contribution of the Non-Executive
Directors through a culture of openness and debate, and ensures
constructive relations between Executive and Non-Executive Directors.
The Chief Executive is responsible for the day-to-day management of
the Company, and executing the strategy, once agreed by the Board.
He creates a framework of strategy, values, organisation and objectives
to ensure the successful delivery of results, 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
The Non-Executive Directors bring wide and varied commercial
experience to Board and Committee deliberations. On appointment
they confirm that they will have sufficient time available to be able to
discharge their responsibilities effectively. 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 further terms, subject to mutual agreement. All members
of the Board will retire by rotation and seek re-election by shareholders
at this year’s AGM in accordance with the Code.
The Chairman satisfied the independence criteria of the Code on his
appointment to the Board in October 2009 and all the Non-Executive
Directors are considered to be independent according to the provisions
of the Code. The Board has specifically considered the executive or
non-executive roles that some of the Non-Executive Directors have with
companies who may be in competition with, or suppliers to, Sainsbury’s.
The Board is satisfied that the independence of the Directors who
have executive or non-executive roles with other companies is not
compromised and that they all have sufficient time available to devote
to the Company.
Directors’ conflicts of interest
The Companies Act 2006 provides 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. Whenever a Director takes
on additional external responsibilities, the Board considers any potential
conflicts that may arise and whether the Director continues to have
sufficient time to fulfil his or her role as a Director of the Company.
The Board will continue to monitor and review potential conflicts of
interest on a regular basis.
40
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Corporate governance statement continued
In last year’s report, the Board disclosed that it had considered a
potential conflict for Justin King, whose son, Jordan King, is one
of the country’s top young racing drivers. His success is attracting
interest from potential sponsors. Current sponsors include high net-
worth individuals and companies with established interests in motor
sport. Some of the sponsors are also suppliers to Sainsbury’s. Jordan
King arranges his sponsorships through his company, 42 Racing Ltd.
The Board has again satisfied itself that Justin King has no direct
involvement in the trading relationship between Sainsbury’s and any
supplier who may have an interest in 42 Racing Ltd. It remains satisfied
that the governance of all supplier relationships is robust and that there
is therefore no conflict of interest regarding these arrangements.
Information
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 conclusion from this year’s evaluation was that
Board meetings and processes were very effective.
Directors’ induction and development
We have 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 detailed
training on their role and responsibilities. All new Directors participate
in a comprehensive and tailored induction programme including store
and depot visits and meetings with other members of the Board,
members of the Operating Board, senior management and external
advisors. The induction programme includes a full review of corporate
responsibility. Subsequent training is available on an ongoing basis to
meet any particular needs.
Since her appointment to the Board in January 2013 Jean Tomlin’s
induction programme has included a session with PwC on her role and
responsibilities as a non-executive director, and meetings with all of the
plc and Operating Board Directors. She has also had meetings with the
Remuneration Committee advisors, the Director of Corporate Affairs
and senior members of the Finance Division. Jean has also presented
to the Company’s senior management on her experience at LOCOG.
Her induction will continue into 2013/14. Following her appointment
on 1 June 2013, Susan Rice will have a detailed induction programme
during 2013/14.
During the year the Company Secretary, Tim Fallowfield, has provided
updates to the Board on relevant governance matters, Directors’ duties
and obligations, and new legislation and its impact on the Company.
The Audit Committee regularly considers new accounting developments
through presentations from management and the external auditors.
This year this included updates on the future of narrative reporting,
changes to the UK Corporate Governance Code and revision of the
IFRS conceptual framework. The consultants to the Remuneration
Committee advise the Committee on relevant governance and trends in
remuneration. They received updates on the new BIS requirements and
the remuneration guidelines issued by investor representative bodies.
The Board programme includes regular presentations from
management and informal meetings which increase the Non-Executive
Directors’ understanding of the business and the sector. During the
year the Board held a Board meeting at our Sainsbury’s Bank offices in
Edinburgh and received presentations from members of the Sainsbury’s
Bank team on all of the keys aspects of the Bank’s business. In addition,
they met a number of the broader management team during their
visit and held a question and answer session with all Bank colleagues.
Directors have also visited stores and other sites as part of their
continuing engagement with the business.
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 annual evaluation exercise was last conducted on an external basis
in 2011 when Manchester Square Partners (who had no other relationship
with Sainsbury’s) led the review. Their report to the Board concluded
that the Board was working effectively across many dimensions. The
Board identified actions to develop some aspects of Board succession
and management transition and to strengthen further the focus on
strategic initiatives and progress was reported in last year’s report.
The Board agreed that this year’s review should be carried out by the
Company Secretary, as it had been in 2012. The Board is satisfied that
these internal reviews follow an established process which enables a
thorough review with full and open participation from all Directors.
The key objectives were to determine whether year-on-year progress
had continued on the key points identified by Manchester Square
Partners, to review progress against last year’s action points, to identify
any emerging themes, and to consider whether the Board and its
Committees were working effectively.
A questionnaire was circulated to all Directors seeking their evaluation
of a number of matters, including strategy, Board and management
succession, Board culture, balance and diversity, meetings and
processes, investor relations, risk management and Board Committees.
This was followed up in separate discussions with each of the Directors
to take their detailed feedback on any emerging themes. The Company
Secretary then presented the principal conclusions to the Board at a
meeting convened for that purpose, and the Board discussed the key
points and agreed certain actions.
The Board reviewed the action points from the 2012 evaluation and
concluded, in particular that:
• the strategic debate had made good progress and there were
common views on the strategic priorities;
• it would continue to develop strong links with the broader
management team. The Board’s visit to Sainsbury’s Bank had been
very successful and the regular informal sessions with the members
of the Operating Board were an effective means of understanding
their priorities. The Board noted that it will be visiting the new Store
Support Centre offices in Coventry in June 2013 which will provide
another excellent opportunity for engaging with the non-food and
property teams located there; and
• Directors were working well together with an open and honest culture
and a high degree of trust and integrity.
As part of the Board evaluation exercise, the Senior Independent
Director reviewed the Chairman’s performance with the other Directors
and subsequently met him to provide feedback. The Chairman provided
feedback to each Director on their individual contribution to the Board
and, with each of them, considered development priorities for them.
In line with the Code, the Board anticipates that the 2014 Board
evaluation will be facilitated by an external provider.
J Sainsbury plc Annual Report and Financial Statements 2013
41
Governance
Corporate governance statement continued
Attendance
The table shows the attendance of Directors at scheduled Board and
Committee meetings. The Board scheduled eight meetings during the
year, including the two-day Strategy Conference, and additional ad hoc
meetings and conference calls were also convened to deal with specific
matters which required attention between scheduled meetings.
Board Committees
The Board has delegated certain responsibilities to the Operating
Board and to the Audit, Corporate Responsibility, Nomination
and Remuneration Committees. The terms of reference for each
Committee are available on the website (www.j-sainsbury.co.uk/
investor-centre/corporate-governance).
Corporate
Responsibility
Committee
Jean Tomlin
Audit
Committee
Gary Hughes
Nomination
Committee
David Tyler
J Sainsbury plc
Board
David Tyler
Remuneration
Committee
Mary Harris
Group
Safety
Committee
Tim Fallowfield
Operating
Operating Board
Board
Justin King
Justing King
Trading
Board
Mike Coupe
Investment
Board
John Rogers
Corporate
Responsibility
and Sustainability
Steering Group
Justin King
Operating Board
Day-to-day management of the Group is delegated to the Operating
Board, which is chaired by Justin King. The Operating Board held ten
scheduled meetings during the year and each Director’s responsibilities
are set out on page 37. It has formal terms of reference setting out its
key responsibilities.
The Operating Board has delegated certain powers to the Trading
Board, the Investment Board, the Group Safety Committee and the
Corporate Responsibility and Sustainability Steering Group, each
of which has approved terms of reference setting out its areas of
responsibility.
Board
Audit
Committee
CR
Committee
Nomination
Committee
Remuneration
Committee
Matt Brittin
Mike Coupe
Anna Ford
Mary Harris
Gary Hughes
Justin King
John McAdam
John Rogers
Bob Stack
Jean Tomlin
David Tyler
8(8)
8(8)
6(6)
8(8)
8(8)
8(8)
7(8)
8(8)
3(3)
2(2)
8(8)
4(4)
–
–
–
4(4)
–
3(4)
–
–
–
–
–
–
2(2)
2(2)
–
2(2)
–
–
–
–
–
5(5)
–
5(5)
5(5)
5(5)
–
4(5)
–
3(3)
–
5(5)
–
–
2(2)
5(5)
–
–
4(4)
–
1(1)
3(3)
–
The maximum number of meetings held during the year that each Director could attend is shown
in brackets.
As referred to above, there were a number of informal meetings during
the year when Directors met individual members of the Operating Board
to receive updates on their specific areas of responsibility. In addition,
the Chairman and Non-Executive Directors met without the Executive
Directors being present, and the Non-Executive Directors also met
without the Executive Directors or the Chairman being present.
Investor relations
The Company is committed to maintaining good communications
with investors. Normal shareholder contact is the responsibility of
Justin King, John Rogers and Adam Wilson Katsibas, Head of Investor
Relations. The Chairman is generally available to shareholders
and meets with institutional and other large investors; the Senior
Independent Director is also available as required.
The Company regularly meets with its large investors and institutional
shareholders who, along with sell-side 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/investor-centre) so as to be available to all
investors.
The Board at each Board meeting receives feedback on the views of
major investors and the IR programme. In addition, Makinson Cowell
provide investor relations consultancy services to the Company and
give an external analysis to the Board at the Strategy Conference on
the views of institutional investors and sell-side analysts. Non-Executive
Directors also receive regular market reports and broker updates from
the Company’s IR department.
Shareholders have the opportunity to meet and question the Board at
the AGM, which this year will be held on 10 July 2013. 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
pages 125 to 127 and on the Company’s website (www.j-sainsbury.co.uk/
investor-centre).
42
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Corporate governance statement continued
Corporate Responsibility
Jean Tomlin, Chairman,
Corporate Responsibility Committee
Dear Shareholder,
Corporate responsibility
and sustainability remain an
integral part of Sainsbury’s
overall business strategy and an
important part of our vision to
be the most trusted retailer where
people love to work and shop.
I joined the Sainsbury’s Board in January 2013, and was delighted to
become Chairman of the Corporate Responsibility Committee from
my predecessor Anna Ford, having been impressed with Sainsbury’s
approach to sustainability in recent years.
The year’s key highlights are noted on pages 8 and 9 within the
Non-Financial KPIs and other examples are integrated across the
Business review.
Our five corporate values of ‘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’ remain as important
as ever to our ongoing success. They frame the Company’s work
day-to-day and are part of our heritage. With 23 million customer
transactions each week and employing around 157,000 colleagues and
working with over 2,000 direct suppliers in over 70 countries, we
need to manage our significant economic, social and environmental
value chain.
This track record has once again been recognised by numerous awards
and sustainability indices. A selection of these is listed on these pages
with others noted on our corporate website. In particular, we maintained
our Global Sector leader status in the Dow Jones Sustainability Index,
for the sixth year running, having first joined in 2003. We retained our
listing in the FTSE4Good Index, which we have been part of since its
inception in 2001.
As the Chairman of the Corporate Responsibility Committee, I will
report to the Board twice a year on our plans and on the progress
we have made against each of our values.
Sainsbury’s 20x20 Sustainability Plan is both ambitious and essential to
the future health of our business. In November, we updated on progress
during the first year since its October 2011 launch. Two innovative ‘crowd
sourcing’ events saw over 300 stakeholders provide detailed feedback
and advice to inform the agenda’s future direction and engage them in
its delivery. The team has also been working with our own-brand and
branded suppliers – both individually and collectively – to ensure they
are playing their part and fully embracing the Plan.
We will once again be providing a further public update on progress
in November for our customers, colleagues, partners and shareholders,
as well as continuing our practice of providing a Corporate
Responsibility and Sustainability update with every Trading Update.
In the meantime, I encourage you to find out more about this important
aspect of our business at www.j-sainsbury.co.uk/responsibility.
Sainsbury’s is also engaging customers in the ideas and actions that
20x20 stands for. The Company’s overarching Live Well For Less
mission chimes perfectly with this, and is underpinned by more specific
campaigns such as Switch the Fish, Love Ugly Veg, Make Your Roast
Go Further, Million Meals Appeal, Active Kids and of course Sainsbury’s
involvement in the Paralympics and inclusivity.
As a result, our customers now rate Sainsbury’s ahead of our peers for
taking our responsibilities seriously. In an environment where trust is
an ever more precious asset for any business, the team are focused on
ensuring Sainsbury’s values continue to make us different.
Our ‘New Fashioned Values’ consumer insight report showed that more
than ever people are looking to vote with their wallets and choose
companies they trust to do the right thing and act on their behalf.
Sainsbury’s values and the 20x20 Sustainability Plan offer both an
assurance and a roadmap in this regard.
Jean Tomlin
Chairman, Corporate Responsibility Committee
J Sainsbury plc Annual Report and Financial Statements 2013
43
J Sainsbury
plc Board
David Tyler
Chairman
CR&S Steering Group
Established 2001,
meets quarterly
Justin King
Chief Executive,
CR&S Chairman
Best for food
and health
Sarah Warby
Marketing Director
Sourcing with integrity
Mike Coupe
Group Commercial
Director
Respect for our
environment
Neil Sachdev
Property Director
Making a positive
difference to our
community
Helen Buck
Retail Director
A great place to work
Angie Risley
Group HR Director
CR Committee
Established January 2007
meets twice annually
Jean Tomlin, Chairman
Non-Executive Director
Health
steering
group
Brand
governance
steering
group
Climate
change
steering
group
Community
steering
group
A great
place to work
steering
group
Governance
Corporate governance statement continued
Corporate Responsibility Committee
During the year the Committee was chaired by Anna Ford, and Justin
King and Mary Harris are its members. Jean Tomlin became Chairman
of the Committee in January 2013 when Anna Ford stood down from
the Board. David Tyler attends each meeting. It met twice during the
year. These formal Committee meetings were supported by Corporate
Responsibility and Sustainability (‘CR&S’) strategic meetings that were
hosted by Anna Ford and Justin King. Each meeting is based around
one of the five CR&S values and key external stakeholders are invited to
attend. During the year five such meetings were held, relating to each of
the five values, framed within our 20x20 Sustainability Plan which was
launched in October 2011.
The Committee is supported by an internal CR&S governance structure
whereby members of the Operating Board have responsibility for each
of our five values and sit on our CR&S Steering Group, which meets
quarterly and is chaired by Justin King. The members of the Steering
Group are shown opposite.
The terms of reference of the Committee are available on the website
at www.j-sainsbury.co.uk/investor-centre/corporate-governance.
This year’s 20x20 Sustainability Plan update will be published in
November 2013.
Our 20x20 Sustainability Plan
In many ways, the commitments encapsulated in our 20x20
Sustainability Plan are not new to Sainsbury’s. We have sought
throughout our 144-year history to lead in matters of business
responsibility and sustainability. Examples of our contribution over the
past decade include transforming the market for fairly traded products
and sustainable seafood, improving animal welfare, supporting British
farming and championing community investment.
With our 20x20 Sustainability Plan, we formalise our action against
our values, as well as recognising the new and changing issues which
today’s world faces.
In developing the plan, in 2011 we undertook a detailed auditing and
materiality process. This year, we continued to listen to our customers,
suppliers and opinion formers to make sure we have the most relevant
and effective agenda, leverage the knowledge and experience of experts
and remain at the forefront of sustainability between now and 2020.
With the clarity of purpose that the 20x20 Sustainability Plan brings,
we are focused on its delivery, whilst also ensuring we continue to
engage and look beyond 2020.
44
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Corporate governance statement continued
Awards
Our CR&S achievements this year are recognised by a number
of awards, including:
Global Sector
Leader 2012/13
(sixth year running)
Held since its
inception in 2001
Platinum Big Tick, BITC
Corporate Responsibility
Index, 2013
Gold accreditation
since 2010
Most Sustainable Retailer
of the Year, Retail
Industry Awards, 2012
Retailer of the Year,
RSPCA Good Business
Awards, 2012
Leadership and
Innovation in Retail,
Compassion in World
Farming Award, 2012
Double winner, Carbon
and Energy, Guardian
Sustainable Business
Awards, 2012
Employer of the Year,
Oracle Retail Week
Awards, 2013
Carbon Disclosure Project
score of 82/100, awarded
‘B’ performance rating
J Sainsbury plc Annual Report and Financial Statements 2013
45
Gary Hughes, Chairman,
Audit Committee
Committee membership
The Audit Committee is chaired by Gary Hughes, with John McAdam
and Matt Brittin 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. The Chairman, Justin
King, John Rogers, Susannah Hall (Director of 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.
The Committee’s terms of reference are available on the Company’s
website at www.j-sainsbury.co.uk/investor-centre/corporate-governance.
Governance
Corporate governance statement continued
Audit Committee
Dear Shareholder,
The Committee remains
satisfied that the business
has maintained robust risk
management and internal
controls, supported by strong
overall governance processes.
We have a good balance of skills and experience amongst Committee
members, and we believe that our discussions with management
are open, thorough and appropriately challenging. We are well
supported by the internal audit function, and our external auditors
also give us confidence in the Company’s approach to controls and
risk. Recent annual evaluations support our belief that governance of
risk at Sainsbury’s remains strong and that the Committee is working
effectively.
As a Committee, we are keen to ensure that the identification and
management of risks is embedded across all areas of the business,
with effective oversight by the Operating Board. We regularly review the
risk profiles for each business division and the actions they are taking
or processes they have in place to manage or mitigate their risks. In
addition, we frequently receive updates on specific areas of risk from
the relevant members of the management team. We are satisfied that
management has instilled a strong culture throughout the business.
Over recent years, the Committee has received updates on the matters
discussed at the Sainsbury’s Bank Audit Committee and on other key
Bank matters including its liquidity, cash flows, capital adequacy
and risk management processes. One of our priorities in 2013/14
will be to ensure our governance continues to be strong from an
Audit Committee perspective as we move towards completion of
our full ownership of the Bank.
Gary Hughes
Chairman, Audit Committee
46
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Corporate governance statement continued
Activities during the year
During the year, the Committee met on four occasions and the external
auditors and the Director of Internal Audit were given the opportunity
after each meeting to meet with the Committee, without management
being present.
The Committee has a calendar of standard items within its remit which
reflects the Company’s reporting cycle:
Standard items
September
Accounting update
PwC performance review
Litigation report
Internal controls framework and fraud update
Risk management update
Sainsbury’s Bank report
PwC audit plan, audit strategy and fees
Terms of reference update
Annual review and benchmarking of the Finance
Division
Non-audit fees
November
Half-year accounting update, including going
concern review
PwC Interim review report
Draft Interim Statement
Litigation report
Internal controls framework and fraud update
Sainsbury’s Bank report
Update on PwC management letter
Non-audit fees
March
Accounting update
Litigation report
Internal controls framework and fraud update
Risk management update
Internal audit charter
Principal risks and uncertainties
PwC internal controls report
PwC report on auditor independence
Non-audit fees
Sainsbury’s Bank report
May
Year-end accounting update, including going concern
review
Litigation report
Annual Report and Financial Statements
Non-audit fees
PwC year-end report and required communications
External auditors’ appointment
Internal controls framework and fraud update
Sainsbury’s Bank report
During the year, the Committee has considered a number of matters
under the general headings above. 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. Within the accounting update
it considered provisions made by the Company, dilapidations of
properties and land, impairments, promotional monies and the related
accounting, and pensions. In addition, the Committee 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 making the going concern statement set out on page 70.
The Committee considered the key matters relating to the recently
announced acquisition of the 50 per cent stake in Sainsbury’s Bank that
we do not currently own. These included the accounting and direct tax
implications, how the purchase would affect the Group balance sheet
and how the Committee would continue to receive assurance around
risk management and internal controls.
At each meeting the Committee receives a report on the internal
controls framework and the Internal Audit department’s activities. This
year it received information on major IT projects, business continuity
planning and details of any invocation of the business continuity
management team. The Committee reviews the quarterly results of the
store safe and legal audits to ensure that appropriate standards are
being maintained.
The Committee also reviews:
• the effectiveness of the Company’s financial controls and the systems
of internal control by approving the Internal Audit plans twice yearly,
reviewing the findings quarterly and by reviewing the scope of
work and reports of the external auditors. The detailed actions for
resolution of any identified weaknesses are closely monitored by the
Committee through to completion; and
• the management of risk by reviewing the risk assessment process and
corporate and divisional risk maps and registers twice yearly. These
form the basis of the Internal Audit planning process.
Full descriptions of the risk management and internal controls
processes are set out below.
The Company’s ’whistleblowing’ procedures ensure that arrangements
are in place to enable colleagues and suppliers to raise concerns about
possible improprieties on a confidential basis. All issues raised have
been investigated and appropriate actions taken. Any significant issues
are highlighted to the Audit Committee.
The Company has a fraud policy and 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 a fraud update at each meeting.
The Committee also receives an update at each meeting about matters
discussed at the Sainsbury’s Bank Audit Committee and on any other
key matters. Given the economic climate it has continued to focus on the
Bank’s liquidity and cash flows, capital adequacy and risk management
processes.
Throughout the year, the Committee also reviewed a number of specific
presentations and updates. For instance, it received an update on the
Company’s IT change framework, data security controls and significant
new opportunities being explored beyond the core business.
Financial statements and significant issues
An accounting paper is prepared by management and presented to the
Audit Committee four times a year, which provides detail on the main
financial reporting judgements. Specific accounting papers will also be
prepared where considered necessary. The significant issues considered
in the year were as follows:
• Review of new contracts to ensure all accounting issues are identified
and revenue is recognised correctly in line with IAS 18: Revenue.
One example was our new joint venture, Insight 2 Communication,
as disclosed within the Business review.
• Consideration of provisions held and whether they remain adequate
and complete. As a result of the review, the majority of the disposal
provision has been released. See note 22.
• Impairment of both financial and non-financial assets. As disclosed
in note 2, a review for impairment triggers is performed at each
reporting date by considering if any current or future events suggest
their recoverable value may be less than their carrying value.
This covers stores, depots and land. An impairment review is also
performed for goodwill. As a result, a provision of £2 million has been
made against investments in subsidiaries where the carrying value
exceeded the recoverable amount, as disclosed in note 13.
• Pensions and, in particular, the revision to IAS 19: Employee Benefits,
to ensure adequate IAS 8 disclosure could be provided within the
Annual Report and the implications for 2013/14 are understood.
J Sainsbury plc Annual Report and Financial Statements 2013
47
Governance
Corporate governance statement continued
• The presentation of certain items outside of underlying profit as
defined within note 3. Our definition of such items remains clear and
further disclosure is included where appropriate.
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.
• A review for post balance sheet events has identified two recent
announcements by the Group that require disclosure within the
Annual Report. Firstly, the purchase of the remaining 50 per cent of
Sainsbury’s Bank and secondly, the proposed cessation of the future
accrual of benefits within our defined benefit pension scheme. Both
post balance sheet event disclosures have been included within note 37.
The Audit Committee remains satisfied that reasonable judgements
have been made by management and adequate disclosures provided
where appropriate.
Internal Audit
The Committee has regularly reviewed the Internal Audit department’s
resources, budget, work programme, results and management’s
implementation of its recommendations. In 2012, the Committee
commissioned a review of the function by Deloitte. The overall assessment
was that it was a high performing function which is well respected by
its key stakeholders, compliant with the requirements of the Institute of
Internal Auditors standards and achieving performance levels which were
considered to be leading practice in many key areas. The review found
there has been significant improvement since the last external review,
which had been conducted five years previously.
The Director of Internal Audit reports to the Committee Chairman and
has direct access to all members of the Committee and the Chairman.
She is given the opportunity after each meeting to meet with the
Committee separately without management being present. She has
regular meetings with all Committee members. The purpose, authority
and responsibility of Internal Audit are defined in the Internal Audit
Charter. The Committee reviews the Charter annually.
External Audit
The Committee reviewed PricewaterhouseCoopers LLP’s (‘PwC’)
overall work plan, and approved their remuneration and terms of
engagement. It considered in detail the results of the audit, PwC
performance and independence and the effectiveness of the overall
audit process. PwC have been the Company’s auditors since 1995.
They are required to rotate the audit partner responsible for the Group
audit every five years. Richard Hughes, the current audit partner, was
appointed in July 2010. The Committee recommended PwC’s re-
appointment as auditors to the Board and this resolution will be put to
shareholders at the AGM.
Independence
In order to ensure their independence, the Committee has implemented
the Company’s policy which restricts the engagement of PwC in relation
to non-audit services. The majority of the non-audit work undertaken
by PwC during 2012/13 was audit related assurance services such as the
interim review and the provision of accounting advice, fees for which
totalled £0.2 million. In addition, PwC earned fees for other non-audit
work of £58,000. The audit fee for the year in respect of the Group,
Company and its subsidiaries totalled £0.8 million. The Committee
remains satisfied with PwC’s independence and their overall challenge
to management.
The policy was reviewed during the year and is consistent with the
Auditing Practices Board’s Ethical Standards No. 5 – 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, including internal audit and actuarial
services relating to the preparation of accounting estimates for the
financial statements. It also requires that individual engagements
above a certain fee level may only be undertaken with appropriate
authority from the Committee Chairman or the Committee. The policy
also recognises that there are some types of work, such as accounting
and tax advice, where a detailed understanding of the Company’s
business is advantageous. The policy is designed to ensure that PwC is
only appointed to provide a non-audit service where it is considered to
be the most suitable supplier of the service. The Committee receives a
report at each meeting on the non-audit services being provided and
Grocery Supply Code of Practice
The Grocery Supply Code of Practice 2010 (‘GSCOP’) requires each
grocery retailer to which it applies to appoint a Code Compliance
Officer whose duties include hearing disputes between suppliers and
the relevant retailer. Sainsbury’s has appointed the Director of Internal
Audit as its Code Compliance Officer.
A further GSCOP requirement is that each grocery retailer to which it
applies must deliver an annual compliance report to the Office of Fair
Trading which has been approved by the chair of the Audit Committee.
A summary of the compliance report must be included in our Annual
Report and Financial Statements.
Summary Annual Compliance Report
Sainsbury’s continues to invest significant time and resource in
providing comprehensive training to all relevant colleagues as required
under GSCOP. This training is reinforced by online knowledge testing
and further supported by training and reference materials on our
intranet. Sainsbury’s has also dedicated internal legal resource to
provide all relevant colleagues with day-to-day advice and guidance.
A small number of alleged breaches of GSCOP have been received in the
reporting period, all of which either have been or are in the process of
being resolved to the supplier’s satisfaction within the Trading Division
using our standard internal escalation procedure. The resolution of
one of these alleged breaches was facilitated by the Code Compliance
Officer.
Risk management and internal controls
The Board has overall responsibility for risk management and the
system of internal controls and for reviewing their effectiveness. Certain
of these responsibilities have been delegated to the Audit Committee
as outlined on page 47. The system 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.
The risk management process and the system of internal controls
have been in place for the whole year, up to the date of approval of the
Annual Report and Financial Statements, and accord with the Turnbull
guidance and the UK Corporate Governance Code.
The Audit Committee has reviewed the effectiveness of the system of
internal controls and has ensured that any required remedial action on
any identified weaknesses has been, or is being taken.
Risk management
Accepting that risk is an inherent part of doing business, the risk
management system is designed to identify key risks and to provide
assurance that these risks are fully understood and managed. The
effectiveness of the process is reviewed twice a year by the Audit
Committee. The Board carries out an annual review of the significant
risks facing the business.
The Operating Board maintains an overall corporate risk register which
is reviewed twice yearly by the Audit Committee and formally discussed
with the Board. The risk register contains the significant risks faced by the
business and identifies the potential impact and likelihood at both a gross
level (before consideration of mitigating controls) and net level (after
consideration of mitigating controls). This gives the Board the opportunity
to review the level of risk that the business is prepared to accept. The
register also contains the assurance provided over current key mitigating
controls. Where further actions have been identified to mitigate risks to
a level deemed acceptable, these are agreed with specific timelines for
delivery and progress on implementation of these actions is monitored.
The risk management process is embedded at the Operating Board level
and through the review of the risk registers of each of the operating
divisions of the business:
• the divisional operating management teams are responsible for
managing the risks to their business objectives and for identification
and implementation of internal controls so as to provide reasonable,
48
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Corporate governance statement continued
but not absolute, assurance that the risks in their areas of
responsibility are appropriately identified, evaluated and managed;
• this divisional risk process is achieved through twice yearly workshops
held by the divisional management and facilitated by Internal Audit.
Each divisional management team produces and maintains a divisional
key risk register. The likelihood and impact of each key risk is evaluated,
management’s risk appetite is discussed and actions deemed
necessary to mitigate the risk are identified. In addition, the risks and
the robustness of the mitigating controls are regularly reviewed by
divisional management as part of their normal business activities;
• management certify annually (in May) that they are responsible for
managing 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 risk management process is illustrated below:
• the Operating Board reviews and challenges the output of the
divisional risk process and then updates the overall corporate risk
register as appropriate;
• game-changer and horizon scanning risk workshops are held annually
to focus on external and unknown risks;
• the corporate and divisional risk registers form the basis of the risk
based plan of Internal Audit for the subsequent half-year period;
• Internal Audit provides independent assurance to management and
the Audit Committee as to the existence and effectiveness of the risk
management process; and
• the Board reviews the risk process and corporate risks in May and
approves the Company’s Principal Risks and Uncertainties (as set out
on page 51 to 53).
