Annual Report and
Financial Statements 2020
Live well
for less
Our purpose is to help our customers
live well for less. It’s about helping
our customers get the most out of
life, no matter how much money or
time they have. We do this by giving
them easy, affordable access to the
things they need: like healthy food,
quality clothes, stylish homewares,
the latest technology and more
ways to manage their money. We do
all of this sustainably, so we can
help our customers live well today
and tomorrow.
We offer our customers distinctive, quality products
at competitive prices across food, general merchandise,
clothing and financial services. Driving efficiency in
our day-to-day operations enables us to invest in our
customer offer in areas that they value: choice, quality,
low prices, convenience and great service.
We have created a multi brand, multi channel business
that provides choice, flexibility and convenience for our
customers. We will continue to invest in both our digital
offer and our stores so that customers can buy more
and save time as well as money by shopping with us.
Strategic Report
01
02
04
06
10
12
14
18
20
21
28
30
36
Contents page
Chairman’s letter
Chief Executive Officer’s letter
Response to COVID-19
Business Model
The Market
Our stakeholders
Our 2020 Sustainability Plan
Our strategy
Our priorities
Our KPIs
Financial Review
Our principal risks and uncertainties
Governance Report
48
52
55
58
59
64
Board of Directors
Operating Board
Board leadership and Company purpose
Division of responsibilities
Composition, succession and evaluation
Corporate Responsibility and Sustainability
Committee Report
Audit, risk and internal control
Remuneration
Annual Report on Remuneration
78
90
Remuneration Policy
Additional statutory information
66
72
96
Financial Statements
100 Statement of Directors’ Responsibilities
101
Independent auditor’s report to the
members of J Sainsbury plc
107 Consolidated Financial Statements
Notes to the Consolidated Financial
112
Statements
122
Income Statement Notes
136 Financial Position Notes
173 Cash Flow Notes
177 Employee Remuneration Notes
188 Additional Disclosures
194 Company Financial Statements
196 Notes to the Company Financial Statements
201 Additional shareholder information
205 Alternative performance measures
209
Glossary
J Sainsbury plc Annual Report 2020
01
Performance highlights
£32,394m
Group sales (inc VAT),
down 0.1 per cent
£586m
Underlying profit before tax,
down 2 per cent
(0.6)%
Group like-for-like sales
7.4%
Return on capital employed
19.8p
Underlying basic earnings per share,
down 4.3 per cent
£255m
Statutory profit before tax,
up 26 per cent
£29m
42%
Raised this year for local and national
causes, bringing the total to £359m
Absolute reduction in carbon emissions
against our 2005 baseline
75%
Percentage of colleagues engaged,
based on results from our colleague
engagement survey
Read more about our financial KPIs on page 28.
Non-financial information
statement
We are pleased to set out below where you can
find information relating to non-financial matters
in our Strategic Report, as required under sections
414CA and 414CB of the Companies Act 2006.
Environmental matters
18
27
Our 2020 Sustainability Plan
Net Zero by 2040
Colleagues
14
26
Our stakeholders
Be a place where we all love to work
Social matters
18
26
27
Our 2020 Sustainability Plan
Be a place where we all love to work
Net Zero by 2040
Human rights
26
Be a place where we all love to work
Anti-corruption and anti-bribery
26
Be a place where we all love to work
Reference to our policies, due diligence processes and information
on how we are performing on various measures in these areas are
contained throughout the Strategic Report. Information on our
principal risks and uncertainties can be found on pages 36 to 47,
information on our non-financial key performance indicators can
be found on 29 and a description of our business model can be found
on pages 10 and 11.
Find out more at
www.about.sainsburys.co.uk/ar2020
02
Chairman’s letter
Chairman Martin Scicluna reviews the business activity in the year.
2019/20 highlights
£586m
Underlying profit before tax
7.4%
Return on capital employed
19.8p
Underlying basic earnings
per share
£611m
Free cash flow
“Throughout the past three
months we have pulled
together to protect our
customers and colleagues,
to feed the nation
and to navigate the
business through the
COVID-19 pandemic.”
Review of the year
In a competitive market, underlying profit
before tax was £586 million, a decline
of two per cent. Basic earnings per share
decreased 23.7 per cent to 5.8 pence
(2018/19: 7.6 pence) due to the £331 million
charge recognised outside of underlying
results. Underlying basic earnings per share
decreased 4.3 per cent to 19.8 pence
(2018/19: 20.7 pence).
Our purpose
Sainsbury’s purpose is to help customers to
live well for less and we recognise that living
well means living sustainably. This year we
announced our commitment to be Net Zero
across all our operations by 2040 and that
we will invest £1 billion over the next 20 years
to achieve this. The Board is accountable
for the delivery of the seven pillars of our
Net Zero plan and we will report progress
against each of them at our interim results
in November. In a further demonstration
of the importance we place on helping
customers to live sustainably, we became
signatories of the Task Force on Climate-
related Financial Disclosures, to provide
consistent information to our stakeholders.
In my first full year as Chairman of the
Sainsbury’s Board I have been hugely
impressed by the quality of our
leadership and our colleagues’ passion
for providing our customers with
outstanding service every day. This
has been particularly evident to me
throughout the past three months as
we have pulled together to protect our
customers and colleagues, to feed the
nation and to navigate the business
through the COVID-19 pandemic.
Throughout this time, the Board and
Operating Board, led by Mike Coupe, have
been working tirelessly, guided by a clear
sense of purpose. Now, more than ever, we
have been trying to help our customers live
well for less. This has meant taking difficult
decisions along the way and I must say
that Mike has shown himself to be a truly
exceptional leader. I would like to thank Mike
for his hard work over these past few months
and also for his excellent stewardship as
Chief Executive over the past six years.
Simon Roberts became the Chief Executive
Officer effective on 1 June 2020. He and
Mike have worked closely together for a
number of years and have been working
on a thorough handover over the past
few months.
This is a time unlike any other in retail.
COVID-19 has put our colleagues on the front
line and they are working around the clock
to get food and other essential items onto
the shelves for customers. I feel extremely
proud of colleagues throughout our business
who have risen to the challenge and have
achieved so much in such challenging
circumstances.
We have had three clear priorities
throughout: keeping our customers and
colleagues safe; helping to feed the nation;
and supporting our communities and the
most vulnerable in society. For that reason,
whilst complying with all of the relevant
requirements, we have produced a simpler,
scaled down version of our Annual Report.
Strategic ReportJ Sainsbury plc Annual Report 2020 03
Dividend
Given a wide range of potential profit and
cash flow outcomes, the Board believes
it is prudent to defer any dividend payment
decisions until later in the financial year,
when there will be improved visibility on the
potential impact of COVID-19 on the business.
Martin Scicluna
Chairman
Alternative performance measures (APMs)
referred to in this statement are defined in
pages 205 to 208.
The Board also plays an active role in making
Sainsbury’s a place where colleagues love to
work and the welfare of our colleagues is a
key priority for us. As part of this activity,
the Board discussed the results of the
‘We’re Listening’ colleague engagement
survey, which invites every colleague across
the business to give honest, confidential
feedback on what it is like to work for
Sainsbury’s. This survey and our engagement
with our Great Place to Work groups (which
are our Workforce Advisory Panels) informs
many of the decisions we make.
We also aim to be the most inclusive retailer.
The Board has a good balance of gender
and ethnic backgrounds and we are
committed to supporting the business to
build female and BAME representation at
senior manager level.
Business activity in the year
We are making strong progress against
the strategy that we set out at our Capital
Markets Day in September. Customers are
responding positively to our improved value
proposition, our distinctive food offer and
our increased focus on customer service.
We have accelerated investment in our
stores, improving and upgrading them
more frequently. We have also accelerated
investment in technology; for example,
SmartShop, which allows customers to
shop quickly and conveniently with faster
checkout, is now in all our supermarkets.
Together with our new store operations
model, these initiatives are delivering
improved customer satisfaction scores.
Argos continues to offer customers market-
leading delivery and collection services
and these channels are growing sales.
The general merchandise market remains
challenging and there was weakness in the
key toy and gaming categories in the last
financial year.
Jim Brown joined Sainsbury’s Bank as
Chief Executive Officer during the year and
oversaw a strategic review of our financial
services business and we have made
good progress. We have a leaner structure,
greater digital uptake and we have stopped
underwriting new mortgages. We will
provide an update in November on the
impact of COVID-19 on the financial services
five-year targets we announced in
September 2019.
Board
After 15 years at Sainsbury’s, almost six
of those leading the business, Mike Coupe
confirmed his intention to retire as
Chief Executive Officer on 31 May. Mike’s
knowledge and understanding of the retail
sector and customer behaviour are second
to none. Mike has been bold and ambitious
on behalf of our shareholders, customers
and our colleagues. Investing in convenience,
online and our digital capability, selling
Sainsbury’s pharmacy business and
acquiring Argos and Nectar have all proved
to be sound strategic moves which have
set us up well as we come together to create
one multi brand, multi channel business for
our customers.
I was delighted to announce Simon Roberts
as Mike’s successor. Simon is a dedicated,
determined and enthusiastic champion of
the customer and of our colleagues and has
overseen sustained improvements in the
grocery business during his time so far.
He is ideally placed to lead and develop our
strategy for the future. The Board and I are
looking forward to working closely with him
over the coming years.
In October this year John Rogers, CEO of Argos,
left the business. John joined Sainsbury’s in
2005 and was instrumental in the integration
of Argos and I would like to thank him for all
he achieved for our business.
Sainsbury’s Bank Chairman Roger Davis
informed us of his intention to step down
from the Sainsbury’s Bank Board and a
process to find his replacement is underway.
Matt Brittin and Jean Tomlin will also step
down later this year. Matt Brittin has been
on the Board for just over nine years and is
stepping down in line with good corporate
governance. He has been an important
member of the Nomination and
Remuneration Committees and his
knowledge of digital and technology has
helped us hugely as we bring new
innovations to our customers. Jean Tomlin
has been on the Board for seven years and
is a member of the Audit, CR&S and
Nomination Committees and has made
an important contribution to the business
over the years. We wish Jean and Matt well
for the future. Their replacements will be
announced in due course.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
04
Chief Executive Officer’s letter
Mike Coupe shares his highlights for the year and explains
how Sainsbury’s has responded to the COVID-19 pandemic.
2019/20 highlights
£586m
Underlying profit before tax
£32,394m
Group sales (inc VAT)
(0.6)%
Group like-for-like sales
£343m
Reduction in net debt
Dear Shareholder
Our response to COVID-19
In the last few weeks, we have made
huge changes to the business as a
result of COVID-19. Our colleagues
have worked around the clock to help
feed the nation and I am so proud of
their dedication and commitment
during this difficult time. Thank you
to every single one of our colleagues,
their efforts have been exceptional
and hugely valued by our customers.
The COVID-19 pandemic has had a significant
impact on our business since early March.
We have had three clear priorities
throughout: keeping our customers and
colleagues safe; helping to feed the nation;
and supporting our communities and the
most vulnerable in society. At the start of the
pandemic customers bought significantly
more groceries than usual and colleagues in
our stores, distribution centres and store
support centres worked around the clock
with our suppliers to rapidly and continually
increase the stock levels of popular and
essential items. This was a major logistical
challenge and our business and the industry
more broadly showed incredible flexibility
and adaptability to maintain supply and
fulfil customer demand.
We made a decision early on to prioritise all
of our online delivery slots for elderly and
vulnerable customers. We were able to
contact over 450,000 vulnerable customers
and offer them access to priority online
booking, based on data we held on those
customers and calls into our Customer
Careline. Once we received government data,
we were able to contact another 350,000,
meaning we could give 800,000 vulnerable
customers the opportunity to book priority
online shopping. Throughout this time we
also significantly increased our online
shopping capacity – and we are working
towards increasing capacity from 340,000
weekly orders to an ambition of 600,000
slots per week across delivery and Click &
Collect. We also offer dedicated shopping
hours in our stores for NHS and social care
workers from 07.30-08.00 Monday to
Saturday and for elderly and vulnerable
customers from 08.00-09.00 on Mondays,
Wednesdays and Fridays.
When the Government required us to close
standalone Argos stores we repurposed
Argos into an online-only retailer and
redeployed a large number of Argos
colleagues into Sainsbury’s stores. Argos
stores in Sainsbury’s supermarkets are open
solely for online collection so that customers
who are shopping for food and other
essentials can collect orders made and paid
for online.
Protecting customers and colleagues and
keeping them safe has been our priority
and we have made major changes to our
ways of working to achieve this. These
include queuing systems outside stores,
limiting the number of people inside stores
and at ATMs and placing markers at two
metre intervals throughout stores. We are
regularly sanitising stores, including baskets
and trollies, fitting safety screens at all
manned checkouts and providing colleagues
with masks, hand sanitiser and gloves if they
want them.
To limit interaction between customers and
colleagues we encouraged people to use
SmartShop and increased its capacity. We
are also launching SmartShop Scan, Pay and
Go in particularly busy convenience stores.
Our colleagues have shown amazing
dedication and resilience throughout this
difficult time and have really gone above
and beyond for our customers. We have
also done our best to support them. We
have offered all store colleagues who are
extremely vulnerable, vulnerable or who
live with extremely vulnerable household
members up to 12 weeks off work with full
pay and colleagues who are sick or who need
to self-isolate will be paid full pay for up to
14 days. We are also giving our front line
colleagues and managers a thank you
payment of 10 per cent of their pay from
8 March to 5 April. To help meet demand,
we have welcomed thousands of temporary
colleagues since March, including online
grocery pickers, delivery drivers and front
line managers.
Working together with
communities and suppliers
In these challenging circumstances, we
continue to work closely with the Government
and Public Health Authorities to support our
customers, colleagues, suppliers and our
communities. We have donated £3 million
to the charity Fareshare to ensure that much
needed supplies get to the people who
desperately need them and are working with
Comic Relief to support their fundraising
efforts. Sainsbury’s matched customer
donations for Comic Relief’s Big Night In
on the BBC and together we have raised
over £4 million.
We have introduced a range of over
90 essential grocery items to 80 WHSmith
stores in hospitals across the UK, helping
hard-working NHS staff access food more
easily. We also launched a school voucher
scheme to ensure that children who are
eligible for free school meals continue to
Strategic ReportJ Sainsbury plc Annual Report 2020 05
Retirement
In January I announced my retirement. I feel
very privileged to have spent almost six
years running Sainsbury’s, during one of the
most competitive and challenging periods
of my 35-year career in retail. Sainsbury’s is
a very different business today to the one
I took over in 2014. I have focused on setting
the business up for the future so it is able
to anticipate and address the strategic
challenges of our industry. I am proud that
almost 20 per cent of total sales now come
from our online channels and that we are
becoming a multi brand, multi channel
business, able to evolve and adapt with
customers’ ever changing needs. Adding
Argos and Nectar to the business improves
our ability to make shopping increasingly
convenient for customers and to reward
them for their loyalty. Investment we have
made in quality and low prices means our
customers can feel confident they are
getting great value when they shop with us.
In the year I have worked with our Chairman,
Martin Scicluna, he has shown great skill and
leadership and has encouraged a culture of
openness and constructive debate on the
Board. He shares our company values and is
a fantastic addition to Sainsbury’s. Martin
and I both believe the business is well set up,
with a strong management team and a clear
plan for the future. I am delighted that Simon
will be the next Chief Executive and am
confident that he is the right choice for our
customers, our colleagues and our investors.
I would like to take this opportunity to thank
all my colleagues for their outstanding efforts
over the past few months and I wish Simon
and the team every success in the future.
Mike Coupe
Chief Executive Officer
Alternative performance measures (APMs)
referred to in this statement are defined in
pages 205 to 208
access these while they stay at home. We
were pleased to launch a partnership with
The Big Issue to sell the magazine in our
stores and online as a temporary measure
until vendors are able to return to work,
with all proceeds going back to the charity
and to vendors.
“Our colleagues have shown
amazing dedication and
resilience throughout this
difficult time and have
really gone above and
beyond for our customers.”
We have extended support to suppliers with
vital cash flow where needed and committed
to pay at least 1,500 small suppliers
immediately. We have also offered our
concession partners and other tenants the
ability to pay monthly in advance rather
than quarterly in advance and a one month
rent free period for 1 to 30 April 2020.
Business update
This year we have made good progress
against our strategy and our seven priorities
as we create one multi brand, multi channel
business. While underlying profits before
tax reduced by two per cent to £586 million
and Group sales declined 0.1 per cent,
profit before tax grew by 26 per cent to
£255 million. We delivered strong free cash
flow and net debt reduction of £343 million,
in line with guidance.
Our purpose is to help our customers to live
well for less and the investment we have made
to lower prices, enhance ranges and create
new convenient ways for people to shop has
driven improved grocery sales and helped us
outperform our main supermarket peers.
Sainsbury’s customer service scores are
consistently improving, with ease and speed
of checkout improving by just over 3 per cent
and just under 4 per cent respectively, as
customers respond well to store upgrades
and the acceleration of our in-store digital
offer, including SmartShop, which makes
shopping quicker and more convenient.
Over £6 billion of our sales across the
business are digital. We are continuing to
invest in this channel to deliver easy, speedy
and seamless shopping.
The general merchandise market remains
challenging, particularly in toys and gaming,
and our sales declined 2.9 per cent. Clothing
sales grew 1.2 per cent and clothing performed
particularly well online, growing 47 per cent.
Financial Services and Nectar provide our
customers with affordable ways to manage
their finances and reward them for their
loyalty. Our Nectar loyalty programme is the
biggest in the UK with over 18 million members.
Over 4.5 million people have downloaded the
new digital app which enhances customer
engagement with personalised offers and
access to promotions and rewards.
As a business, we are structurally reducing
our costs by £500 million over five years,
in addition to ongoing savings to cover the
impact of cost inflation. We are able to achieve
these cost savings because of the unique
opportunity to bring Sainsbury’s and Argos
together. By managing our costs we can
sustainably fund investment in what matters
most to our customers: choice, quality, low
prices, convenience and great service.
To deliver our purpose we know that engaging
our colleagues in the long-term success of our
business is critical. Our colleagues make the
difference to our customers day in, day out
and we are committed to being a company
that people love to work for. This means being
an inclusive employer where colleagues are
encouraged to develop their skills and fulfil
their potential. It is also very important to
us that we continue to play an active role in
our communities and we have high ethical
standards that we and our suppliers adhere to.
I am delighted with the progress we made
against our 2020 Sustainability Plan but
there is more to do. We recognise that living
well means living sustainably and in January
of this year I was proud to launch our
ambitious plan to invest £1 billion over the
next 20 years to become Net Zero across all
our operations by 2040. We know this is an
ambitious target, but we are confident we
can achieve it.