Divisions
Operating Board
Audit Committee
Plc Board
Internal Audit
January/
February
1
Divisional Risk
Workshops
assess key risks
to their business
objectives
2
3
Operating Board
Risk Review
review/challenge
divisional risk
output and update
corporate
risk register as
appropriate
Management
annual certification
that risks in their
areas of
responsibility are
identified, evaluated
and managed
Horizon Scanning
and Game-Changer
Risk Workshops
focus on
external and
unknown risks
1
Divisional Risk
Workshops
assess key risks
to their business
objectives
March
May
June
July
August
September
2
2
Operating
Board Annual
Risk
Workshop
Operating Board
Risk Review
review/challenge
divisional risk
output and update
corporate
risk register as
appropriate
Audit Committee
review corporate
and divisional risks
and sign-off
Principal Risks
& Uncertainties
Internal Audit
risk-based
half-year plan
Plc Board
review of risk
process, corporate
risks and sign-off
of Principal Risks
& Uncertainties
Audit
Committee
review corporate
and divisional risks
Internal Audit
risk-based
half-year plan
1
Output
Divisional risk
maps and registers
2
Output
Corporate risk
map and register
3
Output
Principal Risk & Uncertainties
(reflecting key corporate risks)
J Sainsbury plc Annual Report and Financial Statements 2013
49
Governance
Corporate governance statement continued
Internal controls
The system of internal control encompasses all controls, including those
relating to financial reporting processes (including the preparation of
the consolidated Group accounts), operational and compliance controls
and those relating to risk management processes. It also includes the
controls over Sainsbury’s interests in Sainsbury’s Bank and property
joint ventures.
The Audit Committee assesses the effectiveness of the internal controls
systems on an ongoing basis, enabling a cumulative assessment to be
made. The processes used during the year to support this assessment
are as follows:
• discussion and approval by the Board of the Company’s strategy,
plans and objectives, and the risks to achieving them;
• review and approval by the Board of budgets and forecasts, including
those for both revenue and capital expenditure;
• regular reviews by management of the risks to achieving objectives
and mitigating controls and actions;
• regular reviews by management and the Audit Committee of the
scope and results of the work of Internal Audit across the Company
and of the implementation of their recommendations;
• regular reviews by the Audit Committee of the scope and results of
the work of the external auditors and of any significant issues arising;
• regular reviews by the Audit Committee of accounting policies and
levels of delegated authority; and
• regular reviews by the Board and the Audit Committee of material
fraudulent activity and any significant whistleblowing by colleagues or
suppliers, and actions being taken to remedy any control weaknesses.
50
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Corporate governance statement continued
Our Principal Risks & Uncertainties
The risk management process is closely aligned to our strategy,
which focuses on growing the business through the addition of
new range, space, business development, channels to market and
property management. Risk is an inherent part of doing business.
The management of these risks is based on a balance of risk and
reward determined through careful assessment of both the potential
likelihood and impact as well as risk appetite. Consideration is given to
both reputational as well as financial impact, recognising the significant
commercial value attributable to the Sainsbury’s brand. Each principal
risk and uncertainty is considered in the context of how it relates to the
achievement of the Group’s strategic objectives. The current business
strategy and objectives are categorised into five areas of focus as follows:
O p e r a t i o nal excellence
Growing
space
& creating
property
value
Great
food
Five areas
of focus
Developing
new
business
Compelling
general
merchandise
& clothing
Complementary
channels &
services
O
ur values make u s d i
n t
e
r
e
f
f
The most significant principal risks identified by the Board and the
corresponding mitigating controls are set out below in no order of priority.
Business continuity and major incidents response
Risk
A major incident or catastrophic event could impact on the
Group’s ability to trade.
Mitigation
Sainsbury’s has detailed plans in place, supported by senior
representatives who are trained in dealing with major incidents
and have the authority levels to make decisions in the event of a
potentially disruptive incident.
The Business Continuity Steering Group meets quarterly to ensure
that the business continuity (‘BC’) policy and strategy is fit for
purpose. In addition, it oversees the mitigation of all risks associated
with BC and IT disaster recovery. In the event of any unplanned
or unforeseen events the Business Continuity Management Team
is convened at short notice to manage any associated risk to the
business.
All key strategic locations have secondary backup sites which would be
made available within pre-defined timescales and are regularly tested.
Business strategy
Risk
If the Board adopts the wrong business strategy or does not
communicate or implement its strategies effectively, the
business may be negatively impacted. Risks to delivering the
strategy need to be properly understood and managed to
deliver long-term growth for the benefit of all stakeholders.
Mitigation
A clear strategy remains in place with five key areas of focus:
• Great food;
• Compelling general merchandise & clothing;
• Complementary channels & services;
• Developing new business; and
• Growing space & creating property value.
Progress against these areas of focus and any risks to delivery, such
as the availability of suitable new store sites, are regularly reviewed by
the Board and the overall strategy is reviewed at the 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 the strategy is communicated and understood, the Group
engages with a wide range of stakeholders including shareholders,
colleagues, customers and suppliers on a continual basis.
J Sainsbury plc Annual Report and Financial Statements 2013
51
Governance
Corporate governance statement continued
Colleague engagement, retention and capability
Financial strategy and treasury risk
Risk
Risk
The Group employs around 157,000 colleagues who are critical
to the success of our business. Attracting and maintaining good
relations with talented colleagues and investing in their training
and development is essential to the efficiency and sustainability
of the Group’s operations.
Mitigation
The Group’s employment policies and remuneration and benefits
packages are regularly reviewed and are 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.
Data security
Risk
It is essential that the security of customer, colleague or
company confidential data is maintained. A major breach of
information security could have a major impact on the business.
Mitigation
Various information security policies and standards are in place
which focus on encryption, network security, access controls, system
security, data protection and information handling. A review of key
contractors across the organisation who hold sensitive customer
or colleague data is ongoing, and progress is monitored by the
Information Security Committee. A risk based security testing
approach across Sainsbury’s IT infrastructure and applications is in
place to identify and remediate ongoing vulnerabilities.
Developing new business
Risk
Exploring a range of new opportunities beyond our core
business forms part of our five areas of focus. Robust
identification and management of risks associated with the new
business development agenda is essential to support successful
delivery of objectives.
The main financial risks are the availability of short and long-term
funding to meet business needs, counterparty liabilities and
fluctuations in interest and foreign currency rates which continue
to be impacted by the turbulence in the financial markets.
Mitigation
The Group 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 28 on page
104. The Group Treasury function has clear policies and operating
procedures which are regularly reviewed and audited.
Health and safety – people and product
Risk
Prevention of injury or loss of life for both colleagues and
customers is of utmost importance. In addition, it is paramount to
maintaining the confidence our customers have in our business.
Mitigation
Clear policies and procedures are in place detailing the controls
required to manage health and safety and product safety risks
across the business and comply with all applicable regulations. These
cover the end-to-end operation, from the auditing and vetting of
construction contractors, to the health and safety processes in place
in our depots, stores and offices to the controls in place to ensure
people and product safety and integrity.
In addition, established product testing programmes are also in place
to support rigorous monitoring of product traceability and provide
assurance over product safety and integrity. Supplier terms and
conditions and product specifications set clear standards for product/
raw material safety and quality which suppliers are expected to
comply with.
Process compliance is supported by external accreditation and
internal training programmes, which are aligned to both health and
safety laws and Sainsbury’s internal policies. In addition, resource
is dedicated to manage the risk effectively, in the form of the Group
Safety Committee and specialist teams including Convenience Risk
Managers and Logistics and Commercial Safety Specialists.
Mitigation
IT systems and infrastructure
The existing risk management framework and processes embedded in
the business extend to exploring new opportunities beyond the core.
All projects have a steering group and subject matter experts are
engaged as appropriate. A formal review and approval governance
structure is also in place.
Risk
The Group is reliant on its IT systems and operational infrastructure
in order to trade efficiently. Inadequate systems or failure of key
systems could have a significant impact on our business.
Mitigation
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.
Environment and sustainability
Risk
Environment and sustainability are core to Sainsbury’s values.
The key risk facing the Group in this area relates to reducing the
environmental impact of the business with a focus on reducing
packaging and new ways of reducing waste and energy usage
across stores, depots and offices.
Mitigation
A number of initiatives are in place, which are being led by the
Environmental Action Team and the Corporate Responsibility &
Sustainability Steering Group, to reduce our environmental impact
and to meet our customers’ expectations in this area. Further details
are included in the Corporate Responsibility review on pages 43 to 45.
52
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Corporate governance statement continued
Pension risk
Risk
Trading environment
Risk
The Group operates a number of pension arrangements which
includes a defined benefit scheme. This scheme is subject to
risks in relation to its 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.
Mitigation
An investment strategy is in place which has been developed by the
pension trustee, in consultation with the Company, to mitigate the
volatility of liabilities, to diversify investment risk and to manage cash.
In April 2013, a proposal was announced to close the Sainsbury’s
Defined Benefit Pension Scheme to future accrual, which will help us to
manage the escalating costs of pensions and protect the pension that
colleagues have already built up in the scheme. A consultation period
is currently underway following which a final decision will be made.
Regulatory environment
Risk
The Group’s operations are subject to a broad spectrum of
regulatory requirements. Key areas subject to regulation
include planning, competition and environmental issues,
employment, pensions and tax laws and regulations over the
Group’s products and services.
Failure to comply with laws and regulations could lead to civil
and/or criminal legal prosecution and fines or imprisonment
imposed on Sainsbury’s or our colleagues. In addition, a breach
could lead to reputational damage.
Effective management of the trading account is key to
the achievement of performance targets. The continued
challenging economic environment and competitive retail
pressure could affect the performance of the Group in terms of
sales, costs and operations, through:
• the ongoing challenges to household disposable income;
• competitor pricing positions;
• the reduction of the industry profit pool in the last year; and
• commodity costs driving up the cost of goods.
There is also a risk of supplier or other counterparty failure,
with possible operational or financial consequences for
the Group.
Mitigation
We continue to focus 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, monitoring of current market trends and price points across
competitors, active management of price positions, development of
sales propositions and increased promotion and marketing activity.
While external cost pressures including oil-related costs, commodity
pricing 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.
Sainsbury’s undertakes credit checks on suppliers and maintains regular,
open dialogue with key suppliers concerning their ability to trade.
Transitional risk – Sainsbury’s Bank
Mitigation
There is an established governance process in place to monitor
regulatory developments and to ensure that all existing and
forthcoming regulations are complied with. Regular reviews are
completed across the estate to ensure compliance and that training
needs are addressed as required.
Risk
Processes for monitoring and embedding training for key new
legislation are in place and Sainsbury’s also has a dedicated internal
legal department to provide the relevant colleagues impacted by the
regulations with advice and guidance.
Acquiring full ownership of Sainsbury’s Bank will introduce
change-driven operational risk in particular through the
transitional period. This transitional risk could have an adverse
impact on people, processes, regulatory compliance and
technical infrastructure. Failure to transition successfully may
have an adverse impact on the Sainsbury’s brand. A robust
risk management process is essential to support successful
transition.
Mitigation
Executive sponsorship and a change governance structure is in place
to manage and oversee the transition, including engagement of
management with financial services experience. The risk management
process includes early identification of key transitional risks along with
mitigation plans. Tracking of risk mitigation effectiveness will be ongoing
throughout the transitional period.
J Sainsbury plc Annual Report and Financial Statements 2013
53
Governance
Remuneration report
Dear Shareholder,
2012/13 has been a year of good
performance, despite tough
trading conditions. We have had
record customer transactions,
increased total sales by 4.3 per
cent (excluding fuel), improved
underlying profit before tax by
6.2 per cent and grown our market
share to 16.8 per cent, its highest
for a decade. This performance
has been reflected in the payments
under our incentive plans, where
we have met, and in some cases
exceeded, our stretching targets.
Our approach to pay is holistic, we consider the overall package, as well
as each individual element to ensure it is appropriately balanced. We
also take into account the pay and benefits of colleagues throughout
the business, are extremely mindful of the economic and political
environment regarding executive remuneration and exercise appropriate
judgement to ensure that rewards are reflective of underlying
performance. We are not proposing any changes to the remuneration
policy for 2013/14 and the 2013 salary increases for Executive Directors
and managers were in line with colleague increases and below inflation.
The over-arching principles of our remuneration policy are to balance
reward with performance and encourage sustainable shareholder value
creation. We ensure there is a sufficient weighting on variable pay to
drive the delivery of business objectives, without undue risk-taking.
The variable pay arrangements throughout the Company have been
structured to reward short-term financial and operating performance
(Annual Bonus), sustainable business development (Deferred Share
Award) and creation of value to shareholders over the longer-term
(Future Builder; previously Value Builder).
• Annual Bonus – our profit and sales growth over the year have
resulted in a record bonus pool of over £90 million, which was shared
by over 134,000 colleagues across the business. For the Executive
Directors the average payment is 85 per cent of the maximum,
compared to 47 per cent last year.
• Deferred Share Award – following the delivery of strong financial
and strategic performance during the year, awards were made at
83 per cent of the maximum.
• Value Builder – in May 2013, the fifth cycle of Value Builder, in which
over 1,000 managers participate, will mature at a performance
multiplier of 1.75 times (44 per cent of the maximum), reflecting our
performance over the previous three years.
54
J Sainsbury plc Annual Report and Financial Statements 2013
Mary Harris, Chairman,
Remuneration Committee
We are keen to ensure that our shareholders fully understand our
approach to pay. We await the final announcement from the Department
for Business, Innovation & Skills (‘BIS’) on the new reporting
requirements. While the new legislation will not come into effect until
October 2013, we have already adopted some of the future changes,
while retaining all content required under the existing regulations.
Finally, I would like to thank Bob Stack, following his retirement last
year, for his leadership of the Committee since 2005, as well as
welcoming John McAdam and Jean Tomlin to the Committee.
We remain committed to rewarding the leadership team for the
delivery of long-term shareholder value creation, while staying
true to our Company values.
Mary Harris
Chairman, Remuneration Committee
Governance
Remuneration report continued
Summary of performance and pay for 2012/13
Despite a challenging year for the retail sector and wider economy, we
continued to deliver a good performance in 2012/13, outperforming
the market and growing our market share. Our colleagues and
Executive team worked hard to provide a great service for customers
and this, combined with a quality range of food and non-food, has
led to continued sales growth and profitability. All of this was against
the backdrop of what was truly a ‘year like no other’ with Sainsbury’s
sponsorship of the Paralympics clearly resonating with customers and
providing a great example of how our values make us different.
The charts below demonstrate the sustained performance and value
that we have delivered to our shareholders over an extended period.
Over the year the share price also rose from £3.03 to a high of £3.63
at the end of the year.
Total sales growth 2012/131 (%)
Like-for-like sales growth 2012/131 (%)
4.3
9.0
14.3
1-year
2-year
3-year
4-year
5-year
22.0
27.8
1.8
3.9
1-year
2-year
3-year
4-year
5-year
6.3
10.9
15.9
Underlying profit before tax2 (£m)
Underlying operating margin3 (%)
2008/09
2009/10
2010/11
2011/12
2012/13
519
610
665
712
756
2008/09
2009/10
2010/11
2011/12
2012/13
3.26
3.36
3.50
3.54
3.56
1
2
Sales including VAT, excluding fuel.
Underlying profit before tax: profit before tax before any profit or loss on the disposal of
properties, investment property fair value movements, impairment of goodwill, financing fair
value movements, IAS 19 pension financing element and one-off items that are material and
infrequent in nature.
3
Underlying operating margin: underlying profit before tax before underlying net finance costs
and underlying share of post-tax results from joint ventures, divided by sales excluding VAT,
including fuel.
As a Committee, we set highly stretching performance targets. We consider that our incentive plan payouts for 2012/13 are reflective of our strong
growth this year and highlight the link between reward and performance.
Incentive arrangement
Performance achieved
Payout
Annual Bonus
Annual financial, operating and
individual performance
Deferred Share Award
Sustainable business development –
building for the future
• The Company achieved strong profit, sales and
customer satisfaction performance
• Executive Directors also performed well against
their personal objectives
• The targets set were either achieved or
exceeded, providing a platform for the creation
of shareholder value
Value Builder
Long-term
performance
• Over the last three financial years, the Company
made good progress in both cash generation and
the returns achieved on our assets
• Bonuses awarded to Executive Directors
for 2012/13 averaged 85 per cent (2011/12:
47 per cent) of the maximum
• Awards made to all participants (including
Executive Directors) for 2012/13 were 83
per cent (2011/12: 78 per cent) of the maximum
opportunity
• Awards vested at 44 per cent (2012:
43 per cent) of the maximum opportunity
The table below shows a breakdown of the Executive Directors’ total remuneration for 2012/13 and 2011/12. The level of total remuneration reflects
the Company’s strong performance as demonstrated in the performance charts.
Justin King (£’000s)
Mike Coupe (£’000s)
John Rogers (£’000s)
Basic salary1
Pension and benefits2
Annual Bonus3
Deferred Share Award4
Long-Term Incentive Plan5*
Total
£940
£313
£996
£975
£1,044
£4,268
2012/13
2011/12
2012/13
2011/12
2012/13
£920
£306
£514
£897
£846
£575
£160
£449
£430
£540
£565
£158
£238
£397
£383
£510
£127
£390
£381
£327
2011/12
£484
£122
£219
£351
£203
£3,483
£2,154
£1,741
£1,735
£1,379
* The 2012/13 Long-Term Incentive Plan figure is based on the Q4 average share price of £3.370. The 2011/12 figure is based on the share price on the date of vesting of £2.998.
1 Paid in the year.
2 Paid in the year. For John Rogers includes Company contribution to a defined contribution plan.
3 Annual Bonus relates to performance during the financial year, paid in May following the relevant year-end.
4 Deferred Share Award relates to performance during the financial year, shares are granted in May following the relevant year-end and vest after a two-year deferral period.
5
The Long-Term Incentive Plan value relates to the Value Builder award vesting in May following the end of the relevant financial year, which is the third year of the performance period. 50 per cent
of the shares are released in May after the end of the relevant performance period and the balance one year later. The figures include accrued dividends and are based on the share price on the
date of vesting for 2011/12 and the Q4 average share price for 2012/13. For Mike Coupe, this figure also includes £2,420 relating to a SAYE share option which became exercisable during 2012/13
based on the share price on the first exercisable date.
J Sainsbury plc Annual Report and Financial Statements 2013
55
Governance
Remuneration report continued
The Remuneration Committee
This report
This report is made by the Board on the recommendation of the
Remuneration Committee. The first part of the report sets out the
remuneration policy, while the second part details the remuneration,
pensions and share plan interests of the Directors for the 52 weeks to
16 March 2013. The Directors confirm that this report has been prepared
in accordance with the Companies Act 2006 and reflects the provisions
of Schedule 8 of the Large & Medium-sized Companies and Groups
(Accounts & Reports) Regulations 2008. The Board has also applied
the principles of good governance relating to Directors’ remuneration
contained within the UK Corporate Governance Code. This report
includes many of the future BIS reporting requirements, while retaining
all content required under the existing regulations.
A resolution will be put to shareholders at the Annual General Meeting
(‘AGM’) on 10 July 2013 asking them to approve this report.
Committee membership
The Remuneration Committee comprises Mary Harris (member
throughout the year and Chairman from 11 July 2012), John McAdam
(appointed 11 July 2012) and Jean Tomlin (appointed 1 January 2013).
Bob Stack was Chairman until 11 July 2012 and Anna Ford was a member
of the Committee to 31 December 2012. All members of the Committee
are independent Non-Executive Directors.
The Committee’s terms of reference are available on the Company’s
website (www.j-sainsbury.co.uk/investor-centre/corporate-governance).
Tim Fallowfield, Company Secretary, acts as secretary to the
Committee. David Tyler, Justin King and Gwyn Burr, Customer Service
and Colleague Director (to 16 March 2013), Angie Risley, Group HR
Director (from 7 January 2013) and Diana Breeze, Director of Corporate
HR are invited to attend Committee meetings. The Committee considers
their views when reviewing the remuneration of the Executive Directors
and Operating Board Directors. Individuals who attend Remuneration
Committee meetings do not participate in discussions concerning their
own remuneration.
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 supported by its appointed advisers, Deloitte LLP (‘Deloitte’),
whose consultants attended all of the Committee meetings. Deloitte
provided the Company with unrelated advice and consultancy regarding
information technology, taxation and non-audit accounting matters.
Towers Watson provided comparative data which was considered by
the Committee in setting remuneration levels and it also provided
other services relating to pensions. Deloitte and Towers Watson are
members of the Remuneration Consulting Group and, as such, operate
under the Code of Conduct in relation to executive remuneration
consulting in the UK.
Role and responsibilities of the Committee
The Committee complies with relevant regulations and considers best
practice when determining pay and policy. The specific responsibilities
of the Committee include:
• Determining and agreeing with the Board the 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;
Shareholder voting on the 2011/12 Report
The 2012 Remuneration Report received a vote of 96.52 per cent in
favour (1,184 million votes) at the last AGM, 3.48 per cent voted against
(43 million votes) and 14.2 million votes were withheld.
The Remuneration Committee values the views of the Company’s
shareholders and guidance from shareholder representative bodies.
Shareholder feedback received in relation to the AGM each year, as well
as any additional feedback received during the year, is considered as
part of the Company’s annual remuneration review.
• Reviewing and noting the remuneration trends across the Company;
• Considering the achievement of the performance conditions under
annual and long-term incentive/bonus arrangements; and
• Approving the service agreements of each Executive Director,
including termination arrangements.
56
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Remuneration report continued
Principal activities and matters addressed
during 2012/13
The Committee has a calendar of standard items within its remit and
in addition it held in-depth discussions on specific topics during the
year. The Committee typically meets four times each year, or more
as required. It met five times in 2012/13. The table below shows the
standard items considered at each meeting, leading up to the meeting
in May where the key decisions regarding performance, outcomes and
grants for the coming year are determined.
September
January
March
May
Standard agenda items
• Performance update on outstanding incentive awards
• Review of dilution under Company share plans
• Summary of share grants made in Q1
• Corporate governance and market update
• Review of the Chairman’s fee
• Competitive review of Directors’ salary and total remuneration packages
• Performance update on outstanding incentive awards
• Initial discussions on long-term incentive plan for the next financial year
• Corporate governance update
• Review of long-term incentive plan for the next financial year
• Directors’ salary review decisions
• Performance update on outstanding incentive awards
• Review of performance and outcomes under the Annual Bonus and Deferred Share Award
• Review of performance and vesting under long-term incentives
• Determining incentive structure for the next financial year including finalisation of targets
• Remuneration report
Remuneration policy
Our colleagues are central to the Company’s ongoing success and the
Company’s overall reward strategy needs to support this. Our objective
is to have a fair, equitable and competitive total reward package that
supports our vision of being a place where colleagues love to work
and shop, encourages colleagues to perform in ways that deliver great
service for customers and drives sales and provides opportunities for
colleagues to share in Sainsbury’s success. This overall reward strategy
is the foundation for the remuneration policy for senior executives.
The over-arching objectives of the remuneration policy are to ensure
rewards are performance-based and encourage long-term shareholder
value creation. Reflecting the scope and responsibilities of senior
executives, the remuneration policy seeks to:
• Link rewards to the delivery of the business strategy, specifically the
five areas of focus (as described in the Business review);
• Support the Company values as outlined in our 20x20 Sustainability
Plan;
• Drive the right behaviours for long-term growth;
• Secure high calibre leaders who can deliver operational excellence;
and
• Encourage executives to become shareholders in the Company.
The Committee takes a rounded approach to pay and considers a
variety of factors when determining the remuneration policy, setting
executives’ remuneration packages and implementing them. It believes
it is important to exercise suitable judgement at all stages during the
process to ensure that executive pay levels appropriately reflect the
long-term shareholder experience.
The Committee regularly reviews the overall structure of remuneration
for senior executives to ensure that it continues to evolve alongside the
objectives of the business and supports the interests of shareholders.
When reviewing or amending remuneration arrangements, the
Committee considers pay practices across the Company, the impact
on colleague behaviour, the cost to the Company, share dilution,
stakeholder views (including shareholders, governance bodies
and colleagues), best practice corporate governance and market
competitiveness, particularly within the retail sector. It also considers
the overall performance of the Company within the context of the retail
market and the wider economic environment.
The table overleaf summarises each element of the remuneration
package, with further details set out after the table.
J Sainsbury plc Annual Report and Financial Statements 2013
57
Governance
Remuneration report continued
Fixed pay
Base salary
Purpose and link to strategy
Operation
Opportunity
Core element of
remuneration used
to recruit and retain
executives
Reviewed annually in March
Judgement is used but
consideration is given to a number
of internal and external factors
including role, responsibilities,
scope, market positioning, inflation
and colleague pay increases
Benefits
Pension
Competitive benefits
to assist recruiting and
retaining executives
Provides an income
following retirement and
assists colleagues building
wealth for their future
Benefits may include the provision
of company car benefits, private
medical cover, life assurance,
long-term disability insurance and
colleague discount
JS Self Invested Pension Plan
(SIPP, a defined contribution plan)
and/or a cash salary supplement
Salary increases for Executive
Directors will normally be within
the range of those for the wider
workforce
Where the Committee considers
it necessary and appropriate,
larger increases may be awarded
in exceptional circumstances, or if
an individual assumes substantially
more responsibility
The Committee keeps the benefit
policies and the levels provided
under regular review
Performance
metrics
Changes to policy
for 2013
None
None
None
None
Dependent on the Executive
Directors’ circumstances
None
None
Variable pay – a significant portion of the total remuneration package is performance-related, aligning management’s and shareholders’ interests
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Annual
Bonus
Reward performance on an
annual basis against key
financial, operational and
individual objectives
Performance measured
over one year, bonus
payable in cash after
the year-end
Maximum: Chief Executive
125 per cent of salary,
other Executive Directors
90 per cent of salary
Bonus level determined
by the Committee after
the year-end based on
performance against
targets
Measures and targets
are reviewed annually
Performance measured
over one year, award made
in shares deferred for two
years
Maximum: Chief Executive
125 per cent of salary,
other Executive Directors
90 per cent of salary
Award level determined
by the Committee after
the year-end based on
performance against
targets
Measures and targets are
reviewed annually in light
of the strategic plan
Deferred
Share Award
Recognise and reward
for delivery of short-term
strategic and financial
objectives which contribute
towards long-term
sustainable growth
Balance with Annual Bonus
to ensure management
remain mindful of long-
term consequences of
short-term actions
Long-Term
Incentive
Plan
Recognise and reward
for delivery of Company
performance and
shareholder value over
the longer-term
Share-based to provide
greater alignment with
shareholder interests
Performance measured
over three financial years
50 per cent vests following
the end of the performance
period and 50 per cent is
deferred for a further year
Core award: Chief
Executive 55 per cent of
salary, other Directors
50 per cent of salary
(maximum 62.5 per cent)
Maximum multiplier: 4 times
Claw-back (malus)
provisions apply
Shareholding
guidelines
Alignment of Executive
Directors with
shareholders
Guideline to be met within
five years of appointment
Guidelines are: Chief
Executive 2.5 times salary,
other Executive Directors
1.5 times salary
58
J Sainsbury plc Annual Report and Financial Statements 2013
Changes to
policy for 2013
None
Based on underlying
profit (at least 50%),
sales, customer-focussed
measures and individual
performance
Profit gateway must be
achieved before any bonus
payments can be made
None
None
Basket of metrics covering
financial performance,
returns to shareholders,
relative performance
against peers and strategic
goals
At least half of the
award will be based on
the delivery of financial
performance and returns
to shareholders
Profit gateway must be
achieved before any grants
can be made
For 2013/14 awards:
• ROCE (50 per cent)
• Cumulative underlying
cash flow from operations
(30 per cent)
• Relative sales (20 per cent)
• An EPS gateway must
be achieved before any
awards vest
None
None
Governance
Remuneration report continued
Consideration of colleague pay and how the
Remuneration Policy relates to the wider Company
When considering remuneration arrangements for Executive Directors,
the Committee takes into account, as a matter of course, the pay and
conditions of colleagues throughout the Company.
In particular, the Committee is kept informed of any major changes to
the pay and benefits of colleagues generally and the Committee takes
into account wider pay issues when determining Executive Directors’
remuneration.
Many aspects of the remuneration policy for Executive Directors
are consistent with the reward strategy for all colleagues across the
Company. However, below executive level, pay and benefits are lower in
aggregate, driven by market comparatives and the nature of the roles.
When considering salary increases for management the individual’s
performance and market rate for the role are considered, within the
scope of the overall salary pot. For hourly paid colleagues a number
of internal and external factors determine the rate of pay. Executive
Director salary increases of around 2.1 per cent are in line with those
of the wider workforce averaging 2.2 per cent.
In terms of variable incentives, annual bonus plans are operated across
the Company and are aligned under a common set of principles with
performance metrics tailored to different populations. All colleagues’
bonuses include an element on sales and customer-focussed measures.
For 2012/13, the total bonus pool was over £90 million.
s
0
0
0
£
’
Long-term incentives are reserved for those senior executives expected
to have the greatest influence on Company performance over time.
All colleagues have the opportunity to become shareholders in the
Company through our all-employee share plans.
Participation in a pension plan is also offered to all colleagues on a
contributory basis, with the Company contribution varying by grade.
The Committee is being kept up-to-date on the proposed closure of
the Defined Benefit Pension Plan for existing members, on which the
Company is currently consulting with its members. Pensions auto-
enrolment launched in October 2012 and 57,000 colleagues were
enrolled, with an opt-out rate of around six per cent. Overall, 96,000
colleagues now participate in a Company pension plan.
A range of other benefits are also offered, including colleague discount.
Total remuneration under different
performance scenarios
The Committee believes it is important for Executive Directors that
both a significant portion of the package is performance-related and a
significant proportion is delivered in shares to align their interests with
shareholders. The balance between the fixed pay (basic salary, pension
and benefits) and variable pay (Annual Bonus, Deferred Share Award
and Long-Term Incentive Plan) changes with performance. The variable
proportion of total remuneration increases significantly for increased
levels of performance. At least 60 per cent of the package is delivered
through variable pay at on-target performance and this proportion
increases to at least three-quarters of the package at maximum levels
of performance.