Outlook
The last few weeks have been unsettling for
our customers and our colleagues and we
cannot predict what will happen over the
coming months. Given the wide range of
potential profit and cash flow outcomes, the
Board believes it is prudent to defer any
dividend payment decisions until later in the
financial year when there will be improved
visibility on the potential impact of COVID-19
on the business. We have decided not to
take up the Government’s offer to reclaim
furlough payments through the Government
Job Retention Scheme. We also will not be
taking up the Government’s offer of delaying
VAT payments. Customers continue to rely
on us for food and other essentials and we
continue to take on significant costs to
ensure we can provide food while keeping
our customers and colleagues safe. The
business rates relief helps to offset some
of the costs to our business of COVID-19 as
we support our customers, colleagues and
communities during this uncertain time.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
06
Response to COVID-19
The COVID-19 pandemic has had a significant impact on our business since
early March. We have had three clear priorities throughout: keeping our
customers and colleagues safe; helping to feed the nation; and supporting
our communities and the most vulnerable in society.
For more information on how we supported our people and society, please go to page 4.
Setting up the business
to deal with the pandemic
We implemented our well-rehearsed crisis
management protocols to deal with the
COVID-19 crisis in late February, having
analysed the results of measures put in place
in other countries to deal with the threat.
We mobilised our Incident Response team,
led by a Senior Director who was dedicated
to that role. Daily calls between our internal
and external public affairs teams, health and
safety, human resources and legal advisers
ensured that our decision-making was
well-informed and timed appropriately.
A daily call with the Operating Board
ensured fast decision making and the plc
Board was kept fully updated throughout.
A key aspect of our crisis management
plan is to communicate effectively with
our customers and colleagues. We kept
customers updated through regular emails
from the Chief Executive, highlighting
where we are making changes to shopping
practices in our stores and online. We briefed
our store management teams daily, informing
them as we were making key decisions that
affected shopping and working patterns and
activities. We engaged with Government
and industry bodies on a regular basis and
helped to lead, develop and coordinate the
grocery industry’s response to the crisis.
We have maintained a disciplined approach
to governance and decision-making.
We continue to adhere to our crisis
management protocols to ensure that we
can respond and adapt to the changing
needs of our customers. As part of our
normal procedures, we will review the
management of this crisis in due course
to take lessons learned into the future.
Because we sell groceries and other essential
items and with Government support to keep
our operations running, we have not seen
the dramatic decline in demand that has put
pressure on other businesses. With our multi
brand, multi channel model we are, in many
ways, well positioned to remain relevant
and solvent through the COVID-19 crisis.
From ‘response’ to ‘recovery’
In addition to dealing with the short-term
actions necessitated by the crisis, we are
exploring the impact on our business as
we move from the ‘response’ to the ‘recover’
phase. Clearly, the timelines for this are still
unclear, but we are working to create a
new plan across all areas of our business.
Although demand for food and groceries
has been resilient, we expect that we will see
continuing impact on our supply chains over
the coming months, with supply restricted
or disrupted from many European countries
and potentially from UK growers struggling
to recruit the labour needed to harvest their
crops. We will need to determine a critical
path for reopening our cafés and food
counters; it is possible they will be disrupted
for most of the coming financial year. Fuel
volumes and sales in our petrol filling station
stores have declined significantly and we
have adapted the way we operate these
sites, reducing opening hours and selling
only fuel.
“A key aspect of our crisis
management plan is to
communicate effectively
with our customers
and colleagues.”
Clothing sales have declined substantially,
along with the rest of the market. We therefore
have an overstock situation to deal with
and we have made decisions about forward
ordering which could impact supply as
we come out of the current crisis into the
autumn/winter season.
We have seen some reduction in Argos sales
as we have closed 573 Argos standalone
stores per Government advice and
customers can now only order and pay
online for home delivery or collection.
The current situation will inform the future
proposition and operating model of the
Argos business longer term.
We have offered support to suppliers
across the business, paying small suppliers
immediately and helping others with
cash flow. This has had an impact on
our working capital.
We have delayed some store investments
which were scheduled for 2020/21. These
were expected to drive sales and profit by
providing new propositions, new ranges
and a better shopping experience. We have
a large programme of digital and systems
development, to deliver customer experience
and efficiency benefits in the coming years;
these may be delayed and we will prioritise
what we can deliver.
There has been a significant impact on our
Financial Services business, in lower sales
and an anticipated increase in bad debt.
Longer-term outlook for our business
When the immediate impact of COVID-19
has passed, the economy and the retail
industry will enter a ‘new normal’ phase,
but the timescale and duration for this is
uncertain. In many ways, the situation over
recent weeks has accelerated inevitable
changes in how customers will want to shop
in the future. The crisis has confirmed the
importance of enabling customers to access
products digitally and to have multiple ways
to collect their purchases. The investments
we have made over the last five years to
become a multi brand, multi channel retailer,
supported by an increasingly integrated
operating model, give us the platform to
serve our customers now and in the future.
Through the crisis, we have been able to
provide customers with a wide range of
products and fulfilment options and, where
necessary, we have rapidly shifted supply
and capacity to the areas where they are
most needed. This flexibility will be even
more important in the future. In parallel with
continuing our extensive efforts to maintain
supply in core food, grocery and general
merchandise products, we will be working
on the longer-term outlook for the product
and fulfilment proposition we offer
customers post COVID-19. We will update
further on this at our interim results
in November.
Strategic ReportJ Sainsbury plc Annual Report 2020 Principal risks and uncertainties
The impact of the COVID-19 pandemic on the principal risks and
uncertainties was reviewed by the Board at year end. The pervasive
nature and impact of the pandemic across the UK and global supply
chains means that the business is currently operating in a more
uncertain environment. Reflecting this, there is heightened risk
around most/all of the principal risks, although to different degrees.
On balance, there are two principal risks where we are not flagging
a heightened risk currently – these relate to Brexit and Environment
and Sustainability. In terms of Brexit, we are confident in our
preparations and plans, some of which were activated in our
response to the pandemic. On Environment and Sustainability,
our response to mitigate risks associated with this are long term
and hence, the short-term impact is viewed as being limited.
07
The duration of this state of heightened risk will vary depending
on the length of the pandemic. Timelines for – and the nature of –
the recovery from the pandemic are not yet clear and hence we are
unable to assess with certainty the medium or longer-term impact
on the principal risks. Scenario modelling, as part of the viability
statement, has been undertaken to assess the potential range of
outcomes so relevant actions can be taken at the appropriate point.
Reflecting this uncertainty, we set out below the current or short-
term impact on the principal risks and an overview of some of the
mitigations we have implemented to manage these. Risks, including
emerging risks, will continue to be actively monitored as the
situation develops, allowing ways of working and other mitigations
to be flexed so that risks are managed. Details of our risk management
framework and the principal risks and uncertainties to our business
are set out from page 36.
COVID-19 risks modelled in the viability assessment are marked:
The current impact of COVID-19 on the principal risks:
Overview of impact of COVID-19 on principal risks
Current mitigations, which are subject to change as risks evolve
Brand perception
There is greater focus on our brand, reflecting we are a large business
with continuing operations and are also playing a key role in helping
to feed the nation, keeping customers and colleagues safe and
supporting our communities during the pandemic. It is important
that we continue to maintain trust through our focus on making
all decisions with our values at their heart.
Business continuity, operational resilience
and major incident response
The impact of and response to COVID-19 has affected most if not
all of our business operations. This is being actively managed and
business recovery plans are being activated. That said, the level
of business disruption caused by COVID-19 is outside of our
risk appetite.
Business strategy and change
The execution of our strategy is currently impacted by the
operational response to the pandemic.
— All decisions in relation to our response are being taken with
a focus on the impact on customers and colleagues
— We seek to communicate frequently and transparently with
customers and colleagues so they understand the decisions we
are making to support them, including those who are vulnerable
— As a multi brand, multi channel retailer we have reviewed and
will continue to review which brands continue to operate through
which channels
— Sainsbury’s Incident Response Team was convened in response
to COVID-19, reporting frequently to the Operating Board, which
provided strategic direction and decision making across financial,
operational and regulatory matters. There was and continues to
be a focus on all stakeholders during the crisis as well as ensuring
systems and processes operate effectively
— As new and temporary ways of working emerge, business
recovery plans are starting to be activated
— All decisions being made to respond to COVID-19 are being
tracked and monitored so they can be included, as appropriate,
as part of our recovery strategy
— Whilst too early to assess any sustained impact on market
conditions, the Operating Board has started to focus on recovery
— Our current ways of working ensure that our strategy is driven by
stakeholder, including customer, needs. This will continue to be
the case as any medium and longer-term impacts of COVID-19
on our customers, colleagues and supply chains become
more certain
— We continue to review business change programmes in terms of
their operational impact and will reduce the pace of non-critical
change programmes to ensure they do not unduly impact or
distract focus on operations
— We will review the impact of necessary delays/re-phased change
activity across planned efficiency saving programmes this year,
identifying and accelerating alternative options in order to realise
the level of budgeted savings for 20/21 and beyond
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
08
Overview of impact of COVID-19 on principal risks
Current mitigations, which are subject to change as risks evolve
Colleague engagement, retention and capability
Increased risk of colleague disengagement and labour shortages
as a result of the pandemic, particularly amongst colleagues who
are vulnerable or who live with extremely vulnerable people.
— We communicate regularly and transparently so colleagues
understand the decisions we are making to support them
and customers and have made additional resources and
guidance available
— We have flexed our policies to support our colleagues and
managers as they help feed the nation. In particular, we have
reviewed our paid leave policy and have committed to paying
colleagues up to two weeks’ paid leave if they are sick or isolating
due to COVID-19 (irrespective of their sick pay entitlement);
we have also committed to paying colleagues who are extremely
vulnerable up to 12 weeks’ paid leave; as well as providing those
who are vulnerable or who live with extremely vulnerable people
up to 12 weeks’ paid leave
— We have redeployed colleagues from other areas of the business
and recruited additional temporary and permanent colleagues
to address labour shortages during the pandemic
— We have invested in a series of additional recognition activities
to acknowledge the efforts being made by our colleagues
— We are providing physical and mental wellbeing support including
guides, tips and webinars, plus remote working guides
— To ensure we are listening to colleague sentiment and adapting
our plans appropriately, we are performing additional analysis
of Yammer (internal communication tool), an online colleague
survey is underway and we have refocused Great Place To Work
Groups to focus on colleagues’ views
Data security
There is an increased risk of cyber threats and security breaches
from the ways of working required during the COVID-19 crisis.
— Threat monitoring capabilities are continuously updated to
respond to new threats and vulnerabilities. All data handling
continues to be managed in line with our Corporate policies
Financial and treasury
There is an increased risk that we may have to access additional
funding during the pandemic.
Health and safety – people and product
There is an inherent risk from any personal interaction given the
nature of the COVID-19 virus.
— The Information Security team is monitoring any interim changes
to our risk landscape, and that of our third parties, as a result
of COVID-19 and ensuring relevant mitigations are in place
— We reviewed a range of scenarios to stress test the impact on
our financial performance, liquidity and funding requirements.
Our revolving credit facility is in place, with material undrawn
facilities, and provides adequate headroom in all scenarios
modelled
— The Treasury Committee convenes weekly, reflecting the
increased focus on cash generation and funding requirements
across the business
— The safety of our colleagues and customers has been at the heart
of our response to the pandemic
— Additional safety measures for colleagues were implemented,
including enhanced cleaning, Perspex screens, social distancing
measures, separation of colleagues when delivering large goods,
hand sanitiser and closing some in-store services
— Our colleague policies provide financial support for vulnerable and
self-isolating colleagues to enable them to take time away from
work where required
— For customers, we are prioritising food online deliveries to vulnerable
customers and have opened additional online/Click & Collect
facilities to support contactless service
Strategic ReportJ Sainsbury plc Annual Report 2020 09
Overview of impact of COVID-19 on principal risks
Current mitigations, which are subject to change as risks evolve
Political and regulatory environment
We, along with other retailers, are being actively encouraged to
work together and to support the Government in helping ensure
food supply. There is a risk that collaborative working and data
sharing may transgress regulations such as Competition Law.
— To support current and emerging regulatory requirements,
we continue to engage actively with Government, industry and
regulatory bodies. This was and continues to be a key area of
focus as we respond to COVID-19 to support the Government’s
initiatives that require us to work with other retailers
— The Legal team is actively engaged in these discussions and with
the Incident Response team to help ensure regulatory matters
are managed appropriately
Sainsbury’s Bank
Due to changes in the economy, the demand for banking products
has reduced while credit risk is rising due to increases in unemployment,
reduced household income and a fall in the value of investments.
Operational risk is also rising due to process changes that have had
to be deployed to support customers.
— The Bank continues to review its capital and liquidity requirements
while taking measures to help customers through the crisis.
A range of measures have been and will be deployed to mitigate
credit risk where possible
— Operational risk and all other risks are kept under constant review
through the Bank’s formal governance
Trading environment and competitive landscape
Short-term disruption to the trading environment and supply chains.
For example, food stock piling, reduced clothing purchases and the
closure of the standalone Argos stores.
— We are actively working with existing and new suppliers to
simplify our food ranges to maximise availability
— The impact of COVID-19 on the trading environment, particularly
on clothing and general merchandising, is actively being
monitored to ensure we can respond to customer needs and
manage stock levels
For more information on our financial outlook, please go to page 5.
For more information on Board activity and governance during COVID-19, please see pages 15, 54 and 56.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
10
Business model
Our purpose is to help our customers live well for less. We are achieving this by bringing together trusted,
well-loved brands offering high quality, affordable products which customers can buy both from our
well-located store estate and through our easy to use online channels. The convenience of being able to
shop in-store and online is supported by the market- leading service our colleagues deliver, the rewards
we offer through our Nectar loyalty programme and our financial services.
Our brands
Connected services
Stakeholder value
Across 2,400 stores and online we serve our customers
whenever and wherever they want to shop with us.
Customers
Colleagues
We motivate and reward our colleagues well and enable
them to reach their full potential by harnessing their
talent, creativity and diversity. We are committed to
being a place where people love to work.
Suppliers
In partnership with our suppliers around the world
we improve quality, innovation and sustainability
throughout our supply chain. We are consistently
ranked first or second for supplier relationships in
the largest independent supplier survey.
Communities
We contribute to the communities in all parts of the UK.
We provide good employment opportunities,
supporting local and national charities and initiating
community initiatives.
Shareholders
for our shareholders.
We have the right strategy in place to grow value
Our channels
In-store
Online
Single infrastructure
Strategic ReportJ Sainsbury plc Annual Report 2020 11
How we create value
Bringing Sainsbury’s and Argos closer
together will enable us to build a future
where customers can easily buy everything
they need from one single, multi brand,
multi channel business. By integrating our
infrastructure, systems and operations we
can also reduce our operating costs, ensuring
that the products and services we offer
continue to be competitive.
£6 billion of sales across the business are
now digital, and we continue to invest to
deliver easy, speedy and seamless shopping.
We offer fast, convenient home delivery for
food and general merchandise and we have
close to 2,400 stores across the UK where
customers can collect orders they have
made online.
Increasingly customers are interacting
with us digitally when they are in stores.
Sainsbury’s has rolled out SmartShop
technology to all supermarkets, delivering
easier and convenient ways for customers
to shop using in-store handsets or their own
smartphone. A growing number of customers
are choosing to shop with us in this way and
SmartShop sales account for up to 20 per cent
of sales. At Argos, we rapidly rolled out
Pay@Browse to 386 Argos stores, offering
customers a quicker way to pay. And through
our Nectar app over four million users can
access their Nectar account digitally.
Alongside investment in digital innovation
we are making the most of our store space
so we can offer customers complementary
product ranges and services through
carefully selected concession partners,
who pay us rent or a share of their turnover.
Living well means living sustainably and the
work we are doing to deliver our Net Zero by
2040 commitment is designed to minimise
the impact of our operations on the
environment. To achieve our ambition we
must work closely with our suppliers to find
ways to minimise the environmental impact
of the entire supply chain. We are also
committed to engaging with and giving
back to our communities, with a particular
focus on helping customers and communities
live healthier and more environmentally
sustainable lives. The work we do in our local
communities is informed by and reinforces
our live well for less and Net Zero by 2040
commitments.
We strive to be an inclusive employer and
colleagues are encouraged to develop their
skills and fulfil their potential and we will
continue to build an engaged workforce.
Stakeholder value
Customers
Across 2,400 stores and online we serve our customers
whenever and wherever they want to shop with us.
Colleagues
We motivate and reward our colleagues well and enable
them to reach their full potential by harnessing their
talent, creativity and diversity. We are committed to
being a place where people love to work.
Suppliers
In partnership with our suppliers around the world
we improve quality, innovation and sustainability
throughout our supply chain. We are consistently
ranked first or second for supplier relationships in
the largest independent supplier survey.
Communities
We contribute to the communities in all parts of the UK.
We provide good employment opportunities,
supporting local and national charities and initiating
community initiatives.
Shareholders
We have the right strategy in place to grow value
for our shareholders.
Our brands
Connected services
Our channels
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
12
The market
Economic conditions eased slightly for UK consumers
over the last 12 months, prior to the start of COVID-19.
Unemployment rates remained at historic lows and average
weekly earnings continued to outstrip inflation.
Retail trends
How we are responding
Despite this, consumer confidence
languished throughout most of the year,
impacted by Brexit uncertainty, before
improving at the end of 2019. UK GDP growth
in the past year has been subdued and
near-term outlooks for economic growth,
before the impact of COVID-19, were below
long-term averages.
Lower levels of inflation and weak consumer
confidence have resulted in little to no
growth in both the food and non-food retail
sectors. This is putting pressure on the
underlying economics of retail businesses,
the impact of which can be seen in record
levels of store closures and traditional retail
businesses entering administration.
The global spread of COVID-19 escalated at
the end of our financial year. This has had a
significant impact on customers, colleagues
and communities and the way we operate
and will likely have an ongoing impact on
customer demand, the availability of
colleagues, our operating costs and the
financial services business. Please see
pages 6 to 9 where we detail scenario
planning with regards to COVID-19.
Changing customer shopping habits
We continue to see rapid changes in how
customers shop in the UK. With greater access to
a variety of shopping channels, the UK consumer
has more flexibility and choice than ever in how
and when they shop and online and convenience
channels are showing strong growth. High streets
and retail parks, in particular, continue to
experience footfall and sales decline as online
participation grows. The growth of food delivery
services such as Deliveroo, Just Eat and Uber Eats
is impacting grocery spending and consumers
are also eating more meals outside the home.
We are a multi brand, multi channel retailer and
our customers can shop with us wherever and
however they want. In the fast-growing Groceries
Online channel, technological advances have
improved productivity and helped to drive sales,
with greater availability of same-day delivery.
Chop Chop, our one-hour delivery service for up to
25 grocery items, continues to see strong growth.