The charts show for the Chief Executive and the Executive Directors
their 2013/14 total remuneration potential under three performance
scenarios (excluding the effect of share price movements).
Justin King
£7,000
£6,000
£5,000
s
0
0
0
£
’
£4,000
£3,000
£2,000
£1,000
£0
Mike Coupe
£3,535
30%
17%
17%
36%
£1,279
100%
£5,791
36%
21%
21%
22%
Minimum
On-target
Maximum
£3,500
£3,000
£2,500
£2,000
£1,500
£1,000
£500
£0
£1,865
32%
14%
14%
40%
£750
100%
£2,981
39%
18%
18%
25%
Minimum
On-target
Maximum
John Rogers
s
0
0
0
£
’
£3,000
£2,500
£2,000
£1,500
£1,000
£500
£0
LTIP
DSA
Annual Bonus
Fixed pay
£1,637
32%
14%
14%
40%
£649
100%
£2,625
39%
18%
18%
25%
Minimum
On-target
Maximum
• Minimum – only fixed pay is earned and there are no payouts under any incentive plan.
• On-target – in addition to fixed pay, 50 per cent of the maximum potential under the Annual
Bonus and Deferred Share Award (‘DSA’) is earned and a multiplier of 2.0 times is applied to
Future Builder core awards granted under the Long-Term Incentive Plan (‘LTIP’).
• Maximum – the maximum potential under the incentive plans is earned.
J Sainsbury plc Annual Report and Financial Statements 2013
59
Governance
Remuneration report continued
Elements of remuneration
Basic salary
Basic salary for each Executive Director is determined by the
Committee, taking account of a number of internal and external factors
including the role, responsibilities, job size and scope, as well as external
pay data. Furthermore, the Committee considers such information as
economic factors, remuneration trends and focuses in particular on the
general level of salary increases awarded throughout the Company. The
Committee uses the same approach when reviewing the salaries of the
Operating Board Directors.
The external pay data provided to the Committee is sourced from
relevant roles within the UK retail sector, in companies with annual
sales revenues over £5 billion and also in companies with a market
capitalisation ranging from £3 to £11 billion. This approach ensures that
the most appropriate available benchmark for the Director’s specific
position is obtained; however, in line with best practice, the Committee
applies judgement when considering market data.
The Committee reviewed the Executive Directors’ salaries for the start
of the 2013/14 financial year. In the context of another good year, the
Committee agreed salary increases for 2013/14 that were in line with
those made to colleagues generally averaging 2.2 per cent (consisting
of a review for management and non-management central colleagues
of 2.0 per cent in March 2013 and for hourly paid retail colleagues of
2.5 per cent in September 2012).
Salary effective from
18 March 2012
Salary effective from
17 March 2013
Per cent increase
Justin King
Mike Coupe
£940,000
£960,000
£575,000
£587,000
John Rogers
£510,000
£520,000
2.1
2.1
2.0
Pensions
The Company’s Defined Benefit Pension Plan was closed to new
members on 31 January 2002 and none of the Executive Directors
participate in it.
In lieu of pension plan participation, Justin King receives a pension
supplement of 30 per cent of salary and Mike Coupe receives a pension
supplement of 25 per cent of salary.
John Rogers participates in the JS Self Invested Pension Plan, a defined
contribution arrangement which is open to all senior management.
In return for contributing five per cent of his salary, the Company
contributes 12.5 per cent of his salary up to an internal earnings cap
(£137,400 for 2012/13). He receives a pension supplement of 25 per cent
of the pensionable salary he was paid in excess of the earnings cap.
Benefits
Benefits for Directors include the provision of company car benefits,
private medical cover, long-term disability insurance, life assurance and
colleague discount.
Annual Bonus
2013/14 policy
All bonus plans across the Company are aligned under a set of common
principles. The Board and management plans continue to be based on
profit and sales growth, customer-focussed measures and an element for
individual performance. Bonus awards are weighted to the achievement
of profit (at least 50 per cent) and profit continues to act as the overall
‘gateway’ measure for the plan, reflecting the emphasis on growing
profit. For 2013/14, the targets will be set to reward stretching year-on-
year growth. The Annual Bonus is paid in cash after the year-end.
The customer-focussed measures are based on availability (which
is measured across all stores on a regular basis by an independent
third party, conducting random and unannounced store visits) and a
customer service measure.
Individual performance objectives are set annually for each Executive
Director and are reviewed by the Committee. These objectives cover
a variety of financial and operational targets that contribute to the
achievement of longer-term strategic goals; some of these objectives
relate, either directly or indirectly, to the Company’s values.
The maximum Annual Bonus opportunity remains unchanged from last
year at 125 per cent of basic salary for the Chief Executive and 90 per
cent of basic salary for the other Executive Directors.
2012/13 payment
The performance measures for 2012/13 are the same as outlined above
for 2013/14. The Committee assessed performance against the targets
following the end of the financial year and, in summary, the outturn is
as follows:
Profit
Sales
Customer–
focused
Individual
performance
•
•
•
•
Above target
Target
Threshold
Below threshold
During the year the Company achieved strong year-on-year growth in
sales and profit and performed well against the stretching targets which
were set across all elements of the plan at the start of the year.
Based on the above performance outcomes, the table below sets out the
Executive Directors’ bonus payments for 2012/13. For information, the
average bonus over the last three years has been: 2011/12 – 48 per cent
of salary, 2010/11 – 48 per cent of salary and 2009/10 – 92 per cent of
salary.
Annual Bonus for 2012/13
Value
Per cent of salary
Per cent of maximum
Justin King
Mike Coupe
John Rogers
£996,000
£449,000
£390,000
106%
78%
76%
85%
87%
84%
The 2012/13 Annual Bonus for store colleagues was based on corporate
sales, availability and customer service targets measured in their
individual stores. This has resulted in a record bonus pool of over
£90 million which will be shared by over 134,000 colleagues.
Deferred Share Award
2013/14 policy
Since 2009, the Deferred Share Award (‘DSA’) has been used to drive
performance against a diverse range of business-critical financial and
non-financial scorecard measures. This plan has become a vital part
of the remuneration package and rewards Directors for achieving the
short-term objectives that will directly lead to building the sustainable,
long-term growth of the Company. Share-based awards are made
further ensuring alignment of Directors’ interests with shareholders.
The DSA covers the top 45 managers in the Company, including
Executive Directors. The Committee has reviewed the DSA’s
performance framework for 2013/14 and performance will continue to
be measured against a basket of key strategic measures aligned under
four broad categories:
1. Financial performance;
2. Returns to shareholders;
3. Relative performance against peers; and
4. Strategic goals.
When developing the DSA, the Committee gave careful consideration
to the selection of its performance measures and targets, as well as
to the robustness of the plan design. The Committee also agreed that
appropriate corporate responsibility targets would be included within
the strategic goals category.
60
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Remuneration report continued
At least 50 per cent of the award will be based on the delivery of
financial performance (e.g. profit and earnings per share) and returns
to shareholders (e.g. Total Shareholder Return (‘TSR’) and dividend
yield). The balance will be based on measures which will assess the
Company’s performance relative to its competitors (e.g. market share)
as well as key strategic and corporate goals, linked to the five areas of
focus. In addition, no shares will be awarded unless the profit gateway
target (as applied to the Annual Bonus) is achieved. As a further means
of ensuring robust performance measurement, a feature of the plan
is that during the year, the Committee receives an interim appraisal to
gauge the progress of performance and the plan’s effectiveness based
on half-year results.
Performance is assessed over one financial year, but any shares
awarded are deferred for a further two years. The shares are subject
to forfeiture if the participant resigns or is dismissed for cause prior to
their release date. Dividends accrue on the shares that vest in the form
of additional shares.
The maximum DSA award opportunities remain unchanged at 125 per
cent of basic salary for the Chief Executive and 90 per cent of basic
salary for the other Executive Directors.
2012/13 award
Following the year-end, the Committee conducted a rigorous
assessment of performance. Consistent with the underlying principles
of the DSA, the Committee assessed achievements in the round and
also considered the manner in which these performance goals had been
delivered, in particular how the overall performance of the Company
had contributed to its future, sustainable growth and success.
The Company performed well in 2012/13 and this flowed through to
the basket of measures that determine awards under the DSA. The
Committee agreed that for 2012/13 awards would be made at 83 per
cent of the maximum level. For information, the previous levels of
awards have been: 2012 – 78 per cent of the maximum, 2011 – 83
per cent and 2010 – 88 per cent. The table below sets out the
2012/13 awards for the Executive Directors.
Deferred Share Award for 2012/13
Value
Per cent of salary
Per cent of maximum
Justin King
Mike Coupe
John Rogers
£975,000
£430,000
£381,000
104%
75%
75%
83%
83%
83%
Although some of the specific measures and targets are commercially
sensitive, the sections below present a selection of performance
highlights within each of the four categories.
Financial performance
We performed strongly over the last year and underlying profit before
tax improved by 6.2 per cent to £756 million. Underlying operating
margin improved by two basis points to 3.56 per cent and underlying
basic earnings per share increased by 9.3 per cent to 30.7 pence.
Returns to shareholders
The Company saw its eighth consecutive year of like-for-like sales
growth, with like-for-like sales (including VAT, excluding fuel) of 1.8 per
cent. The strong sales performance helped to maintain a strong balance
sheet, with return on capital employed (‘ROCE’) of 11.2 per cent, a
year-on-year increase of 12 basis points. This has enabled the Company
to maintain a good level of returns to shareholders. The proposed full
year dividend is 16.7 pence, up 3.7 per cent year-on-year (2011/12: 16.1
pence). The dividend is covered 1.83 times by underlying earnings and
our dividend yield and price/earnings ratio remain amongst the highest
in the UK food sector. TSR was assessed on both a relative and absolute
basis over one, three and five-year periods.
Relative performance
Our sales grew ahead of the market, with market share increasing to
16.8 per cent despite the continuing difficult consumer environment.
The Company was the only one of the top four supermarkets to see a
year-on-year market share increase. For the 50 weeks from 18 March
2012 to 02 March 2013 we outperformed the Institute of Grocery
Distribution (‘IGD’) pool by 2.0 per cent (source: IGD Market Track).
We won the top award, Supermarket of the Year, in the Retail Industry
Awards 2012 for the fifth time in seven years and for a third year
running won the Convenience Chain of the Year award.
Strategic goals
The Company’s strategy continues to centre on our five areas of focus.
These are underpinned by Sainsbury’s strong heritage and brand which
consistently set it apart from major competitors. Further details on the
corporate objectives can be found in the Business review and details of
the corporate responsibility commitments are summarised on
pages 22 to 25.
• We made good progress this year on Great Food. Customers
increasingly buy into our own-brand food offer, which has grown by
nearly five per cent in the year and now accounts for half of our food
sales. The successful re-launch of our core by Sainsbury’s range
is now complete with over 6,500 lines, many of which are new or
improved. Sales grew ahead of our major competitors’ comparable
ranges and by Sainsbury’s won the prestigious Grocer Gold Own
Label Brand of the Year award. Our Taste the Difference range is also
growing strongly at nearly 10 per cent and is gaining market share. We
are about to start a re-launch of our basics brand, the second largest
value brand in the market, due to be complete by early 2014. Overall,
Sainsbury’s own-brand ranges rank second in market share of the top
four supermarkets.
• Our non-food offer builds customer loyalty – customers who buy
clothing and general merchandise, as well as food, shop with us more
frequently and spend more than those who only buy food. In February,
we achieved the significant milestone of £1 billion in annual general
merchandise sales, a reflection of the investment we have made in
space and the quality of our offer.
• We continued the development of our multi-channel offer. Our
convenience business, which we have built and invested in over the
past 15 years, has five million customer transactions each week
and sales of over £1.5 billion. Convenience stores have delivered
sales growth of over 17 per cent year-on-year, driven by both new
space and like-for-like sales growth. We have continued to open one
or two convenience stores each week, bringing our total number
of convenience stores to 523. Our groceries online business is
also growing strongly at around 20 per cent year-on-year, and we
have the ability to deliver to over 96 per cent of UK households.
Sainsbury’s Bank has enjoyed another successful year, delivering
its fifth consecutive year of profit growth, with our share of the joint
venture post-tax profit up 38 per cent to £22 million. We are pleased
to have reached an agreement with Lloyds Banking Group to acquire
their 50 per cent shareholding of Sainsbury’s Bank and take sole
ownership which will allow future products to be even more tailored
to Sainsbury’s customers.
• During the year, we continued to develop new businesses. We have
formed a joint venture with Aimia, owner of the Nectar programme.
The new company, I2C (Insight 2 Communication), will benefit
customers through timely, relevant and accessible offers, based
on their likes and dislikes, while brands benefit from insight-based
marketing solutions and a greater return on investment. Also, with
the purchase of a majority stake in Anobii, now operating as eBooks
by Sainsbury’s, and our partnership with Rovi Corporation, an on-
demand video streaming service, we continue our drive into the online
and digital entertainment market. These new and exciting business
relationships underline our commitment to becoming a key player in
the digital entertainment market.
J Sainsbury plc Annual Report and Financial Statements 2013
61
Governance
Remuneration report continued
• This year we have added 14 supermarkets, 87 convenience stores
and eight extensions to our property portfolio – a total of just over
one million sq ft, in line with our target of around five per cent gross
space growth. Some of this additional space has enabled us to bring
our increasingly popular clothing and general merchandise ranges to
more customers. It has also enabled us to expand our coverage of the
UK to areas where our presence was previously limited – only around
22 per cent of the UK population do not live within a 15 minute drive of
a Sainsbury’s store.
• In the last five years, we have added £4 billion to the value of our
property portfolio, the market value of which is now £11.5 billion.
Activity during the year delivered profits of £66 million and over
five years property profits have totalled £341 million.
• We have a responsibility to protect our environment for future
generations, help sustain the communities in which we operate and
help our customers to Live Well For Less. We are continuing to work
towards our 20x20 Sustainability Plan comprising 20 ambitious
goals we aim to achieve by the year 2020. During the year we ran
our second Million Meals Appeal, launched our Active Kids for All
Paralympics legacy plan and donated a record-breaking £41.5 million
to good causes in the year such as Comic Relief, the Royal British
Legion Poppy Appeal and our nationwide Local Charity Partnership
programme. We were also awarded a number of environmental
accolades this year, including the top award of Sustainable Business
of the Year at the Energy and Environmental Awards. This was in
recognition of our industry-leading work on carbon and energy
reduction, focus on recycling and water innovation.
Long-term incentives
2013/14 policy
The long-term incentive vehicle in use at Sainsbury’s is known as
Future Builder. This arrangement was introduced in 2012 following
the amendment to the performance conditions. Performance is now
assessed against ROCE, cumulative cash flow from operations and
relative sales measured against the IGD Index, with an earnings per
share gateway. Awards are made under the shareholder approved
2006 Long-Term Incentive Plan.
Around 200 senior managers participate in this arrangement. Under
Future Builder, a core award of shares is granted, calculated as a
percentage of salary and scaled according to grade. The Chief Executive
receives a core award of 55 per cent of salary and the other Executive
Directors a core award of 50 per cent of salary. Vesting of core awards is
dependent upon performance against specific measures (common for all
participants) tested at the end of a three-year performance period. The
core award can grow by up to four times at stretch levels of performance.
The overall maximum award permitted by the rules of the plan is 250 per
cent of salary including the performance multiplier.
Half of any vested shares are released at the end of the performance
period, while the remaining half are released after a further year.
Dividends accrue on the shares that vest, in the form of additional shares.
The performance measures are reviewed each year by the Committee,
before a new grant is made, to ensure that they remain relevant and
stretching. The performance conditions applying to the 2013 grant are
the same as those used in 2012.
The Committee believes it is important that the performance conditions
in the long-term incentive arrangement support the corporate
ambitions of the Company during the next phase of development.
We operate in a dynamic market with evolving challenges and the
Committee monitors this over time. ROCE, cash flow and relative sales
complement the Company’s future strategy, as outlined in the Business
review which will be achieved by delivering long-term sustainable
performance in three key areas:
• Improving the returns from our existing supermarkets business (both
food and non-food);
• Driving growth through value-adding new stores and extensions; and
• Creating new business growth through investing further in our
existing convenience and online channels, building our presence
in financial services and pursuing new opportunities, for example
Energy and Pharmacy.
The Committee retains the discretion to make adjustments to the
calculation of the performance measures (for instance for material
acquisitions and disposals and one-off events not foreseen at the time
the targets were set) to ensure they remain true and fair reflections of
performance.
Element
ROCE
Cumulative
underlying
cash flow from
operations
Relative sales
Performance metrics
• ROCE reflects the return generated for shareholders, and as such is a critical measure of the quality of our business
activity and the efficiency of capital use.
• For the purposes of Future Builder, ROCE is based on the underlying operating profit for the business, including the
underlying share of post-tax profit from joint ventures. The capital employed figure excludes the impact of movements in
the IAS 19 pension deficit.
• Cumulative underlying cash flow from operations measures the total flow of cash in and out of the business as well as
providing an assessment of underlying profitability.
• For Future Builder, the cumulative underlying cash flow is based on the reported cash flow generated from operations over
the performance period after adding back net rent and cash pension costs.
• This is an important metric used across the retail sector. Outperforming our direct peers on sales will be a key source of
value for our shareholders and like-for-like sales are the biggest driver for profitability and returns.
• Our relative sales performance is measured using the IGD Index. The IGD Index measures growth in like-for-like sales
(excluding fuel) across the market based on the performance of all of the Company’s key competitors. This is an
independently audited index of sales efficiency, which is viewed as a robust reference point for performance across the
food retail sector.
62
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Remuneration report continued
2013 Future Builder (2nd cycle)
The performance measures and targets for the 2013 Future Builder
grant are summarised in the table below. Straight-line vesting will
operate between the threshold and maximum targets. The Committee
considers that the stretch of the targets set for 2013 awards is
comparable to awards granted in previous years, and that the delivery
of stretch targets would result in significant shareholder value creation.
Component
Return on capital employed
Cash flow
Relative sales v IGD Index
Weighting
50%
30%
20%
Threshold
(1.0x core award)
10.75%
£5,500m
Meet index
Maximum
(4.0x core award)
12%
£6,500m
Index + 1.0% per annum
EPS gateway
No part of the award will be eligible to vest if compound EPS growth equivalent to 4% per annum is not achieved
Claw-back
In 2012 the Remuneration Committee introduced claw-back (malus)
in order to strengthen the Company’s formal governance in line with
our existing philosophy, and in recognition of shareholders’ current
concerns around executive remuneration. This clause is intended to
apply to all long-term incentive awards made following the introduction
in 2012.
The circumstances in which the clause may be invoked have been
defined as follows:
Financial accounts
Actions/conduct of participant
• Material mis-statement of our
financial results
• Serious reputational damage
• Serious misconduct
• Fraud
Should the Committee consider such events to have occurred, it will
have discretion to:
• Reduce the number of shares under an unvested award;
• Cancel an unvested award in full; or
• Impose further conditions on an unvested award.
2013 vesting
Until 2012, long-term incentive awards were known as Value Builder
awards. The structure of the plan is the same as Future Builder but
different performance conditions applied. The fifth cycle of Value
Builder made in 2010 is due to vest in May 2013, based on performance
over 2010/11 to 2012/13. The Committee determined performance
over the period should deliver a vesting multiplier of 1.75 times, based
on adjusted ROCE of 13.5 per cent and cash flow per share (‘CFPS’)
of 8.2 per cent. This represents 44 per cent of the maximum award
opportunity, which the Committee believes is a true and fair reflection
of performance. When assessing ROCE and CFPS performance for
the purposes of the plan, adjustments were made to take into account
additional investments, returns and one-off events not envisaged at the
time the targets were set. One half of the award becomes exercisable in
May 2013, with the remaining portion exercisable in May 2014.
For information, the previous levels of vesting have been: 2012 vesting
– 1.7 times, 2011 vesting – 1.9 times, 2010 vesting – 3.2 times and 2009
vesting – 3.7 times.
Performance conditions attached to outstanding long-term
incentive awards
The table below sets out the performance conditions attached to all
outstanding awards; the definitions for ROCE and CFPS previously used
can be found in the remuneration report for the relevant year of grant.
The structure of Value Builder and Future Builder awards are the same
and both are granted under the 2006 Long-Term Incentive Plan.
Award
Performance period
Performance conditions and multiples
2012 Future Builder (1st cycle)
2011 Value Builder (6th cycle)
Performance period runs to 2015 –
50% exercisable in May 2015,
50% in May 2016
Performance period runs to 2014 –
50% exercisable in May 2014,
50% in May 2015
2010 Value Builder (5th cycle)
2009 Value Builder (4th cycle)
Performance period ended – 50%
exercisable in May 2013, 50% in
May 2014
Performance period ended – 50%
exercisable, 50% in May 2013
Same as 2013 Future Builder – see table above
Pre-tax adjusted
ROCE
15%
14.5%
14%
13.5%
13%
12.5%
Pre-tax adjusted
ROCE
15%
14%
13%
12%
11%
4%
2.5
2.0
1.5
1.0
0.5
–
3%
1.5
1.0
0.5
–
–
Cash flow per share
8%
6%
10%
3.0
2.5
2.0
1.5
1.0
0.5
3.5
3.0
2.5
2.0
1.5
1.0
4.0
3.5
3.0
2.5
2.0
1.5
Cash flow per share
9%
6%
12%
2.5
1.5
1.0
0.5
–
3.0
2.5
1.5
1.0
0.5
3.5
3.0
2.5
1.5
1.0
12%
4.0
4.0
3.5
3.0
2.5
2.0
15%
4.0
3.5
3.0
2.5
1.5
All-employee share plans
In line with our 2020 target of increasing the number of colleagues with
shares in the Company by 25 per cent, the Company provides two all-
employee share plans for colleagues, namely the Savings-Related Share
Option Plan (‘SAYE’) and the All-Employee Share Ownership Plan, of
which the Sainsbury’s Share Purchase Plan is a part. Executive Directors
may participate in these plans in the same way as all other colleagues.
Justin King and John Rogers currently participate in both plans. Mike
Coupe participates in the SAYE. As these are all-employee plans there
are no performance conditions. The Committee approves the adoption
or amendment of these plans and awards to Executive Directors.
The 2007 (five-year) SAYE reached maturity on 1 March 2013. Around
3,200 colleagues could use their savings and a tax-free bonus to buy
Sainsbury’s shares at a £3.31 option price. The 2009 (three-year)
SAYE matured at the same time covering around 7,800 colleagues
who could use their savings and a tax-free bonus to buy Sainsbury’s
shares at a £2.73 option price. Using the market price on the date of
the first exercise, the value of all the shares subject to the maturity
was nearly £23.5 million. The Company currently has over 30,000
colleagues participating in the SAYE with around 59,000 individual
savings contracts.
J Sainsbury plc Annual Report and Financial Statements 2013
63
130
120
110
100
90
80
70
60
Governance
Remuneration report continued
Shareholding guidelines
The Committee introduced shareholding guidelines in 2006/07, updated
in 2010/11, to create greater alignment of the Directors’ interests with
those of shareholders, which is a key objective within the remuneration
policy. The guidelines require Directors to build up a specified level
of shareholding within five years of appointment. The guidelines are
as follows: Chief Executive 2.5 times salary; Executive Directors 1.5
times salary and Operating Board Directors 1.0 times salary.
Name
Justin King
Mike Coupe
John Rogers
Shareholding as at
16 March 20131
Outstanding share awards
not subject to performance2
Multiple of salary3
Guideline met at
16 March 2013
825,979
866,411
210,806
1,411,294
561,707
364,434
5.8 times
7.2 times
2.7 times
Yes
Yes
Yes
1 Shareholding as at 16 March 2013.
2 Outstanding share awards under Value Builder, DSA and Deferred Annual Bonus Plan that are no longer subject to performance conditions.
3 Calculated using (i) salaries as at 16 March 2013, (ii) share total based on total of shareholding plus net of tax value (tax assumed to be 52 per cent) of share awards not subject to performance and
(iii) the closing mid-market share price on 16 March 2013 of £3.628.
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 elements of remuneration,
except share plans. 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.
If the service contract of Mike Coupe is terminated without cause, the
maximum payment he 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 elements of remuneration, except share plans. He
is required to mitigate his losses and would receive phased payments,
which would be reduced or terminated if he secured alternative
employment during the notice period. His contract also contains
restrictive covenants, which continue for 12 months after termination.
It does not contain any specific provisions relating to change of control.
In 2010, the Committee agreed that within future Executive Directors’
service agreements the notice period would be 12 months and that
the termination provisions would state that any severance payments
would be limited to one year’s salary and benefits, be made on a phased
basis and be subject to mitigation. As is the current practice, if “good
leaver” status is given, long-term incentive awards that vest following a
Director’s employment termination will continue to be pro-rated for time
and performance. Bonus awards will also be paid subject to time and
performance for the financial year in which office is held if the individual
is considered to be a “good leaver”. The service contract under which
John Rogers was appointed as Chief Financial Officer follows these
provisions in full; in addition, there are no specific terms relating to
change of control.
The Executive Directors’ service contracts became effective on the
following dates:
Justin King
Mike Coupe
John Rogers
29 March 2004
1 August 2007
19 July 2010
External appointments
The Company’s normal practice is that Executive Directors may 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 appointments. Details of the
Executive Directors’ external fees are set out on page 66.
Dilution
The Company ensures that the level of shares granted under the
Company’s share plans and the means of satisfying such awards
remains within best practice guidelines so that dilution from employee
share awards does not exceed ten per cent of the Company’s issued
share capital for all-employee share plans and five per cent in respect
of executive share plans in any ten-year rolling period. The Company
monitors dilution levels on a regular basis and the Committee reviews
these at least once a year. Up to 16 March 2013, an estimated 7.9 per
cent of the Company’s issued share capital has been allocated for
the purposes of its all-employee share plans over a ten-year period,
including an estimated 3.7 per cent over ten years in respect of its
executive share plans.
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. An additional graph is
included which shows J Sainsbury plc’s daily TSR since March 2012;
over the last year our TSR has exceeded the FTSE 100.
TSR performance since March 2008
130
120
110
100
90
80
70
60
Mar 08
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Sainsbury’s
FTSE 100
TSR performance since March 2012
130
120
110
100
90
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
Sainsbury’s
FTSE 100
64
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Remuneration report continued
Chairman
The Chairman does not have a service contract; his letter of
appointment became effective on 1 October 2009 and he became
Chairman on 1 November 2009. He was appointed for an initial term of
three years, renewable on a 12-month rolling basis and thereafter by
mutual consent. His appointment may be terminated at any time upon
the serving of six months’ written notice by either party.
Non-Executive Directors receive a basic annual cash fee; additional fees are
paid to the Senior Independent Director and to the Chairmen of the Audit,
Remuneration and Corporate Responsibility Committees. Non-Executive
Directors do not participate in any performance-related incentive plans
and receive no benefits other than a colleague discount card.
The Non-Executive Directors’ fees were reviewed during the year but no
changes were made. The fee levels are as follows:
David Tyler receives a basic fee of £470,000 per annum. His fees were
reviewed during 2012/13 but no adjustment was made. He devotes such
time as is necessary to perform his duties. He does not participate
in any performance-related incentive plans and the only benefits he
receives are private medical cover, an annual medical assessment and a
colleague discount card.
Basic fee
Senior Independent Director fee
Chairman of Remuneration Committee fee
Chairman of Audit Committee fee
Chairman of Corporate Responsibility Committee fee
£60,000
£15,000
£15,000
£15,000
£12,500
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 annual election or re-
election by shareholders. Their appointments may be terminated by
the serving of three months’ notice by either party.
The effective dates of the Non-Executive Directors’ letters of
appointment are set out below:
Letter of appointment effective date
Matt Brittin
Mary Harris
Gary Hughes
John McAdam
Jean Tomlin
27 January 2011
1 August 2007
1 January 2005
1 September 2005
1 January 2013
J Sainsbury plc Annual Report and Financial Statements 2013
65
Governance
Remuneration report continued
The following section provides details of the remuneration, pension and share plan interests of the Directors for the 52 weeks ended 16 March 2013
and has been audited.
i) Directors’ remuneration
The remuneration of the Directors for the year was as follows:
Cash components and benefits
Salary/fees
£000
Bonus5
£000
Pension
supplement6
£000
Benefits8
£000
Total cash
and benefits
2013
£000
Deferred
share award9
£000
Justin King
Mike Coupe
John Rogers
David Tyler
Matt Brittin
Mary Harris
Gary Hughes
John McAdam
Jean Tomlin
Anna Ford
Bob Stack
Directors who left the Board before
the start of the financial year
Total 2013
Total 2012
Note
1,10
10
7
2
3
4
940
575
510
470
60
70
75
75
15
58
24
–
2,872
3,005
996
449
390
–
–
–
–
–
–
–
–
–
1,835
971
282
144
93
–
–
–
–
–
–
–
–
–
519
546
31
16
17
1
–
–
–
–
–
–
–
–
65
70
2,249
1,184
1,010
471
60
70
75
75
15
58
24
–
5,291
4,592
Total
2013
£000
3,224
1,614
1,391
471
60
70
75
75
15
58
24
Total
2012
£000
2,637
1,358
1,160
460
57
57
72
72
–
68
72
975
430
381
–
–
–
–
–
–
–
–
–
1,786
1,645
–
224
7,077
6,237
1 Highest-paid Director.
2 Anna Ford resigned from the Board on 31 December 2012.
3 Bob Stack resigned from the Board on 11 July 2012.
4
5
6
Darren Shapland resigned from the Board on 13 July 2011 and received £206,000 in cash and benefits in 2011/12. In his capacity as Non-Executive Chairman of Sainsbury’s Bank, Darren Shapland
earned a salary of £143,407 in 2012/13 until he resigned on 28 February 2013 (2011/12: £107,308). Val Gooding received fees of £18,000 in 2011/12.
Includes performance bonuses earned in the period under review but paid following the end of the financial year.
Justin King is not a member of the Company’s pension plans and received 30 per cent of his basic salary as a cash pension supplement. In addition to this supplement, £446 (2012: £440) 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’s pension plans
and received 25 per cent of basic salary as a cash pension supplement. John Rogers is a member of the Company’s JS Self Invested Pension Plan. Contributions to the JS Self Invested Pension
Plan by the Company in 2012/13 in respect of his membership were £17,175 (2011/12: £16,200). He received a cash supplement equal to 25 per cent of the amount by which his salary exceeded the
Company’s earnings cap (2012/13: £137,400) (2011/12: £129,600).
7 The totals for 2013 and 2012 in the case of John Rogers do not include deductions made from basic salary for Saving Money and Reducing Tax (‘SMART’) pensions.
8
Benefits include a combination of cash and non-cash benefits. Benefits for John Rogers and Mike Coupe include cash car allowance and private medical cover. Justin King received non-cash
benefits which include company car benefits and private medical cover. David Tyler received non-cash benefits of private medical cover.
9 The deferred share award is an award of shares with the value shown above. These shares are retained by the Company for two financial years and will not become exercisable by the participants
until after the year-end in 2015.
10 Directors are entitled to retain the fees earned from non-executive appointments outside the Company. Justin King was appointed a Non-Executive Director of Staples, Inc. on 17 September 2007.
He received US$75,000 for his services during 2012/13 (2011/12: $75,000). During the year 11,372 (2011/12: 8,653) of restricted Staples stock was released to Justin and a further award over 13,715
shares was granted (2011/12: 11,372 restricted shares awarded). Justin King is also a Director of Olympic Games and Paralympic Games Limited and a member of the London Organising Committee
of the Olympic and Paralympic Games. Justin received £8,000 (2011/12: £10,500) during the year for his services which, after deductions for National Insurance, was donated directly to charity.
Mike Coupe was appointed a Non-Executive Director of Greene King plc on 26 July 2011 and received £43,000 (2011/12: £29,604) for his services.
66
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Remuneration report continued
ii) Long-term incentive plans
Long-Term Incentive Plan 2006
The table below shows the conditional awards granted under this Plan, which would be released if the Company achieves the performance targets
for maximum vesting.
Justin King
Mike Coupe
John Rogers
Date of grant
28.05.08
24.06.09
21 .06.10
19.05.11
17.05.12
28.05.08
24.06.09
21.06.10
19.05.11
17.05.12
28.05.08
24.06.09
21.06.10
19.05.11
17.05.12
Maximum
share award1
630,876
570,984
611,488
570,748
667,136
281,868
258,844
315,008
318,648
370,988
144,696
137,036
191,476
250,972
329,052
Share price at
date of award
pence
Number of
shares lapsed
during the
year
Number of
dividend
shares
allocated
17 May 20122,3
Number
of options
released
Number of
options held
16 March 2013
First exercise
date
Last exercise
date
352.0
314.0
329.3
343.0
295.3
352.0
314.0
329.3
343.0
295.3
352.0
314.0
329.3
343.0
295.3
–
328,316
–
–
–
–
148,836
–
–
–
–
78,796
–
–
–
31,471
19,743
–
–
–
14,061
8,950
–
–
–
7,218
4,738
–
–
–
181,304
141,077
–
–
–
81,005
63,954
–
–
–
41,583
33,858
–
–
–
181,304
141,077
–
–
–
81,005
63,954
–
–
–
41,583
33,858
–
–
–
19.05.11
17.05.12
16.05.13
15.05.14
14.05.15
19.05.11
17.05.12
16.05.13
15.05.14
14.05.15
19.05.11
17.05.12
16.05.13
15.05.14
14.05.15
17.05.13
16.05.14
15.05.15
14.05.16
13.05.17
17.05.13
16.05.14
15.05.15
14.05.16
13.05.17
17.05.13
16.05.14
15.05.15
14.05.16
13.05.17
1 The maximum share award assumes full vesting.
2
The performance conditions attaching to the awards made between 2008 and 2011 are return on capital employed and growth in cash flow per share. The performance conditions relating to the
award made in 2012 are a combination of return on capital employed, cumulative underlying cash flow from operations and relative sales performance. Further information is provided on pages 118
to 119. The performance of the award made in June 2009 was tested in May 2012 and a multiplier of 1.7 was achieved. The number of shares between the maximum multiplier (4.0) and the multiplier
achieved have lapsed. Half of the achieved award vested in May 2012 whilst the remainder of the achieved award will vest in May 2013. The number of dividend shares which have been received on
vested shares was determined by a five-day average share price from 10 to 16 May 2012.
The second half of the award which vested in May 2011 was released in May 2012. The number of dividend shares which have been received on vested shares was determined by a five-day average
share price from 10 to 16 May 2012.
3
Notes:
– The Long-Term Incentive Plan 2006 is a nil-cost option plan. The exercise price is nil.
– There were no options exercised under this Plan during the year.
Deferred Share Award
The table below shows the number of deferred shares awarded to participants in May 2010, 2011 and 2012. There are no further performance
measures attached to the awards.
Justin King
Mike Coupe
John Rogers
Deferred
share award
Share price at
date of award
pence
Number of
dividend
shares
allocated
23 March 2012
298,570
263,436
289,373
108,281
104,855
127,953
57,325
79,578
113,233
316.6
343.0
295.3
316.6
343.0
295.3
316.6
343.0
295.3
29,187
–
–
10,584
–
–
5,602
–
–
Date of grant
20.05.10
19.05.11
17.05.12
20.05.10
19.05.11
17.05.12
20.05.10
19.05.11
17.05.12
Number
of options
released
Number of
options held
16 March 2013
First exercise
date
Last exercise
date
327,757
–
–
118,865
–
–
62,927
–
–
327,757
–
–
118,865
–
–
62,927
–
–
23.03.12
22.03.13
21.03.14
23.03.12
22.03.13
21.03.14
23.03.12
22.03.13
21.03.14
22.03.20
21.03.21
20.03.22
22.03.20
21.03.21
20.03.22
22.03.20
21.03.21
20.03.22
Notes:
– There were no exercises or lapses under this Plan during the year.
– The Deferred Share Award is a nil-cost option plan. The exercise price is nil.
–
The number of dividend shares which have been received on vested shares was determined by a five-day average share price following the announcement of interim and preliminary results
14-20 May 2010, 11-17 November 2010, 12-18 May 2011 and 10-16 November 2011.
J Sainsbury plc Annual Report and Financial Statements 2013
67
Governance
Remuneration report continued
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. This legacy plan is no longer operated.
Deferred
bonus share
award
Maximum
matching
share award1
Share price at
date of award
pence
158,042
81,319
18,292
23,280
7,513
316,084
275,658
36,584
78,920
15,026
325.75
314.00
325.75
314.00
325.75
Date of grant
20.06.08
24.06.09
20.06.08
24.06.09
20.06.08
Matching
share award
lapsed during
the year
-
275,658
-
78,920
-
Number of
dividend
shares
allocated
17 May 2012
15,104
-
1,748
-
717
Number
of options
released
Number of
options held
16 March 2013
First exercise
date
Last exercise
date
87,013
-
10,071
-
4,135
87,013
-
10,071
-
4,135
19.05.11
-
19.05.11
-
19.05.11
18.05.13
-
18.05.13
-
18.05.13
Justin King
Mike Coupe
John Rogers
1
The maximum matching share award is the maximum award at the time the award is granted, which would become exercisable provided that the Company achieves first position within the
comparator group of 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.
Notes:
–
The performance of the awards granted in June 2008 was tested and matching shares of 0.91 times an individual’s deferral was achieved. Half of the achieved award vested in May 2011 whilst the
remainder of the achieved award was released in May 2012. The number of dividend shares on the second vesting was determined by a five-day average share price from 10-16 May 2012.
– The 2009 deferral was made on a net post-tax basis and it was released on 23 March 2012. The matching shares lapsed as the performance conditions were not met.
– The exercise price is nil.
– There were no options exercised under this Plan during the year.
iii) Savings-Related Share Option Plan (‘SAYE’)
At the end of the year, the Directors’ SAYE share options were as follows:
Justin King
Mike Coupe
John Rogers
17 March 2012
3,030
3,324
6,302
Number of options
Date
Granted
during the
year
Exercised
during the
year
Mid- market
price on date
of exercise
pence
Gains on
option
exercise
£000
Lapsed during
the year
16 March 2013
Exercise price
pence
From which
exercisable
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,030
3,324
6,302
297.0
273.0
238.0
01.03.14
01.03.13
01.03.17
Of expiry
31.08.14
31.08.13
31.08.17
Note:
– The SAYE Plan is an all-employee share option plan and has no performance conditions as per HMRC Regulations.
– There were no options exercised under this Plan during the year.
In the period from 18 March 2012 to 16 March 2013, the highest mid-market price of the Company’s shares was 362.8 pence and the lowest mid-market
price was 283.5 pence. At 16 March 2013 the Company’s share price was 362.8 pence.
iv) Directors’ interests
The beneficial interests of the Directors and their families in the shares of the Company are shown below:
Justin King
Mike Coupe
John Rogers
David Tyler
Matt Brittin
Mary Harris
Gary Hughes
John McAdam
Jean Tomlin
Ordinary shares2
17 March 2012
16 March 2013
8 May 20131
825,519
866,411
192,496
50,000
1,000
11,037
30,071
1,000
03
825,979
866,411
210,806
50,000
1,000
11,607
31,625
1,000
0
826,039
866,411
210,866
50,000
1,000
11,607
31,625
1,000
0
1 The total includes shares purchased under the Sainsbury’s Share Purchase Plan between 16 March 2013 and 8 May 2013.
2
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.
3 As at date of appointment.
Notes:
–
The Executive Directors are potential beneficiaries of the Company’s employee benefit trust, which is used to satisfy awards under the Company’s employee share plans, and they are therefore
treated as interested in the 5.3 million shares (2012: 5.9 million) held by the Trustees.
Approved by the Board on 8 May 2013
Mary Harris
Chairman, Remuneration Committee
68
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Other disclosures
Principal activities and Business review
The Company’s and its subsidiaries’ principal activities are grocery and
related retailing.
Pages 1 to 70 inclusive (together with the sections of the Annual Report
and Financial Statements incorporated by reference) comprise the
Directors’ report, that has been drawn up and presented in accordance
with and in reliance upon applicable English company law and the
liabilities of the directors in connection with that report shall be subject
to the limitations and restrictions provided by such law.
The Business review sets out a comprehensive review of the
development and performance of the business for the 52 weeks ended
16 March 2013 and future developments. The Business review is set
out on pages 1 to 33 of this report. All the information detailed in these
pages forms part of the Directors’ report.
The corporate governance statement as required by the Disclosure and
Transparency Rules 7.2.1 is set out on pages 38 to 53 and forms part of
the Directors’ report.
Dividends
The Directors recommend the payment of a final dividend of 11.9 pence
per share (2012: 11.6 pence), making a total dividend for the year of 16.7
pence per share (2012: 16.1 pence), an increase of 3.7 per cent over the
previous year. Subject to shareholders approving this recommendation
at the Annual General Meeting (‘AGM’), the dividend will be paid on
12 July 2013 to shareholders on the register at the close of business on
17 May 2013.
Changes to the Board
On 11 July 2012, Bob Stack stood down from his position as a Non-
Executive Director. Mary Harris, who has been a Non-Executive
Director of Sainsbury’s since 2007, succeeded Bob as Chairman of the
Remuneration Committee. John McAdam joined the Remuneration
Committee as the third independent Non-Executive Director on the
Committee.
Anna Ford stood down from her position as a Non-Executive Director on
31 December 2012.
On 1 January 2013, Jean Tomlin, the former HR Director for The London
Organising Committee of the Olympic and Paralympic Games, joined
the Board as a Non-Executive Director. Jean became Chairman of
the Corporate Responsibility Committee and a member of both the
Remuneration and Nomination Committees.
On 8 May 2013, we announced the appointment of Susan Rice as a
Non-Executive Director from 1 June 2013. Susan is currently Managing
Director, Lloyds Banking Group Scotland and has extensive retail
banking experience, both in the UK and internationally. Susan will join
the Audit and Nomination Committees.
Re-election of Directors
In accordance with the Articles of Association, Jean Tomlin, who was
appointed to the Board since the last AGM, will seek election at the AGM.
Susan Rice will join the Board on 1 June 2013 and will also stand for
election at the AGM. Her biographical details are set out in the Notice
of Meeting accompanying this report.
The UK Corporate Governance Code provides for all directors of FTSE
companies to stand for election or re-election by shareholders every
year. Accordingly, all other members of the Board will retire and seek
re-election at this year’s AGM. Full biographical details of all of the
current Directors are set out on page 35.
Annual General Meeting
The AGM will be held on Wednesday, 10 July 2013 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 re-elect all of the 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 to authorise the Directors to issue shares without
applying the statutory pre-emption rights. In this regard, the Company
will continue to adhere to the provisions in the Pre-emption Group’s
Statement of Principles.
Shareholders will be asked to authorise the Company to make market
purchases of its own shares. Shareholders will also be asked to
authorise the Directors to hold general meetings at 14 clear days’ notice
(where this flexibility is merited by the business of the meeting and is
thought to be in the interests of shareholders as a whole). A resolution
to renew the authority to make ‘political donations’ as defined by Part 14
of 2006 Companies Act, will also be proposed.
Share capital and control
The following information is given pursuant to Section 992 of the 2006
Companies Act.
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
of 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 plans rank
pari passu with shares in issue and have no special rights. Where,
under the Company’s All Employee Share 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 Trusts
waive their right to vote and to dividends on the shares they hold which
are unallocated. 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 2012, 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 plans contain provisions relating
to a change of control. On a change of control, options and awards
granted to employees under the Company’s share plans may vest
and become exercisable, subject to the satisfaction of any applicable
performance conditions at that time.
Certain of the Company’s credit facilities and banking arrangements
contain change of control clauses under which lenders may cancel their
commitments and declare all outstanding amounts immediately due and
payable. There are no other significant agreements that would take effect,
alter or terminate upon a change of control following a takeover bid.
J Sainsbury plc Annual Report and Financial Statements 2013
69
Governance
Other disclosures continued
Ordinary shares
Details of the changes to the ordinary issued share capital during the
year are shown on page 100. At the date of this report, 1,894,206,390
ordinary shares of 284/7 pence have been issued, are fully paid up and
are listed on the London Stock Exchange.
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.
Major interests in shares
As at 8 May 2013, the Company had been notified by the following
investors of their interests in 3 per cent or more of the Company’s
shares. These interests were notified to the Company pursuant to
Disclosure and Transparency Rule 5:
Judith Portrait (a trustee of various settlements,
including charitable trusts)
Lord Sainsbury of Turville
M1 Capital Limited
Qatar Holdings LLC
% of voting rights
3.92
4.99
4.00
25.99
Directors’ interests
The beneficial interests of the Directors and their families in the shares
of the Company are shown in the Remuneration Report on page 68.
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 2012/13, which has been
renewed for 2013/14. Neither the indemnities nor the insurance provide
cover in the event that the Director is proved to have acted fraudulently.
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 pages 91
to 92 to the financial statements.
Employment policies
Our diversity policies and priorities are set out on page 40.
The Company’s quarterly trading statements, 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. One of our 20x20 commitments is to increase
the number of colleagues with shares in our business by 25 per cent
by 2020.
Donations
Sainsbury’s is committed to making a positive difference to the
communities in which we operate. We support many charitable
organisations and community projects through either donating cash,
making in-kind donations or through colleague volunteering.
During the year, Sainsbury’s colleagues, customers and suppliers
raised £41.5 million (2012: £25.4 million) for charities through events
supported by the Company, including Comic Relief and Active Kids.
Cash and in-kind donations totalled £5.1 million (2012: £4.2 million).
The Company made no political donations in 2013 (2012: £nil).
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.
Post balance sheet events
Events after the balance sheet are disclosed in note 37 on page 123
of the financial statements.
Financial risk management
The financial risk management and policies of the Group are disclosed
in note 28 on pages 104 to 110 to the financial statements.
Going concern
The Group’s business activities, together with the factors likely to
affect its future development, performance and position are set out
in the Business review on pages 1 to 33. The financial position of the
Group, its cash flows and liquidity are highlighted in the Financial review
on pages 26 to 33. The Group manages its financing by diversifying
funding sources, maintaining core borrowings with long-term maturities
and sufficient standby liquidity. Full details of the Group’s financing
arrangements can be found in note 20 on pages 97 and 98 to the
financial statements. In addition, notes 28 and 29 on pages 104 to 113
to 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.
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 re-financing exposure is not until July 2014.
Management are satisfied that stress tests on the future liquidity of the
Group do not indicate a going concern risk.
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 have a reasonable expectation 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 73 to 123.
Disclosure of information to auditors
Each of the Directors has confirmed 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.
Independent 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
8 May 2013
70
J Sainsbury plc Annual Report and Financial Statements 2013
Governance
Statement of Directors’ responsibilities
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 page 35
confirm that, to the best of their knowledge:
• the Group and Company financial statements, which have been
prepared in accordance with IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and profit of
the Group and 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 Group and Company, together with a description of the
principal risks and uncertainties that it faces.
By order of the Board
Tim Fallowfield
Company Secretary
8 May 2013
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 Group and Company financial statements in accordance with
International Financial Reporting Standards (‘IFRSs’) as adopted by the
European Union. Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and the Company and
of the profit or loss of the Group for that period. In preparing these
financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and
prudent;
• state whether applicable IFRSs as adopted by the European Union
have been followed, subject to any material departures disclosed and
explained in the financial statements;
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and the Company will
continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group’s and the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements and the Remuneration report
comply with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of the Company and the Group
and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
J Sainsbury plc Annual Report and Financial Statements 2013
71
Financial statements
Independent Auditors’ report to the members
of J Sainsbury plc
We have audited the financial statements of J Sainsbury plc for the
52 weeks ended 16 March 2013 which comprise the Group income
statement, the Group statement of comprehensive income, the Group
and Company Balance sheets, the Group and Company Cash flow
statements, the Group and Company statements of changes in equity
and related notes. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial
Reporting Standards (‘IFRSs’) as adopted by the European Union and,
as regards the Company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
• the part of the Remuneration report to be audited has been properly
prepared in accordance with the Companies Act 2006; and
• the information given in the Directors’ report for the financial year
for which the financial statements are prepared is consistent with the
financial statements.
Respective responsibilities of Directors and Auditors
As explained more fully in the Statement of Directors’ responsibilities
set out on page 71, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and
fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board’s Ethical Standards for
Auditors.
This report, including the opinions, has been prepared for and only for
the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do
not, in giving these opinions, 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.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• adequate accounting records have not been kept by the Company, or
returns adequate for our audit have not been received from branches
not visited by us; or
• the Company financial statements and the part of the Remuneration
report to be audited are not in agreement with the accounting records
and returns; or
• certain disclosures of Directors’ remuneration specified by law are not
made; or
• we have not received all the information and explanations we require
for our audit.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 70, in relation to going
concern;
• the parts of the Corporate Governance statement relating to the
Company’s compliance with the nine provisions of the UK Corporate
Governance Code specified for our review; and
• certain elements of the report to shareholders by the Board on
Directors’ remuneration.
Richard Hughes (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
8 May 2013
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures
in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement,
whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the Group’s and
the Company’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting
estimates made by the Directors; and the overall presentation of the
financial statements. In addition, we read all the financial and non-
financial information in the Annual Report and Financial Statements to
identify material inconsistencies with the audited financial statements.
If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the
Group’s and of the Company’s affairs as at 16 March 2013 and of the
Group’s profit and Group’s and Company’s cash flows for the 52 weeks
then ended;
• the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
• the Company financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union and as
applied in accordance with the provisions of the Companies Act 2006;
and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the lAS Regulation.
72
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Group income statement
for the 52 weeks to 16 March 2013
Revenue
Cost of sales
Gross profit
Administrative expenses
Other income
Operating profit
Finance income
Finance costs
Share of post-tax profit from joint ventures
Profit before taxation
Analysed as:
Underlying profit before tax
Profit on disposal of properties
Investment property fair value movements
Financing fair value movements
IAS 19 pension financing (charge)/credit
One-off items
Income tax expense
Profit for the financial year
Attributable to:
Owners of the parent
Non-controlling interests
Earnings per share
Basic
Diluted
Underlying basic
Underlying diluted
The notes on pages 79 to 123 form an integral part of these financial statements.
Note
4
2013
£m
2012
£m
23,303
(22,026)
22,294
(21,083)
5
6
6
14
3
3
3
3
3
8
9
1,277
(457)
67
887
19
(142)
24
788
756
66
(10)
(10)
(5)
(9)
788
(174)
614
614
–
614
pence
32.6
32.1
30.7
30.2
1,211
(419)
82
874
35
(138)
28
799
712
83
–
(16)
17
3
799
(201)
598
598
–
598
pence
32.0
31.5
28.1
27.8
J Sainsbury plc Annual Report and Financial Statements 2013
73
Financial statements
Group statement of comprehensive income
for the 52 weeks to 16 March 2013
Profit for the financial year
Other comprehensive income/(expense):
Currency translation differences
Net actuarial losses on defined benefit pension scheme
Available-for-sale financial assets fair value movements
Group
Joint ventures
Cash flow hedges effective portion of fair value movements
Group
Joint ventures
Current tax on items recognised directly in other comprehensive income
Deferred tax on items recognised directly in other comprehensive income
Total other comprehensive expense for the financial year (net of tax)
Total comprehensive income for the financial year
Attributable to:
Owners of the parent
Non-controlling interests
The notes on pages 79 to 123 form an integral part of these financial statements.
Note
30
8
8
2013
£m
614
1
(366)
11
2
17
1
28
53
2012
£m
598
–
(222)
1
2
–
2
59
11
(253)
361
(147)
451
361
–
361
451
–
451
74
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Balance sheets
At 16 March 2013 and 17 March 2012
Group
Company
Note
2013
£m
2012
£m
2013
£m
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
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
Equity attributable to owners of the parent
Non-controlling interests
Total equity
The notes on pages 79 to 123 form an integral part of these financial statements.
11
12
13
14
15
17
29
21
16
17
29
26b
18
19
20
29
22
19
20
29
21
22
30
23
23
24
24
25
9,804
171
–
532
189
38
47
–
10,781
987
306
91
517
1,901
13
1,914
9,329
160
–
566
178
38
37
–
17
–
7,316
91
34
1,264
41
1
10,308
8,764
938
286
69
739
2,032
–
2,032
–
1,254
72
351
1,677
–
1,677
2012
£m
17
–
7,285
91
31
1,312
33
1
8,770
–
1,099
65
408
1,572
–
1,572
12,695
12,340
10,441
10,342
(2,726)
(165)
(65)
(148)
(11)
(3,115)
(1,201)
(173)
(2,617)
(4)
(247)
(39)
(766)
(2,740)
(150)
(88)
(149)
(9)
(4,571)
(24)
(65)
(6)
(1)
(3,136)
(4,667)
(1,104)
(2,990)
(137)
(2,617)
(1)
(286)
(63)
(471)
(876)
(633)
(4)
–
(2)
–
(3,846)
(3,575)
(1,515)
5,734
5,629
4,259
541
1,075
680
(623)
4,060
5,733
1
5,734
538
1,061
680
(365)
3,715
5,629
–
5,629
541
1,075
680
11
1,952
4,259
–
4,259
(4,494)
(72)
(84)
–
(1)
(4,651)
(3,079)
(874)
(565)
(1)
–
(18)
–
(1,458)
4,233
538
1,061
680
14
1,940
4,233
–
4,233
The financial statements on pages 73 to 123 were approved by the Board of Directors on 8 May 2013, and are signed on its behalf by:
Justin King Chief Executive
John Rogers Chief Financial Officer
J Sainsbury plc Annual Report and Financial Statements 2013
75
Financial statements
Cash flow statements
for the 52 weeks to 16 March 2013
Cash flows from operating activities
Cash generated from/(used in) operations
Interest paid
Corporation tax paid
Net cash generated from/(used in) 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
Acquisition of and investment in subsidiaries net of cash acquired
Increase in loans to joint ventures
Investment in joint ventures
Investment in financial assets
Proceeds from repayment of loan to joint venture
Proceeds from disposal of financial assets
Interest received
Dividends received
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Repayment of short-term borrowings
Proceeds from long-term borrowings
Repayment of long-term borrowings
Repayment of capital element of obligations under finance lease payments
Interest elements of obligations under finance lease payments
Dividends paid
Net cash (used in)/generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Net opening cash and cash equivalents
Note
26
10
Group
Company
2013
£m
2012
£m
1,268
(143)
(144)
981
(1,067)
(26)
205
(21)
(5)
(1)
–
16
–
19
18
(862)
17
(50)
75
(61)
(20)
(7)
(308)
(354)
(235)
739
1,291
(142)
(82)
1,067
(1,227)
(25)
314
(1)
(1)
–
(1)
–
40
18
–
(883)
14
–
391
(51)
(9)
(5)
(285)
55
239
500
739
2013
£m
(25)
(85)
–
(110)
–
–
–
–
–
–
–
–
–
117
250
367
16
(50)
50
(22)
–
–
(308)
(314)
(57)
408
2012
£m
(68)
(59)
–
(127)
(2)
–
30
(5)
–
–
–
–
–
84
250
357
14
–
298
(18)
–
–
(285)
9
239
169
351
408
Closing cash and cash equivalents
26b
504
The notes on pages 79 to 123 form an integral part of these financial statements.
76
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Group statement of changes in equity
for the 52 weeks to 16 March 2013
At 18 March 2012
Profit for the year
Other comprehensive income/(expense):
Currency translation differences
Actuarial losses on defined benefit pension
scheme (net of tax)
Available-for-sale financial assets fair value
movements (net of tax):
Group
Joint ventures
Cash flow hedges effective portion of changes
in fair value (net of tax):
Group
Joint ventures
Total comprehensive (expense)/income for the
year ended 16 March 2013
Transactions with owners:
Dividends paid
Amortisation of convertible bond equity
component
Share-based payment (net of tax)
Shares issued
Shares vested
Allotted in respect of share option schemes
At 16 March 2013
At 20 March 2011
Profit for the year
Other comprehensive (expense)/income:
Actuarial losses on defined benefit pension
scheme (net of tax)
Available-for-sale financial assets fair value
movements (net of tax):
Group
Joint ventures
Cash flow hedges effective portion of changes
in fair value (net of tax):
Group
Joint ventures
Total comprehensive (expense)/income for the
year ended 17 March 2012
Transactions with owners:
Dividends paid
Amortisation of convertible bond equity
component
Share-based payment (net of tax)
Shares vested
Allotted in respect of share option schemes
25
24
24
24
24
24
24
10,25
24,25
25
25
23,25
25
24
24
24
24
24
10,25
24,25
25
25
Note
Called up
share capital
£m
538
Share
premium
account
£m
1,061
Capital
redemption
and other
reserves
£m
315
–
1
(287)
13
2
17
1
Retained
earnings
£m
3,715
614
–
–
–
–
–
–
Total
£m
5,629
614
1
(287)
13
2
17
1
(253)
614
361
–
(5)
–
–
–
–
(308)
(308)
5
36
–
1
(3)
–
36
–
1
14
–
–
–
–
–
–
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
14
541
1,075
57
4,060
5,733
535
1,048
–
–
–
–
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
13
467
–
(154)
3
2
–
2
3,374
598
5,424
598
–
–
–
–
–
(154)
3
2
–
2
(147)
598
451
–
(5)
–
–
–
(285)
(285)
5
26
–
(3)
–
26
–
13
Non-
controlling
interests
£m
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total equity
£m
5,629
614
1
(287)
13
2
17
1
361
(308)
–
36
1
1
14
5,734
5,424
598
(154)
3
2
–
2
451
(285)
–
26
–
13
5,629
At 17 March 2012
538
1,061
315
3,715
5,629
The notes on pages 79 to 123 form an integral part of these financial statements.
J Sainsbury plc Annual Report and Financial Statements 2013
77
Financial statements
Company statement of changes in equity
for the 52 weeks to 16 March 2013
At 18 March 2012
Profit for the year
Other comprehensive income/(expense):
Available-for-sale financial assets fair value movements (net of tax)
Cash flow hedges effective portion of changes in fair value (net of tax)
Total comprehensive income for the year ended 16 March 2013
Transactions with owners:
Dividends paid
Amortisation of convertible bond equity component
Allotted in respect of share option schemes
Utilised in respect of share option schemes
At 16 March 2013
At 20 March 2011
Profit for the year
Other comprehensive expense:
Available-for-sale financial assets fair value movements (net of tax)
Total comprehensive (expense)/income for the year ended
17 March 2012
Transactions with owners:
Dividends paid
Amortisation of convertible bond equity component
Allotted in respect of share option schemes
Utilised in respect of share option schemes
At 17 March 2012
Called up
share capital
£m
538
Share
premium
account
£m
1,061
–
–
–
–
–
–
3
–
–
–
–
–
–
–
14
–
Capital
redemption
and other
reserves
£m
694
–
4
(2)
2
–
(5)
–
–
Retained
earnings
£m
1,940
284
Total
equity
£m
4,233
284
–
–
4
(2)
284
286
(308)
5
32
(1)
(308)
–
49
(1)
541
1,075
691
1,952
4,259
535
1,048
–
–
–
–
–
3
–
–
–
–
–
–
13
–
703
–
1,935
260
4,221
260
(4)
(4)
–
(5)
–
–
–
(4)
260
256
(285)
5
27
(2)
(285)
–
43
(2)
538
1,061
694
1,940
4,233
Note
25
24
24
10,25
24,25
23,25
25
25
24
10
24,25
23,25
25
The notes on pages 79 to 123 form an integral part of these financial statements.