Online penetration in some general merchandise
categories, such as consumer electronics, is
already very high. Around 60 per cent of Argos
sales start online and customers are able to
choose between rapid home delivery (within four
hours, seven days a week) or collecting items
from over 1,100 locations, including 306 Argos
stores in Sainsbury’s supermarkets. Argos’s single
item supply chain and hub and spoke delivery
network delivers this flexible proposition at a far
lower cost than most bricks and mortar retailers.
Our convenience store estate consists of over 800
town centre and neighbourhood stores and is
outperforming the market in value and volume as
we continue to tailor the ranges we offer customers
to ensure they reflect local demographics.
We are adapting our supermarket space to serve
a wide variety of shopping missions, ensuring we
offer customers a broad range of products and
services under one roof. This includes Argos stores
and Beauty Halls, as well as popular concessions
partners such as Specsavers and Sushi Gourmet.
Maximising the productivity of our space in this
way is driving strong trading intensity across our
supermarket estate, where footfall trends have
remained strong, relative to declines across high
streets and retail parks.
Digital evolution
Rise of the discounters
Environmental shift
Technology is changing the way consumers interact
The amount of new space being added to the
Consumers are becoming increasingly conscious
with the world and with brands, including the way
market by traditional grocers is limited, but
of the environmental and social impact of their
they shop. Delivery services have improved in terms
discount and bargain retailers continue to open
decisions, including the way they shop and eat.
of speed and reliability, while Click & Collect is
significant numbers of new stores and gain market
Increasing numbers of consumers are reducing
both cost-effective and convenient for customers
share. We do not expect any significant slow-down
their meat and dairy consumption, leading to
and accounts for a significant proportion of online
in discounter store openings in the near future.
strong growth in meat and dairy alternative
general merchandise and clothing sales. Digitisation
Traditional grocers continue to experience
products. Grocery retailers are coming under
is impacting the way customers shop in-store too,
significant switching losses to the discounters,
increasing scrutiny on the use of plastics and
with the rise of self-scan technology speeding
in core commodity items in particular.
up the check-out process. Personalised shopping
experiences are becoming increasingly popular
and represent a significant opportunity.
the management of food waste, with climate
concerns at the heart of public debate. General
merchandise and clothing retailers are also
coming under pressure as awareness of the
environmental impact of plastic toys and clothing
manufacturing grows. Sustainable practices can
develop greater trust for companies, increasing
brand and customer loyalty.
We are focused on technology-led innovation
that makes shopping faster, easier and more
convenient for our customers. SmartShop
with the launch of over 200 entry price point,
value products across 15 brands and sharper
self-scan, which enables customers to scan their
pricing across thousands of products as we
£1 billion over 20 years towards becoming a
Net Zero business across our own operations by
2040. We will use this investment to implement
Our value proposition has improved over the year,
In January 2020, we committed to investing
shopping directly on to their phone or hand-held
implemented our Price Lockdown. The quality
a programme of changes, focusing on reducing
device and check out quickly, is available in all
of our food continues to be a strong differentiator
carbon emissions, food waste, plastic packaging
of our supermarkets. SmartShop mobile pay is
and we are working in partnership with our
and water usage and increasing recycling,
available in nine convenience stores, enabling
suppliers to bring greater numbers of exclusive,
biodiversity and healthy and sustainable eating.
customers to bypass the checkout and pay
on their smartphone anywhere in the store.
innovative and distinctive products to our
customers. With our £1 billion Taste the Difference
Pay@Browse is currently available in nearly 550
range, we have a bigger proportion of premium
Argos stores, offering customers a convenient
private label sales than any of our major
competitors, and we relaunched nearly 700
products across a number of categories during
the year. We have invested more in everyday
lower prices at Argos to ensure great value for
our customers year-round.
The investment will enable us to fulfil Scope 1
and Scope 2 emissions, putting us on course for
Net Zero a decade ahead of the UK Government’s
deadline. We will work with the Carbon Trust to
assess emissions and set science-based targets
for reduction, publicly reporting on progress every
six months. These targets will align Sainsbury’s
with the goal to limit global warming to 1.5°C,
the highest ambition of the Paris Agreement.
payment option without the need to queue
at a till. Argos Click & Collect and Fast Track
delivery have grown by nearly eight per cent
and five per cent respectively.
We have invested heavily in upgraded self-
checkout technology, leading to improved
customer satisfaction in ease and speed of
checkout metrics. We launched Digital Nectar in
October 2019, with over 4.5 million app downloads
and strong weekly customer engagement.
Strategic ReportJ Sainsbury plc Annual Report 2020 13
Digital evolution
Technology is changing the way consumers interact
with the world and with brands, including the way
they shop. Delivery services have improved in terms
of speed and reliability, while Click & Collect is
both cost-effective and convenient for customers
and accounts for a significant proportion of online
general merchandise and clothing sales. Digitisation
is impacting the way customers shop in-store too,
with the rise of self-scan technology speeding
up the check-out process. Personalised shopping
experiences are becoming increasingly popular
and represent a significant opportunity.
Rise of the discounters
The amount of new space being added to the
market by traditional grocers is limited, but
discount and bargain retailers continue to open
significant numbers of new stores and gain market
share. We do not expect any significant slow-down
in discounter store openings in the near future.
Traditional grocers continue to experience
significant switching losses to the discounters,
in core commodity items in particular.
We are focused on technology-led innovation
that makes shopping faster, easier and more
convenient for our customers. SmartShop
self-scan, which enables customers to scan their
shopping directly on to their phone or hand-held
device and check out quickly, is available in all
of our supermarkets. SmartShop mobile pay is
available in nine convenience stores, enabling
customers to bypass the checkout and pay
on their smartphone anywhere in the store.
Pay@Browse is currently available in nearly 550
Argos stores, offering customers a convenient
payment option without the need to queue
at a till. Argos Click & Collect and Fast Track
delivery have grown by nearly eight per cent
and five per cent respectively.
We have invested heavily in upgraded self-
checkout technology, leading to improved
customer satisfaction in ease and speed of
checkout metrics. We launched Digital Nectar in
October 2019, with over 4.5 million app downloads
and strong weekly customer engagement.
Our value proposition has improved over the year,
with the launch of over 200 entry price point,
value products across 15 brands and sharper
pricing across thousands of products as we
implemented our Price Lockdown. The quality
of our food continues to be a strong differentiator
and we are working in partnership with our
suppliers to bring greater numbers of exclusive,
innovative and distinctive products to our
customers. With our £1 billion Taste the Difference
range, we have a bigger proportion of premium
private label sales than any of our major
competitors, and we relaunched nearly 700
products across a number of categories during
the year. We have invested more in everyday
lower prices at Argos to ensure great value for
our customers year-round.
Environmental shift
Consumers are becoming increasingly conscious
of the environmental and social impact of their
decisions, including the way they shop and eat.
Increasing numbers of consumers are reducing
their meat and dairy consumption, leading to
strong growth in meat and dairy alternative
products. Grocery retailers are coming under
increasing scrutiny on the use of plastics and
the management of food waste, with climate
concerns at the heart of public debate. General
merchandise and clothing retailers are also
coming under pressure as awareness of the
environmental impact of plastic toys and clothing
manufacturing grows. Sustainable practices can
develop greater trust for companies, increasing
brand and customer loyalty.
In January 2020, we committed to investing
£1 billion over 20 years towards becoming a
Net Zero business across our own operations by
2040. We will use this investment to implement
a programme of changes, focusing on reducing
carbon emissions, food waste, plastic packaging
and water usage and increasing recycling,
biodiversity and healthy and sustainable eating.
The investment will enable us to fulfil Scope 1
and Scope 2 emissions, putting us on course for
Net Zero a decade ahead of the UK Government’s
deadline. We will work with the Carbon Trust to
assess emissions and set science-based targets
for reduction, publicly reporting on progress every
six months. These targets will align Sainsbury’s
with the goal to limit global warming to 1.5°C,
the highest ambition of the Paris Agreement.
Retail trends
How we are responding
Despite this, consumer confidence
languished throughout most of the year,
impacted by Brexit uncertainty, before
improving at the end of 2019. UK GDP growth
in the past year has been subdued and
near-term outlooks for economic growth,
before the impact of COVID-19, were below
long-term averages.
Lower levels of inflation and weak consumer
confidence have resulted in little to no
growth in both the food and non-food retail
sectors. This is putting pressure on the
underlying economics of retail businesses,
the impact of which can be seen in record
levels of store closures and traditional retail
businesses entering administration.
The global spread of COVID-19 escalated at
the end of our financial year. This has had a
significant impact on customers, colleagues
and communities and the way we operate
and will likely have an ongoing impact on
customer demand, the availability of
colleagues, our operating costs and the
financial services business. Please see
pages 6 to 9 where we detail scenario
planning with regards to COVID-19.
Changing customer shopping habits
We continue to see rapid changes in how
customers shop in the UK. With greater access to
a variety of shopping channels, the UK consumer
has more flexibility and choice than ever in how
and when they shop and online and convenience
channels are showing strong growth. High streets
and retail parks, in particular, continue to
experience footfall and sales decline as online
participation grows. The growth of food delivery
services such as Deliveroo, Just Eat and Uber Eats
is impacting grocery spending and consumers
are also eating more meals outside the home.
We are a multi brand, multi channel retailer and
our customers can shop with us wherever and
however they want. In the fast-growing Groceries
Online channel, technological advances have
improved productivity and helped to drive sales,
with greater availability of same-day delivery.
Chop Chop, our one-hour delivery service for up to
25 grocery items, continues to see strong growth.
Online penetration in some general merchandise
categories, such as consumer electronics, is
already very high. Around 60 per cent of Argos
sales start online and customers are able to
choose between rapid home delivery (within four
hours, seven days a week) or collecting items
from over 1,100 locations, including 306 Argos
stores in Sainsbury’s supermarkets. Argos’s single
item supply chain and hub and spoke delivery
network delivers this flexible proposition at a far
lower cost than most bricks and mortar retailers.
Our convenience store estate consists of over 800
town centre and neighbourhood stores and is
outperforming the market in value and volume as
we continue to tailor the ranges we offer customers
to ensure they reflect local demographics.
We are adapting our supermarket space to serve
a wide variety of shopping missions, ensuring we
offer customers a broad range of products and
services under one roof. This includes Argos stores
and Beauty Halls, as well as popular concessions
partners such as Specsavers and Sushi Gourmet.
Maximising the productivity of our space in this
way is driving strong trading intensity across our
supermarket estate, where footfall trends have
remained strong, relative to declines across high
streets and retail parks.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
14
Our stakeholders
Stakeholders are an important part of the Board’s discussion and decision-making.
Why?
Why is it important for us to engage
with our stakeholders?
Our purpose is to help our customers
live well for less and we think loyal,
satisfied customers are key to our
long-term success.
Colleagues are at the heart of everything
we do and their commitment to our
purpose and values is key to the
Company’s long-term success.
One of the key priorities in our strategy is
to be a place where we all love to work so
we engage with our colleagues in a variety
of ways to help create a place where our
colleagues love to work.
Connected, engaged colleagues, working
in safe stores with better technology leads
to improved service, greater efficiency,
increased availability of products and
improved customer service levels.
Our GFR suppliers are fundamental to the
quality and variety of products we provide
for our customers and enable us to meet
the high standards that we set ourselves.
Our GNFR suppliers provide operational
excellence and access to new technology
and innovation to ensure we keep pace
with the evolving and changing needs of
our customers.
Who?
Stakeholder groups
Customers
We have 28.1 million customer
transactions per week across
all our Sainsbury’s and Argos
channels – in stores, online and
on our mobile app. We also have
18.2 million active Nectar card
customers who benefit from the
UK’s leading loyalty programme.
In our Financial Services business we
have 2.1 million active Sainsbury’s
Bank customers and 2.2 million
Argos Financial Services customers.
Colleagues
Our colleagues include everyone
who is employed by the business.
Suppliers
We have over 4,000 Goods For
Resale (GFR) suppliers that supply
products for food, general
merchandise and clothing and
2,500 Goods Not For Resale (GNFR)
suppliers across the Group
supporting all divisions’ activities
including Logistics, Marketing,
Technology and Retail.
Our suppliers range from large
multi-national companies to small
independently-run businesses.
How?
How do the Board and management engage with our stakeholders?
What?
Outcome and actions
What were the key topics of engagement with our stakeholders,
What was the impact of our engagement and the decisions taken?
The Board is regularly updated on consumer trends and the overall metrics from
our customer feedback programme so it can understand how we are driving
a consistent approach across the business.
The CR&S Committee reviews customer insight analysis which reflects views on
Sainsbury’s and Argos brands and trust in the business on sustainability matters.
Further details on how we engage with our customers include:
— Customer feedback programme (CSAT) – real-time feedback on a range of
service measures
— Social media listening
— Market research – qualitative customer focus groups, accompanied shopping trips,
quantitative surveys
— Nectar data which helps us understand how customers are shopping
— Brand tracking which assesses the performance of our different brands
The Board engages directly with colleagues through the Workforce Advisory Panel
and Talking Shop. It receives detailed presentations on culture, colleague engagement
surveys, and diversity and inclusion from our Group HR Director, and regular summaries
from the Chief Executive Officer on key initiatives that respond to colleagues views.
Our colleague engagement activities include the following:
— Great Place to Work National Group, our Workforce Advisory Panel, made up of
colleagues across the business elected by their peers to represent their views at
meetings. Non-Executive Directors attend these meetings
— Talking Shop, our question and answer style listening sessions, give store
colleagues the opportunity to meet members of the Operating Board and
Non-Executive Directors and discuss the issues that affect them
— Our annual colleague engagement survey ‘We’re Listening’ invites every colleague
to give honest confidential feedback on what it is like to work for the business
— Live social media question and answer sessions with the Chief Executive Officer
around key topics such as our Net Zero by 2040 plan
— Updates on culture and colleague engagement to the Board and CR&S Committee
More information on our colleague engagement activities can be found on page 26.
The Board receives regular updates on supplier relationships.
Operating Board Directors lead our two annual conferences for all our GFR suppliers,
one in Asia and one in London.
Our suppliers have access to our online supplier portals where we share news about
the organisation and develop new ways of working with them which ensures a
consistent forum for tendering communication.
We take part in annual, independent surveys which benchmark us against other
retailers; these include the Advantage survey and Groceries Supply Code of Practice
(GSCOP) supplier survey.
As part of our initiative to drive greater product differentiation, our Future Brands
team has been working with exclusive brands to build stronger relationships.
We have engaged with suppliers through the Sainsbury’s Fairly Traded Programme
and the Fair Development Fund.
We engage with our suppliers to prevent modern slavery and human trafficking in
our business operations and supply chain and report this through our Modern Slavery
Statement.
Customers provided feedback on the things they most want to see which included:
The Board approved the strategic priorities to help our customers live well for less
which addressed this feedback. See pages 20 to 27 for more detail.
and what feedback did the Board obtain?
— Value for money
— Quality of items
— Range of items
— Availability of products
— Colleague service
— Store environment
— Ease of using digital channels
The results of the colleague engagement survey highlighted that colleagues wanted:
The following initiatives were launched by the Chief Executive Officer:
— To hear more from our Chief Executive Officer
— More support around their development and career
— To talk openly and honestly about mental health
— The Chief Executive Officer providing colleagues with more regular updates on the
progress we are making as a business and the role colleagues play in our success
— Encouraging every colleague to discuss their development
— Opening more dialogue around mental health. The Chief Executive Officer
signed up to the Time to Change pledge which is a commitment to change
the way we all think and act about mental health in the workplace
— Appointing an Operating Board Director to lead on Wellbeing as part of the
Group Diversity and Inclusion Steering Group
The Board was updated regularly on health and safety and was supportive of
initiatives to increase safety including the use of body cameras worn by colleagues
and security staff in store, deploying security resource more effectively by using
reporting data from stores to ensure resources are in the right place at the right
time, and investing more in CCTV.
Colleagues are concerned about plastics and the environment.
The Board approved the Net Zero by 2040 plan, for more information see page 27.
Colleagues are concerned about security in stores.
Colleagues want an inclusive workforce that reflects the communities we serve.
The Board is highly supportive of the initiatives in place to promote diversity and
inclusion throughout the business. More information can be found on page 63.
We engaged with our suppliers on our Net Zero by 2040 plan. Our management team
The Board will continue to monitor how we can work with our suppliers to reduce
wrote to suppliers asking them to set their own net zero targets and to reduce their
our Scope 3 emissions.
emissions in line with the Paris Climate Change agreement.
The surveys and feedback that we have received via our supplier portal, through our
Management continues to improve the technology and processes to make it easier
working group and from our Future Brands team, have given us a focus on how to
for our suppliers to do business with us and will report back to the CR&S Committee
improve the supplier experience and will inform our technology roadmap. We have
on progress.
also actively engaged with suppliers on key risks to business continuity including in
relation to Brexit preparation and COVID-19 response, understanding key risks and
actions across our supply base.
David Keens, Chair of the Audit Committee, meets with the Groceries Code
For more information see page 69 of the Audit Committee Report.
Adjudicator to obtain feedback on how Sainsbury’s complies with its obligations to
treat suppliers fairly under the Groceries Supply Code of Practice.
The Sainsbury’s Fairly Traded, Programme has allowed us to develop closer
The CR&S Committee continues to be updated on the work being undertaken
relationships with tea producers and gain visibility of the environmental, social and
by Sainsbury’s Fairly Traded Programme, including how we distributed funds
economic risks they face.
to farmers and how we provided farmers with data-driven insights on social,
environmental, and economic risks to help them strengthen their businesses
and communities for the long-term.
The Fair Development Fund, which was set up in 2007 with Comic Relief, has helped us
The CR&S Committee discussed the third phase of work through the Fair
engage with growers, farmers and workers in developing countries to give them a better
Development Fund which is focusing on Sainsbury’s non-food suppliers with the
chance of building a sustainable future for themselves, their families and their communities.
aim to promote positive and equitable gender relations in the supply chain.
Strategic ReportJ Sainsbury plc Annual Report 2020 15
Engaging with our stakeholders
and our Section 172 Statement
The Board has always deeply engaged
with the Company’s vision, values and goals
recognising that they underpin everything
we do as a business and help us strengthen
relationships with our key stakeholders.
We have 172,000 colleagues, over 28 million
customer transactions a week, 114,000
shareholders, and we source over 48,000
Sainsbury’s branded products from more
than 87 countries.
Stakeholder considerations and culture are
therefore an important part of the Board’s
discussions and decision-making, to promote
the success of the Company in the long term,
consistent with the ethos of the Companies
Act 2006 (CA2006) Section 172. For many
years, various aspects of culture have been
considered by the Board and Committees
through the scheduled cycle of meetings,
supplemented by other engagement
opportunities. This has been strengthened
during the last year with an annual review of
our purpose, culture and values by the Board;
regular reporting by the Non-Executive
Directors who attend our Workforce Advisory
Panel with members of our existing
Great Place to Work colleague group; and
reformatting the schedule of our Corporate
Responsibility and Sustainability (CR&S)
Committee meetings to focus on our
sustainability strategy and our engagement
with colleagues, customers, suppliers and
the community.
Our Board discussions during the COVID-19
pandemic have particularly focussed on the
needs of all of our stakeholders as referred
to on pages 6 to 9.
The Board believes that it has acted in the
way it considers would be most likely to
promote success of the Company for the
benefit of its members as a whole, having
regard to Section 172(1)(a) to (f) and other
factors it reviewed, during the year ended
7 March 2020. The approach we take to
Section 172 also applies to our subsidiaries
in a manner which is relevant to their own
individual size and complexity.
The disclosure below provides further
detail on how the Board has considered
stakeholders when making Board decisions.
What?
What were the key topics of engagement with our stakeholders,
and what feedback did the Board obtain?
Customers provided feedback on the things they most want to see which included:
— Value for money
— Quality of items
— Range of items
— Availability of products
— Colleague service
— Store environment
— Ease of using digital channels
Outcome and actions
What was the impact of our engagement and the decisions taken?
The Board approved the strategic priorities to help our customers live well for less
which addressed this feedback. See pages 20 to 27 for more detail.
Colleagues
Our colleagues include everyone
who is employed by the business.
Colleagues are at the heart of everything
The Board engages directly with colleagues through the Workforce Advisory Panel
we do and their commitment to our
and Talking Shop. It receives detailed presentations on culture, colleague engagement
purpose and values is key to the
Company’s long-term success.
surveys, and diversity and inclusion from our Group HR Director, and regular summaries
from the Chief Executive Officer on key initiatives that respond to colleagues views.
The results of the colleague engagement survey highlighted that colleagues wanted:
— To hear more from our Chief Executive Officer
— More support around their development and career
— To talk openly and honestly about mental health
The following initiatives were launched by the Chief Executive Officer:
— The Chief Executive Officer providing colleagues with more regular updates on the
progress we are making as a business and the role colleagues play in our success
— Encouraging every colleague to discuss their development
— Opening more dialogue around mental health. The Chief Executive Officer
signed up to the Time to Change pledge which is a commitment to change
the way we all think and act about mental health in the workplace
— Appointing an Operating Board Director to lead on Wellbeing as part of the
Group Diversity and Inclusion Steering Group
Colleagues are concerned about plastics and the environment.
The Board approved the Net Zero by 2040 plan, for more information see page 27.
Colleagues are concerned about security in stores.
Colleagues want an inclusive workforce that reflects the communities we serve.
We engaged with our suppliers on our Net Zero by 2040 plan. Our management team
wrote to suppliers asking them to set their own net zero targets and to reduce their
emissions in line with the Paris Climate Change agreement.
The surveys and feedback that we have received via our supplier portal, through our
working group and from our Future Brands team, have given us a focus on how to
improve the supplier experience and will inform our technology roadmap. We have
also actively engaged with suppliers on key risks to business continuity including in
relation to Brexit preparation and COVID-19 response, understanding key risks and
actions across our supply base.
David Keens, Chair of the Audit Committee, meets with the Groceries Code
Adjudicator to obtain feedback on how Sainsbury’s complies with its obligations to
treat suppliers fairly under the Groceries Supply Code of Practice.
The Sainsbury’s Fairly Traded, Programme has allowed us to develop closer
relationships with tea producers and gain visibility of the environmental, social and
economic risks they face.
The Board was updated regularly on health and safety and was supportive of
initiatives to increase safety including the use of body cameras worn by colleagues
and security staff in store, deploying security resource more effectively by using
reporting data from stores to ensure resources are in the right place at the right
time, and investing more in CCTV.
The Board is highly supportive of the initiatives in place to promote diversity and
inclusion throughout the business. More information can be found on page 63.
The Board will continue to monitor how we can work with our suppliers to reduce
our Scope 3 emissions.
Management continues to improve the technology and processes to make it easier
for our suppliers to do business with us and will report back to the CR&S Committee
on progress.
For more information see page 69 of the Audit Committee Report.
The CR&S Committee continues to be updated on the work being undertaken
by Sainsbury’s Fairly Traded Programme, including how we distributed funds
to farmers and how we provided farmers with data-driven insights on social,
environmental, and economic risks to help them strengthen their businesses
and communities for the long-term.
The Fair Development Fund, which was set up in 2007 with Comic Relief, has helped us
engage with growers, farmers and workers in developing countries to give them a better
chance of building a sustainable future for themselves, their families and their communities.
The CR&S Committee discussed the third phase of work through the Fair
Development Fund which is focusing on Sainsbury’s non-food suppliers with the
aim to promote positive and equitable gender relations in the supply chain.
Who?
Why?
How?
Stakeholder groups
Why is it important for us to engage
How do the Board and management engage with our stakeholders?
Our purpose is to help our customers
The Board is regularly updated on consumer trends and the overall metrics from
with our stakeholders?
live well for less and we think loyal,
satisfied customers are key to our
long-term success.
our customer feedback programme so it can understand how we are driving
a consistent approach across the business.
The CR&S Committee reviews customer insight analysis which reflects views on
Sainsbury’s and Argos brands and trust in the business on sustainability matters.
Further details on how we engage with our customers include:
— Customer feedback programme (CSAT) – real-time feedback on a range of
service measures
— Social media listening
quantitative surveys
— Market research – qualitative customer focus groups, accompanied shopping trips,
— Nectar data which helps us understand how customers are shopping
— Brand tracking which assesses the performance of our different brands
Customers
We have 28.1 million customer
transactions per week across
all our Sainsbury’s and Argos
channels – in stores, online and
on our mobile app. We also have
18.2 million active Nectar card
customers who benefit from the
UK’s leading loyalty programme.
In our Financial Services business we
have 2.1 million active Sainsbury’s
Bank customers and 2.2 million
Argos Financial Services customers.
One of the key priorities in our strategy is
Our colleague engagement activities include the following:
to be a place where we all love to work so
— Great Place to Work National Group, our Workforce Advisory Panel, made up of
we engage with our colleagues in a variety
colleagues across the business elected by their peers to represent their views at
of ways to help create a place where our
meetings. Non-Executive Directors attend these meetings
colleagues love to work.
Connected, engaged colleagues, working
in safe stores with better technology leads
to improved service, greater efficiency,
increased availability of products and
improved customer service levels.
— Talking Shop, our question and answer style listening sessions, give store
colleagues the opportunity to meet members of the Operating Board and
Non-Executive Directors and discuss the issues that affect them
— Our annual colleague engagement survey ‘We’re Listening’ invites every colleague
to give honest confidential feedback on what it is like to work for the business
— Live social media question and answer sessions with the Chief Executive Officer
around key topics such as our Net Zero by 2040 plan
— Updates on culture and colleague engagement to the Board and CR&S Committee
More information on our colleague engagement activities can be found on page 26.
Our GFR suppliers are fundamental to the
The Board receives regular updates on supplier relationships.
Suppliers
We have over 4,000 Goods For
Resale (GFR) suppliers that supply
products for food, general
merchandise and clothing and
2,500 Goods Not For Resale (GNFR)
suppliers across the Group
supporting all divisions’ activities
including Logistics, Marketing,
Technology and Retail.
Our suppliers range from large
multi-national companies to small
independently-run businesses.
quality and variety of products we provide
for our customers and enable us to meet
the high standards that we set ourselves.
Our GNFR suppliers provide operational
excellence and access to new technology
and innovation to ensure we keep pace
with the evolving and changing needs of
our customers.
Operating Board Directors lead our two annual conferences for all our GFR suppliers,
one in Asia and one in London.
Our suppliers have access to our online supplier portals where we share news about
the organisation and develop new ways of working with them which ensures a
consistent forum for tendering communication.
We take part in annual, independent surveys which benchmark us against other
retailers; these include the Advantage survey and Groceries Supply Code of Practice
(GSCOP) supplier survey.
As part of our initiative to drive greater product differentiation, our Future Brands
team has been working with exclusive brands to build stronger relationships.
We have engaged with suppliers through the Sainsbury’s Fairly Traded Programme
and the Fair Development Fund.
We engage with our suppliers to prevent modern slavery and human trafficking in
our business operations and supply chain and report this through our Modern Slavery
Statement.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
16
Our stakeholders
continued
Who?
Stakeholder groups
Communities
Generating positive impact in the
communities we serve and source
worldwide.
Why?
Why is it important for us to engage
with our stakeholders?
We are embedded in many communities
across the UK, so we are committed to
supporting social cohesion, economic
prosperity and inclusive growth to help
us achieve our vision of being the most
trusted retailer where people love to work
and shop.
How?
How do the Board and management engage with our stakeholders?
What?
Outcome and actions
What were the key topics of engagement with our stakeholders,
What was the impact of our engagement and the decisions taken?
and what feedback did the Board obtain?
The CR&S Committee was provided with regular updates on our community
programme including on:
— The work by our ‘Making a Positive Difference to our Community’ Value
Management Group, which helps ensure effective delivery of our community
programmes across the business
— Colleague feedback through our Workforce Advisory Panel
— Our customer feedback programme and customer surveys which provide the
Board with valuable information on our customers and local communities. These
insights help shape our activities
Through engagement with our colleagues and customers, we have identified ways
The CR&S Committee was highly supportive of the initiatives in the programme
to support and make a difference to our local communities including:
which included:
— Volunteering in local communities
— Inspiring children to lead healthier lifestyles
— Tackling food poverty
— Our 150th birthday work time volunteering, which gave colleagues time to
volunteer in their local community. See pages 19, 26 and 64 for more information
— Successful Active Kids programme – Jo Harlow visited an Active Kids Club and
— Collaborating for greater impact; using our assets to help generate funds
learnt more about them
for charities
— Expanding back-of-store surplus food redistribution and increasing the number
— Helping our colleagues to support their local communities
of front-of-store donation points
Shareholders
We have institutional, large
investors and private shareholders.
The major interests in our shares
are set out on page 97 within our
Governance Report and the
breakdown is on page 201.
Continued access to capital is of vital
importance to the long-term success of
our business.
Through our engagement activities we
explain our financial and operating
performance and strategy in order to
encourage sustained support for the
Company’s shares.
We seek to encourage shareholders who
are interested in a long-term holding in
the Company to invest in the business.
The Board receives reports and updates on shareholder relations at each meeting.
These summarise key feedback from our principal shareholders derived from the
programme that consists of:
— One-on-one investor meetings with the Chairman, Chief Executive Officer,
Chief Financial Officer and Head of Investor Relations
— Real time feedback from investors immediately after meetings and
presentations
— The Annual General Meeting (AGM)
— Attendance at key investor conferences and tours, for example, the Capital
Markets Day
— Regular email and telephone contact with investors and analysts
Government
The UK Government and devolved
administrations in Scotland,
Wales and Northern Ireland set
the regulatory environment in
which our business operates.
As a UK-based business and a major
employer of 172,000 colleagues it is
appropriate and responsible for a business
of our scale to engage with Government.
The Board receives updates when regulation is relevant to the business through
summaries on the following activities:
— Responding to Government consultations
— Direct meetings
— Trade association meetings
— Government organised roundtables
— Participation in Government organised forums such as the Food and Drink
Sector Council (Defra) or the Retailer Panel for Exiting the EU (BEIS)
Shareholders wanted to understand how we intended to improve our grocery market
We held a Capital Markets Day in September 2019, in addition to our usual
share performance and compete with the discounters.
— Supporting The Royal British Legion and Comic Relief for over 20 years. Through
these and other charity partnerships £359 million has been generated
— Our Local Hero programme which has supported thousands of charities and
community groups across the country
engagement activities, where we updated our strategy and launched six of our
strategic priorities. Our seventh strategic priority Net Zero by 2040 plan was
launched in January 2020. We also outlined the results of some of the changes
we had made to our customer offer over the course of 2019/20.
Shareholders wanted to understand how we would improve returns in our Financial
The Board approved a Financial Services five-year plan.
Services division and reduce the cash outflows from the business to the Financial
Services business.
governance issues.
Shareholders are keen to understand how prepared we are for Brexit.
Our shareholders are increasingly interested in environmental, social and
The Board approved the Net Zero by 2040 plan, having considered the risks and
opportunities, details of which can be found on pages 27, 54 and 65.
The management team responsible for Brexit is developing plans in line with
presentations to the Board. Further information can be found on page 39.
Shareholders are keen to understand our new Remuneration Policy and how it aligns
The Remuneration Committee approved the new Remuneration Policy which
with best practice, including the Investment Association guidelines.
has been proposed for shareholders to vote on at the AGM and is included on
Management has engaged this year with Government and officials on the
Supporting the Government with building and adapting regulation and legislation,
ensuring sensible policy making rooted in data-led information and putting policy
pages 90 to 95.
into practice.
— Climate change and net zero
— UN Climate Change Conference (COP 26)
— Waste and resources legislation such as the Deposit Return Scheme
following topics:
— COVID-19
— Brexit
— Disability
— Apprenticeship levy
— Healthy eating and obesity
— Business rates
Defined benefit pension
holders fund
We regularly engage with our Trustee,
who has a fiduciary duty to the members
and beneficiaries of our defined benefit
scheme, to ensure that the Scheme is
sufficiently funded.
Our management engage with our Trustees on a day-to-day basis. The Chief Financial
Officer regularly meets with the Trustee Chair and attends the Trustee Board meeting
on a bi-annual basis to report on annual and interim results.
We engaged with the Trustees on the triennial valuation, recognising the need to
The Board approved a new longer-term, asset-backed pension plan. We now
balance our significant pension fund commitments against greater security for our
have an agreed funding plan for the medium term that better secures the pension
Pension Scheme members.
members’ benefits whilst ensuring the Company does not over-fund.
Strategic ReportJ Sainsbury plc Annual Report 2020 17
Who?
Why?
How?
Stakeholder groups
Why is it important for us to engage
How do the Board and management engage with our stakeholders?
We are embedded in many communities
The CR&S Committee was provided with regular updates on our community
Communities
Generating positive impact in the
communities we serve and source
worldwide.
with our stakeholders?
across the UK, so we are committed to
supporting social cohesion, economic
prosperity and inclusive growth to help
us achieve our vision of being the most
trusted retailer where people love to work
and shop.
programme including on:
— The work by our ‘Making a Positive Difference to our Community’ Value
Management Group, which helps ensure effective delivery of our community
programmes across the business
— Colleague feedback through our Workforce Advisory Panel
— Our customer feedback programme and customer surveys which provide the
Board with valuable information on our customers and local communities. These
insights help shape our activities
Shareholders
We have institutional, large
investors and private shareholders.
The major interests in our shares
are set out on page 97 within our
Governance Report and the
breakdown is on page 201.
our business.
programme that consists of:
Through our engagement activities we
explain our financial and operating
performance and strategy in order to
encourage sustained support for the
Company’s shares.
— One-on-one investor meetings with the Chairman, Chief Executive Officer,
Chief Financial Officer and Head of Investor Relations
— Real time feedback from investors immediately after meetings and
presentations
— The Annual General Meeting (AGM)
We seek to encourage shareholders who
— Attendance at key investor conferences and tours, for example, the Capital
are interested in a long-term holding in
the Company to invest in the business.
Markets Day
— Regular email and telephone contact with investors and analysts
Government
The UK Government and devolved
administrations in Scotland,
Wales and Northern Ireland set
the regulatory environment in
which our business operates.
As a UK-based business and a major
employer of 172,000 colleagues it is
appropriate and responsible for a business
of our scale to engage with Government.
summaries on the following activities:
— Responding to Government consultations
— Direct meetings
— Trade association meetings
— Government organised roundtables
The Board receives updates when regulation is relevant to the business through
— Participation in Government organised forums such as the Food and Drink
Sector Council (Defra) or the Retailer Panel for Exiting the EU (BEIS)
What?
What were the key topics of engagement with our stakeholders,
and what feedback did the Board obtain?
Outcome and actions
What was the impact of our engagement and the decisions taken?
Through engagement with our colleagues and customers, we have identified ways
to support and make a difference to our local communities including:
— Volunteering in local communities
— Inspiring children to lead healthier lifestyles
— Tackling food poverty
— Collaborating for greater impact; using our assets to help generate funds
for charities
The CR&S Committee was highly supportive of the initiatives in the programme
which included:
— Our 150th birthday work time volunteering, which gave colleagues time to
volunteer in their local community. See pages 19, 26 and 64 for more information
— Successful Active Kids programme – Jo Harlow visited an Active Kids Club and
learnt more about them
— Expanding back-of-store surplus food redistribution and increasing the number
— Helping our colleagues to support their local communities
of front-of-store donation points
Continued access to capital is of vital
The Board receives reports and updates on shareholder relations at each meeting.
importance to the long-term success of
These summarise key feedback from our principal shareholders derived from the
Shareholders wanted to understand how we intended to improve our grocery market
share performance and compete with the discounters.
Shareholders wanted to understand how we would improve returns in our Financial
Services division and reduce the cash outflows from the business to the Financial
Services business.
— Supporting The Royal British Legion and Comic Relief for over 20 years. Through
these and other charity partnerships £359 million has been generated
— Our Local Hero programme which has supported thousands of charities and
community groups across the country
We held a Capital Markets Day in September 2019, in addition to our usual
engagement activities, where we updated our strategy and launched six of our
strategic priorities. Our seventh strategic priority Net Zero by 2040 plan was
launched in January 2020. We also outlined the results of some of the changes
we had made to our customer offer over the course of 2019/20.
The Board approved a Financial Services five-year plan.
Our shareholders are increasingly interested in environmental, social and
governance issues.
The Board approved the Net Zero by 2040 plan, having considered the risks and
opportunities, details of which can be found on pages 27, 54 and 65.
Shareholders are keen to understand how prepared we are for Brexit.
Shareholders are keen to understand our new Remuneration Policy and how it aligns
with best practice, including the Investment Association guidelines.
Management has engaged this year with Government and officials on the
following topics:
— COVID-19
— Brexit
— Climate change and net zero
— UN Climate Change Conference (COP 26)
— Waste and resources legislation such as the Deposit Return Scheme
— Disability
— Apprenticeship levy
— Healthy eating and obesity
— Business rates
The management team responsible for Brexit is developing plans in line with
presentations to the Board. Further information can be found on page 39.
The Remuneration Committee approved the new Remuneration Policy which
has been proposed for shareholders to vote on at the AGM and is included on
pages 90 to 95.
Supporting the Government with building and adapting regulation and legislation,
ensuring sensible policy making rooted in data-led information and putting policy
into practice.