78
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Notes to the financial statements
1 General information
J Sainsbury plc is a public limited company (the ‘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 16 March 2013 (prior
financial year 52 weeks to 17 March 2012). The consolidated financial
statements for the 52 weeks to 16 March 2013 comprise the financial
statements of the Company and its subsidiaries (the ‘Group’) and the
Group’s share of the post-tax results of its 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 2006 applicable to companies reporting
under IFRSs. The Company’s financial statements have been
prepared on the same basis and, as permitted by Section 408(3)
of the Companies Act 2006, no income statement or statement of
comprehensive income 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 on a going concern basis 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.
Amendments to published standards
Effective for the Group in these financial statements:
• Amendments to IFRS 1 ‘First-time adoption of IFRS’, Severe
hyperinflation and removal of fixed dates for first-time adopters
• Amendments to IFRS 7 ‘Financial instruments: Disclosures’,
Disclosures on transfers of financial assets
The Group has considered the above amendments to published
standards that are effective and concluded that they are either not
relevant to the Group or that they do not have a significant impact on
the Group’s financial statements, apart from additional disclosures.
• IAS 19 (revised) ‘Employee benefits’ *
• Amendment to IFRS 1 ‘First-time adoption’, Government loans
• Amendment to IFRS 7 ‘Financial instruments: Disclosures’ on assets
and liabilities offsetting *
• IFRS 13 ‘Fair value measurement’ *
• Annual Improvements 2011 *
* These standards and interpretations have been endorsed by the EU.
In June 2011, the IASB issued IAS 19, Employee Benefits (revised 2011;
IAS 19R). The most significant change that will impact the Group is that
the amendment requires the expected returns on pension plan assets,
currently calculated based on management’s best estimate of expected
returns, to be calculated at the liability discount rate. The removal of the
reserve for scheme expenses from within the defined benefit obligation
and service cost will also have an impact on both the Group’s net assets
and income statement.
The standard is effective for reporting periods beginning on or after
1 January 2013 and the Group will therefore adopt the revised standard
for the year ended 15 March 2014. IAS 19R requires retrospective
application in line with IAS 8 ‘Accounting Policies, Changes in
Accounting Estimates and Errors’. The Group estimates that adoption
of IAS 19R would have increased underlying profit by £2 million and
resulted in an additional charge of £18 million outside of underlying
profit in the year ended 16 March 2013. The revised standard would have
increased net assets before deferred tax by approximately £135 million
at 16 March 2013.
The Group has considered the remaining above amendments to
published standards and new standards that are not yet effective and
concluded that 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 following standards and revisions will be effective for
future periods:
• IAS 27 (revised) 2011 ‘Separate financial statements’ *
• IAS 28 (revised) 2011 ‘Associates and joint ventures’ *
• IFRS 9 ‘Financial instruments’ – classification of financial assets and
financial liabilities ^
• IFRS 10 ‘Consolidated financial statements’ *
• IFRS 11 ‘Joint arrangements’ *
• IFRS 12 ‘Disclosure of interests in other entities’ *
• Amendment to IAS 32 ‘Financial instruments: Presentation’ on
offsetting financial assets and liabilities *
• Amendment to IFRS 10, 11 and 12 on transition guidance *
* These standards are effective for accounting periods starting on or after 1 January 2014.
^ This standard is effective for accounting periods starting on or after 1 January 2015.
The Group has considered the impact of the above standards and
revisions and has concluded that they will not have a significant impact
on the Group’s financial statements, apart from additional disclosures.
The accounting policies set out below and in note 3 have been applied
consistently to all periods presented in the financial statements by the
Group and the Company.
Effective for the Group for the financial year beginning 17 March 2013:
• Amendment to IAS 1 ‘Presentation of financial statements’,
Presentation of items of other comprehensive income
• Amendments to IAS 12 ‘Income Taxes’, Deferred tax accounting for
investment properties
Subsidiaries
Subsidiaries are 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 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
J Sainsbury plc Annual Report and Financial Statements 2013
79
Financial statements
Notes to the financial statements continued
2 Accounting policies continued
companies are eliminated upon consolidation. Accounting policies of
subsidiaries have been changed where necessary to ensure consistency
with the policies adopted by the Group.
Investments in subsidiaries are carried at cost less any impairment loss
in the financial statements of the Company.
Revenue is recognised when the significant risks and rewards of goods and
services have been passed to the buyer and it can be measured reliably.
The cost of Nectar points is treated as a deduction from sales and
part of the fair value of the consideration received is deferred and
subsequently recognised over the period that the awards are redeemed.
The fair value of the points awarded is determined with reference to the
fair value to the customer.
Business combinations
The Group applies the acquisition method of accounting for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the fair value of the assets transferred, the liabilities
incurred and the equity interests issued by the Group. The consideration
transferred includes the fair value of any asset or liability resulting
from a contingent consideration arrangement. Identifiable assets and
liabilities acquired and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition
date. The Group recognises any non-controlling interest in the acquiree
on an acquisition-by-acquisition basis, either at fair value or at the non-
controlling interest’s proportionate share of the recognised amounts
of the acquiree’s identifiable net assets. Acquisition-related costs are
expensed as incurred. If the business combination is achieved in stages,
the acquisition date fair value of the acquirer’s previously held equity
interest in the acquiree is remeasured to fair value at the acquisition
date through profit or loss.
Joint ventures
Joint ventures are jointly controlled entities in which the Group has an
interest. The Group’s share of the post-tax results of its joint ventures
are included in the 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.
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 provision for impairment.
Investments in joint ventures are carried in the Company balance sheet
at cost less any provision for impairment.
Sainsbury’s Bank’s fees and commissions, that are not integral to
the effective interest rate calculation, are recognised in the income
statement as services are provided. Where in the case of insurance
commissions the income comprises an initial commission and profit
share both are recognised on completion of the service to the extent
reliably measurable. Where there is a risk of potential claw-back, an
appropriate element of the commission receivable is deferred and
amortised over the life of the underlying loan or period of claw-back.
Investment properties held by the Group are those contained within
its joint ventures with Land Securities Group PLC and The British Land
Company PLC. These are 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 the
Group’s ongoing business for shareholders.
Revenue
Revenue consists of sales through retail outlets and excludes Value
Added Tax. Sales through retail outlets are shown net of returns, the
cost of Nectar reward points issued and redeemed, colleague discounts,
vouchers and sales made on an agency basis. Commission income is
recognised in revenue based on the terms of the contract.
Finance income and costs
Finance income and costs are recognised in the income statement for
financial assets and liabilities measured at amortised cost using the
effective interest method. This calculation takes into account interest
receivable or payable and fees and commissions received or paid that
are integral to the yield as well as incremental transaction costs.
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.
Supplier incentives, rebates and discounts are recognised within cost
of sales as they are earned. The accrued value at the reporting date is
included in prepayments and accrued income.
Property, plant and equipment
Land and buildings
Land and buildings are stated at cost less accumulated depreciation
and any recognised provision for impairment. Properties in the course
of construction are held at cost less any recognised provision for
impairment. Cost includes the original purchase price of the asset and
the costs incurred attributable to bringing the asset to its working
condition for intended use. This includes capitalised borrowing costs.
Fixtures and equipment
Fixtures, equipment and vehicles are held at cost less accumulated
depreciation and any recognised provision for impairment. Cost includes
the original purchase price of the asset and the costs attributable to
bringing the asset to its working condition and its intended use.
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
Buildings under construction 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. The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of each reporting period.
Intangible assets
Computer software
Computer software is carried at cost less accumulated amortisation and
any provision for impairment. Externally acquired computer software
and software licences are capitalised and amortised on a straight-line
basis over their useful economic lives of five to seven years. Costs
relating to development of computer software for internal use are
capitalised once the recognition criteria of IAS 38 ‘Intangible Assets’
are met. Other development expenditures that do not meet these
criteria are recognised as an expense as incurred. When the software is
available for its intended use, these costs are amortised on a straight-
line basis over their useful economic lives of five to seven years within
administrative expenses.
80
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
2 Accounting policies continued
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, and is considered to have an indefinite useful
life. Goodwill is tested for impairment annually and again whenever
indicators of impairment are detected and is carried at cost less any
provision for impairment.
Other
Pharmacy licences are carried at cost less accumulated amortisation
and any recognised provision for impairment and amortised on a
straight-line basis over the licence period of up to 15 years within
cost of sales.
Other intangible assets are carried at cost less accumulated
amortisation and any provision for impairment. They are amortised
on a straight-line basis over their contractual useful economic lives
within cost of sales.
Impairment of non-financial assets
At each reporting date, the Group reviews the carrying amounts of
its property, plant and equipment 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 property, plant and equipment 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.
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, or its original carrying
value less accumulated depreciation if lower.
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.
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. Non-current assets
held for sale are not depreciated.
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
on a straight-line basis over the lease term.
Sale and leaseback
A sale and leaseback transaction is one where a vendor sells an
asset and immediately reacquires the use of that asset by entering
into a lease with the buyer. The accounting treatment of the sale and
leaseback depends upon the substance of the transaction and whether
or not the sale was made at the asset’s fair value.
For sale and finance leasebacks, any apparent profit or loss from
the sale is deferred and amortised over the lease term. For sale and
operating leasebacks, generally the assets are sold at fair value, and
accordingly the profit or loss from the sale is recognised immediately
in the income statement.
Following initial recognition, the lease treatment is consistent with those
principles described above.
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 comprise of goods held for resale and properties held for,
or in the course of, development and are valued on a weighted average
cost basis and carried at the lower of cost and net realisable value. Net
realisable value represents the estimated selling price less all estimated
costs of completion and costs to be incurred in marketing, selling and
distribution. 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 in hand and at bank,
investments in money market funds and 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.
J Sainsbury plc Annual Report and Financial Statements 2013
81
Financial statements
Notes to the financial statements continued
2 Accounting policies continued
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 or other comprehensive income, in which case the
current tax is also dealt with in equity or other comprehensive income
respectively.
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.
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 or other
comprehensive income, in which case the deferred tax is also dealt with
in equity or other comprehensive income respectively.
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 a past event, 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. Provisions
are measured at the present value of the expenditures expected to
be required to settle the obligation using a pre-tax rate that reflects
current market assessments of the time value of money and the risks
specific to the obligation. The increase in the provision due to passage
of time is recognised as interest expense.
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.
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 the defined benefit pension scheme, 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.
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
other comprehensive income.
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 when it is probable that settlement will be
required and they are capable of being measured reliably. Liabilities
recognised in respect of long-term employee benefits are measured at
the present value of the estimated future cash outflows to be made by the
Group in respect of services provided by employees up to reporting date.
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.
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.
The grant by the Company of options over its equity instruments to
the employees of subsidiary undertakings in the Group is treated as
a capital contribution. The fair value of employee services received,
measured by reference to the grant date fair value, is recognised
over the vesting period as an increase to investment in subsidiary
undertakings, with a corresponding credit to equity.
Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new ordinary shares or options are shown
in equity as a deduction, net of tax, from the proceeds.
82
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
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.
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.
Financial instruments
Financial assets
The Group classifies its financial assets in the following categories:
at fair value through profit or loss (‘FVTPL’), loans and receivables,
and available-for-sale (‘AFS’). AFS investments are initially measured
at fair value including transaction costs. Financial assets held at fair
value through profit and loss are initially recognised at fair value and
transaction costs are expensed.
Financial assets at FVTPL 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 FVTPL are
recorded at fair value, with any fair value 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 at fair value plus transaction costs,
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.
AFS 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 at fair value plus transaction costs, these assets
are recorded at fair value with the movements in fair value recognised
in other comprehensive income until the financial asset is derecognised
or impaired at which time the cumulative gain or loss previously
recognised in other comprehensive income 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
in 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.
The fair value of the liability component of a convertible bond is
determined using the market interest rate for an equivalent non-
convertible bond. This amount is recorded as a liability on an amortised
cost basis until extinguished on conversion or maturity of the bonds.
The remainder of the proceeds are allocated to the conversion option.
This is recognised and included in shareholders’ equity, net of income
tax effects and is not subsequently re-measured.
Issue costs are apportioned between the liability and the equity
components of the convertible bonds based on their carrying amounts
at the date of issue. The portion relating to the equity component is
charged directly against equity.
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.
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.
J Sainsbury plc Annual Report and Financial Statements 2013
83
Financial statements
Notes to the financial statements continued
2 Accounting policies continued
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.
(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.
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 29.
Derivative financial instruments and hedge accounting
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 other comprehensive income 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 other comprehensive
income 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.
The judgements and key sources of estimation uncertainty that have a
significant effect on the amounts recognised in the financial statements
are discussed below.
Depreciation and amortisation
Judgement is used in assessing useful lives and residual values of
property, plant and equipment and intangible assets. The assets are
depreciated or amortised over their estimated useful lives to their
residual values.
Goodwill impairment
The Group is required to assess whether goodwill has suffered
any impairment loss, based on the recoverable amount of its cash-
generating units (‘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.
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 the higher of the value in use and fair
value less costs to sell. Value in use is calculated from expected future
cash flows using suitable discount rates and includes management
assumptions and estimates of future performance as disclosed in note 11.
Post-employment benefits
The Group operates a defined benefit scheme for its employees. The
present value of the scheme’s 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 scheme. Other
key assumptions within this calculation are based on market conditions
or estimates of future events, including mortality rates, as set out in
note 30. Any changes to assumptions used will impact the carrying
value of the retirement benefit obligation. Sensitivity of the retirement
benefit obligation to changes in certain assumptions is provided in
note 30.
Provisions
Provisions have been made for onerous leases, dilapidations and long
service awards. 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. Details of
provisions are set out in note 22.
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 other comprehensive income 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 other comprehensive income is transferred to the income statement
for the period.
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.
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.
84
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
3 Non-GAAP performance measures
Certain items recognised in reported profit before tax can vary significantly from year to year and therefore create volatility in reported earnings
which does not reflect the Group’s underlying performance. The Directors believe that the ‘underlying profit before tax’ (‘UPBT’) 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. Underlying profit is not defined by IFRS and therefore may not be directly comparable with the ‘adjusted’ profit
measures of other companies. The adjusted items are:
• Profit/loss on disposal of properties;
• 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 at the previous reporting date;
• Financing fair value movements – these are fair value gains and losses on non-derivative financial assets and liabilities carried at amortised cost,
on derivatives relating to financing activities and on hedged items in fair value hedges;
• Impairment of goodwill;
• The financing element of IAS 19 ‘Employee Benefits’; and
• One-off items – these are items which are material and infrequent in nature and do not relate to the Group’s underlying performance.
The adjustments made to reported profit before tax to arrive at underlying profit before tax are:
Underlying profit before tax
Profit on disposal of properties1
Investment property fair value movements
Financing fair value movements2
IAS 19 pension financing (charge)/credit
One-off items
Total adjustments
Profit before tax
2013
£m
756
66
(10)
(10)
(5)
(9)
32
788
2012
£m
712
83
–
(16)
17
3
87
799
1 Profit on disposal of properties for the financial year comprised of £67 million for the Group (2012: £82 million) and a £1 million loss for the property joint ventures (2012: £1 million profit).
2 Financing fair value movements for the financial year comprised a £7 million loss for the Group (2012: £11 million loss) and a £3 million loss for the joint ventures (2012: £5 million loss).
One-off items
Included within one-off items is £20 million of transaction and transition costs incurred relating to the ongoing purchase of the remaining 50 per
cent of Sainsbury’s Bank. Other one-off costs of £5 million have been incurred for internal restructuring. A disposal provision for indemnities of
£16 million has also been released during the year as it is no longer required. This provision was initially recorded within one-off items outside
underlying profit before tax.
The £3 million one-off item in the prior year relates to the release of a provision in respect of the Office of Fair Trading dairy inquiry which was
settled in full in October 2011.
4 Segment reporting
The Group’s businesses are organised into three operating segments:
• Retailing (Supermarkets and Convenience);
• Financial services (Sainsbury’s Bank joint venture); and
• Property investments (The British Land Company PLC joint venture and Land Securities Group PLC joint venture).
Management have determined the operating segments based on the information provided to the Operating Board (the Chief Operating Decision
Maker for the Group) to make operational decisions on the management of the Group. All material operations and assets are in the UK. The business
of the Group is not subject to highly seasonal fluctuations although there is an increase in trading in the period leading up to Christmas.
The Group has continued to include additional voluntary disclosure analysing the Group’s Financial services and Property investment joint ventures
into separate reportable segments.
Revenue from operating segments is measured on a basis consistent with the income statement. All revenue is generated by the sale of goods and
services.
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.
The Operating Board assesses the performance of all segments on the basis of underlying profit before tax. The reconciliation provided overleaf
reconciles underlying operating profit from each of the segments disclosed to profit before tax.
J Sainsbury plc Annual Report and Financial Statements 2013
85
Financial statements
Notes to the financial statements continued
4 Segment reporting continued
52 weeks to 16 March 2013
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/(loss) on disposal of properties
Financing fair value movements
Investment property fair value movements
IAS 19 pension financing charge
One-off items
Profit before tax
Income tax expense
Profit for the financial period
Assets
Investment in joint ventures (note 14)
Segment assets
Segment liabilities
Other segment items
Capital expenditure1
Depreciation expense (note 11)
Amortisation expense (note 12)
Share-based payments
Retailing
£m
23,303
829
19
(130)
–
718
67
(7)
–
(5)
11
784
12,163
–
12,163
(6,961)
1,145
504
13
33
1 Capital expenditure consists of property, plant and equipment additions of £1,120 million and intangible asset additions of £25 million.
52 weeks to 17 March 2012
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 disposal of properties
Financing fair value movements
IAS 19 pension financing credit
One-off items
Profit before tax
Income tax expense
Profit for the financial period
Assets
Investment in joint ventures (note 14)
Segment assets
Segment liabilities
Other segment items
Capital expenditure2
Depreciation expense (note 11)
Amortisation expense (note 12)
Share-based payments
Retailing
£m
22,294
789
18
(127)
–
680
82
(11)
17
3
771
11,774
–
11,774
(6,711)
1,287
486
13
27
Financial
services
£m
Property
investments
£m
–
–
–
–
22
22
–
–
–
–
(20)
2
–
159
159
–
–
–
–
–
–
–
–
–
16
16
(1)
(3)
(10)
–
–
2
–
373
373
–
–
–
–
–
Financial
services
£m
Property
investments
£m
–
–
–
–
16
16
–
–
–
–
16
–
134
134
–
–
–
–
–
–
–
–
–
16
16
1
(5)
–
–
12
–
432
432
–
–
–
–
–
Group
£m
23,303
829
19
(130)
38
756
66
(10)
(10)
(5)
(9)
788
(174)
614
12,163
532
12,695
(6,961)
1,145
504
13
33
Group
£m
22,294
789
18
(127)
32
712
83
(16)
17
3
799
(201)
598
11,774
566
12,340
(6,711)
1,287
486
13
27
2 Capital expenditure consists of property, plant and equipment additions of £1,265 million and intangible asset additions of £22 million.
86
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
5 Operating profit
Operating profit is stated after charging/(crediting) the following items:
Employee costs (note 7)
Depreciation expense (note 11)
Amortisation expense (note 12)
Profit on disposal of properties (note 3)
Operating lease rentals – land and buildings
– other leases
– sublease payments receivable
Foreign exchange gains
One-off items (note 3)
Group
Auditors’ remuneration
Audit and audit related services
Fees payable to the Company’s auditor for the audit of the parent company and consolidated financial statements
Fees payable to the Company’s auditor for other services:
The audit of the Company’s subsidiaries
Audit related assurance services
Fees
2013
£m
2,322
504
13
(67)
457
55
(34)
–
9
2012
£m
2,173
486
13
(82)
426
55
(29)
(6)
(3)
2013
£m
2012
£m
0.2
0.6
0.2
1.0
0.2
0.5
0.2
0.9
In addition, tax advisory, tax compliance and other non-audit fees totalling £58,000 were payable to the auditors during the year (2012: £32,000).
6 Finance income and finance costs
Interest on bank deposits and other financial assets
IAS 19 pension financing credit (note 30)
Finance income
Borrowing costs:
Secured borrowings
Unsecured borrowings
Obligations under finance leases
Provisions – amortisation of discount (note 22)
Other
Other finance costs:
Interest capitalised – qualifying assets (note 11)
Financing fair value losses1
IAS 19 pension financing charge (note 30)
2013
£m
19
–
19
(98)
(55)
(7)
(2)
–
(162)
32
(7)
(5)
20
2012
£m
18
17
35
(108)
(46)
(5)
(2)
(1)
(162)
35
(11)
–
24
Finance costs
(142)
(138)
1
Fair value losses relate to fair value adjustments on non-derivative financial assets and liabilities carried at amortised cost and on derivatives relating to financing activities and hedged items in fair
value hedges.
J Sainsbury plc Annual Report and Financial Statements 2013
87
Financial statements
Notes to the financial statements continued
7 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 scheme (note 30)
Share-based payments expense (note 31)
The average number of employees, including Directors, during the year were:
Full-time
Part-time
Full-time equivalent
Details of key management compensation can be found in note 32 and within the Remuneration report on pages 54 to 68.
2013
£m
2,051
133
44
61
33
2,322
2012
£m
1,923
124
39
60
27
2,173
Number
000’s
Number
000’s
49.1
107.9
157.0
105.0
48.8
103.2
152.0
101.9
8 Income tax expense
Current tax expense:
Current year
Over provision in prior years
Deferred tax expense:
Origination and reversal of temporary differences
Under provision in prior years
Effect of change in tax rate
Total deferred tax (note 21)
Total income tax expense in income statement
2013
£m
177
(20)
157
30
19
(32)
17
174
The effective tax rate of 22.1 per cent (2012: 25.2 per cent) is lower than (2012: lower 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 24.08% (2012: 26.07%)
Effects of underlying items:
Disallowed depreciation on UK properties
Over provision in prior years
Revaluation of deferred tax balances
Other
Effects of non-underlying items:
Profit on disposal of properties
Investment property fair value movements
Revaluation of deferred tax balances
(Over)/under provision in prior years
Other
Total income tax expense in income statement
2013
£m
788
190
29
–
(21)
(11)
(5)
2
(11)
(1)
2
174
2012
£m
105
(28)
77
110
20
(6)
124
201
2012
£m
799
208
30
(12)
(17)
(1)
(23)
–
11
4
1
201
On 21 March 2012, the Chancellor announced that the main rate of UK corporation tax would reduce to 23.0 per cent from 1 April 2013. This was
substantively enacted on 3 July 2012 and hence the effect of the change on the deferred tax balances has been included in the 2013 figures above.
88
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
8 Income tax expense continued
In addition to this, a number of further changes to the UK corporation tax system were announced in the 5 December 2012 and the 20 March 2013
UK Budget Statements. The main rate of corporation tax is expected to reduce to 21.0 per cent from 1 April 2014, and to 20.0 per cent from 1 April
2015. Neither of these expected rate reductions had been substantively enacted at the balance sheet date and, therefore, their effect is not included
in the financial statements.
The effect of a one per cent reduction in the corporation tax rate on the deferred tax balances at the balance sheet date would reduce the deferred
tax liability by £11 million.
As part of the funding plan agreed with the Pension Scheme’s Trustees, in June 2010 Sainsbury’s established the Sainsbury’s Property Scottish
Partnership (‘the Partnership’) with the Scheme and properties with a value of £757 million were transferred to the Partnership. Included in the
Finance Act 2012 were provisions to restrict tax relief on the total amount of payments an employer makes to the pension scheme directly or
through the Partnership. These changes have been reflected in the figures above.
Income tax charged or (credited) to equity and/or other comprehensive income during the year is as follows:
52 weeks to 16 March 2013
Current tax recognised in equity or other comprehensive income
Deferred tax recognised in equity or other comprehensive income
Revaluation of deferred tax balances
Income tax credited
52 weeks to 17 March 2012
Current tax recognised in equity or other comprehensive income
Deferred tax recognised in equity or other comprehensive income
Revaluation of deferred tax balances
Income tax charged/(credited)
Share-based
payments
£m
Retirement
benefit
obligations
£m
Fair value
movements
£m
–
(3)
–
(3)
–
1
–
1
(27)
(64)
12
(79)
(58)
–
(10)
(68)
(1)
2
(3)
(2)
(1)
2
(3)
(2)
Total
£m
(28)
(65)
9
(84)
(59)
3
(13)
(69)
The current and deferred tax in relation to the Group’s defined benefit pension scheme’s actuarial gains and losses and available-for-sale fair value
movements have been charged or credited through other comprehensive income.
J Sainsbury plc Annual Report and Financial Statements 2013
89
Financial statements
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 earnings attributable to the ordinary shareholders are adjusted by the interest on the convertible bonds (net of
tax). The weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially 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 and the number of shares that would be issued if all convertible bonds are assumed to be converted.
Underlying earnings per share is provided by excluding the effect of any profit or loss on disposal of properties, investment property fair value
movements, impairment of goodwill, financing fair value movements, IAS 19 pension financing element 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.
2013
million
1,881.5
20.5
46.0
1,948.0
2012
million
1,870.3
13.6
45.6
1,929.5
£m
614
11
625
£m
614
(55)
10
8
3
8
(11)
577
11
588
£m
598
10
608
£m
598
(80)
–
13
(13)
(3)
11
526
10
536
pence
per share
pence
per share
32.6
32.1
30.7
30.2
32.0
31.5
28.1
27.8
Weighted average number of shares in issue
Weighted average number of dilutive share options
Weighted average number of dilutive convertible bonds
Total number of shares for calculating diluted earnings per share
Profit for the financial year
Add interest on convertible bonds, net of tax
Diluted earnings for calculating diluted earnings per share
Profit for the financial year attributable to owners of the parent
(Less)/add (net of tax):
Profit on disposal of properties
Investment property fair value movements
Financing fair value movements
IAS 19 pension financing charge/(credit)
One-off items
Revaluation of deferred tax balances
Underlying profit after tax
Add interest on convertible bonds, net of tax
Diluted underlying profit after tax
Basic earnings
Diluted earnings
Underlying basic earnings
Underlying diluted earnings
90
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
10 Dividend
Amounts recognised as distributions to equity holders in the year:
Final dividend of prior financial year
Interim dividend of current financial year
2013
pence
per share
2012
pence
per share
11.6
4.8
16.4
10.8
4.5
15.3
2013
£m
218
90
308
2012
£m
201
84
285
After the balance sheet date, a final dividend of 11.9 pence per share (2012: 11.6 pence per share) was proposed by the Directors in respect of the 52
weeks to 16 March 2013, resulting in a total final proposed dividend of £225 million (2012: £218 million). The proposed final dividend has not been
included as a liability at 16 March 2013.
11 Property, plant and equipment
Cost
At 18 March 2012
Additions
Acquisition of subsidiaries
Disposals
Transfer to assets held for resale
At 16 March 2013
Accumulated depreciation and impairment
At 18 March 2012
Depreciation expense for the year
Disposals
At 16 March 2013
Net book value at 16 March 2013
Capital work-in-progress included above
Cost
At 20 March 2011
Additions
Disposals
At 17 March 2012
Accumulated depreciation and impairment
At 20 March 2011
Depreciation expense for the year
Disposals
At 17 March 2012
Net book value at 17 March 2012
Capital work-in-progress included above
Group
Land and
buildings
£m
Group
Fixtures and
equipment
£m
8,918
635
21
(140)
(12)
5,340
464
–
(252)
(1)
Group
Total
£m
14,258
1,099
21
(392)
(13)
9,422
5,551
14,973
1,468
149
(26)
1,591
3,461
355
(238)
3,578
4,929
504
(264)
5,169
7,831
1,973
9,804
397
165
562
8,460
742
(284)
8,918
1,398
137
(67)
1,468
5,105
523
(288)
13,565
1,265
(572)
5,340
14,258
3,383
349
(271)
3,461
4,781
486
(338)
4,929
7,450
1,879
9,329
364
137
501
Company
Land and
buildings
£m
19
–
–
–
–
19
2
–
–
2
17
–
45
2
(28)
19
3
–
(1)
2
17
–
During the year, the Group acquired 100% of a property holding company from the BL Sainsbury Superstores Limited joint venture for £21 million.
The business holds only property, plant and equipment and the purchase price represented the fair value of the assets acquired.
Impairment of property, plant and equipment
In accordance with IAS 36 ‘Impairment of Assets’, property, plant and equipment is only tested for impairment in the event that a triggering event is
identified. The Group has determined that for the purposes of impairment testing, following a triggering event, each store is a cash-generating unit
(‘CGU’).
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 for the food retail
sector. The discount rate is based on the Group’s pre-tax weighted average cost of capital of ten per cent (2012: ten per cent).
Non-store assets are also tested for impairment in the event that a triggering event is identified. When an impairment review is required, the
carrying value of the asset is compared with its value in use using a methodology consistent with that described above.
J Sainsbury plc Annual Report and Financial Statements 2013
91
Financial statements
Notes to the financial statements continued
11 Property, plant and equipment continued
Interest capitalised
Interest capitalised included in additions amounted to £32 million (2012: £35 million) for the Group and £nil (2012: £nil) for the Company.
Accumulated interest capitalised included in the cost of property, plant and equipment net of disposals amounted to £330 million (2012: £302
million) for the Group and £nil (2012: £nil) for the Company. The capitalisation rate used to determine the amount of borrowing costs eligible for
capitalisation is 5.3 per cent (2012: 5.7 per cent).
Security
Property, plant and equipment of 128 (2012: 131) supermarket properties, with a net book value of £2,213 million (2012: £2,288 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 £67 million (2012: £68 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.