Defined benefit pension
holders fund
We regularly engage with our Trustee,
Our management engage with our Trustees on a day-to-day basis. The Chief Financial
who has a fiduciary duty to the members
Officer regularly meets with the Trustee Chair and attends the Trustee Board meeting
and beneficiaries of our defined benefit
on a bi-annual basis to report on annual and interim results.
We engaged with the Trustees on the triennial valuation, recognising the need to
balance our significant pension fund commitments against greater security for our
Pension Scheme members.
The Board approved a new longer-term, asset-backed pension plan. We now
have an agreed funding plan for the medium term that better secures the pension
members’ benefits whilst ensuring the Company does not over-fund.
scheme, to ensure that the Scheme is
sufficiently funded.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
18
Our 2020
Sustainability Plan
Delivering on our 2020 commitments.
Our 2020 Sustainability Plan has been our
guide for building a sustainable future,
ensuring we focused our efforts to make
the greatest difference and we are proud of
what we have achieved over the past decade;
we have learnt a lot in the process and taken
lessons from where we have hit our targets
and where we have not. This helped to
inform how we can make a greater impact
moving forward and where we need to
collaborate with industry and partners
to contribute to tackling some of the big
challenges such as climate change.
Our purpose is to help our customers
live well for less, now and in the future
and to help them get the most out
of life, no matter how much money
or time they have.
Our customers care about wide-ranging,
complex issues that impact them and our
wider world. And, they expect us to be a
responsible, sustainable business, whether
that’s by supporting the communities
we serve and source from, managing our
environmental impact or contributing to
a healthier and more inclusive society.
To this end, in January 2020 we announced
our new commitment to invest £1 billion over
20 years to become Net Zero across our own
operations by no later than 2040.
When we launched our 2020 Sustainability
Plan in 2011, we set out five clear values and
gave ourselves 20 deliberately stretching
commitments which gave us a clear focus
to formalise our activities. Our five values
were to help our customers, colleagues
and suppliers to live healthier lives; make
a positive difference to our communities;
source with integrity; have respect for our
environment; and create a great place to
work for our colleagues. In 2015, approaching
the halfway point of our 2020 timescale and
following the launch of our 2014 business
strategy, we took the opportunity to review
our 2020 Sustainability Plan. As a result, we
updated our commitments, removing those
which were no longer relevant and adding
challenging new ones to have the most
positive impact. This gave us a refreshed
focus as we moved forward to 2020.
“When we launched our
2020 Sustainability Plan in
2011, we set out five clear
values and gave ourselves
20 deliberately stretching
commitments.”
Strategic ReportJ Sainsbury plc Annual Report 2020 19
Living Healthier Lives
Offering customers nutritious and healthy food
and encouraging active lifestyles
Respect for our Environment
Reducing emissions, water use and waste
across our value chain
We committed that our customers could always choose nutritious
and healthy food when they shop with us and that we would
encourage kids to live a healthy, balanced lifestyle.
22%
red traffic light labels on our
own-brand products
2020 target: 21%
£187m
total investment in our
Active Kids scheme
2020 target: £200m
We are continuing to reduce the percentage of red traffic labels on
own-brand products and reformulate to reduce salt, sugar, fat and
saturated fat in order to help our customers eat and live well. We are
also supporting customers with food allergies and intolerances by
creating personalised allergen profiles online via food search platform
FoodMaestro. We continue to invest in our Active Kids scheme and
launched summer holiday clubs to offer activities to kids of all abilities
during the long summer break.
Making a Positive Difference
to our Community
Generating positive impact in the communities
we serve and source from, locally and globally
We committed to support our local communities in relevant and impactful
ways and donate over £400 million to charitable causes by 2020.
£359m1
cumulative charitable investment
generated across our programmes
2020 target: £400m
We committed to reduce our operational food waste and to work with
our customers to help them reduce theirs, putting both to positive use.
We also said we would reduce our own-brand packaging and our
operational carbon emissions. Through robust water stewardship,
we committed to address and manage all areas of water vulnerability.
92%3
stores with Food Donation
Partner(s) for surplus food
2020 target: 100%
42%
absolute greenhouse gas
emissions reduction
2020 target: 30%
We continue to support the delivery of Courtauld 2025/Champions 12.3
by reducing operational food waste and are making year-on-year
progress to increase the number of stores with Food Donation Partners.
We are really proud of our achievements in reducing greenhouse gas
emissions and water use in our operations. This year we received
a CDP A rating for our climate change disclosure for the sixth year
running, the only UK food retailer to achieve this score for this length
of time. We will continue to introduce proven technologies to achieve
further reductions in these areas in order to reach our goal of being
Net Zero in our own operations by 2040.
Great Place to Work
Being an inclusive employer where colleagues
love to work
We committed to being an employer where colleagues love to
work and to having an inclusive workforce which offers good
employment opportunities to all members of the community.
We also committed to investing in the training and development
of our colleagues.
Through our customers and colleagues, we have generated over
£359 million to make a positive difference to the communities we serve.
In addition, we supported over 35,000 of our colleagues who pledged
to work with charities and community groups across the UK through
our 150 Days of Community programme to celebrate our Company’s
150th birthday.
£9.30 an hour4
colleague reward
2020 target: standard colleague reward greater than
National Living Wage
Sourcing with Integrity
Building resilient supply chains by sourcing
products ethically and sustainably
We committed to sourcing our key raw materials sustainably to
an independent standard and that our own-brand fish would be
independently certified as sustainable. We committed to selling
products that are fairly traded and to invest in the sustainability of
the suppliers, farmers, growers and workers within our supply chains
internationally, as well as investing in the future of British farming
and be the leading retailer for British produce. We also committed to
sourcing our meat, poultry, eggs and dairy products from suppliers who
adhere to independently verified animal health and welfare outcomes.
99.1%2
palm oil sourced to an
independent sustainability
standard
2020 target: 100%
100%
farmed seafood independently
certified as sustainable
2020 target: 100%
We are proud of our track record on sustainably farmed fish and have
made significant progress to ensure we limit the contribution to global
deforestation from our own-brand products. We will continue to actively
collaborate with suppliers, partners and industry experts to ensure that
we source from sustainable sources.
6.7%
colleague reward is greater than National Living Wage
2020 target: standard colleague reward greater than
National Living Wage
We are recognised as a great place to work, demonstrated by
maintaining our Gold accreditation from Investors in People for the
fourth year running. We have continued to broaden our training and
development offer to our colleagues and our ‘Leading@Sainsbury’s’
development programmes support individuals to develop the skills
and leadership capability to transition to a management role.
For more detail on our sustainability initiatives and for our full
2019/20 performance scorecard against our 2020 commitments,
please see our Sustainability Update report on our corporate website.
For our Net Zero by 2040 commitments please see page 27, and
for our greenhouse gas emission disclosure please see page 97.
1
Includes funds raised for good causes from corporate donations, carrier bags, colleague and customer
fundraising and charity partnerships.
2 Based on 2019 calendar year.
3 We have sent zero operational waste to landfill since 2013.
4 Per hour base rate of pay in Sainsbury’s stores. National Living Wage rate (25+) effective dates:
April 2018, April 2019 and April 2020.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
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Our strategy
To deliver our purpose and vision we will focus on seven strategic
priorities which are designed to ensure we continue to give our customers
what they want in a rapidly changing retail marketplace while also
delivering value for our shareholders.
Offer distinctive products
and new categories
We can serve more of our customers’ needs by
selling more distinctive and exclusive ranges.
Because of our distinctive offer, customers visit our stores
to buy new and interesting products they cannot find
elsewhere. By bringing distinctive and innovative brands
to the market we give our customers better choice and
our stores benefit from incremental sales as a result.
Fast, friendly and convenient
Great service and availability and faster ways
to pay mean customers can save time as well
as money by shopping with us.
We are consistently improving our customer service scores,
driven by investment in more than 450 supermarkets
and 362 convenience stores. We also now have 306 Argos
stores in Sainsbury’s supermarkets. We further maximise
our supermarket space by introducing carefully selected
concession partners that give our customers a range of
essential services, as well as a broader choice of fantastic
quality products, including 61 Specsavers and over 123 Sushi
Gourmet counters.
Be a place where
we all love to work
We respect and reward our colleagues for the great
work they do helping our customers live well for less.
Being a company that people love to work for means being
an inclusive employer where colleagues are encouraged
to develop their skills and fulfil their potential. It’s about
playing an active role in our communities and about having
high ethical standards that we and our suppliers adhere to.
Read more about the progress we
are making against our priorities on
pages 21 to 27.
Be competitive on price
We are focused on offering customers quality
products at affordable prices.
Through the year our food and grocery sales have been on
an improving trend and we are outperforming our main
supermarket peers. This is driven by strategic investments
in our customer offer, reducing our prices and ensuring
customers always get great value.
Personalised and seamless
physical and digital
We are investing in our digital offer so that
customers can shop easily and efficiently
across our multi brand, multi channel business.
Financial Services and Nectar provide our customers with
affordable ways to manage their finances and reward
them for their loyalty. Our Nectar loyalty programme is
the biggest in the UK with over 18 million members and
over 4.5 million people have now downloaded the new app.
Drive efficiency to reinvest
To invest in our customer offer, we aim to deliver
inflation covering cost savings as well as structurally
reducing our costs.
This year we have met our objective to make savings to
cover the impact of cost inflation and we are making good
early progress with our target to structurally reduce our
costs by approximately £500 million over five years by
bringing Sainsbury’s and Argos together.
Net Zero by 2040
We will create value for future generations
by reducing the environmental impact of our
business and by working with farmers, growers
and suppliers throughout our supply chain to
help them reduce theirs.
Living well means living sustainably and we have
committed to invest £1 billion over 20 years to become
Net Zero across all our operations by 2040. We have
seven key areas of focus and we will report progress
against each of them at our interim results in November.
Strategic ReportJ Sainsbury plc Annual Report 2020 21
Priority 1
Be competitive on price
To help customers live well for less we are focused on offering
them quality products at affordable prices.
Tu clothing performed well during the year,
growing by 1.2 per cent and gaining share
in a highly competitive market. Tu clothing
online grew by 47 per cent as more people
choose to order clothing online for collection
or home delivery. Tu clothing online, through
both Sainsbury’s and Argos’s websites, has
been very successful and we have seen
strong and profitable sales growth through
this channel. Our strategic decision to
reduce the number of promotions and
change their timing has led to better
markdown management.
Through the year our food and grocery
sales have been on an improving trend
and we are outperforming our main
supermarket peers. This is driven by
strategic investments in our customer
offer, reducing our prices and ensuring
customers always get great value.
In January we lowered the price of some of
our most popular produce lines – including
apples, mangos and avocados – to 60 pence
and we have now achieved our target to
launch 200 entry price point products across
15 owned brand ranges such as Daily’s,
Farmhouse and J. James. We have moved
away from short-term promotions in favour
of offering customers great everyday value
with regular Price Lockdown events,
featuring hundreds of high-volume food
lines across meat, fish, poultry, dairy,
grocery and household products. This year
around 2,300 products have been reduced or
held at lower prices. We hold these prices for
at least eight weeks, giving customers
confidence that they will always get a great
deal on food at Sainsbury’s. We were named
the UK’s cheapest supermarket in 2019 for
branded groceries by the consumer
magazine, Which?.
The general merchandise market remains
challenging and this year’s performance was
impacted by weakness in the toy and
gaming markets. We are focusing on offering
customers everyday low prices and have
made choices to reduce our promotional
activity, including our 3 for 2 toy offers.
Sales growth – Food
Definition: Year-on-year growth of total
sales, including VAT.
Grocery (%)
2017/2018
2018/2019
0.6
2019/2020
0.4
2.0
Sales growth
Definition: Year-on-year growth of total
sales, including VAT.
General merchandise
(including Argos) (%)
2017/2018
2018/2019
2019/2020
(2.9)
(0.8)
0
Sales growth
Definition: Year-on-year growth of total
sales, including VAT, excluding fuel.
Supermarket (%)
2017/2018
2018/2019
2019/2020
(0.1)
2.1
1.0
Sales growth
Definition: Year-on-year growth of total
sales, including VAT, excluding fuel.
Clothing
(including Argos) (%)
2017/2018
2018/2019
(0.8)
2019/2020
1.2
3.8
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Priority 2
Offer distinctive products
and new categories
Because of our distinctive offer, customers visit our stores to buy new and interesting products they cannot
find elsewhere. We can also serve more of our customers’ needs by selling distinctive and exclusive ranges.
Taste the Difference accounts for over
£1 billion of sales and we relaunched
our range this year, introducing nearly
700 new, reformulated or repackaged
products in the financial year.
This year Taste the Difference volumes grew
by 0.3 per cent. We outperform the market
in meat alternative, plant-based food ranges,
catering for the increasing number of people
who choose to limit their meat consumption
for health or lifestyle reasons. We launched
our Plant Pioneers brand in October, adding
26 new products across fresh, frozen and
ambient categories to our existing range
of over 200 meat alternative lines. These
include banana blossom, a popular
alternative to white fish, Smokey Vacon
Rashers and meat-free Southern Fried Bites.
By bringing distinctive and innovative
brands to the market we give our customers
better choice and our stores benefit from
incremental sales as a result. Our in-house
Future Brands team gives these distinctive
brands the opportunity to showcase their
products exclusively in our stores and online.
Since June 2018, we have introduced over
1,700 lines across 146 Future Brand ranges
including Wasabi ready meals, Beavertown
beer and Jude’s ice cream. Future Brands
delivered £146 million in sales this year,
an increase of 77 per cent year on year.
We also entered into a three-year exclusive
partnership with Leon to sell its fast and
healthy food to go in over 600 of our stores.
We are creating dedicated hubs and aisles
in growing categories where we can gain
market share. For example, we now have 134
Beauty Halls which feature 19 new branded
ranges. These Beauty Halls have been well
received by customers, driving sales and
frequency of visits to our stores. We have
opened 48 Wellness Hubs in our stores,
offering over 1,000 health-focused SKUs,
from specialist food and drink to supplements
and vitamins. This financial year we also
invested in the pet market with new ranges
and 20 in-store Pet Hubs.
This year we have made further progress to
bring our Sainsbury’s and Argos ranges and
buying and merchandising teams together
which enables us to buy better and offer
customers a more integrated product offer
in our stores and online.
The iconic Habitat brand is available in
five stand-alone stores, 11 stores in
Sainsbury’s supermarkets and online
through habitat.co.uk, which accounts for
over 68 per cent of its sales. We launched
Habitat’s first ever spa fragrance collection,
sold exclusively in Sainsbury’s stores and
online in time for Christmas gifting, as well
as a range of Habitat branded floral products.
We see opportunities to further grow the
Habitat brand and we will integrate Habitat
into our home and furniture business and
increase the accessibility and appeal of
the brand.
Our Tu branded clothing continues to
grow and gain market share in a highly
competitive market. We launched new
ranges in our Tu premium collection and we
invested in building the brand through our
branded above line and digital advertising
campaigns.
Strategic ReportJ Sainsbury plc Annual Report 2020 23
Priority 3
Personalised and seamless
physical and digital
Financial Services and Nectar provide our customers with affordable ways to manage
their finances and reward them for their loyalty.
In September, we unveiled a five-year
strategy for Sainsbury’s Bank and Argos
Financial Services to become an agile,
capital and cost efficient provider of simple,
mobile-led financial services to loyal
Sainsbury’s and Argos customers and we
have made good progress. We have a leaner
structure, greater digital uptake and we
have stopped underwriting new mortgages.
We will provide an update in November
on the impact of COVID-19 on the financial
services five-year targets we announced
in September 2019.
Sales growth
Definition: Year-on-year growth of total
sales, including VAT.
Bank
(including Argos Financial Services) (%)
2017/2018
2018/2019
2019/2020
7.3
5.0
5.0
Our Nectar loyalty programme is the
biggest in the UK with over 18 million
members and over 4.5 million people
have now downloaded the new app.
The app enhances customer
engagement by offering personalised
offers and access to promotions and
rewards. We have 2.1 million active
Sainsbury’s Bank customers and
2.2 million Argos Financial Services
customers. Over 75 per cent of
Sainsbury’s Bank customers are
Nectar card holders and, by combining
Sainsbury’s and Argos’s connected
services into one digital eco-system,
we can reward customers in a
meaningful and personalised way.
This year we extended our Nectar
programme to Argos customers, making it
possible for them to earn their Nectar points
across all Argos channels. We also launched
Nectar360, the business-to-business arm of
the loyalty programme that enables brands
to understand, reach and engage more
effectively with their customers by giving
them access to leading data, insights, digital
and media capability. Over 500 brands have
signed up to date.
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Priority 4
Fast, friendly and convenient
Great service and availability and faster ways to pay mean
customers can save time as well as money by shopping with us.
We are consistently improving
our customer service scores, driven
by investment in more than 450
supermarkets and 362 convenience
stores. We now have 306 Argos stores
in Sainsbury’s supermarkets. We
further maximise our supermarket
space by introducing carefully
selected concession partners that
give our customers a range of
essential services, as well as a broader
choice of fantastic quality products,
including 61 Specsavers and over
123 Sushi Gourmet counters.
Our convenience strategy is to deliver
a relevant, flexible offer tailored to local
customer needs. Over 184 convenience
stores have Argos Click & Collect and this
year we introduced more innovative new
convenience formats. These include
neighbourhood hub stores that offer local
communities a convenient, one-stop shop
for a broad range of groceries and general
merchandise and two ‘On the Go’ city
stores tailored to match the needs of
busy city workers.
£6 billion of sales across the business are
digital and we continue to invest to deliver
easy, speedy and seamless shopping.
At Argos, Black Friday broke records, with
£60 million in online sales on the day. Argos
Click & Collect grew by nearly eight per cent
and Argos Fast Track delivery grew by nearly
five per cent year on year. In Food and
Grocery, Groceries Online grew by nearly
eight per cent and we have over 141,000
Delivery Pass customers.
Sainsbury’s has rolled out SmartShop
technology to all supermarkets, delivering
easier and convenient ways for customers
to shop using in-store handsets or their own
smartphone. Customers are increasingly
choosing to shop with us in this way and
SmartShop sales account for up to
20 per cent of sales in some stores. To further
improve our supermarkets, we upgraded
3,639 self-checkouts. Recent customer
service scores show that customers value
these improvements. Ease of checkout is
up three per cent and speed of checkout
is up nearly four per cent.
At Argos, we rapidly rolled out Pay@Browse
to 386 Argos stores, offering customers
a quicker way to pay in 548 Argos stores.
Sales growth
Definition: Year-on-year growth of total
sales, including VAT, excluding fuel.
Convenience (%)
2017/2018
2018/2019
2019/2020
1.3
7.5
3.7
Sales growth
Definition: Year-on-year growth of
total online sales, including VAT and
delivery income.
Online (%)
2017/2018
2018/2019
2019/2020
6.8
6.9
7.6
Strategic ReportJ Sainsbury plc Annual Report 2020 25
Priority 5
Drive efficiency to reinvest
Reducing our costs means we can run our business more efficiently
and continue to invest in the areas that customers value.
At our Capital Markets Day in September we
unveiled our new five-year property strategy,
which included a review of our current estate
to ensure we have the right stores in the right
places for our customers. We announced
a plan to open 10 Sainsbury’s supermarkets,
95 convenience stores and 18 larger format
convenience stores. We also said we would
open more than 80 new Argos stores within
Sainsbury’s supermarkets. The review also
means a closure programme of around
125 shops.
We opened two new supermarkets this year
and closed two less profitable ones. We also
opened 13 convenience stores and closed 27.
We currently have 573 standalone Argos stores.
Our model of Argos stores in Sainsbury’s drives
efficiencies and enables us to maximise our
supermarket space. There are now 306 Argos
stores in Sainsbury’s supermarkets.
LFL Transactions Growth
Definition: Year-on-year growth in
transactions, excluding fuel, excluding
Financial Services, for stores that have
been open for more than one year.
LFL Transactions growth (%)
2017/2018
(1.2)
2018/2019
2019/2020
(0.3)
(0.6)
We have met our objective to make
savings to cover the impact of cost
inflation and we are making good
early progress with our target to
structurally reduce our costs by
approximately £500 million over five
years by bringing Sainsbury’s and
Argos together. Reducing our costs
means we can run our business more
efficiently and continue to invest in
the areas that customers value: choice,
quality, low prices, convenience and
great service.
We have reviewed our central support
functions including logistics, supply and
shared services and we are looking at ongoing
capital prioritisation and procurement.
In January we announced a major head
office restructure which saw a reduction
of hundreds of management roles.
We are developing an in-house ‘Internet
of Things’ platform which connects multiple
store elements including refrigeration,
lighting, heating, ventilation and air
conditioning and we are currently rolling
this out to our supermarket estate. Behind
the scenes we have rebuilt our entire
data and analytics eco-system and have
transformed store connectivity by replacing
and updating the WiFi technology in the
majority of our stores.
More colleagues have devices and are better
connected than ever before. We are creating
smarter stores, digitising day-to-day processes
through a range of app developments, such
as replenishment and stock apps, to drive
efficiency and availability and give store
colleagues more time to serve customers.
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Priority 6
Be a place where we all
love to work
Sainsbury’s is an inclusive employer where colleagues love to work and
are encouraged to develop their skills and fulfil their potential.
We are committed to complying with laws
and regulations and set high ethical
standards for our colleagues and suppliers.
We expect all colleagues to abide by our
Ethical Conduct Policy, covering areas
including anti-bribery and corruption,
conflicts of interest, suppliers, fraud and
whistleblowing. Training on these policies
is provided to colleagues in the commercial
divisions as part of their inductions and then
annually. This year we also updated policies
and processes for our suppliers to gain
a better understanding of risk, and updated
our Human Rights policy which can also
be found on our corporate website.
Alongside our community investment,
we make positive economic contributions
through our supply chain, our market-leading
pay for colleagues and our responsible
approach to tax, contributing £2.1 billion
in taxes borne and collected this year.
Being a company that people love
to work for means being an inclusive
employer where colleagues are
encouraged to develop their skills and
fulfil their potential. It’s about playing
an active role in our communities and
about having high ethical standards
that we and our suppliers adhere to.
It is important for the long-term success
of the business that our colleagues remain
engaged and we measure this twice a year
through our colleague engagement survey.
We retained our Gold accreditation from
Investors in People (IIP) for the fourth
consecutive time over 10 years, despite the
level of change in the business.
We have made good progress with our
inclusivity agenda. We are a Disability
Confident Leader for our work on disability
and inclusivity and, looking ahead, we aim
to increase our employment of Black, Asian
and Minority Ethnic (BAME) representation
at senior manager level. We also aim to
increase the percentage of colleagues who
agree with the statement ‘I feel I am able
to be myself at work’ in our colleague
engagement survey.
We continue to work on our gender pay
balance across the business and have further
reduced our gender pay gap by 1.6 per cent
to 10.5 per cent this year, while our median
gender pay gap remains at 3.8 per cent.
Female representation at Board level is
33 per cent and female representation at
senior levels has increased to 35 per cent
by the year end. Across the entire business,
female representation is 54.6%. There are
94,992 women and 78,983 men and the
remaining colleagues did not identify as
either women or men. We are committed
to achieving our aspirational target of
40 per cent female representation in senior
positions by 2021. For more information,
see our Gender Pay Report on our corporate
website.
In this complex retail environment, excellent
leadership of our store teams is crucial. We
have an award-winning leadership programme
for store colleagues and managers. We are
also focused on ensuring that more junior
colleagues can develop their skills and
progress and measure the number of
colleagues enrolled on an apprenticeship
programme and the completion rate for
those apprenticeships.
We play an active role in local communities
and we raised £29 million this year for
local and national causes. As part of our
150th birthday, we launched 150 Days of
Community and over 35,000 colleagues
pledged their time to volunteer during
working hours for over 2,400 local community
projects. For more information on how our
colleagues support the communities we
serve, see our Sustainability Update on our
corporate website.
Strategic ReportJ Sainsbury plc Annual Report 2020 27
Priority 7
Net Zero by 2040
Living well means living sustainably and we have committed
to invest £1 billion over 20 years to become Net Zero
for greenhouse gases across all our operations by 2040.
We have seven key areas of focus
and we will report progress against
each of them at our interim results
in November.
We are the only UK food retailer to receive
an A rating in the Climate Disclosure Project
for six consecutive years. We are proud
to have achieved a 42 per cent reduction
in carbon emissions over 15 years, despite
a 46 per cent increase in our estate. We have
committed to reduce carbon emissions
within our own operations to net zero
greenhouse gas emissions, increasing the
use of renewable energy.
We were also the first retailer to achieve
The Carbon Trust Water Standard in 2017
as well as this past year achieving the
Climate Disclosure Project A-rating for water
disclosure. We achieved our 2020 water
reduction targets early, saving one billion
litres since 2005. We have committed to
minimise the use of water in our own
operations, driving towards water neutral
by 2040.
In 2005 we were the first retailer to introduce
multiple traffic light labelling on the front
of our own-brand packaging and we have
reduced the number of red traffic lights since
2015. Through reformulation, 97 per cent of
our own-brand products meet Public Health
England’s salt reduction targets and we have
reduced the amount of sugar across soft
drinks, ice cream, cereals and more by over
20 per cent since 2015. As part of our Net Zero
commitment we will continue to develop
healthy, tasty nutritious food for our
customers and expand our popular meat
alternative range.
We have committed to reduce our use of
plastic packaging by 50 per cent by 2025
and then go further. We were the first retailer
to remove plastic bags from our produce
aisles and bakery counters; customers
now use their own bags or buy a reusable
bag made from a recycled plastic bottle.
Among a large number of initiatives, we
removed plastic bags from online deliveries
and reduced the weight of plastic used in
milk and water packaging.
We were the first retailer to achieve zero
waste to landfill and we plan to reduce food
waste by 50 per cent by 2030. Most of our
stores redistribute good quality food safely
to local charities and community groups
through our food donation partnerships.
We will also increase the use of recycling in
our own operations and make it easier for
customers and colleagues to recycle. All our
plastic hangers are made from 100 per cent
recycled materials and last year we recycled
300 tonnes of them. As we move forward we
will expand recycling facilities at our stores
to help customers recycle metal cans, glass,
plastic, paper, clothing and other materials.
Finally, we will ensure that the impact of
our operation is net positive for biodiversity.
We have planted nearly four million trees
in partnership with the Woodland Trust
since 2004 and we expect to plant more than
1.5 million trees by 2025. 99.1 per cent of the
palm oil used in our products is sustainably
sourced as is all our farmed seafood.
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Our KPIs
Financial key performance indicators are critical to
understanding and measuring our financial health.
Group measures
Underlying profit
before tax (£m)1
Definition: Profit before tax
adjusted for certain items in note 3
which, by virtue of their size and/or
nature, do not reflect the Group’s
underlying performance
Underlying basic earnings
per share (pence)1
Definition: Earnings per share using
underlying profit
Retail operating cash flow (£m)
Definition: Retail cash generated
from operations after changes
in working capital and pension
contributions, and before
exceptional pension contributions
Retail free cash flow (£m)1
Definition: Net cash generated
from retail operations, adjusted for
exceptional pension contributions,
after cash capital expenditure but
before strategic capital expenditure
and after investments in joint
ventures and associates and
Sainsbury’s Bank capital injections
2015/16
2016/17
2017/18
2018/192
2019/20
587
2015/16
581
2016/17
589
2017/18
601
2018/192
586
2019/20
24.2
2015/16
21.8
2016/17
20.4
20.7
2017/18
2018/192
19.8
2019/20
1,149
1,128
1,259
2015/16
2016/17
2017/18
296
319
1,921
2018/192
1,971
2019/20
432
456
611
Retail underlying
EBITDAR margin (%)1
Definition: 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, excluding Financial
Services
Retail underlying
operating margin (%)1
Definition: Underlying profit before
tax before underlying net finance
costs and underlying share of
post-tax results from joint ventures,
divided by retail sales excluding VAT,
including fuel, excluding Financial
Services
Dividend per share (pence)
Definition: Total proposed
dividend per share in relation
to the financial year
Core retail capital
expenditure (£m)1
Definition: Capital expenditure
excluding Financial Services, before
proceeds from disposal of property,
plant and equipment and before
strategic capital expenditure
2015/16
2016/17
2017/18
2018/192
2019/20
7.58
2015/16
7.403
2016/17
7.44
2017/18
7.56
2018/192
7.48
2019/20
2.74
2.42
2.24
2015/16
2016/17
2017/18
3.45
2018/19
12.1
2015/16
10.2
10.2
2016/17
2017/18
11.0
2018/19
3.30
2019/20
3.30
2019/20
627
588
542
508
599
1 Refer to APMs on page 205.
2 2018/19 restated for IFRS 16. 2015/16 to 2017/18 not restated for IFRS 16.
3 2016/17 restated to include Argos on a post acquisition consolidation basis.
Strategic ReportJ Sainsbury plc Annual Report 2020 29
Maintaining balance sheet strength
Pre-tax return on
capital employed (%)1
Definition: Underlying profit before
interest, and tax, divided by average
net assets excluding pension deficit/
surplus, less net debt, calculated on
a 14 point basis
Net Debt/underlying
EBITDAR (%)1
Definition: Net debt divided by
Group underlying EBITDAR
2015/16
2016/17
2017/18
2018/192
2019/20
8.8
8.8
2015/163
2016/173
8.4
2017/183
7.4
7.4
2018/192
2019/20
4.3
4.0
3.6
3.3
3.2
Retail
Like-for-like sales (%)1
Definition: Year-on-year growth in
sales including VAT, excluding fuel,
excluding Financial Services,
for stores that have been open for
more than one year
Retail sales growth (%)
Definition: Year-on-year growth in
sales including VAT, excluding fuel,
excluding Financial Services
Like-for-like transactions
growth (%)
Definition: Year-on-year growth
in transactions, excluding fuel,
excluding Financial Services,
for stores that have been open
for more than one year
2015/16
(0.9)
2016/17
2017/18
2018/19
0.02
2015/16
2016/17
0.4
2015/16
0.3
14.1
2016/17
1.0
1.32
2017/18
9.8
2017/18
(1.2)
(0.2)
2018/19
0.4
2018/19
(0.3)
2019/20
(0.6)
2019/20
(0.4)
2019/20
(0.6)
Non-financial KPIs
Colleague engagement (%)
Definition: Percentage of our
colleagues who feel that we are
a great place to work4
Water reduction (%)
Definition: Absolute water
reduction since 2005/065
2015/16
2016/17
2017/18
2018/19
2019/20
78
2015/16
77
2016/17
72
2017/18
69
2018/19
75
2019/20
Greenhouse gas emissions
reduction (%)
Definition: Percentage reduction in
absolute greenhouse gas emissions
since 2005/06
29
2015/16
3
31
31
2016/17
2017/18
30
2018/19
33
2019/20
11
24
35
42
1 Refer to APMs on page 205.
2 2018/19 restated for IFRS 16. 2015/16 to 2017/18 not restated for IFRS 16.
3 The definition of this metric has changed from 2018/19 onwards due to IFRS 16. Please refer to note 3.2 on page 114 for the prior year definition.
4 2018/19 and 2019/20 data is for the Group and prior data is for Sainsbury’s.
5 Excludes Argos to be consistent with prior year disclosure. Absolute water reduction including Argos for 2019/20 is 30%.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
30
Financial Review
2019/20 has been another year of progress against our strategic priorities as we have continued to deliver our
plan to create one multi brand multi channel business, by bringing together Sainsbury’s and Argos. Our statutory
profit before tax increased by 26 per cent to £255 million (2018/19: £202 million), largely due to a year-on-year
reduction in exceptional items. Excluding the impact of these items, underlying profit before tax (‘UPBT’)
decreased by 2 per cent to £586 million (2018/19: £601 million).
In the year we delivered strong growth in retail free cash flow and net debt
reduction was ahead of guidance, thereby improving financial flexibility
and resilience. We have become more competitive on price and we continue
to offer distinctive products. We remain focused on making shopping even
more convenient for our customers supported by great service from our
colleagues across the business. By bringing Sainsbury’s and Argos together
we have a unique opportunity to reduce costs which enables us to continue
to invest in the customer offer.
As the nation navigates its way through the COVID-19 pandemic we remain
confident that the financial strength of our business, combined with the
passion and professionalism of our exceptional colleagues places us in a
strong position to deliver on our plans while we continue to feed the nation.
Retail Free Cash Flow increased by £155 million year-on-year to £611 million
(2018/19: £456 million). This growth was due to strong underlying cash
generation, reduced capital injections into the Bank and distributions from
the British Land joint venture following the sale of a number of properties.
Interest costs continue to decline as we repay debt and this year we repaid
the £450 million Convertible Bond. Whilst maintaining a disciplined approach
to our cash flow, we continue to sustainably fund investment into the
business to deliver our strategy, as evidenced by our core retail cash capital
expenditure of £599 million.
Overall, we reduced non-lease net debt by £343 million in 2019/20. This was
the first year in our three year plan to reduce non-lease net debt by at least
£750 million, as guided at Capital Markets Day. Our Balance Sheet remains
strong and the business has facilities of £2.6 billion in place, with £1.45 billion
undrawn at the end of the year.
This is Sainsbury’s first full year results prepared under IFRS 16, the new
financial reporting standard on lease accounting. As previously indicated,
we have adopted the standard fully retrospectively. The new standard
results in material changes to the financial statements as set out in note 5.
In a highly competitive market Group sales (including VAT) were down 0.1 per
cent to £32,394 million with growth in grocery and clothing sales offset by
general merchandise declines. Customers responded positively to lower
grocery prices, our new value ranges and to investments in stores, driving
improving momentum and market share gains from our mainstream grocery
competitors. General merchandise sales declined reflecting weak market
conditions, particularly in toys and gaming. Tu clothing performed well
relative to a weak clothing market, driven by a strong online performance
and full price sales growth.
In 2019/20 underlying profit before tax (‘UPBT’) decreased by 2 per cent
to £586 million (2018/19: £601 million) driven by a decline in retail underlying
profit, partly offset by an increase in Financial Services profit and reduced
interest costs. Cost savings offset the impact of cost inflation but investment
in the customer offer and service resulted in Retail underlying operating
margin decreasing 15 basis points to 3.30 per cent. In 2019/20 our statutory
profit before tax increased by 26 per cent to £255 million (2018/19: £202 million),
largely due to a year-on-year reduction in exceptional items. Exceptional
items in 2019/20 predominantly related to the Property Strategy Programme,
Retail restructuring and Sainsbury’s Bank transition. The Property Strategy
Programme, which accounted for about 90 per cent of the exceptional costs,
involved a number of store closures and a subsequent impairment charge
following the review of our property portfolio, with the majority of these
being non-cash charges. Retail restructuring costs comprised of redundancy
payments following changes to the Group’s store management structure as
we respond to changing customer shopping habits and reduce costs
throughout the store estate; the closure of one Argos distribution centre and
costs incurred following announced head-office restructures during the year.
Sainsbury’s Bank transition costs were also incurred as we transition to
a new banking platform as part of the previously announced New Bank
Programme. The total cash impact of these exceptional items in 2019/20
was £56 million.
Profit after tax of £152 million (2018/19: £186 million) was down 18 per cent
due to an increase in the effective tax rate in 2019/20 due to the impact of
non-tax deductible exceptional costs including the impairment of fixed
assets, and by prior year adjustments.
Sainsbury’s Bank profits increased to £48 million, as guided in November
2019 (2018/19: £31 million), primarily due to higher interest and commission
income offset by increased interest payable, driven in part by selective
lending growth impacting income whilst improving capital efficiency and
a timing impact from the August 2018 Bank base rate rise. Net commission
income increased driven by Travel Money and Banking fees. We have
focused on improving returns through simple, mobile-led financial services
for customers, stopping mortgages, transforming the cost base and further
exploiting our channels to market. We have seen Sainsbury’s Bank customer
numbers grow by five per cent and customer lending increase by £0.4 billion,
driven mainly by growth in mortgages and credit cards. Argos Financial
Services customer numbers also grew by five per cent.
As part of the agreement reached with the Trustee to complete the 2018
triennial valuation of the Sainsbury’s Pension Scheme (the defined benefit
scheme), we established a new asset backed contribution (‘ABC’) structure
on 17 July 2019, replacing the existing property partnership. Under the new
ABC, properties with a value of £1.35 billion were transferred into a newly
formed property holding company, a wholly owned subsidiary, and leased
to other Group entities. Rental receipts facilitate payments of interest and
capital on loan notes issued to a Scottish Limited Partnership, in which the
Scheme holds an interest. As at 7 March 2020 the Group pension scheme
IAS 19 accounting surplus (excluding deferred tax) increased to £1,119 million
(2018/19: £959 million surplus), largely as a result of actuarial gains and an
amendment to the scheme rules.
Basic earnings per share decreased 23.7 per cent to 5.8 pence (2018/19:
7.6 pence), largely due to an increase in the effective tax rate. Underlying basic
earnings per share decreased 4.3 per cent to 19.8 pence (2018/19: 20.7 pence).
The impact of COVID-19 resulted in an increase in sales during the final days
of the financial year as a result of customers starting to stockpile. We have
seen a material impact across the first few weeks of 2020/21. We continue to
review the situation to ensure we are responding in the best way to support
our customers and colleagues. We remain confident that the financial
strength of our business combined with the passion and professionalism
of our exceptional colleagues places us in a strong position to deliver on
our plans while we continue to feed the nation.