On 17 June 2010 property, plant and equipment comprising eight supermarket properties, with a net book value of £167 million, were transferred
to the Sainsbury’s Property Scottish Partnership (‘the Partnership’). On 25 March 2011 a further 13 properties with a net book value of £345 million
were transferred to the partnership (see note 30).
Analysis of assets held under finance leases
2013
Land and
buildings
£m
2013
Fixtures and
equipment
£m
62
(26)
36
15
(9)
6
2013
Total
£m
77
(35)
42
2012
Land and
buildings
£m
2012
Fixtures and
equipment
£m
50
(24)
26
15
(7)
8
Goodwill
£m
Computer
software
£m
Other
£m
100
–
–
1
(1)
100
–
–
–
–
100
100
–
–
100
–
–
–
100
172
16
–
–
–
188
123
8
–
131
57
152
19
1
172
117
6
123
49
48
8
(10)
–
–
46
37
5
(10)
32
14
46
2
–
48
30
7
37
11
2012
Total
£m
65
(31)
34
Total
£m
320
24
(10)
1
(1)
334
160
13
(10)
163
171
298
21
1
320
147
13
160
160
Group
Cost
Accumulated depreciation and impairment
Net book value
12 Intangible assets
Group
Cost
At 18 March 2012
Additions
Disposals
Acquisition of subsidiaries
Disposal of subsidiaries
At 16 March 2013
Accumulated amortisation and impairment
At 18 March 2012
Amortisation expense for the year
Disposals
At 16 March 2013
Net book value at 16 March 2013
Cost
At 20 March 2011
Additions
Acquisition of subsidiaries
At 17 March 2012
Accumulated amortisation and impairment
At 20 March 2011
Amortisation expense for the year
At 17 March 2012
Net book value at 17 March 2012
92
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
12 Intangible assets continued
Other intangibles are primarily comprised of pharmacy licences.
The goodwill balance above relates primarily to the Group’s acquisitions of Bells Stores Ltd, Jacksons Stores Ltd (£55 million), JB Beaumont Ltd,
SL Shaw Ltd, Culcheth Provision Stores Ltd, Town Centre Retail (Bicester) Ltd, SW Dewsbury Ltd, Anobii Ltd and Portfolio Investments 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 with 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 (2012: 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 identified in the current financial year (2012: £nil). The valuations indicate sufficient headroom such that a
reasonably possible change to key assumptions would not result in an impairment of the related goodwill.
13 Investments in subsidiaries
Shares in subsidiaries – Company
Beginning of year
Additions
Disposal of subsidiaries
Provision for diminution in value of investment
Release of provision for diminution in value of investment
End of year
The Company’s principal operating subsidiaries, all of which are directly owned by the Company, are:
JS Insurance Limited
JS Information Systems Limited
Sainsbury’s Supermarkets Ltd
2013
£m
2012
£m
7,285
33
–
(2)
–
7,316
7,309
32
(56)
(1)
1
7,285
Share of ordinary
allotted capital and
voting rights
100%
100%
100%
Country of
registration or
incorporation
Isle of Man
England
England
All principal operating subsidiaries operate in the countries of their registration or incorporation, and have been consolidated up to and as at
16 March 2013. The Company has taken advantage of the exemption in s410 of the Companies Act 2006 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.
During the prior year, a corporate simplification exercise resulted in the liquidation of a number of subsidiary companies of the Group, with a
carrying value of £56 million.
During the year, a provision of £2 million was made against investments in subsidiaries where the carrying value exceeded the recoverable amount
(2012: £1 million).
The Group has an interest in two partnerships, Sainsbury’s Property Scottish Partnership and Sainsbury’s Property Scottish Limited Partnership,
which are fully consolidated into these Group accounts. The Group has taken advantage of the exemption conferred by Regulation 7 of the
Partnerships (Accounts) Regulations 2008 and has therefore not appended the accounts of these qualifying partnerships to these accounts.
Separate accounts for these partnerships are not required to be, and have not been, filed at Companies House.
J Sainsbury plc Annual Report and Financial Statements 2013
93
Financial statements
Notes to the financial statements continued
14 Investments in joint ventures
At 18 March 2012
Additions
Disposals
Other adjustments1
Share of retained profit:
Underlying profit after tax
Investment property fair value movements
Financing fair value movements
Share of loss on disposal of properties
Dividends received
Movements in other comprehensive income (note 24)
At 16 March 2013
At 20 March 2011
Share of retained profit:
Underlying profit after tax
Financing fair value movements
Share of profit on disposal of properties
Unrealised loss on disposal of properties
Realised profit on disposal of properties
Movements in other comprehensive income (note 24)
At 17 March 2012
Group shares
at cost
£m
Group share
of post-
acquisition
reserves
£m
Group
Total
£m
Company
shares at cost
£m
433
4
(5)
(42)
–
–
–
–
–
390
–
390
433
–
–
–
–
–
–
–
433
133
–
–
–
38
(10)
(3)
(1)
(18)
139
3
142
69
32
(5)
1
28
20
12
4
133
566
4
(5)
(42)
38
(10)
(3)
(1)
(18)
529
3
532
502
32
(5)
1
28
20
12
4
91
–
–
–
–
–
–
–
–
91
–
91
91
–
–
–
–
–
–
–
566
91
1 The Other adjustment includes the offset of a creditor balance of £43 million due to The Harvest Limited Partnership against the investment held in the joint venture by the Group. This was agreed
with Land Securities Group PLC.
The Group’s principal joint ventures were:
The Harvest Limited Partnership (property investment)
BL Sainsbury Superstores Limited (property investment)
Sainsbury’s Bank (financial services)
Year-end
31 March
31 March
31 December
Share of ordinary
allotted capital
Country of registration
or incorporation
50%
50%
50%
England
England
England
Where relevant, management accounts for the joint ventures have been used to include the results up to 16 March 2013. The Group’s share of the
assets, liabilities, income and expenses of its principal joint ventures are detailed below:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Income
Expenses
Investment property fair value movements
Profit after tax
Investments in joint ventures at 16 March 2013 include £5 million of goodwill (2012: £5 million).
2013
£m
1,418
1,763
(1,809)
(845)
527
208
(174)
(10)
24
2012
£m
1,526
1,471
(1,549)
(887)
561
201
(173)
–
28
94
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
15 Available-for-sale financial assets
Non-current
Unlisted equity investments
Interest bearing financial assets
Other financial asset
Group
2013
£m
1
34
154
189
Group
2012
£m
1
31
146
178
Company
2013
£m
Company
2012
£m
–
34
–
34
–
31
–
31
The other financial asset represents the Group’s beneficial interest in a commercial property investment pool. The fair value of the other financial
asset is based on discounted cash flows assuming a property rental growth rate of three per cent (2012: three per cent) and a weighted average cost
of capital of ten per cent (2012: 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 28 for sensitivity analysis).
16 Inventories
Goods held for resale
Development properties
2013
£m
973
14
987
2012
£m
916
22
938
The amount of inventories recognised as an expense and charged to cost of sales for the 52 weeks to 16 March 2013 was £17,602 million
(2012: £17,000 million).
17 Trade and other receivables
Non-current
Amounts owed by Group entities
Other receivables
Current
Trade receivables
Amounts owed by Group entities
Other receivables
Prepayments and accrued income
Group
2013
£m
–
38
38
128
–
130
258
48
306
Group
2012
£m
Company
2013
£m
Company
2012
£m
–
38
38
110
–
115
225
61
286
1,229
35
1,264
–
1,232
20
1,252
2
1,254
1,277
35
1,312
–
1,076
20
1,096
3
1,099
Non-current other receivables of £38 million (2012: £38 million) include £5 million of floating rate subordinated undated loan capital
(2012: £5 million) and £30 million of floating rate subordinated dated loan capital due from Sainsbury’s Bank (2012: £30 million) (note 32).
Trade receivables are non-interest bearing and are on commercial terms. Current other receivables are generally non-interest bearing, other than
the £20 million of floating rate subordinated undated loan capital due from Sainsbury’s Bank (2012: £20 million) (note 32). The carrying amounts of
trade and other receivables are denominated in sterling.
J Sainsbury plc Annual Report and Financial Statements 2013
95
Financial statements
Notes to the financial statements continued
17 Trade and other receivables continued
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 prior to invoices being raised and credit limits are determined on an individual basis.
Major counterparties are identified as follows:
Trade receivables
Other receivables
Related parties
2013
Number of
counterparties
2
2
2
2013
Balance
£m
28
27
76
2012
Number of
counterparties
2
2
2
2012
Balance
£m
28
28
69
Significant trade receivables identified above relate to amounts receivable from credit card companies and balances due from external suppliers.
At 16 March 2013, two significant other receivables were identified including amounts due from the National Health Service of £16 million and CBRE
of £11 million (2012: £16 million and £12 million).
Related party receivables are from the Group’s joint ventures, Sainsbury’s Bank and The Harvest Limited Partnership. Loans are approved by the
Investment Committee and Sainsbury’s Bank loans 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 £13 million (2012: £nil) relate to properties held in the Retailing segment. Sale of these assets is expected to occur
in the financial year beginning 17 March 2013.
19 Trade and other payables
Current
Trade payables
Amounts owed to Group entities
Other payables
Accruals and deferred income
Non-current
Amounts owed to Group entities
Other payables
Accruals and deferred income
Group
2013
£m
1,908
–
534
284
2,726
–
3
170
173
Group
2012
£m
1,903
–
580
257
2,740
–
–
137
137
Company
2013
£m
Company
2012
£m
–
4,514
57
–
4,571
876
–
–
876
–
4,442
52
–
4,494
874
–
–
874
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.
Foreign currency risk
The Group has net euro denominated trade payables of £12 million (2012: £12 million) and US dollar denominated trade payables of £19 million
(2012: £11 million).
96
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
20 Borrowings
Group
Secured loans:
Loan due 2018
Loan due 2031
Unsecured loans:
Bank overdrafts
Bank loan due 2012
Bank loan due 2014
Bank loans due 2015
Bank loan due 2016
Bank loans due 2017
Bank loan due 2018
Convertible bond due 2014
Other loans due 2015
Finance lease obligations
Total borrowings
Company
Bank loan due 2012
Bank loan due 2014
Bank loans due 2015
Bank loan due 2016
Bank loans due 2017
Bank loan due 2018
Convertible bond due 2014
Other loans due 2015
Total borrowings
2013
Current
£m
2013
Non-current
£m
82
21
13
–
–
23
–
–
4
1
–
21
957
847
–
–
25
268
43
111
19
183
25
139
2013
Total
£m
1,039
868
13
–
25
291
43
111
23
184
25
160
2012
Current
£m
2012
Non-current
£m
41
14
–
50
–
23
1
–
–
2
–
19
1,028
860
–
–
25
230
42
108
–
177
23
124
2012
Total
£m
1,069
874
–
50
25
253
43
108
–
179
23
143
165
2,617
2,782
150
2,617
2,767
2013
Current
£m
2013
Non-current
£m
–
–
19
–
–
4
1
–
24
–
25
227
43
111
19
183
25
633
2013
Total
£m
–
25
246
43
111
23
184
25
657
2012
Current
£m
2012
Non-current
£m
50
–
19
1
–
–
2
–
72
–
25
190
42
108
–
177
23
565
2012
Total
£m
50
25
209
43
108
–
179
23
637
Secured loans
Secured loans are secured on 128 (2012: 131) supermarket properties (note 11) and comprise loans from two finance companies:
• a fixed rate amortising loan with an outstanding principal value of £1,002 million (2012: £1,036 million) at a weighted average rate of 4.98 per cent
stepping up to 5.36 per cent from April 2013 with an effective interest rate of 5.39 per cent and carrying amount of £1,039 million (2012: £1,069
million) with a final repayment date of April 2018; and
• an inflation linked amortising loan with an outstanding principal value of £841 million (2012: £843 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 £868
million (2012: £874 million) with a final repayment date of April 2031.
The Group has entered into interest rate swaps to convert £211 million (2012: £211 million) of the £1,002 million (2012: £1,036 million) loan due 2018
from fixed to floating rates of interest. These transactions have been accounted for as fair value hedges (note 29). In previous years, £572 million
of swaps accounted for as fair value hedges were de-designated from their fair value hedging relationship. The fair value adjustment 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 £1 million (2012: £1 million).
The Group entered into inflation linked swaps to convert £300 million (2012: £250 million) of the £841 million (2012: £843 million) loan due 2031
from RPI linked interest to fixed rate interest for the period to April 2017. These transactions have been accounted for as cash flow hedges (note 29).
Bank overdrafts
Bank overdrafts are repayable on demand and bear interest at a spread above bank base rate.
Bank loan due 2014
A £25 million loan due July 2014 at floating rates of interest.
Bank loans due 2015
A £54 million amortising loan due May 2015 at floating rates of interest; a £20 million loan due March 2015 at floating rates of interest; a £40
million loan due May 2015 at floating rates of interest subject to a cap; a €50 million loan due March 2015 at floating rates of interest swapped into
a £45 million floating rate loan; a US$69 million loan due March 2015 at floating rates of interest swapped into a £44 million floating rate loan and a
€40 million loan due March 2015 at floating rates of interest swapped into a £34 million floating rate loan.
In June 2012, a £50 million maturing loan at floating interest rate was renewed to June 2015. The £50 million floating rate loan has been swapped
into a fixed rate loan and the loan and swap have been designated as a cash flow hedge.
J Sainsbury plc Annual Report and Financial Statements 2013
97
Financial statements
Notes to the financial statements continued
20 Borrowings continued
Bank loan due 2016
A €50 million loan due September 2016 at floating rates of interest. The €50 million loan has been swapped into a £44 million floating rate loan.
Bank loans due 2017
A £45 million loan due February 2017 at floating rates of interest and a US$100 million loan due March 2017 at floating rates of interest. The
US$100 million loan has been swapped into a £63 million fixed rate loan. The US$100 million loan and associated cross currency swap have been
accounted for as a cash flow hedge with fair value movements in future interest payments deferred through the cash flow hedge reserve.
Bank loan due 2018
In June 2012, the Group entered into a new £23 million six year amortising bank loan due 2018 at floating rate of interest.
Convertible bond due 2014
In July 2009, the Group issued £190 million of unsecured convertible bonds due July 2014. The bonds pay a coupon of 4.25 per cent payable semi-
annually. Each bond is convertible into ordinary shares of J Sainsbury plc at any time up to 9 July 2014 at a current conversion price of 413.0 pence.
In previous years the £190 million fixed rate convertible bonds had been swapped into floating rates of interest for the period to July 2012. These
transactions had been accounted for as fair value hedges (note 29).
The net proceeds of the convertible bond have been split into a liability component of £166 million and an equity component of £24 million.
The equity component represents the fair value of the embedded option to convert the bond into ordinary shares of the Company.
Liability component as at the beginning of the financial year
Interest expense
Interest paid
Other1
Liability component as at the end of the financial year
1 Other relates to fair value movements and fees.
2013
£m
179
14
(8)
(1)
184
2012
£m
176
14
(8)
(3)
179
Other loans due 2015
Three non-bank fixed rate loans due March 2015 totalling €28 million swapped into a £23 million floating rate loan. These transactions have been
accounted for as fair value hedges (note 29).
Borrowing facilities
The Group maintains a £690 million syndicated revolving credit facility maturing in October 2015 for standby liquidity purposes. At 16 March 2013,
no advance had been made under the borrowing facility (2012: £nil) and all conditions precedent had been met as at that date.
The facility incurs commitment fees at market rates and the interest rate on draw downs would be at floating rates.
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
Present
value of
minimum
lease
payments
2013
£m
Present
value of
minimum
lease
payments
2012
£m
21
75
64
160
19
71
53
143
Minimum
lease
payments
2013
£m
Minimum
lease
payments
2012
£m
27
94
201
322
(162)
160
21
139
160
20
82
177
279
(136)
143
19
124
143
Finance leases have effective interest rates ranging from 2.4 per cent to 9.0 per cent (2012: 3.8 per cent to 9.0 per cent). The average remaining
lease term is 69 years (2012: 72 years).
98
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
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
At 18 March 2012
(Charge)/credit to income statement
(Charge)/credit to equity or other
comprehensive income
Rate change adjustment to income statement
Rate change adjustment to equity
Accelerated
capital
allowances
£m
(193)
(39)
–
18
–
Capital
losses
£m
Fair value
movements
£m
57
(4)
–
(4)
–
(37)
–
(2)
–
3
Other
£m
(40)
(7)
–
4
–
Other
property
£m
(101)
(7)
–
8
–
At 16 March 2013
(214)
49
(36)
(43)
(100)
At 20 March 2011
(Charge)/credit to income statement
Charge to equity or other
comprehensive income
Rate change adjustment to income statement
Rate change adjustment to equity
At 17 March 2012
(185)
(23)
–
15
–
(193)
53
9
–
(5)
–
57
(38)
–
(2)
–
3
(37)
(29)
(14)
–
3
–
(89)
(20)
–
8
–
(40)
(101)
Retirement
benefit
obligations
£m
Share-based
payment
£m
16
3
64
7
(12)
78
99
(79)
–
(14)
10
16
12
5
3
(1)
–
19
17
(3)
(1)
(1)
–
12
2013
£m
(393)
146
(247)
Total
£m
(286)
(49)
65
32
(9)
(247)
(172)
(130)
(3)
6
13
(286)
2012
£m
(371)
85
(286)
Capital
losses
£m
Fair value
losses
£m
Other
property
£m
Total
£m
32
(3)
29
34
(2)
32
1
–
1
1
–
1
(32)
3
(29)
(34)
2
(32)
2013
£m
(29)
30
1
1
–
1
1
–
1
2012
£m
(32)
33
1
Group
Total deferred income tax liabilities
Total deferred income tax assets
Net deferred income tax liabilities
Company
At 18 March 2012
Rate change adjustment to income statement
At 16 March 2013
At 20 March 2011
Rate change adjustment to income statement
At 17 March 2012
Company
Total deferred income tax liabilities
Total deferred income tax assets
Net deferred income tax assets
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 the deferred income tax assets and the deferred income tax liabilities relate to income taxes levied by the same
taxation authority.
J Sainsbury plc Annual Report and Financial Statements 2013
99
Financial statements
Notes to the financial statements continued
22 Provisions
At 18 March 2012
Additional provisions
Unused amounts reversed
Utilisation of provision
Amortisation of discount
At 16 March 2013
At 20 March 2011
Additional provisions
Unused amounts reversed
Utilisation of provision
Amortisation of discount
At 17 March 2012
Disclosed as:
Current
Non-current
Group
onerous
leases
£m
Group
disposal
provisions
£m
Group
long service
awards
£m
Other
provisions
£m
48
4
(8)
(8)
2
38
49
11
(7)
(7)
2
48
17
–
(16)
–
–
1
17
–
–
–
–
17
7
–
–
–
–
7
7
–
–
–
–
7
–
4
–
–
–
4
–
–
–
–
–
–
Group
total
£m
72
8
(24)
(8)
2
50
73
11
(7)
(7)
2
72
Group
2013
£m
11
39
50
Company
onerous
leases
£m
Company
disposal
provision
£m
Company
total
£m
2
–
–
–
–
2
3
–
–
(1)
–
2
17
–
(16)
–
–
1
17
–
–
–
–
17
19
–
(16)
–
–
3
20
–
–
(1)
–
19
Group
2012
£m
Company
2013
£m
Company
2012
£m
9
63
72
1
2
3
1
18
19
The onerous lease provision covers residual lease commitments of up to an average of 26 years (2012: 26 years), after allowance for existing or
anticipated sublet rental income.
The disposal provision has been released during the year as any potential liability arising is no longer considered probable (note 36).
Long service awards are accrued over the period the service is provided by the employee.
23 Called up share capital and share premium account
Group and Company
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 accounts are set out below:
At 18 March 2012
Allotted in respect of share option schemes
At 16 March 2013
At 20 March 2011
Allotted in respect of share option schemes
At 17 March 2012
2013
million
2012
million
1,893
1,883
2013
£m
541
2012
£m
538
1,075
1,061
Ordinary
shares
million
1,883
10
1,893
1,871
12
1,883
Ordinary
shares
£m
538
3
541
535
3
538
Share
premium
account
£m
1,061
14
1,075
1,048
13
1,061
100
J Sainsbury plc Annual Report and Financial Statements 2013
Capital
redemption
reserve
£m
Currency
translation
reserve
£m
Financial statements
Financial statements
Notes to the financial statements continued
24 Capital redemption and other reserves
Group
At 18 March 2012
Currency translation differences
Actuarial losses on defined benefit pension scheme
(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)
Amortisation of convertible bond equity component
At 16 March 2013
At 20 March 2011
Actuarial losses on defined benefit pension scheme
(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):
Joint ventures (note 14)
Amortisation of convertible bond equity component
680
–
–
–
–
–
–
–
680
680
–
–
–
–
–
Actuarial
(losses)
£m
(476)
–
(287)
–
–
–
–
–
(763)
(1)
1
–
–
–
–
–
–
–
(1)
(322)
–
–
–
–
–
(154)
–
–
–
–
Available-
for-sale
assets
£m
107
–
–
13
2
–
–
–
122
102
–
3
2
–
–
Cash flow
hedge
reserve
£m
Convertible
bond
reserve
£m
(7)
–
–
–
–
17
1
–
11
(9)
–
–
–
2
–
(7)
12
–
–
–
–
–
–
(5)
7
17
–
–
–
–
(5)
12
Total
other
reserves
£m
(365)
1
(287)
13
2
17
1
(5)
(623)
(213)
(154)
3
2
2
(5)
(365)
At 17 March 2012
680
(1)
(476)
107
Company
At 18 March 2012
Available-for-sale financial assets fair value movements (net of tax)
Cash flow hedges effective portion of changes in fair value
Amortisation of convertible bond equity
At 16 March 2013
At 20 March 2011
Available-for-sale financial assets fair value movements (net of tax)
Amortisation of convertible bond equity
At 17 March 2012
Capital
redemption
reserve
£m
Available-
for-sale
assets
£m
Convertible
bond
reserve
£m
Cash flow
hedge
reserve
£m
Total
other
reserves
£m
680
–
–
–
680
680
–
–
680
2
4
–
–
6
6
(4)
–
2
12
–
–
(5)
7
17
–
(5)
12
–
–
(2)
–
(2)
–
–
–
–
14
4
(2)
(5)
11
23
(4)
(5)
14
The capital redemption reserve arose on 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. The final redemption date for B Shares was 18 July 2007 and
all transactions relating to the B shares have now been completed.
Currency translation reserve represents the cumulative 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.
The actuarial gains and losses reserve represents the actuarial gains and losses on the defined benefit pension scheme operated by the Group.
The available-for-sale assets reserve represents the fair value gains and losses on the available-for-sale financial assets held by the Group.
The cash flow hedge reserve represents the cumulative effective fair value gains and losses on cash flow hedges in the Group.
The convertible bond reserve represents the equity component of the £190 million convertible bond issued in July 2009.
J Sainsbury plc Annual Report and Financial Statements 2013
101
Financial statements
Notes to the financial statements continued
25 Retained earnings
At 18 March 2012
Profit for the year
Dividends paid
Share-based payment (net of tax)
Shares vested
Allotted in respect of share option schemes
Utilised in respect of share option schemes
Amortisation of convertible bond equity
At 16 March 2013
At 20 March 2011
Profit for the year
Dividends paid
Share-based payment (net of tax)
Allotted in respect of share option schemes
Utilised in respect of share option schemes
Amortisation of convertible bond equity
At 17 March 2012
Group
Own shares
£m
Group
Profit and
loss account
£m
Group
Total retained
earnings
£m
Company
Retained
earnings
£m
(22)
–
–
–
1
–
–
–
3,737
614
(308)
36
–
(3)
–
5
3,715
614
(308)
36
1
(3)
–
5
1,940
284
(308)
–
–
32
(1)
5
(21)
4,081
4,060
1,952
(22)
–
–
–
–
–
–
(22)
3,396
598
(285)
26
(3)
–
5
3,737
3,374
598
(285)
26
(3)
–
5
3,715
1,935
260
(285)
–
27
(2)
5
1,940
Own shares held by Employee Share Ownership Plan (‘ESOP’) trusts
The Group owned 5,273,310 (2012: 5,893,732) of its ordinary shares of 284/7 pence nominal value each. At 16 March 2013, the total nominal value of
the own shares was £2 million (2012: £2 million).
All shares (2012: all shares) are held by an ESOP trust for the Executive Share Plans. 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 16 March 2013 was
£19 million (2012: £18 million).
102
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
26 Notes to the cash flow statements
a) Reconciliation of operating profit to cash generated from operations
Profit before tax
Net finance costs
Share of post-tax profits of joints ventures (note 14)
Dividend income from subsidiaries
Operating profit
Adjustments for:
Depreciation expense
Amortisation expense
Profit on disposal of properties
Foreign exchange differences
Share-based payments expense
Retirement benefit obligations1
Liquidation of subsidiaries
Provision for diminution in value of investment
Operating cash flows before changes in working capital
Changes in working capital:
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Decrease in provisions
Cash generated from/(used in) operations
Group
2013
£m
788
123
(24)
–
887
504
13
(67)
–
33
(76)
–
–
Group
2012
£m
799
103
(28)
–
874
486
13
(82)
(6)
27
(74)
–
–
1,294
1,238
(57)
(34)
87
(22)
1,268
(126)
–
182
(3)
1,291
Company
2013
£m
Company
2012
£m
290
(27)
–
(250)
13
–
–
–
–
–
–
–
2
15
–
(46)
22
(16)
(25)
246
(12)
–
(276)
(42)
–
–
(3)
–
–
–
45
–
–
–
(99)
31
–
(68)
1
The adjustment for retirement benefit obligations reflects the difference between the service charge of £61 million (2012: £60 million) for the defined benefit scheme and the cash contributions of
£137 million made by the Group to the defined benefit scheme (2012: £134 million).
b) Cash and cash equivalents
For the purposes of the cash flow statements, cash and cash equivalents comprise the following:
Cash in hand and at bank
Money market funds and deposits
Bank overdrafts (note 20)
Net cash and cash equivalents
Group
2013
£m
115
402
(13)
504
Group
2012
£m
228
511
–
739
Company
2013
£m
Company
2012
£m
1
350
–
351
–
408
–
408
J Sainsbury plc Annual Report and Financial Statements 2013
103
Financial statements
Notes to the financial statements continued
27 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
Borrowings
Finance leases
Derivative financial instruments
Non-current liabilities
Borrowings
Finance leases
Derivative financial instruments
Total net debt
Reconciliation of net cash flow to movement in net debt
Net debt at beginning of the year
Net (decrease)/increase in cash and cash equivalents
Decrease in interest bearing financial asset
Net decrease/(increase) in borrowings1
Net increase in derivatives1
Net increase of obligations under finance leases
Fair value movements
Other non-cash movements
Net debt at the end of the year
1 Excluding fair value movements.
2013
£m
34
47
81
517
91
608
(13)
(131)
(21)
(65)
2012
£m
31
37
68
739
69
808
–
(131)
(19)
(88)
(230)
(238)
(2,478)
(139)
(4)
(2,621)
(2,162)
(2,493)
(124)
(1)
(2,618)
(1,980)
2013
£m
(1,980)
(235)
–
27
26
(17)
17
–
(2,162)
2012
£m
(1,814)
239
(40)
(262)
–
(84)
(17)
(2)
(1,980)
28 Financial risk management
The principal financial risks faced by the Group are liquidity, counterparty credit, foreign currency, interest rate, commodity and capital risks.
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 financial exposures and setting appropriate risk limits and controls. The Finance Committee of the Board of Directors has delegated
responsibility for approving specific financial transactions. The Treasury Committee, chaired by the Chief Financial Officer, regularly reviews risk
positions and monitors Treasury performance. The Group Audit Committee oversees 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 periodically review the Group’s risk management controls and procedures.
The Group uses forward contracts and options to hedge foreign exchange and commodity exposures, and interest rate swap contracts to hedge
interest rate exposures. The use of financial derivatives is governed by the Group’s treasury policy which prohibits the use of derivative financial
instruments for speculative purposes.
Treasury operations in respect of Sainsbury’s Bank are managed separately through Lloyds Banking Group, the Group’s joint venture partner.
Liquidity risk
Liquidity risk is the risk that the Group could be unable to meet its financial obligations as they fall due at a reasonable price.
The Group’s operational cash flow is largely stable and predictable, reflecting the low business risk profile of the food retail sector. Cash flow
forecasts are produced regularly to assist management in identifying future liquidity requirements.
The Group’s liquidity policy targets a minimum funding headroom of £300 million in excess of forecast net debt over a rolling 12-month time
horizon. The Group manages its liquidity risk by maintaining a core of long-dated borrowings, pre-funding future cash flow commitments and
holding adequate standby liquidity.
104
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
28 Financial risk management continued
The Group’s core funding comprise two long-term loans of £1,002 million due 2018 and £841 million due 2031 both secured on property assets. In
addition the Group has unsecured bank loans totalling £487 million with maturities ranging from 2014 to 2018, unsecured non-bank loans totalling
£23 million maturing 2015, and a capital market convertible bond totalling £190 million maturing July 2014. The Group has also financed £96 million
through multiple hire purchase facilities in respect of movable in-store assets for various periods to 2019.
Short term and seasonal funding is sourced from the wholesale inter-bank money market where interest is charged at various spreads above LIBOR.
The Group maintains a £690 million syndicated revolving credit facility due October 2015 for liquidity standby purposes. Interest on drawings under
this facility is charged at a margin over LIBOR. There were £nil drawings under the facility as at 16 March 2013 (2012: £nil drawings).
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period to the contractual maturity
date as at the balance sheet date. The amounts disclosed in the tables are the contractual undiscounted cash flows or an estimate of cash flows in
respect of floating interest rate liabilities.
Group
At 16 March 2013
Secured loans
Secured loan due 2018
Secured loan due 20311
Unsecured loans
Notional overdraft
Bank loan due 20142
Bank loans due 20152,3
Bank loan due 20162,3
Bank loans due 20172,3
Bank loan due 20182
Convertible bond due 2014
Other loans due 20153
Obligations under finance leases
Trade and other payables
At 17 March 2012
Secured loans
Secured loan due 2018
Secured loan due 20311
Unsecured loans
Bank loan due 20122
Bank loan due 20142
Bank loans due 20152,3
Bank loan due 20162,3
Bank loans due 20172,3
Convertible bond due 2014
Other loans due 20153
Obligations under finance leases
Trade and other payables
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
124
61
13
–
29
1
3
4
8
1
27
2,702
85
59
51
1
28
1
3
8
1
20
2,719
127
63
–
25
128
1
3
4
194
26
25
–
121
61
–
1
28
1
3
8
1
20
–
401
202
–
–
157
45
117
12
–
–
69
–
384
195
–
25
226
43
117
194
24
62
–
575
1,101
–
–
–
–
–
4
–
–
201
–
724
1,164
–
–
–
–
–
–
–
177
–
J Sainsbury plc Annual Report and Financial Statements 2013
105
Financial statements
Notes to the financial statements continued
28 Financial risk management continued
Company
At 16 March 2013
Bank loan due 20142
Bank loan due 20152,3
Bank loan due 20162,3
Bank loans due 20172,3
Bank loan due 20182
Convertible bond due 2014
Other loans due 20153
Amounts due to Group entities2
Other payables
At 17 March 2012
Bank loan due 20122
Bank loan due 20142
Bank loans due 20152,3
Bank loan due 20162,3
Bank loans due 20172,3
Convertible bond due 2014
Other loans due 20153
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
–
23
1
3
4
8
1
4,634
57
51
1
23
1
3
8
1
3,907
52
25
123
1
3
4
194
26
112
–
–
1
23
1
3
8
1
45
–
–
112
45
117
12
–
–
316
–
–
25
179
43
117
194
24
293
–
–
–
–
–
4
–
–
584
–
–
–
–
–
–
–
–
718
–
Assumptions:
1
Cash flows relating to debt linked to inflation rates have been calculated using a RPI of 3.9 per cent for the year ended 16 March 2013 and 3.3 per cent for future years (2012: RPI of 5.0 per cent for
the year ended 17 March 2012, 3.9 per cent for the years ended 2013 and 2014 and 3.3 per cent for future years).
2 Cash flows relating to debt bearing a floating interest rate have been calculated using prevailing interest rates at 16 March 2013 and 17 March 2012.
3 Cash flows in foreign currencies have been translated using spot rates at 16 March 2013 and 17 March 2012.
The table below analyses the Group’s net settled derivative financial instruments into relevant maturity groupings based on the period remaining to
the contractual maturity date as at the balance sheet date. The amounts disclosed in the tables are the net contractual undiscounted cash flows.
At 16 March 2013
Commodity contracts:
Inflow
Interest rate swaps in a hedging relationship:
Inflow1,2
Other interest rate swaps:
Inflow
At 17 March 2012
Commodity contracts:
Inflow
Interest rate swaps in a hedging relationship:
Inflow1,2
Other interest rate swaps:
Inflow/(outflow)
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
1
10
1
2
9
4
–
11
1
1
7
4
–
27
3
–
19
13
–
1
–
–
8
(20)
Assumptions:
1
The swap rate which matches the remaining term of the interest rate swap at 16 March 2013 has been used to calculate the floating rate cash flows over the life of the interest rate swaps shown
above (2012: 17 March 2012).
2 Cash flows relating to inflation rate swaps have been calculated using an RPI of 3.9 per cent for the year ended 16 March 2013 and 3.3 per cent for future years (2012: RPI of 5.0 per cent for the year
ended 17 March 2012, 3.9 per cent for the years ended 2013 and 2014 and 3.3 per cent for future years).
106
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
28 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
to the contractual maturity date as at the balance sheet date. The amounts disclosed in the tables are the contractual undiscounted cash flows.
At 16 March 2013
Forward foreign exchange contracts – cash flow hedges:
Outflow
Inflow
Commodity contracts:
Outflow
Inflow
Cross currency swaps:
Outflow
Inflow
At 17 March 2012
Forward foreign exchange contracts – cash flow hedges:
Outflow
Inflow
Commodity contracts:
Outflow
Inflow
Cross currency swaps:
Outflow
Inflow
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
(374)
388
(6)
6
(9)
7
(356)
354
(3)
3
(10)
9
(56)
57
(6)
6
(110)
112
(28)
28
(3)
3
(10)
9
(3)
3
(18)
20
(161)
160
(1)
1
(10)
11
(273)
265
–
–
(29)
32
–
–
–
–
(11)
13
–
–
The Group holds foreign exchange forward contracts, in respect of 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.
Counterparty credit risk
The Group is exposed to counterparty default or non-performance risk on its holdings of cash and cash equivalents, derivative financial assets,
deposits with banks, investments in marketable securities and trade and other receivables.
The Group’s credit policy limits new investments to counter parties with minimum credit ratings of A1 from Standard & Poor’s or P1 from Moody’s
Investors Service or, in the case of sterling liquidity funds, AAAm from Standard & Poor’s or Aaa/MR1+ from Moody’s Investors Service.
The Group deposits surplus funds directly with approved banks on the wholesale inter-bank money market or with approved money market funds as
a pooled investment.
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
Financial institutions – Money Market Deposits
Short-term
rating
AAAm/Aaa
A1+/P1
A1/P1
2013
£m
322
20
60
2012
£m
509
–
2
Management does not expect any losses from non-performance of deposit counterparties.
Interest rate swaps, foreign exchange options, forward contracts and commodity contracts for difference are used by the Group to hedge interest
rate, foreign currency and fuel exposures. The table below analyses the fair value of the Group’s derivative financial assets by credit exposure,
excluding any collateral held.
Counterparty
Interest rate swaps1
Interest rate swaps1
Interest rate swaps1
FX forward contracts
FX forward contracts
FX forward contracts
Commodity contracts
Commodity contracts
1 Collateral held £47 million (2012: £43 million).
Short-term
rating
A1/P1
A2/P1
A2/P2
A1+/P1
A1/P1
A1/P2
A1+/P1
A1/P1
2013
£m
76
–
36
3
15
1
–
1
2012
£m
64
34
–
–
1
–
2
–
J Sainsbury plc Annual Report and Financial Statements 2013
107
Financial statements
Notes to the financial statements continued
28 Financial risk management continued
Market risk
a) Currency risk
The Group is exposed to currency risk on supplier contracts denominated in currencies other than pounds sterling and on recognised foreign
currency assets and liabilities.
The Group’s currency risk policy limits the impact of movements in exchange rates on Group income by requiring anticipated foreign currency cash
flows, primarily supplier contracts in US dollars and euros, to be hedged. The future cash flow which may be either contracted or un-contracted, are
hedged on a layered basis from 20 per cent and building up to 80 per cent using forward contracts and options.
The Group also has 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.
The Group considers that a ten per cent movement in exchange rates against sterling is a reasonable measure of volatility. The impact of a ten per
cent movement in the exchange rate of US dollar and euro versus sterling at the balance sheet date, with all other variables held constant,
is summarised in the table below:
USD/GBP
EUR/GBP
2013
2012
Change in
exchange
rate impact
on post-tax
profit +/–10%
£m
Change in
exchange
rate impact
on cash flow
hedge reserve
+/–10%
£m
Change in
exchange
rate impact
on post-tax
profit +/–10%
£m
Change in
exchange
rate impact
on cash flow
hedge reserve
+/–10%
£m
1/(1)
–/–
(28)/34
(13)/15
1/(1)
1/(1)
(26)/32
(8)/10
b) Interest rate risk
The Group is exposed to interest rate risk on its borrowing and deposit portfolios. The Group’s interest rate policy seeks to control the Group’s
interest cost and interest expense volatility by maintaining an appropriate and diversified mix of fixed rate, floating rate and inflation-linked
liabilities.
Financial instruments where interest is re-priced at intervals of one year or less are classified as floating rate. Interest on financial instruments
classified as fixed rate is fixed until maturity of the instrument.
(i) Fair value sensitivity for fixed rate instruments
The Group holds £1,303 million of fixed rate debt (2012: £1,345 million), of which £234 million (2012: £424 million) has been swapped into floating
rate debt using interest rate swaps. The remaining £1,069 million (2012: £867 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.
For the year to 16 March 2013, the fair value movement in the interest rate swaps resulted in a charge to the income statement of £3 million
(2012: £8 million credit). The fair value movement in the underlying fixed rate debt resulted in a credit to the income statement of £3 million
(2012: £10 million charge).
(ii) Cash flow sensitivity for variable rate instruments
The Group holds £549 million of floating rate borrowings (2012: £526 million) of which £113 million (2012: £63 million) has been swapped into fixed
rate debt. The Group also holds £295 million of floating rate swaps (2012: £485 million) and holds £436 million of interest bearing assets (2012: £542
million). The Group considers that a 100 basis point increase is a reasonable measure of volatility. The sensitivity of these balances to a change of
100 basis points (or such lesser amount as would result in a zero rate of interest) in the floating rate at the balance sheet date is shown below:
Floating rate borrowings
Interest bearing assets
2013
2012
Change in
floating rate
impact on
post-tax
profit +/–100
bps
£m
(5)/4
3/(2)
Change in
floating rate
impact on
cash flow
hedge reserve
+/–100 bps
£m
4/(2)
–/–
Change in
floating rate
impact on
post-tax
profit +/–100
bps
£m
(14)/16
4/(2)
Change in
floating rate
impact on
cash flow
hedge reserve
+/–100 bps
£m
3/(2)
–/–
108
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
28 Financial risk management continued
b) Interest rate risk continued
(iii) Cash flow sensitivity for inflation-linked variable instruments
The Group holds £854 million of inflation-linked debt (2012: £843 million) of which £300 million (2012: £250 million) has been swapped into fixed
rate debt using inflation rate swaps due April 2017. The Group considers that a 100 basis point increase or decrease in the RPI rate is a reasonable
measure of volatility. The sensitivity of these balances to a change of 100 basis points in the RPI rate at the balance sheet date is shown below:
Inflation-linked debt
2013
2012
Change in RPI
rate impact
on post-tax
profit +/–100
bps
£m
Change in RPI
rate impact
on cash flow
hedge reserve
+/–100 bps
£m
Change in RPI
rate impact
on post-tax
profit +/–100
bps
£m
Change in RPI
rate impact
on cash flow
hedge reserve
+/–100 bps
£m
(5)/5
12/(12)
–/6
12/(12)
(iv) Fair value sensitivity for available-for-sale assets
Included within available-for-sale financial assets is £154 million (2012: £146 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 three per cent per annum (2012: three per cent) and a discount rate of ten per cent (2012: ten per
cent), (see note 15). The sensitivity of this balance to changes of 0.5 per cent in the assumed rate of property rental growth and one per cent in the
discount rate holding other assumptions constant is shown below:
Available-for-sale assets
2013
2012
Change in
growth rate
+/– 0.5%
£m
Change in
discount rate
+/– 1.0%
£m
Change in
growth rate
+/– 0.5%
£m
Change in
growth rate
+/– 0.5%
£m
9/(10)
(14)/15
10/(10)
(14)/16
Commodity risk
The Group is exposed to commodity price risk within its commercial buying operations and also with its own use consumption of electricity, gas
and fuel.
The Group’s Energy Price Risk Committee limits the impact of movements in commodity prices on Group income by requiring forecast purchases of
power and fuel to be hedged.
The Group uses financial derivatives to hedge fuel exposures on a layered basis using contracts for difference. The Group considers a ten per cent
movement in commodity rates a reasonable measure of volatility. A ten per cent (2012: ten 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 £4 million (2012: £4 million).
The Group hedges own consumption electricity and gas exposures with forward purchases under flexible purchasing arrangements with its suppliers.
The Group has also entered into several long term fixed price power purchase agreements with independent producers. Included within derivative
financial assets is £4 million (2012: £3 million) relating to these agreements. The Group values its power purchase agreements as the net present
value of the estimated future usage at the contracted fixed price less the market implied forward energy price discounted back at the prevailing
swap rate. The Group also makes an assumption regarding expected energy output based on the historical performance and the producer’s
estimate of expected electricity output. The sensitivity of this balance to changes of 20 per cent in the assumed rate of energy output and 10 per
cent in the implied forward energy prices holding other assumptions constant is shown below:
Derivative financial instruments
Capital risk management
The Group defines the capital that it manages as total equity plus net debt.
2013
2012
Change in
volume +/–
20.0%
£m
Change in
electricity
forward price
+/– 10.0%
£m
Change in
volume +/–
20.0%
£m
Change in
electricity
forward price
+/– 10.0%
£m
1/(1)
5/(5)
1/(1)
3/(3)
The Board’s objective is to maintain a strong and efficient capital base to support the Group’s strategic objectives, provide optimal returns for
shareholders and safeguard the Group’s ability to remain a going concern. There has been no change to capital risk management policies during the
year.
The Board monitors a range of financial metrics including return on capital employed, balance sheet gearing and fixed charge cover.
The Group can manage its capital structure by diversifying its debt portfolio, adjusting the size and timing of dividends paid to shareholders,
recycling capital through sale and leaseback transactions, issuing new shares or repurchasing shares in the open market and flexing capital
expenditure.
J Sainsbury plc Annual Report and Financial Statements 2013
109
Financial statements
Notes to the financial statements continued
28 Financial risk management continued
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. The Group does not have a defined share buy-back plan.
The Board has a policy to maintain the underlying earnings cover for the ordinary dividend at a minimum of 1.5 times and to increase dividend cover
to two times over the medium term.
Part of the Group’s capital risk management is to ensure compliance with the general covenants and financial covenants included in the Group’s
borrowing facilities. There have been no breaches of these covenants in the financial year ended 16 March 2013.
29 Financial instruments
Derivative assets
Non-current
Interest rate swaps – fair value hedge
Interest rate swaps – cash flow hedge
Interest rate swaps – fair value through profit or loss
Commodity and foreign exchange forward contract – cash flow hedge
Commodity forward contract – fair value through profit or loss
Current
Interest rate swaps – fair value through profit or loss
Commodity and foreign exchange forward contract – cash flow hedge
Derivative liabilities
Current
Interest rate swaps – fair value through profit or loss
Foreign exchange forward contract – cash flow hedge
Non-current
Interest rate swaps – fair value hedge
Interest rate swaps – cash flow hedge
Interest rate swaps – fair value through profit or loss
Group
2013
£m
Group
2012
£m
Company
2013
£m
Company
2012
£m
36
2
3
2
4
47
72
19
91
(65)
–
(65)
–
(1)
(3)
(4)
33
–
–
1
3
37
65
4
69
(84)
(4)
(88)
(1)
–
–
(1)
36
2
3
–
–
41
72
–
72
(65)
–
(65)
–
(1)
(3)
(4)
33
–
–
–
–
33
65
–
65
(84)
–
(84)
(1)
–
–
(1)
Interest rate swaps – fair value hedge
The Group holds a portfolio of £234 million of interest rate swaps (2012: £424 million) to hedge a portion of the £1,002 million fixed rate secured
loan due in 2018 and other loans due 2015. 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 one of the interest rate swaps amortises from £211 million to £111 million from
April 2016 to April 2018.
Interest rate swaps – cash flow hedge
The Group holds a portfolio of £300 million of inflation-linked swaps (2012: £250 million) due 2017 to hedge a portion of the £854 million inflation-
linked secured loan due 2031. Under the terms of the swaps, the Group receives floating RPI interest (subject to a cap at five per cent and floor at
nil per cent) and pays fixed rate interest. The Group also holds a portfolio of £113 million of floating to fixed interest rate swaps (2012: £63 million) to
hedge a £50 million bank loan due 2015 and a US$100 million bank loan due 2017.
At 16 March 2013, an unrealised gain of £1 million (2012: £nil) is included in other comprehensive income in respect of the interest rate swaps in cash
flow hedges. This gain will be transferred to the income statement over the next four years.
Interest rate swaps – fair value through profit and loss
At 16 March 2013, the Group held a portfolio of interest rate swaps at fair value through profit or loss which convert £331 million of the Group’s
floating rate obligations into fixed rates (2012: £331 million). Under the terms of these swaps the Group pays fixed rates of interest and receives
three-month LIBOR for periods to 19 April 2018. During the year, a £150 million swap under which the counterparty had a recurring option to cancel
the swap through to January 2031, was restructured at market value into an amortising non-cancellable swap due 19 April 2018.
The Group holds a portfolio of non-designated interest rate swaps which convert £391 million of fixed rate borrowings into floating rates (2012: £391
million). Under the terms of the swaps the Group receives fixed rates of interest and pays floating rates of interest at various spreads above three-
month LIBOR until 19 April 2018.
Foreign exchange forward contracts – cash flow hedges
At 16 March 2013, the Group held a portfolio of foreign exchange forward contracts with a fair value gain of £19 million (2012: £3 million) to hedge
its future foreign currency denominated trade purchases. The Group had forward purchased €167 million (2012: €103 million) and sold sterling at
rates ranging from 1.15 to 1.27 (2012: 1.14 to 1.21) with maturities from March 2013 to December 2015 (2012: March 2012 to April 2013) and forward
purchased US$469 million (2012: US$457 million) and sold sterling at rates ranging from 1.48 to 1.62 (2012: 1.52 to 1.67) with maturities from March
2013 to April 2015 (2012: March 2012 to April 2015).
110
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
29 Financial instruments continued
At 16 March 2013, an unrealised gain of £17 million (2012: loss of £3 million) is included in other comprehensive income in respect of the forward
contracts. This gain will be transferred to the income statement over the next 33 months. During the year a credit to the income statement of
£3 million was transferred from the cash flow hedge equity reserve and included in cost of sales (2012: debit of £3 million).
Commodity contracts – cash flow hedges
At 16 March 2013, the Group held a portfolio of commodity forward contracts with a fair value gain of £1 million (2012: gain of £3 million) to hedge
its future own use fuel consumption over the next 12 months.
At 16 March 2013, an unrealised gain of £1 million (2012: gain of £3 million) is included in other comprehensive income in respect of these contracts.
This gain will be transferred to the income statement over the next 12 months.
Commodity forward contract – fair value through profit or loss
Commodity forward contracts at fair value through profit and loss relates to the Group’s long-term fixed price power purchase agreements with
independent producers (see note 28).
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 other than at fair value. The fair value of financial assets and liabilities are based on prices that are available from the market on which
the instruments are traded where available. The fair values 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, trade receivables, overdrafts and payables are assumed to
approximate to their book values, and are excluded from the analysis below:
2013
Financial assets
Amounts due from Group entities
Other receivables
Financial liabilities
Amounts due to Group entities
Loans due 20181
Loans due 2031
Bank overdrafts
Bank loans due 2014
Bank loans due 2015
Bank loan due 2016
Bank loans due 2017
Bank loan due 2018
Convertible bond due 20142
Other loans due 20153
Obligations under finance leases
2012
Financial assets
Amounts due from Group entities
Other receivables
Financial liabilities
Amounts due to Group entities
Loans due 20181
Loans due 2031
Bank overdrafts
Bank loan due 2012
Bank loans due 2014
Bank loans due 2015
Bank loan due 2016
Bank loans due 2017
Convertible bond due 20142
Other loans due 20153
Obligations under finance leases
Includes £211 million accounted for as a fair value hedge (2012: £211 million).
1
2 Includes £nil accounted for as a fair value hedge (2012: £190 million).
3 Includes £23 million accounted for as a fair value hedge (2012: £23 million).
Group
Carrying
amount
£m
Group
Fair value
£m
Company
Carrying
amount
£m
Company
Fair value
£m
–
58
–
46
1,229
55
1,975
43
–
(1,039)
(868)
(13)
(25)
(291)
(43)
(111)
(23)
(184)
(25)
(160)
–
(1,186)
(1,109)
–
(25)
(303)
(43)
(111)
(23)
(209)
(25)
(160)
(876)
–
–
(25)
(246)
(43)
(111)
(23)
(184)
(25)
–
(1,043)
–
–
(25)
(249)
(43)
(111)
(23)
(209)
(25)
–
–
58
–
58
1,277
55
1,494
55
–
(1,069)
(874)
–
(50)
(25)
(253)
(43)
(108)
(179)
(23)
(143)
–
(1,201)
(1,068)
–
(50)
(25)
(261)
(43)
(108)
(214)
(23)
(143)
(874)
–
–
–
(50)
(25)
(209)
(43)
(108)
(179)
(23)
–
(973)
–
–
–
(50)
(25)
(210)
(43)
(108)
(214)
(23)
–
J Sainsbury plc Annual Report and Financial Statements 2013
111
Financial statements
Notes to the financial statements continued
29 Financial instruments continued
Fair value measurements recognised in the balance sheet
The following table provides an analysis of financial instruments that are recognised at fair value, grouped into Levels 1 to 3 based on the degree to
which the fair value is observable:
• Level 1 fair value measurements are derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are derived from inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are derived from valuation techniques that include inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
Group
2013
Available-for-sale financial assets
Interest bearing financial assets
Other financial assets
Financial assets at FVTPL
Derivative financial assets
Financial liabilities at FVTPL
Derivative financial liabilities
Group
2012
Available-for-sale financial assets
Interest bearing financial assets
Other financial assets
Financial assets at FVTPL
Derivative financial assets
Financial liabilities at FVTPL
Derivative financial liabilities
Company
2013
Available-for-sale financial assets
Interest bearing financial assets
Financial assets at FVTPL
Derivative financial assets
Financial liabilities at FVTPL
Derivative financial liabilities
Company
2012
Available-for-sale financial assets
Interest bearing financial assets
Financial assets at FVTPL
Derivative financial assets
Financial liabilities at FVTPL
Derivative financial liabilities
There were no transfers between Level 1 and Level 2 during the year.
112
J Sainsbury plc Annual Report and Financial Statements 2013
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
–
–
–
34
–
134
(69)
–
154
4
–
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
31
–
103
(89)
–
146
3
–
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
34
113
(69)
–
–
–
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
31
98
(85)
–
–
–
34
154
138
(69)
Total
£m
31
146
106
(89)
Total
£m
34
113
(69)
Total
£m
31
98
(85)
Financial statements
Financial statements
Notes to the financial statements continued
29 Financial instruments continued
Reconciliation of Level 3 fair value measurements of financial assets:
Opening balance
Transfer to Level 3
In finance cost in the Group income statement
In other comprehensive income
Closing balance
2013
£m
149
–
1
8
158
2012
£m
140
3
–
6
149
Financial assets and liabilities by category
Set out below are the accounting classification of each class of financial assets and liabilities as at 16 March 2013 and 17 March 2012.
Group
2013
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
2012
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
Company
2013
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
2012
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
Loans and
receivables
£m
Available-
for-sale
£m
Fair value
through profit
or loss
£m
Derivatives
used for
hedging
£m
Other financial
liabilities
£m
517
296
–
–
–
–
–
813
739
263
–
–
–
–
–
1,002
–
–
189
–
–
–
–
189
–
–
178
–
–
–
–
178
–
–
–
–
–
–
11
11
–
–
–
–
–
–
(16)
(16)
–
–
–
–
–
–
58
58
–
–
–
–
–
–
33
33
351
2,516
–
–
–
–
–
2,867
408
2,408
–
–
–
–
–
2,816
–
–
34
–
–
–
–
34
–
–
31
–
–
–
–
31
–
–
–
–
–
–
7
7
–
–
–
–
–
–
(19)
(19)
–
–
–
–
–
–
37
37
–
–
–
–
–
–
32
32
Total
£m
517
296
189
(2,702)
(165)
(2,617)
69
–
–
–
(2,702)
(165)
(2,617)
–
(5,484)
(4,413)
–
–
–
(2,719)
(150)
(2,617)
–
739
263
178
(2,719)
(150)
(2,617)
17
(5,486)
(4,289)
Total
£m
351
2,516
34
(5,447)
(24)
(633)
44
–
–
–
(5,447)
(24)
(633)
–
(6,104)
(3,159)
–
–
–
(5,368)
(72)
(565)
–
(6,005)
408
2,408
31
(5,368)
(72)
(565)
13
(3,145)
Loans and
receivables
£m
Available-
for-sale
£m
Fair value
through profit
or loss
£m
Derivatives
used for
hedging
£m
Other
financial
liabilities
£m
J Sainsbury plc Annual Report and Financial Statements 2013
113
Financial statements
Notes to the financial statements continued
30 Retirement benefit obligations
Retirement benefit obligations relate to a defined benefit scheme, the Sainsbury’s Pension Scheme (the ‘Scheme’) and an unfunded pension liability
relating to senior employees. The Scheme was closed to new employees on 31 January 2002. The assets of this scheme are held separately from the
Group’s assets.
The Scheme was subject to a triennial actuarial valuation carried out by Towers Watson, the scheme’s independent actuaries, at March 2012 on the
projected unit basis. The results of this valuation are expected to be finalised in June 2013. The retirement benefit obligations at 16 March 2013 have
been based, where appropriate, on the most recent actuarial valuation and updated by KPMG as actuarial advisors to the Group to take account of
the requirements of IAS 19.
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.
Sainsbury’s Property Scottish Limited Partnership
Further to the funding plan agreed with the Scheme’s Trustees, on 17 June 2010 Sainsbury’s established the Sainsbury’s Property Scottish
Partnership (the ‘Partnership’) with the Scheme. Under this arrangement, properties to a fair value of £256 million were transferred to the
Partnership. On 25 March 2011, further properties to a fair value of £501 million were transferred to the Partnership. Both transfers were effected
via a 30 year sale and leaseback arrangement.
The Scheme’s interest in the Partnership currently entitles it to an annual distribution of approximately £35 million for 20 years. These
contributions will be in addition to the Group’s normal cash contributions paid to the Scheme annually. The properties transferred to the Partnership
will revert to Sainsbury’s ownership in 2030 in return for a cash payment equal to the amount of any remaining funding deficit on the Scheme at
that time, up to a maximum of £600 million.
The Partnership is controlled by Sainsbury’s and its results are consolidated by the Group. The Group’s balance sheet, IAS 19 deficit and income
statement are unchanged by the establishment of the Partnership. The investment held by the Scheme in the Partnership does not qualify as
a plan asset for the purposes of the Group’s consolidated financial statements and is therefore not included within the fair value of plan assets.
The value of the properties transferred to the Partnership remains included within the Group’s property, plant and equipment on the balance sheet.
In addition, the Group retains full operational flexibility to extend, develop and substitute the properties within the Partnership.
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
Deferred income tax asset
Net retirement benefit obligations
2013
£m
2012
£m
(6,594)
5,841
(5,654)
5,192
(753)
(13)
(766)
78
(688)
(462)
(9)
(471)
16
(455)
The retirement benefit 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 scheme
Past service cost
Included in employee costs (note 7)
Interest cost on pension scheme liabilities1
Expected return on plan assets
Total included in finance (costs)/income (note 6)
Total income statement expense
1
Includes interest of £1 million for the unfunded pension scheme (2012: £nil).
2013
£m
(59)
(2)
(61)
(280)
275
(5)
(66)
2012
£m
(59)
(1)
(60)
(268)
285
17
(43)
Of the expense recognised in operating profit, £55 million (2012: £50 million) is included in cost of sales and £6 million (2012: £10 million) is included
in administrative expenses.
The actual return on pension scheme assets net of expenses was a gain of £652 million (2012: a gain of £582 million).
114
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
30 Retirement benefit obligations continued
b) Other comprehensive income
The amounts recognised in the statement of other comprehensive income are as follows:
Net actuarial losses recognised during the year1
Cumulative actuarial losses recognised
1 Net actuarial losses includes a £3 million loss for the unfunded pension scheme (2012: £nil).
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 losses
Benefits paid
End of year
The movements in the fair value of plan assets are as follows:
Beginning of year
Expected return on plan assets
Actuarial gains
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
2013
£m
(366)
(1,041)
2012
£m
(222)
(675)
2013
£m
(5,654)
(59)
(2)
(279)
(6)
(740)
146
2012
£m
(4,945)
(59)
(1)
(268)
(6)
(519)
144
(6,594)
(5,654)
2013
£m
5,192
275
377
137
6
(146)
5,841
2013
%
37
41
4
18
100
2012
£m
4,614
285
297
134
6
(144)
5,192
2012
%
36
48
3
13
100
2013
%
4.6
3.5
2.6
2.2 – 3.3
2012
%
5.0
3.3
2.4 – 3.3
2.0 – 3.1
The discount rate is based on the annualised yield on an AA-rated sterling corporate bond index adjusted for the difference in term between the
index and the Scheme’s liabilities.
J Sainsbury plc Annual Report and Financial Statements 2013
115
Financial statements
Notes to the financial statements continued
30 Retirement benefit obligations continued
The 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
Government Bonds
Corporate Bonds
Property
Other
1 Refer to note 2 for changes required under IAS 19 Revised.
2013
Fair value
£m
2,154
181
2,246
211
1,049
5,841
2013
Expected
return1
%
7.0
3.0
4.0
6.0
3.0 – 6.0
5.0
2012
Fair value
£m
1,881
259
2,204
174
674
5,192
2012
Expected
return
%
7.3
3.3
4.3
6.3
3.3 – 6.3
5.3
The life expectancy for the scheme 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
2013
years
22.6
25.2
2012
years
21.2
23.7
The base mortality assumptions are based on the SAPS tables, with adjustments to reflect the Scheme’s population, with future improvements
based on the CMI 2011 projection with a long-term rate of improvement of 1.25 per cent per annum.
e) Sensitivities
An increase of 0.5 per cent in the discount rate would decrease the retirement benefit obligations by £672 million. A decrease of 0.5 per cent in the
discount rate would increase the retirement benefit obligations by £749 million.
An increase of 0.5 per cent in the inflation rate would increase the retirement benefit obligations by £455 million. A decrease of 0.5 per cent in the
inflation rate would decrease the retirement benefit obligations by £425 million.