Kevin O’Byrne
Chief Financial Officer
Strategic ReportJ Sainsbury plc Annual Report 2020 Financial Review of the year results for the 52 weeks to 7 March 2020
This is Sainsbury’s first full year set of results prepared under IFRS 16, the new financial reporting standard on lease accounting. As previously indicated,
we have adopted the standard fully retrospectively. The new standard results in material changes to the financial statements. All affected comparative figures
included within this announcement have accordingly been restated. Further detail on this can be found in Note 5 on page 118.
Please note a number of Alternative Performance Measures (‘APMs’) have been adopted by the Directors to provide additional information on the underlying
performance of the Group. These measures are intended to supplement, rather than replace the measures provided under IFRS. Please see Note 3 on page 113
for further information.
In the 52 weeks to 7 March 2020 the Group generated profit before tax of £255 million (2018/19: £202 million) and underlying profit before tax of £586 million
(2018/19: £601 million).
31
Summary income statement
Group sales (including VAT)
Retail sales (including VAT)
Group sales (excluding VAT)
Retail sales (excluding VAT)
Underlying operating profit
Retail
Financial Services
Total underlying operating profit
Underlying net finance costs1
Underlying share of post-tax profit from JVs2
Underlying profit before tax
Items excluded from underlying results
Profit before tax
Income tax expense
Profit for the financial period
Underlying basic earnings per share
Basic earnings per share
Dividend per share
52 weeks to
7 March 2020
£m
52 weeks to
9 March 2019
£m
Change
%
32,394
31,825
28,993
28,424
32,412
31,871
29,007
28,466
938
48
986
(400)
–
586
(331)
255
(103)
152
19.8p
5.8p
3.3p
981
31
1,012
(419)
8
601
(399)
202
(16)
186
20.7p
7.6p
11.0p
(0.1)
(0.1)
(0.0)
(0.1)
(4)
55
(3)
5
(100)
(2)
17
26
544
(18)
(4.3)
(23.7)
(70.0)
1 Net finance costs including perpetual securities coupons before non-underlying finance movements.
2 The underlying share of post-tax profit from joint ventures and associates (‘JVs’) is stated before investment property fair value movements, non-underlying finance movements and profit on disposal of properties.
Group sales
Group and Retail sales (including VAT, including fuel) both decreased by 0.1 per cent year-on-year. Retail sales (including VAT, excluding fuel) decreased by
0.4 per cent driven by General Merchandise sales declines.
Total sales performance by category
Grocery
General Merchandise
Clothing
Retail (exc. fuel)
Fuel sales
Retail (inc. fuel)
52 weeks to
7 March 2020
£bn
19.5
6.4
1.0
26.9
4.9
31.8
52 weeks to
9 March 2019
£bn
19.5
6.5
1.0
27.0
4.9
31.9
Change
%
0.4
(2.9)
1.2
(0.4)
1.1
(0.1)
Grocery sales grew by 0.4 per cent year-on-year. A weak start to the year in the first quarter was offset by a strong performance in the second quarter which
continued into the second half as customers responded positively to price investment and new entry price ranges and investments in our store estate.
Clothing sales grew by 1.2 per cent with a strong performance in the second half as cooler weather helped drive sales in the winter ranges. General Merchandise
sales declined by 2.9 per cent driven by the annualisation of last summer’s hot weather and challenging market conditions particularly in toys and gaming.
Fuel sales grew 1.1 per cent, driven by both retail price inflation and volumes.
Year-on-year sales performance by channel
Supermarkets (inc. Argos stores in Sainsbury’s)
Convenience
Groceries Online
52 weeks to
7 March 2020
%
(0.1)
1.3
7.6
52 weeks to
9 March 2019
%
1.0
3.7
6.9
Supermarket sales declined by 0.1 per cent, impacted by weaker General Merchandise sales. Convenience sales grew by 1.3 per cent despite 27 store closures
across the second half. Groceries Online sales grew by 7.6 per cent driven by order growth.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
32
Retail like-for-like sales performance
Like-for-like sales (exc. fuel)
Like-for-like sales (inc. fuel)
52 weeks to
7 March 2020
%
(0.6)%
(0.5)%
52 weeks to
9 March 2019
%
(0.2)%
1.5%
Retail like-for-like sales, excluding fuel, decreased by 0.6 per cent (2018/19: 0.2 per cent decrease) as a result of General Merchandise declines.
Space
In 2019/20, Sainsbury’s opened 2 new supermarkets and closed 2 (2018/19: opened 3 new supermarkets and closed 3). There were 14 new Convenience stores,
including 1 replacement, opened in the year and 27 were closed (2018/19: 10 opened and 5 stores closed).
During the period Argos opened 25 new stores in Sainsbury’s and 1 new standalone and closed 25 standalone Argos stores and 2 Argos in Homebase stores.
The number of Argos collection points in Sainsbury’s stores reduced from 317 to 281. As at 7 March 2020, Argos had 882 stores and 281 collection points.
Habitat had 16 stores, of which 11 are in Sainsbury’s.
Store numbers and retailing space
Supermarkets
Supermarkets area ’000 sq ft
Convenience
Convenience area ’000 sq ft
Sainsbury's total store numbers
Argos stores
Argos stores in Sainsbury's
Argos in Homebase
Argos total store numbers
Argos collection points
Habitat
As at
9 March
2019
608
21,210
820
1,934
1,428
594
281
8
883
317
16
New stores
2
54
13
35
15
1
25
–
26
6
–
Extensions/
refurbs/
downsizes/
replacements
–
(54)
1
3
1
–
–
–
–
–
–
Disposals/
closures
(2)
(43)
(27)
(74)
(29)
(25)
–
(2)
(27)
(42)
–
As at
7 March
2020
608
21,167
807
1,898
1,415
570
306
6
882
281
16
Subject to potential disruption from COVID-19, in 2020/21, Sainsbury’s expects to open 2 new supermarkets and around 15 new convenience stores.
Sainsbury’s also expects to close around 8 supermarkets and around 14 convenience stores. Sainsbury’s also expects to open 35-40 Argos in Sainsbury’s,
and close around 50 Argos standalone stores.
Retail underlying operating profit
Retail underlying operating profit decreased by 4.4 per cent to £938 million (2018/19: £981 million), largely driven by tough weather comparatives and higher
marketing costs in the first half of the year and a challenging General Merchandise market.
Retail underlying operating margin reduced by 15 basis points year-on-year to 3.30 per cent (2018/19: 3.45 per cent).
Retail underlying operating profit
Retail underlying operating profit (£m)1
Retail underlying operating margin (%)2
Retail underlying EBITDAR (£m)3
Retail underlying EBITDAR margin (%)4
52 weeks to
7 March
2020
938
3.30
2,125
7.48
52 weeks to
9 March
2019
981
3.45
2,152
7.56
Change at
constant fuel
prices
(15)bps
(8)bps
Change
(4.4)%
(15)bps
(1.3)%
(8)bps
1 Retail underlying earnings before interest, tax and Sainsbury’s underlying share of post-tax profit from joint ventures. Numbers are restated with the introduction of IFRS 16, this results in a material increase in
Retail underlying operating profit, compared to previously reported numbers, due to the interest component being recognised below operating profit as a finance cost. Refer to note 2.3 for a reconciliation of Retail
underlying operating profit pre and post IFRS 16.
2 Retail underlying operating profit divided by underlying retail sales excluding VAT.
3 Retail underlying operating profit before net rental income of £10 million and underlying depreciation and amortisation of £1,197 million.
4 Retail underlying EBITDAR divided by underlying retail sales excluding VAT.
In 2020/21, Sainsbury’s expects a depreciation and amortisation charge of around £1,200 million, including around £500 million right of use asset depreciation.
Strategic ReportJ Sainsbury plc Annual Report 2020 Financial Services
Financial Services results
12 months to 28 February 2020
Underlying revenue (£m)
Interest and fees payable (£m)
Total income (£m)
Underlying operating profit (£m)
Cost:income ratio (%)
Active customers (m) – Bank
Active customers (m) – AFS6
Net interest margin (%)1
Bad debt as a percentage of lending (%)2
Tier 1 capital ratio (%)3
Total capital ratio (%)4
Customer lending (£bn)5
Customer deposits (£bn)
33
Change
5%
23%
1%
55%
0bps
5%
5%
(40)bps
(50)bps
40bps
30bps
6%
5%
2020
569
(125)
444
48
71
2.12
2.24
3.4
1.1
14.1
17.0
7.4
(6.3)
2019
541
(102)
439
31
71
2.01
2.14
3.8
1.6
13.7
16.7
7.0
(6.0)
1 Net interest receivable divided by average interest-bearing assets.
2 Bad debt expense divided by average net lending.
3 Common equity Tier 1 capital divided by risk-weighted assets.
4 Total capital divided by risk-weighted assets.
5 Amounts due from customers at the Balance Sheet date in respect of loans, mortgages, credit cards and store cards net of provisions.
6 Prior year restated.
Financial Services total income remained broadly flat year-on-year at £444
million, as higher interest and commission income was offset by increased
interest payable, driven in part by selective lending growth impacting income
whilst improving capital efficiency and a timing impact from the August 2018
Bank base rate rise. Net commission income increased £3 million driven by
Travel Money and Banking fees. Financial Services underlying operating profit
increased by 55 per cent year-on-year to £48 million, as guided in November
2019 (2018/19: £31 million), primarily due to an increase in contribution from
Argos Financial Services as a result of changes to transfer pricing rules,
the income factors noted and a reduction in impairment from both the
harmonisation of policy and increased debt sales.
The Financial Services cost:income ratio was flat at 71 per cent. The costs
of supporting new operating platforms and product growth were offset by
a reduction in royalties payments to Argos linked to changes in transfer
pricing. Further actions to reduce costs were delivered towards the end of the
financial year so did not materially impact this ratio. The number of Bank
active customers increased by five per cent year-on-year to 2.12 million,
with Argos Financial Services customers also up five per cent to 2.24 million.
Net interest margin decreased by 40 basis points year-on-year to 3.4 per
cent (2018/19: 3.8 per cent) driven primarily by the growth of the mortgage
book and higher funding costs following the base rate rise. The mortgage
book was closed to new business in September 2019. Bad debt expense as a
percentage of lending decreased by 50 basis points to 1.1 per cent, primarily
driven by the alignment of policy between AFS and Sainsbury’s Bank and
growth in mortgages.
The CET 1 capital ratio increased by 40 basis points year-on-year to 14.1 per
cent, reflecting the effect of the additional £35 million capital injection
(2018/19: £110 million). Customer lending increased by six per cent to £7.4 billion,
mainly due to growth across credit cards and mortgages. To support this
lending, customer deposits also grew a similar five per cent to £6.3 billion.
Due to the negative impact of COVID-19, Financial Services are expected to
report an operating loss in 2020/21. However, no further capital injections are
expected into Financial Services following the £35 million injection in the
first half of 2019/20.
Underlying net finance costs
Underlying net finance costs reduced by five per cent to £400 million
(2018/19: £419 million). These costs include £77 million of net non-lease
interest (2018/19: £86 million). The reduction of net non-lease interest is
driven by the repayment of the £450 million Convertible Bond and reduced
interest on inflation-linked loans. The interest costs on lease liabilities have
reduced to £323 million (2018/19: £333 million) due to reduced lease liabilities
and lower interest rates on new leases.
Sainsbury’s expects underlying net finance costs in 2020/21 of between £370
million – £380 million, including around £310 million lease interest in 2020/21,
following the introduction of IFRS 16.
Items excluded from underlying results
In order to provide shareholders with insight into the underlying performance
of the business, items recognised in reported profit or loss before tax which,
by virtue of their size and or nature, do not reflect the Group’s underlying
performance are excluded from the Group’s underlying results and shown
in the table below.
Items excluded from underlying results
Store closure write-downs
Impairment charges
Other closure costs
Property strategy programme
Retail restructuring programme
Financial Services transition and other
Argos integration costs
Asda transaction costs
IAS 19 pension financing charge and
scheme expenses
Other
Items excluded from underlying results
52 weeks to
7 March
2020
£m
(126)
(126)
(44)
(296)
(32)
(29)
–
–
19
52 weeks to
9 March
2019
£m
–
–
–
–
(81)
(70)
(40)
(46)
(118)
7
(331 )
(44)
(399)
— Property strategy programme costs of £296 million (2018/19: nil) within
property, plant and equipment, intangible assets and right of use assets,
relate to store closures and asset write downs that are part of our broader
Property Strategy Programme announced on 25th September 2019 as
part of Capital Markets Day.
— Retail restructuring costs of £32 million (2018/19: £81 million) relate to
changes to store management structures; the closure of one Argos depot
and costs incurred following announced head-office restructures during
the year.
— Financial Services transition and other costs of £29 million (2018/19: £70
million) were predominantly the previously announced costs incurred
in transitioning to a new banking platform and write-downs of ATMs.
— 2018/19 IAS 19 pension costs of £118 million largely relate to equalising
historic pension benefits between men and women following the High
Court judgement in October 2018 against the Lloyds Banking Group.
— Other movements of £7 million (2018/19: cost of £44 million) relate to
property profits and acquisition adjustments.
The Property Strategy Programme one off costs are expected to be
£330 million – £350 million in total (2019/20: £296 million). Since the initial
announcement at Capital Markets Day in September 2019 the programme
has been revisited and this has resulted in additional planned closures.
Total cash costs for the programme are expected to be around £50 million
(2019/20: £8 million) versus original guidance of £30m to £40m.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
34
Taxation
The tax charge was £103 million (2018/19: £16 million), with an underlying
tax rate of 25.4 per cent (2018/19: 24.5 per cent) and an effective tax rate of
40.4 per cent (2018/19: 7.9 per cent).
The effective tax rate (‘ETR’) of 40.4 per cent (2018/19: 7.9 per cent) is higher
than the prior year (as restated). In 2019/20 the ETR is increased by the
impact of non-tax deductible exceptional costs including the impairment
of fixed assets, and by prior year adjustments, partially offset by the tax
impact of property disposals. In 2018/19 the ETR was reduced by prior year
adjustments, including a c.£50 million deferred tax credit which arose on
the recognition of a UK capital loss which crystallised as part of transactions
undertaken by the group in 2015/16, and the tax impact of property disposals.
The underlying tax rate (‘UTR’) is higher than the prior year (as restated),
largely as a result of a year-on-year reduction in the underlying profit before
tax. The adoption of IFRS 16 further increases the UTR as an element of the
depreciation of the right-of-use assets is non-tax deductible to the extent
it relates to capital items. The UTR is also impacted by prior year tax
adjustments. However, the UTR is reduced in respect of the interest expense
on the perpetual securities which, further to a recent amendment to IAS 12,
is now recognised in the Income Statement rather than Statement of
Changes in Equity as it was in prior years.
Sainsbury’s expects an underlying tax rate in 2020/21 of around 25 per cent.
Earnings per share
Underlying basic earnings per share decreased to 19.8 pence (2018/19:
20.7 pence) driven by the decrease in underlying earnings and the higher
income tax charge in the year. Basic earnings per share decreased to
5.8 pence (2018/19: 7.6 pence).
Dividends
Given the wide range of potential profit and cash flow outcomes, the Board
believes it is prudent to defer any dividend payment decisions until later
in the financial year, when there will be improved visibility on the potential
impact of COVID-19 on the business.
Net debt and retail cash flows
As at 7 March 2020, net debt was £6,947 million (9 March 2019: £7,346 million),
a decrease of £399 million (2018/19: £229 million reduction). Excluding the
impact of lease liabilities on net debt, Sainsbury’s reduced net debt by £343
million in the year. Sainsbury’s remains on track to reduce non-lease net debt
by £750 million over a three-year period compared to 2018/19 year end net
debt excluding lease liabilities of £1,522 million. We will provide further
guidance on net debt expectations for 2020/21 with our interim results.
Group net debt includes the impact of capital injections into Sainsbury’s Bank,
but excludes Financial Services’ own net debt balances. Financial Services
balances are excluded because they are part of the daily operating cycle of
the Bank rather than for financing purposes.
Net debt includes lease liabilities under IFRS 16 of £5,768 million
(2018/19: £5,824 million) and the perpetual securities of £496 million
(2018/19: £496 million restated).
Summary cash flow statement1,2
Adjusted retail operating cash flow before
changes in working capital2
Increase in working capital
Net interest paid3
Pension cash contributions
Corporation tax paid
Net cash generated from/(used in)
operating activities
Cash capital expenditure before strategic capital4
Repayments of obligations under leases
Initial direct costs on right-of-use assets
Proceeds from disposal of property, plant and
equipment
Bank capital injections
JV capital injections
Dividends and distributions received
Retail free cash flow
Strategic capital expenditure – Argos integration3
Dividends paid on ordinary shares
Repayment of borrowings3
Other
Net increase/(decrease) in cash and
cash equivalents
Decrease in Debt
Other non-cash and net interest movements5
Movement in net debt
Retail
52 weeks to
7 March
2020
£m
2,094
Retail
52 weeks to
9 March
2019
£m
2,022
(71)
(405)
(52)
(113)
1,453
(599)
(419)
(13)
81
(35)
–
143
611
–
(247)
(379)
(3)
(18)
798
(381)
399
(38)
(423)
(63)
(61)
1,437
(508)
(430)
(11)
64
(110)
(5)
19
456
(36)
(224)
(446)
(8)
(258)
876
(389)
229
Opening net debt
Closing net debt
of which:
Lease Liabilities
Net Debt Excluding Lease Liabilities
(7,346)
(6,947)
(5,768)
(1,179)
(7,575)
(7,346)
(5,824)
(1,522)
1 See note 5 for a reconciliation between Retail and Group cash flow.
2 Excludes working capital and pension contributions.
3 Refer to the Alternative Performance Measures on pages 205 to 208 for reconciliation.
4 Excludes Argos integration capital expenditure in 2018/19.
5 Other non-cash includes new leases and lease modifications and fair value movements on derivatives
used for hedging long term borrowings.
Adjusted retail operating cash flow before changes in working capital
increased by £72 million year-on-year to £2,094 million (2018/19: £2,022 million)
and working capital increased by £71 million. Cash capital expenditure
excluding strategic capital was £599 million (2018/19: £508 million). In the
year capital injections into the Bank were £35 million (2018/19: £110 million).
Dividends and distributions received of £143 million (2018/19: £19 million)
were predominantly as a result of the sale of properties held in a joint
venture with British Land.
Retail free cash flow increased by £155 million year-on-year to £611 million
(2018/19: £456 million). Free cash flow was used to fund dividends and reduce
borrowings.
Dividends of £247 million were paid in the year, which were covered 2.5 times
by free cash flow (2018/19: 2.0 times). Strategic capital expenditure incurred
in the prior year of £36 million related to Argos integration capital expenditure.