An increase of one year to the life expectancy would increase the retirement benefit obligations by £153 million.
The sensitivities are based on management’s best estimate of a reasonably anticipated change.
f) Experience 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
Experience (loss)/gain on plan liabilities
Experience gain/(loss) on plan assets
2013
£m
(6,607)
5,841
(766)
(70)
377
2012
£m
(5,663)
5,192
(471)
(106)
297
2011
£m
(4,954)
4,614
(340)
(79)
121
2010
£m
(4,658)
4,237
(421)
116
715
2009
£m
(3,619)
3,310
(309)
171
(1,149)
The Group’s expected contributions to the defined benefit scheme for the next financial year beginning 17 March 2013 are £134 million
(2012: £133 million).
31 Share-based payments
The Group recognised £33 million (2012: £27 million) of employee costs (note 7) related to share-based payment transactions made during the
financial year. Of these, £nil (2012: £nil) were cash-settled.
National insurance contributions are payable in respect of certain share-based payments transactions and are treated as cash-settled transactions.
At 16 March 2013, the carrying amount of national insurance contributions payable was £9 million (2012: £6 million) of which £2 million (2012: £nil)
was in respect of vested grants.
116
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
31 Share-based payments continued
The Group operates a number of 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 16 March 2013, UK employees held 21,773 five-year savings contracts (2012: 22,976) in respect of options over 22.3 million shares
(2012: 22.8 million) and 37,154 three-year savings contracts (2012: 33,993) in respect of options over 24.8 million shares (2012: 22.9 million).
A reconciliation of option movements is shown below:
Outstanding at beginning of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
2013
Number of
options
million
2013
Weighted
average
exercise price
pence
2012
Number of
options
million
2012
Weighted
average
exercise price
pence
45.7
13.9
(6.9)
(5.6)
47.1
263
267
278
270
261
40.5
17.5
(6.2)
(6.1)
45.7
2.9
303
4.2
273
238
282
235
263
281
The weighted average share price during the period for options exercised over the year was 334 pence (2012: 303 pence). Details of options at
16 March 2013 are set out below:
Date of grant
15 December 2006 (5 year period)
20 December 2007 (5 year period)
17 December 2008 (3 year period)
17 December 2008 (5 year period)
10 December 2009 (3 year period)
10 December 2009 (5 year period)
10 December 2010 (3 year period)
10 December 2010 (5 year period)
10 December 2011 (3 year period)
10 December 2011 (5 year period)
12 December 2012 (3 year period)
12 December 2012 (5 year period)
Date of expiry
31 August 2012
31 August 2013
31 August 2012
31 August 2014
31 August 2013
31 August 2015
31 August 2014
31 August 2016
31 August 2015
31 August 2017
31 August 2016
31 August 2018
Exercise price
pence
Options
outstanding
2013
million
Options
outstanding
2012
million
328
331
224
224
273
273
297
297
238
238
267
267
–
1.5
–
4.6
1.4
3.3
4.2
3.6
9.8
5.1
9.4
4.2
2.3
2.4
1.9
4.8
4.8
3.6
4.7
4.0
11.5
5.7
–
–
47.1
45.7
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 (%)
– 3 year period (pence)
– 5 year period (pence)
Fair value per option
2013
333
267
19.2
29.5
3.2
5.2
5.1
1.1
2.0
50
73
2012
298
238
22.4
32.2
3.2
5.2
3.6
1.3
2.5
60
85
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.
The resulting fair value is expensed over the service period of three or five years, as appropriate, on the assumption that 25 per cent of options will
be cancelled over the service period as employees leave the SAYE scheme.
J Sainsbury plc Annual Report and Financial Statements 2013
117
Financial statements
Notes to the financial statements continued
31 Share-based payments continued
b) Long-Term Incentive Plan 2006
Under the Long-Term Incentive Plan 2006, shares are conditionally awarded to the top managers in the Company. The core awards are calculated as
a percentage of the participants’ salaries and scaled according to grades.
The awards granted between 2006 and 2011 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 award granted in 2012 is assessed
against ROCE, cumulative underlying cash flow from operations and relative sales measured against the IGD Index, with an Earnings Per Share
gateway. 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.
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 one year after the vesting date. Options granted to acquire the award of shares will expire two years from the vesting date. Dividends will
accrue on the shares that vest in the form of additional shares.
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
24 June 2009
21 June 2010
19 May 2011
Date of conditional award
17 May 2012
Targets to achieve maximum multiplier
Cash flow
per share %
Return on
capital employed %
18
18
15
15
15
12
14
14
15
15
15
15
Cumulative
underlying cash flow
£6,500m
Return on
capital employed %
12
Relative
sales %
Index + 1
Targets to achieve maximum multiplier
A reconciliation of the number of shares conditionally allocated is shown below:
Outstanding at beginning of year
Conditionally allocated
Forfeited
Released to participants
Outstanding at end of year
Details of shares conditionally allocated at 16 March 2013 are set out below:
Date of conditional award
20 June 2007
28 May 2008
24 June 2009
21 June 2010
19 May 2011
17 May 2012
2013
million
9.6
2.1
(0.7)
(1.9)
9.1
2012
million
10.7
1.8
(0.8)
(2.1)
9.6
2013
million
2012
million
–
0.5
2.0
3.0
1.6
2.0
9.1
0.1
1.5
3.0
3.3
1.7
–
9.6
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)
Expected volatility (%)
Option life (years)
Risk-free interest rate (%)
Fair value per option (pence)
2013
310
23.1
4.2
1.4
310
2012
355
18.4
4.2
3.3
355
118
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
31 Share-based payments continued
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.
In March 2012, the three-year performance targets were met achieving a multiplier of 1.7 (2011: 1.9). During the year, a total number of 5.9 million
shares were granted to employees as a result of achieving the performance target and 4.2 million options were exercised. The weighted average
share price during the year for options exercised was 310 pence (2012: 326 pence).
c) Deferred Annual Bonus Plan
The Deferred Annual Bonus Plan, applied to the top levels of management including Executive Directors and comprised around 40 participants in
total. The first deferral took place in June 2007, in respect of the bonus awards for the financial year ended 24 March 2007. The second deferral
took place in June 2008, in respect of the bonus awards for the financial year ended 22 March 2008. The third and final deferral took place in June
2009, in respect to bonus awards for the financial year ended 21 March 2009.
The Plan measured 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. Alliance Boots was removed from the comparator group following its de-listing.
Up to two matched shares could be awarded for each share deferred depending on the extent to which the TSR measure is achieved. No shares were
awarded for below median performance, and the full match only applied where the Company achieved first place within the comparator group. At
median position the match was 0.5 shares for each deferred bonus share and the share match was pro-rated at every position between median and
first place.
To the extent that the performance condition was met at the end of the three-year performance period, the matched shares would be added to the
deferred bonus shares. The deferred bonus shares and half of the matched shares could be accessed immediately following the performance test,
while the remainder were held over for a further year. Dividends or their equivalents accrued on shares that vested.
A reconciliation of the number of shares conditionally allocated is shown below:
Outstanding at beginning of year
Lapsed
Outstanding at end of year
Details of shares conditionally allocated at 16 March 2013 are set out below:
20 June 2008
24 June 2009
2013
million
0.5
(0.4)
0.1
2013
million
0.1
–
0.1
2012
million
0.9
(0.4)
0.5
2012
million
0.1
0.4
0.5
d) Deferred Share Award
The Deferred Share Award targets a diverse range of business critical financial and non-financial scorecard measures. These are intended to reward
the top 45 managers in the Company, including Executive Directors, for driving the short-term objectives that will directly lead to building the
sustainable, long-term growth of the Company.
Share-based awards will be made to participants subject to performance against a basket of key strategic measures. At least 50 per cent of the
award will be based on the delivery of financial performance and returns to shareholders. The balance will be based on measures which will assess
the Company’s performance relative to its competitors as well as key strategic goals.
Performance against the target is measured over one financial year, but any shares awarded are deferred for a further two years to ensure that
management’s interests continue to be aligned with those of shareholders. The shares are subject to forfeiture if the participant resigns or is
dismissed for cause prior to their release date. Dividends accrue on the shares that vest in the form of additional shares.
A reconciliation of the number of shares granted over the year is shown below:
Outstanding at beginning of year
Granted
Lapsed
Outstanding at end of year
2013
million
2.4
1.5
(0.3)
3.6
2012
million
1.3
1.2
(0.1)
2.4
J Sainsbury plc Annual Report and Financial Statements 2013
119
Financial statements
Notes to the financial statements continued
31 Share-based payments continued
The number of shares allocated at the end of the year is set out below:
20 May 2010
19 May 2011
17 May 2012
Shares
conditionally
allocated
2013
million
Shares
conditionally
allocated
2012
million
1.0
1.2
1.4
3.6
1.2
1.2
–
2.4
e) Bonus Share Award
The Bonus arrangements for our senior managers and supermarket store managers include corporate and personal performance targets. A profit
gateway is in place which means that a certain level of underlying profit before tax must be achieved before any bonus related to the corporate
element of the bonus is released.
60 per cent of the bonus is paid in cash and 40 per cent converted into shares, which are automatically released after three financial years. The
share element of the bonus arrangement is called the Bonus Share Award. Bonus Shares are subject to forfeiture if the participant resigns or is
dismissed for cause prior to their release date. Dividends accrue on these shares and are released at the end of the three-year retention period.
Our top 45 managers do not receive Bonus Share Awards as they receive Deferred Share Awards.
A reconciliation of the number of shares granted over the year is shown below:
Outstanding at beginning of year
Granted
Lapsed
Outstanding at end of year
The number of shares conditionally allocated at the end of the year is set out below:
17 May 2012
2013
million
–
3.7
(0.2)
3.5
2012
million
–
–
–
–
Shares
conditionally
allocated
2013
million
Shares
conditionally
allocated
2012
million
3.5
–
120
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Notes to the financial statements continued
32 Related party transactions
Group
a) Key management personnel
The key management personnel of the Group comprise members of the J Sainsbury plc Board of Directors and the Operating Board. The key
management personnel compensation is as follows:
Short-term employee benefits
Post-employment employee benefits
Share-based payments
2013
£m
9
1
11
21
2012
£m
9
1
9
19
Seven key management personnel had credit card balances with Sainsbury’s Bank (2012: six). These arose in the normal course of business and
were immaterial to the Group and the individuals. Seven key management personnel held saving deposit accounts with Sainsbury’s Bank (2012: six).
These balances arose in the normal course of business and were immaterial to the Group and the individuals.
b) Joint ventures
Transactions with joint ventures
For the 52 weeks to 16 March 2013, the Group entered into various transactions with joint ventures as set out below.
Management services provided
Offset of creditor balance with investment (note 14)
Interest income received in respect of interest bearing loans
Dividend income received
Repayment of loan to joint ventures
Investment in joint ventures
Sale of assets
Loan to joint venture
Acquisition of companies
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
Other
Payables
Loans due to joint ventures
2013
£m
17
(43)
1
18
16
(1)
–
(5)
(21)
(71)
2013
£m
14
25
30
15
2012
£m
7
–
1
–
–
–
12
–
–
(75)
2012
£m
13
25
30
16
(5)
(48)
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 drawdown. In the event of a winding up of Sainsbury’s Bank, 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, 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.
c) Retirement benefit obligations
As discussed in note 30, the Group has entered into an arrangement with the Pension Scheme Trustee as part of the funding plan for the actuarial
deficit in the Scheme. Full details of this arrangement are set out in note 30 to these financial statements.
Company
a) 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.
J Sainsbury plc Annual Report and Financial Statements 2013
121
Financial statements
Notes to the financial statements continued
32 Related party transactions continued
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
Year-end balances arising from transactions with subsidiaries
Receivables
Loans and advances due from subsidiaries
Payables
Loans and advances due to subsidiaries
b) Joint ventures
Transactions with joint ventures
For the 52 weeks to 16 March 2013, the Company entered into transactions with joint ventures as set out below:
Services and loans provided to joint ventures
Interest income received in respect of interest bearing loans
Year-end balances arising from transactions with joint ventures
Receivables
Loans due from joint ventures
Floating rate subordinated undated loan capital1
Floating rate subordinated dated loan capital2
Payables
Loans due to joint ventures
2013
£m
402
(330)
161
250
(318)
3
(104)
2012
£m
341
(281)
146
276
(339)
61
(108)
2013
£m
2012
£m
2,461
2,352
(5,390)
(5,316)
2013
£m
1
2013
£m
25
30
2012
£m
1
2012
£m
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 drawdown. In the event of a winding up of Sainsbury’s Bank, 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, 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.
122
J Sainsbury plc Annual Report and Financial Statements 2013
Financial statements
Financial statements
Financial statements
Notes to the financial statements continued
Notes to the financial statements continued
33 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.
Aggregate future minimum lease payments:
Within 1 year
Within 2 to 5 years inclusive
After 5 years
The Group sublets certain leased properties:
Aggregate future minimum lease receipts:
Within 1 year
Within 2 to 5 years inclusive
After 5 years
2013
£m
2012
£m
507
1,889
6,164
8,560
471
1,741
6,042
8,254
2013
£m
29
95
120
244
2012
£m
31
98
151
280
34 Capital commitments
The Group has entered into contracts totalling £296 million (2012: £345 million) for future capital expenditure in relation to property, plant and
equipment and intangible assets not provided for in the financial statements.
The Company does not have any capital commitments (2012: £nil).
35 Financial commitments
Sainsbury’s Bank, a 50 per cent joint venture of the Group, has off balance sheet financial instruments committing it to extend credit to customers
of £48 million (2012: £40 million).
36 Contingent liabilities
The Group has a contingent liability for indemnities arising from the disposal of subsidiaries. No provision has been recognised on the basis that any
potential liability arising is not considered probable. It is not possible to quantify the impact of this liability with any certainty.
37 Post balance sheet events
On 7 May 2013, the Group signed a share purchase agreement with Lloyds Banking Group to purchase the remaining 50 per cent of Sainsbury’s
Bank and take sole ownership. The Group intends to fund the future consideration from internal resources. The transaction, subject to regulatory
approval, is expected to complete in January 2014.
On 10 April 2013, the Group entered into a consultation period regarding the proposed cessation of the future accrual of benefits within its defined
benefit pension scheme. Under this proposal, impacted colleagues will be offered membership of the Group’s existing defined contribution plans.
If the proposal proceeds, it is expected to result in a decrease in the defined benefit pension scheme service cost and an increase in contributions
to the defined contribution plans, as well as a reduction in the defined benefit pension liability. Subject to the proposal being accepted, the financial
impact will depend on both the implementation date and the extent to which impacted colleagues continue membership of the defined contribution
plans and therefore until the consultation completes, cannot be estimated with any degree of certainty.
J Sainsbury plc Annual Report and Financial Statements 2013
123
Five year financial record
Financial results (£m)
Sales (including Value Added Tax, including fuel)
Underlying operating profit
Underlying net finance costs1,2
Underlying share of post-tax profit from joint ventures
Underlying profit before tax1,2,3
Increase on previous year (%)
Underlying operating profit margin (%)
Earnings per share
Underlying basic (pence) 1,3
Increase on previous year (%)
Proposed dividend per share (pence)4
Retail statistics for UK food retailing
Number of outlets at financial year end
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 (000 sq ft)
Net increase on previous year (%)5
New stores5
Sales intensity (including Value Added Tax)5,6
Per square foot (£ per week)
2013
2012
2011
2010
2009
25,632
24,511
22,943
21,421
20,383
829
789
(111)
38
756
(109)
32
712
738
(97)
24
665
6.2
7.1
9.0
3.56
3.54
3.50
30.7
9.3
16.7
94
123
147
118
624
28.1
6.0
16.1
81
123
152
115
541
1,106
1,012
26.5
10.9
15.1
64
124
155
113
478
934
671
(79)
18
610
17.5
3.36
23.9
12.7
14.2
45
125
156
115
431
872
616
(113)
16
519
19.6
3.26
21.2
21.8
13.2
34
130
153
108
367
792
21,265
20,347
19,108
17,750
16,703
4.5
101
6.5
92
7.7
68
6.3
89
3.2
29
19.27
19.47
20.04
20.42
20.01
1
2008/09 is restated for the change in the definition of underlying profit before tax (‘UPBT’). As communicated at the time of the 2008/09 year end announcement, the financing element of IAS 19
‘Employee Benefits’ pensions accounting has been excluded from UPBT.
2 Net finance costs pre-financing fair value movements, IAS 19 pension financing (charge)/credit 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,
IAS 19 pension financing (charge)/credit 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 2008/09 and 2009/10 adjusted for comparative purposes to remove the dilutive effect of the temporary VAT reduction to 15 per cent between 1 December 2008 and 1 December 2009.
124
J Sainsbury plc Annual Report and Financial Statements 2013
Additional shareholder information
End of year information at 16 March 2013
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
118,144 (2012: 118,950)
1,892,990,218 (2012: 1,883,086,486)
Shareholders
%
2012
62.85
12.88
22.38
1.43
0.32
0.14
2013
62.21
12.64
23.13
1.53
0.35
0.14
2013
0.44
0.60
3.97
2.36
7.62
85.01
Shares
%
2012
0.46
0.61
3.83
2.21
6.84
86.05
100.00
100.00
100.00
100.00
Shareholders
%
2012
92.80
0.07
6.74
0.04
0.01
0.34
2013
92.07
0.07
7.51
0.03
0.01
0.31
2013
8.50
0.03
85.99
0.08
0.00
5.40
Shares
%
2012
8.93
0.04
85.24
0.05
0.00
5.74
100.00
100.00
100.00
100.00
Annual Report and Financial Statements
The Annual Report and Financial Statements are published on our
website at www.j-sainsbury.co.uk/ar2013 and has only been sent to
those shareholders who have asked for a paper 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, Store Support Centre,
33 Holborn, London EC1N 2HT or you can email your request to
investor.relations2@sainsburys.co.uk.
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.
Registrars
For information about the AGM, shareholdings, dividends and to
report changes to personal details, shareholders should contact:
Computershare Investor Services PLC, The Pavilions, Bridgwater Road,
Bristol BS99 6ZZ.
Telephone: 0870 702 0106
Annual General Meeting (‘AGM’)
The AGM will be held at 11.00am on Wednesday, 10 July 2013 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.
You can view and manage your shareholding online at
www.investorcentre.co.uk. You will require your 11 character
Shareholder Reference Number (‘SRN’) to log in. Your SRN starts
with the letter C or G and is followed by 10 numbers. It can be found
on share certificates and dividend tax vouchers.
Company website
J Sainsbury plc Interim and Annual Reports and results announcements
are available via the internet on our website at 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
Consolidated Tax Vouchers
The Company has adopted the Consolidated Tax Voucher (‘CTV’) process
in relation to dividend payments. This means that those shareholders
receiving their dividend direct into their bank account will receive a CTV
once a year detailing all payments made throughout that year.
Dividends
Financial year
Interim
Final
Total net
04/05
05/06
06/07
07/08
08/09
09/10
10/11
11/12
12/13
2.15p
5.65p
7.80p
2.15p
5.85p
8.00p
2.40p
7.35p
9.75p
3.00p
9.00p
12.00p
3.60p
9.60p
13.20p
4.00p
10.20p
14.20p
4.30p
10.80p
15.10p
4.50p
11.60p
16.10p
4.80p
11.90p
16.70p
The 2012/13 interim dividend was paid on 4 January 2013.
J Sainsbury plc Annual Report and Financial Statements 2013
125
Additional shareholder information continued
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 29,400 shareholders participate in it. Full details
of the DRIP and its charges, together with mandate forms, are available
from the Registrars. Alternatively, you can elect to join the DRIP by
registering for Investor Centre at www.investorcentre.co.uk.
Key dates for the final dividend are as follows:
Last date for return of revocation of DRIP mandates
21 June 2013
DRIP shares purchased for participants
DRIP share certificates issued
12 July 2013
22 July 2013
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. 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’.
Electronic shareholder communications
The Company encourages all shareholders to receive their shareholder
communications electronically in order to reduce our impact on the
environment. Shareholders can register their email address at www.
etreeuk.com/jsainsbury and for each new shareholder that does so
we will make a donation to the Tree for All campaign run by the
Woodland Trust.
Share dealing services
To buy or sell your J Sainsbury plc ordinary shares, please visit your
stockbroker or a high street bank who will usually be able to assist you.
Alternatively, you may consider using:
• The Share Centre Ltd who offer a postal dealing service and they
can be contacted at The Share Centre, PO Box 2000, Oxford Road,
Aylesbury, Buckinghamshire HP21 8ZB. Telephone: 01296 414141 or
freephone 08000 282812 and quote ‘Sainsbury’s’; or
• Computershare who offer a telephone and internet facility which
gives shareholders the opportunity to trade at a known price. The
telephone service is available from 8.00am to 4.30pm, Monday to
Friday, excluding bank holidays, on telephone number 0870 703
0084. The internet share dealing service gives shareholders the
option to submit instructions to trade online and more information
can be found by visiting www.computershare.com/dealing/uk.
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: Adam Wilson Katsibas, Head of
Investor Relations, J Sainsbury plc, Store Support Centre, 33 Holborn,
London EC1N 2HT.
American Depository Receipts (‘ADRs’)
The Company has a sponsored Level I ADR programme for which The
Bank of New York Mellon 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:
BNY Mellon
Shareowner Services
PO Box 358516
Pittsburgh
PA 15252-8516
Toll Free Telephone # for domestic callers: 1-888-BNY-ADRS
International callers can call: +1-201-680-6825
Email: shrrelations@bnymellon.com
General contact details
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).
Further information and detailed terms and conditions are available on
request by calling either provider.
For general enquiries about Sainsbury’s Finance call: 0500 405 060.
For any customer enquiries please contact our Customer Careline by
calling: 0800 636 262.
ShareGift
If you have only a small number of shares which would cost more for you
to sell than they are worth, you may wish to consider donating them to
the charity ShareGift (Registered Charity 1052686) which specialises
in accepting such shares as donations. The relevant stock transfer form
may be obtained from Computershare Investor Services PLC. There are
no implications for Capital Gains Tax purposes (no gain or loss) on gifts
of shares to charity and it is also possible to obtain income tax relief.
Further information about ShareGift may be obtained on 020 7930
3737 or from www.sharegift.org.
126
J Sainsbury plc Annual Report and Financial Statements 2013
Additional shareholder information continued
Financial calendar 2013/14
Dividend payments
Ordinary dividend:
Ex-dividend date
Record date
Final dividend payable
Ex-dividend date
Record date
Interim dividend payable
Other dates
Annual General Meeting – London
Interim results announced
Interim report available at j-sainsbury.co.uk
Preliminary Results announced
Annual General Meeting – London
Registered office and advisers
Registered office
J Sainsbury plc
33 Holborn
London EC1N 2HT
Registered number 185647
Auditors
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
Solicitors
Linklaters LLP
One Silk Street
London EC2Y 8HQ
Stockbrokers
UBS
1 Finsbury Avenue
London EC2M 2PP
Morgan Stanley
25 Cabot Square
Canary Wharf
London E14 4QA
15 May 2013
17 May 2013
12 July 2013
20 November 2013
22 November 2013
3 January 2014
10 July 2013
13 November 2013
13 November 2013
7 May 2014
9 July 2014
Electronic communications for shareholders
The Company has set up a facility for shareholders to take advantage of electronic communications.
The service allows you to:
• view the Annual Report and Financial Statements 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; and
• 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.
J Sainsbury plc Annual Report and Financial Statements 2013
127
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
Annual General Meeting (‘AGM’) – This year
the AGM will be held on Wednesday 10 July
2013 at The Queen Elizabeth II Conference
Centre, Broad Sanctuary, Westminster, London
SW1P 3EE at 11.00am.
basics – Sainsbury’s entry level sub-brand
range of products.
bps – Basis points.
Brand Match – Unique initiative using market-
leading technology guaranteeing price match
on the basket of comparable grocery branded
goods with Asda and Tesco. Over 14,000
branded grocery lines are included and the
initiative works by offering customers who
spend over £20 and buy at least one branded
product coupons at the till, there and then for
use at their next shop. We even include
promotions provided the same number of
products are bought. Maximum value of
coupons £10.
by Sainsbury’s – Core own label brand.
CFPS – Cash flow per share.
Click & Collect – Service which allows
customers to place general merchandise
orders online for collection from nearly
1,000 stores.
Company – J Sainsbury plc.
CPI – Consumer Price Index.
Corporate responsibility (‘CR’) – The need to
act responsibly in managing the impact on a
range of stakeholders: customers, colleagues,
investors, suppliers, the community and the
environment.
Dividend cover – Underlying profit after tax
from continuing operations attributable to
equity shareholders divided by total value of
dividends declared during the year.
Dividend Reinvestment Plan (‘DRIP’) –
Allows shareholders to reinvest their cash
dividend in shares of the Company through a
specially arranged share dealing service.
Earnings per share (‘EPS’) – Earnings
attributable to ordinary shareholders of the
parent 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.
EBITDAR – Earnings before interest, tax,
depreciation, amortisation and rent.
MSC – Marine Stewardship Council.
ESOP Trusts – Employee Share Ownership
Plan Trusts.
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.
Multiple Traffic Lights – Nutritional labels
which provide effective ‘at-a-glance’
information customers need to make healthier
choices when shopping.
Nectar – The most popular loyalty scheme in
the UK, of which Sainsbury’s is a partner.
Non-controlling interest – The equity in a
subsidiary not attributable, directly or
indirectly, to the Company.
OFT – Office of Fair Trading.
Real discount rate – Discount rate less
inflation rate.
ROCE – Return on capital employed.
FSA – Food Standards Agency.
www.food.gov.uk
RPI – Retail Price Index.
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
FVTPL – Fair value through profit and loss.
Method of valuing a financial instrument where
changes in fair value are recognised directly in
the income statement.
GDAs – Guideline Daily Amounts.
Gearing – Net debt divided by net assets.
Group – The Company and its subsidiaries.
IFRIC – International Financial Reporting
Interpretations Committee.
IFRSs – International Financial Reporting
Standard(s).
Income statement – Formerly known as the
profit and loss account under UK GAAP.
Joint venture (‘JV’) – A business jointly
owned by two or more parties.
Kantar Worldpanel – An independent third
party providing data on the UK Grocery
Market.
Like-for-like sales – The measure of year-on-
year same store growth.
Live Well For Less – Sainsbury’s customer
commitment to continue to help people live the
life they want to live, with quality products at
fair prices.
LTIP – Long Term Incentive Plan.
Total shareholder return (‘TSR’) – The growth
in value of a shareholding over a specified
period, assuming that dividends are reinvested
to purchase additional units of the stock.
Taste the Difference – Sainsbury’s premium
sub-brand range of products.
Tu – Sainsbury’s own label clothing range.
Underlying basic earnings per share –
Profit after tax from continuing operations
attributable to equity holders of the parent
before any profit or loss on the disposal of
properties, investment property fair value
movements, impairment of goodwill, financing
fair value movements, IAS 19 pension financing
element and one-off items that are material
and infrequent in nature, divided by weighted
average number of ordinary shares in issue
during the year, excluding those held by ESOP
trusts, which are treated as cancelled.
Underlying cash flow from operations –
Underlying cash generated from operations
for net rent and cash payments to the pension
scheme.
Underlying operating profit – Underlying
profit before tax from continuing operations
before underlying net finance costs and
underlying share of post-tax profit or loss from
joint ventures.
Underlying profit before tax – Profit after tax
from continuing operations attributable to
equity holders before any profit or loss on the
disposal of properties, investment property
fair value movements, impairment of goodwill,
financing fair value movements, IAS 19 pension
financing element and one-off items that are
material and infrequent in nature.
128
J Sainsbury plc Annual Report and Financial Statements 2013
Achievements
Supermarket of the Year
We won the top award in the Retail
Industry Awards 2012 for the fifth
time in seven years, with our Brand Match
promise, hailed as a ‘game-changer’ in
the UK grocery market.
Best convenience retailer
For the third year running Sainsbury’s
won Convenience Chain of the Year,
for our consistent execution over a large
number of stores.
Embedding sustainability
Sainsbury’s was rated as a global sector
leader for the sixth year running in
the Dow Jones Sustainability Index.
This index is one of the leading ways
that sustainability is measured in the
international business community.
Leading retailer
for sustainability
We continue to be recognised for
our sustainability approach in the
independent, highly regarded FTSE4Good
Index, which evaluates businesses from
around the world against key social,
environmental and governance practices.
Investing in
our people
We were the first-ever food retailer
to receive a Gold accreditation for our
commitment to improve our business
by investing in our colleagues.
Employer of the Year
We were recognised for the way we
place our colleagues at the heart of our
strategy, exemplified by our sponsorship
of the Paralympics.
RSPCA Retailer
of the Year
Recognised for our efforts in bringing
affordable higher welfare food to a
mass market.
Animal welfare
As part of Compassion in World Farming’s
2012 Good Farm Animal Welfare Awards,
we were recognised as winners of the
Leadership and Innovation in Retail
category for our innovative Pig Concept
Farm, which is trialling new farming
techniques to improve the welfare
of pigs in our supply chain.
Official partner of
the London 2012
Paralympic Games
Following our successful sponsorship of
the London 2012 Paralympic Games, we
are continuing our support for para-
athletics and athletics – through Active
Kids as well as sponsoring the Sainsbury’s
Summer Series alongside British Athletics.
Further insight
Want to know more?
Visit j-sainsbury.co.uk
This report is printed on UPM Fine. The printer
is certified to the environmental management
system ISO 14001 and is also CarbonNeutralTM.
The FSC logo identifies products which contain
wood from well managed forests certified
in accordance with the rules of the Forest
Stewardship Council. FSC Trademark © 1996
Forest Stewardship Council, A.C.
Cert no. XXX-XXX-000