The Group held undrawn committed credit facilities of £1,450 million and
undrawn uncommitted facilities of £195 million as at 7 March 2020.
Capital expenditure
Core retail cash capital expenditure was £599 million (2018/19: £508 million).
Sainsbury’s expects core retail cash capital expenditure (excluding Financial
Services) to be around £550 million – £600 million per annum over the medium
term. Further guidance for 2020/21 will be provided with our interim results.
Strategic ReportJ Sainsbury plc Annual Report 2020
Retirement benefit
obligations
Present value of funded
obligations
Fair value of plan assets
Additional liability due to
minimum funding
requirements (IFRIC 14)
Pension surplus/(deficit)
Present value of unfunded
obligations
Retirement benefit
obligations
Deferred income tax
(liability)/asset
Sainsbury’s
as at
7 March
2020
£m
(8,914)
Argos
as at
7 March
2020
£m
(1,421)
Group
as at
7 March
2020
£m
(10,335)
10,025
–
1,466
–
11,491
–
1,111
(21)
45
(16)
1,156
(37)
1,090
29
1,119
(198)
(16)
(214)
Net retirement benefit
892
13
905
obligations
35
Group
as at
9 March
2019
£m
(8,856)
9,983
(134)
993
(34)
959
(216)
743
Kevin O’Byrne
Chief Financial Officer
Financial ratios
Key financial ratios
Return on capital employed (%)1
Net debt to EBITDAR2
Fixed charge cover3
52 weeks to
7 March
2020
7.4
3.2 times
2.7 times
As at
9 March
2019
7.4
3.3 times
2.6 times
1 ROCE: Return is defined as a 52 week rolling underlying profit before interest and tax. Capital employed
is defined as group net assets excluding the pension deficit/surplus and excluding net debt. The
average is calculated on a 14 point basis.
2 Net debt of £6,947 million includes lease obligations under IFRS 16 and perpetual securities treated as
debt, divided by Group underlying EBITDAR of £2,203 million.
3 Group underlying EBITDAR divided by rent (both capital and interest) and underlying net finance costs,
where interest on perpetual securities is treated as an underlying finance cost.
Property value
As at 7 March 2020, Sainsbury’s estimated market value of properties,
including our 50 per cent share of properties held within property joint
ventures, was £9.9 billion (9 March 2019: £10.4 billion), the reduction largely
a result of the sale of 15 British Land joint venture properties and the decline
in rental values.
Defined benefit pensions
The Pension Scheme is valued on different bases for different purposes.
For the corporate annual accounts, the value of the retirement benefit is
calculated under IAS19 while the funding of the Scheme is determined
by the Trustee’s triennial valuation.
At 7 March 2020, the net defined benefit surplus under IAS19 for the Group
was £1,119 million (excluding deferred tax). The £160 million movement
from 9 March 2019 was primarily driven by asset gains in both sections of
the Scheme on matching and hedging assets due to the fall in gilt yields,
reflected in the discount rate moving from 2.8 per cent to 1.6 per cent, along
with most asset classes having positive returns over the period. In the Argos
section, there was a gain from no longer having to make an adjustment
for IFRIC 14 as a result of a revision to the Scheme rules as part of the 2018
triennial valuation agreement.
The Scheme was subject to a triennial actuarial valuation, as at 30 September
2018, which was completed during the first half. The actuarial deficit reduced
to £538 million, from £1,055 million in 2015.
As part of the agreement reached with the Trustee to complete the 2018
triennial valuation of the Sainsbury’s Pension Scheme (the defined benefit
scheme), we established a new asset backed contribution (‘ABC’) structure
on 17 July 2019, replacing the existing property partnership.
Under the new ABC, properties with a value of £1.35 billion were transferred
into a newly formed property holding company, a wholly owned subsidiary
of the Group, and leased to other Group entities. Rental receipts facilitate
payments of interest and capital on loan notes issued to a Scottish Limited
Partnership, in which the Scheme holds an interest.
The Scheme’s interest in the Partnership entitles it to annual distributions over
up to 20 years. The distributions will be made through three payment streams:
1) Payments to the Sainsbury’s section (approximately £15 million per year)
2) Payments to the Argos section (approximately £20 million per year)
3)
Switching payment stream, paid to either the Sainsbury’s section
or Argos section (initially approximately £23 million per year, increasing
to £33 million by 2038)
In addition to the above, further cash contributions of £40 million have been
agreed for 2020/21, and £10 million in 2021/22. No additional cash
contributions have been agreed for subsequent years.
The payments to the Sainsbury’s and Argos sections (streams 1 and 2) stop
in 2030, or when the relevant section reaches its funding target if earlier.
The switching stream is initially paid to the Sainsbury’s section. Once that
funding target is achieved, payments switch to the Argos section. Payments
continue until 2038 or until both sections have reached their funding targets
if earlier.
The level of property in the Propco reduces as the Scheme reaches the
funding targets.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
36
Our principal risks
and uncertainties
Our risk management process is designed to identify key risks and
to provide assurance that they are fully understood and managed in
line with management’s risk appetite.
The plc Board has overall responsibility for risk management and
internal controls, and for reviewing their effectiveness at least
annually. Certain responsibilities have been delegated to the Audit
Committee as outlined on page 71.
The risk management process is embedded at the Operating Board
level and is supported by the bottom-up risk process within divisions
and governance forums. The Operating Board maintains an overall
corporate risk map, which is reviewed four times a year by the Audit
Committee and is formally discussed with the Board.
To support risk discussions, the corporate risk map captures the
principal risks to achieving Sainsbury’s objectives and identifies the
potential impact and likelihood at both a gross and net level. The
Operating Board reviews the risk map twice a year to discuss and
agree the level of risk that the business is prepared to accept for each
key corporate risk. The target risk position is captured to reflect
management’s risk appetite where this differs to the current net
position. This enables the Operating Board to agree and monitor
appropriate actions as required.
Operating Board members certify annually that they are responsible
for managing their business objectives and internal controls to
provide reasonable, but not absolute, assurance that the risks in their
areas of responsibility are appropriately identified, evaluated and
managed. This is reported to the plc Board.
Internal Audit and Risk provides the Audit Committee with a risk
management update at each meeting, which includes the key risk
activities undertaken within functions, governance forums and at
divisional and corporate levels.
The COVID-19 pandemic has demonstrated that risk and issue
management is an inherent part of doing business and has tested
Sainsbury’s risk and resilience processes. The short-term impact of
COVID-19 on our principal risks was assessed by the Board. The
results of this assessment are set out on pages 7 to 9. Below and on
the following pages, we set out an overview of the risk management
framework, the principal risks at year end, ongoing mitigations and
how these align to our strategy. The Board will continue to monitor
the principal risks and flex mitigations, in particular, to respond to
the medium and longer-term impacts of the pandemic as they
become clearer.
Risk management framework
The management of risk is based on the balance between risk and
reward, determined through a careful assessment of both the
potential outcomes and impact as well as risk appetite. Consideration
is given to both reputational and financial impact, recognising the
significant commercial value of the Sainsbury’s brand. The risk
management process is aligned to our strategy and each principal
risk and uncertainty is considered in the context of how it relates to
the achievement of the Group’s strategic objectives.
The following diagram provides an overview of the key risk
management activities undertaken by leadership that allow the
Board to fulfil its obligations under the 2018 Code. Please refer
to page 55 for the role and remit of these.
Division/function leadership
bottom-up risk identification
Governance forums
Risk identification and
monitoring
Operating Board
Bi-annual corporate risk updates
and deep dives
Audit Committee
Corporate risk updates, deep dives
and approval of the risk framework
— Divisional risk maps reviewed and
challenged
— Monitor risk actions
— Divisional risks relevant to forums’
area of scope
— Governance forum risk maps
— Corporate risk map and
monitor actions
— Risk deep dives
— Emerging risk map
— Corporate risk map
— Risk deep dives
— Risk policy and framework
— Internal audit reporting
plc Board
Review of risk process, corporate
risks and approval of risk disclosures
— Annual internal controls certification
by management
— Principal risk and uncertainty
disclosures
Strategic ReportJ Sainsbury plc Annual Report 2020 37
Developments in our risk management process:
Emerging risks and opportunities were reviewed formally
in the year. Whilst emerging risks are regularly discussed and
identified as risks “to watch” through our bottom-up risk
assessment process, this year a supplementary review was
facilitated by Internal Audit and Risk. The review assessed a range
of scenarios to identify emerging risks and opportunities that may
impact our business, considering their potential timeframe and
degree of certainty. The outcomes were reported to the Operating
Board and Audit Committee. Going forward, this assessment will
be completed annually and aligned to corporate planning.
The business has also continued to monitor and respond to risks
and uncertainties relating to the impact on our operations of
Brexit, which we continue to disclose as a specific principal risk.
Climate change risks were subject to a specific risk review.
Risks identified from the bottom-up and emerging risk
assessments were reviewed to confirm completeness. Their
impact on our overall risk assessment was then considered.
Climate change risks identified are considered in the existing
principal risks we are disclosing and have been taken into
consideration in assessing impact and likelihood, where
appropriate.
As signatories of the Task Force on Climate-related Financial
Disclosures (TCFD), we will implement their recommendations
in 2020/21. This will include using scenario modelling to further
assess the impact of current and emerging climate change on
our business model.
The annual risk management process is illustrated in the diagram
below. The specific risk management activities undertaken in the
financial year to 7 March 2020, and proposed changes for next
year, include:
— The Internal Audit and Risk team facilitated risk workshops with
divisional leadership teams to identify the key risks which may
prevent the achievement of objectives. A risk map is maintained
for each division setting out key risks and their gross, net and
target positions. A consolidated view of relevant risks was then
discussed at each key governance forum – safety, data
governance and operational resilience. In 2020, we will move to
quarterly check-ins with all divisions and governance forums.
— Divisional management and governance forums reviewed key
risks and the effectiveness and robustness of the mitigating
controls as part of their normal business activities.
— Emerging risks and opportunities were formally assessed.
Emerging risks and opportunities will continue to be monitored,
with this assessment aligned to corporate planning in 2020.
— The Operating Board reviewed and challenged the output of the
bottom-up risk process including new risks, risk movements and
key themes. The corporate risk map was updated as appropriate.
— The plc Board reviewed the risk management process and
corporate risks at the year end and approved the Company’s
principal risks and uncertainties disclosure, including the
disclosure relating to the impact of COVID-19 on principal
risks (as set out on pages 38 to 45 and on pages 7 to 9).
— Internal Audit provided independent assurance to management
and the Audit Committee over specific risk areas as part of their
audit plan.
— As set out over the following pages, risk deep dives were
undertaken with the Operating Board and/or Audit Committee
for seven of our 12 principal risks. Deep dives will continue,
with focus on assessing whether we are within our risk appetite.
Quarter 1
March to June
Quarter 2
July to September
Quarter 3
September to December
Divisions/
functions
Divisional risk workshops
(bottom-up risk identification)
Divisional risk check-in
(quarterly in 2020/21)
Divisional risk check-in
(risk validation)
Quarter 3
December to March
Divisional risk check-ins
(quarterly in 2020/21)
Management
annual certification risks are
identified, evaluated and monitored
Governance forum risk check-in
(quarterly in 2020/21)
Governance
forums
Governance forum risk
workshops
(consolidated view of
risks reviewed)
Operating
Board
Emerging risk assessment
move to align with 2020/21
Corporate Planning
Governance forum risk
check-in
(quarterly in 2020/21)
Corporate risk map
half-year review
(review consolidated view
of risks/actions)
Governance forum risk
check-in
(consolidated view of
risks validated)
Emerging risk workshop
to review bottom-up and scenario
based emerging risks (2019/20)
Corporate risk map
year-end review
Risk deep dives aligned to business priorities
Audit
Committee
Review and approve
principal risks and uncertainties
Corporate risk map
half-year review
(review consolidated view
of risks/actions)
Risk management update
Corporate risk map
year-end review
Approve risk framework
Risk deep dives as requested by Audit Committee Chair
plc Board
Internal
Audit and
Risk
plc Board
review of risk process, corporate
risks and principal risks
and uncertainties.
Facilitate the risk management process and prepare reporting to all Boards
Internal Audit
risk-based half-year plan
Internal Audit
risk-based half-year plan
Annual review of
risk framework
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
38
The most significant principal risks identified by the Board and
the mitigations are set out below in no order of priority.
Strategic link
Be competitive on price
The net risk movement from the prior year for each principal risk and
uncertainty has been assessed and is presented as follows:
No
change
Increased net
risk exposure
Reduced net
risk exposure
NEW
New
risk
Mitigations in place, supporting the management of the risk to a net
risk position, are also described for each principal risk and uncertainty.
Where principal risks have been included in the risk modelling,
undertaken as part of the preparation of the viability statement
(see page 46), this has been indicated with the following symbol:
Key risk movements
As noted, the principal and emerging risks are discussed and
monitored throughout the year to identify changes to the risk
landscape. Risks are reviewed in line with the Company’s
strategic objectives.
Brand perception
Risk
We are a multi brand, multi channel business incorporating
Sainsbury’s, Argos, Habitat, Tu, Nectar and Sainsbury’s Bank. Our
business must continue to evolve to meet customer needs and
maintain customer loyalty. Customer lifestyles, behaviours and
expectations are changing and we need to continue to differentiate
our offer to retain and attract customers. We also need to protect
our brand so that customers, suppliers and stakeholders continue
to trust us.
Direct oversight: Operating Board, Customer Trading Forum and
Sainsbury’s Bank Management Board
Link to strategy:
Movement:
Offer distinctive products and new categories
Personalised and seamless physical and digital
Fast, friendly and convenient
Drive efficiency to reinvest
Be a place where we all love to work
Net Zero by 2040
The key risk movement disclosed relates to the net risk impact for
data security increasing to reflect the level of fines being imposed
in the UK market for data breaches.
Mitigations
— We continually focus on evolving our ways of working to ensure
we continue to meet our customers’ needs so that our brands
continue to remain relevant
— We have a wide, differentiated product offer, which gives our
customers more reasons to shop with us
— We change and evolve to meet the needs of our customers
through our digital strategy and technology developments,
so that we are there for them whenever and wherever they want
to shop with us, with great products and services at fair prices.
To deliver this, we will continue to listen to and understand
our customers
— Nectar supports our strategy of knowing our customers better
than anyone else. The acquisition has given us more control over
how we reward and recognise our customers and we have since
launched digital Nectar to give customers offers which are
personalised to them
— In terms of brand protection, many of the mitigation activities
set out against the risks above also help prevent or reduce the risk
of losing the trust and loyalty of customers, suppliers and broader
stakeholders
— We launched an all-encompassing target to become a Net Zero
business by 2040, as we know this is a material concern and
motivation for our customers both now and in the future
Strategic ReportJ Sainsbury plc Annual Report 2020
Brexit
Risk
There remains economic and regulatory uncertainty in the UK
following leaving the EU in January 2020 and a lack of clarity around
future trading arrangements following the transition period. These
uncertainties could have an adverse effect on customers, supply
chains and colleagues, potentially impacting trading performance
across the sector.
Direct oversight: Operating Board
Link to strategy:
Movement:
39
RISK DEEP DIVE
Mitigations
— The Brexit Response team has been in place during the last year
to actively prepare for a no deal scenario. The Brexit Response
team co-ordinates activities across the Trading, Retail, HR, Legal
and Finance teams to help ensure that, in the event of no-deal
at the end of the transition period, appropriate mitigations are
in place to reduce the impact on customers, supply chains and
colleagues
— These activities continued to focus on three key areas of risk
in the event of a no deal:
— Delays at borders, reducing fresh product availability and choice
— Cost impact associated with tariffs, loss of trade and currency
fluctuations
— Impact of changes in EU migration throughout our supply chains
— We will continue to engage actively with the Government,
industry and regulatory bodies to assess the specific impact
on our business as and when their focus returns to this matter
Business continuity, operational resilience and major incident response
RISK DEEP DIVE
Risk
Mitigations
A major incident or catastrophic event could affect the business
or its individual brands’ ability to trade. Sainsbury’s exposure to
operational resilience and major incident risks may be greater
following the acquisition of Argos and Nectar given the increased
size and complexity of the business.
Direct oversight: Group Operational Resilience Committee
Link to strategy:
Movement:
— The Group Operational Resilience Committee (GORC) meets
quarterly and is chaired by the Chief Financial Officer, with support
from our Company Secretary and Corporate Services Director and
Chief Information Officer. The GORC sets the operational resilience
strategy for the Group and monitors progress against this
— To support this, the Operational Resilience Committee, which
includes representatives from operational functions across
Sainsbury’s, including the Bank, meets regularly to ensure that
the operational resilience policy and strategy is implemented
— Business-wide resilience exercises are undertaken to imitate real
life business continuity scenarios and test our ability to respond
effectively
— Key strategic locations have secondary backup sites that would
be made available within pre-defined timescales and are regularly
tested
— All key business processes are assessed for operational resilience
against a set of minimum standards and contingency measures
are regularly tested
— In the event of any unplanned or unforeseen events, the Incident
Response team is convened to manage the response and any
associated risk to the business
— The business has plans in place, supported by senior representatives
who have the experience and the authority levels to make decisions
in the event of a potentially disruptive incident
— Key strategic locations have an automated emergency call
cascade solution implemented which allows for emergency
communications to be made to all colleagues and for responses
to be received back when required
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
40
Business strategy and change
Risk
Mitigations
If the Board adopts the wrong business strategy or does not
communicate or implement its strategies effectively, the business
may be negatively impacted. Risks to delivering the strategy,
change initiatives forming part of the strategy and other significant
supporting change activities need to be properly understood
and managed to deliver long-term growth for the benefit of all
stakeholders alongside management of business as usual.
Direct oversight: Operating Board
Link to strategy:
Movement:
Our business strategy, as set out in this Strategic Report, is focussed on:
• Be competitive on price
• Offer distinctive products and
• Drive efficiency to reinvest
• Be a place where we all love
new categories
• Fast, friendly and convenient
• Personalised and seamless
physical and digital
to work
• Net Zero by 2040
— The Board regularly reviews progress against strategic
programmes and any risks to delivery, such as the ability to
implement and deliver change and new business initiatives.
The overall strategy is reviewed at the annual two-day Strategy
Conference and a Capital Markets Day was held in September
2019 to give investors greater insight into business priorities
— The Operating Board has regular sessions to discuss strategy;
supported by a dedicated strategy team. The strategy is
communicated and the business continually engages with a
wide range of stakeholders, including shareholders, colleagues,
customers and suppliers
— Management performs ongoing reviews of our market, as
explained on pages 12 to 13 and monitors business as usual
performance to determine indicators of potential negative
performance because of change initiatives
Colleague engagement, retention and capability
Risk
Mitigations
The business employs over 172,000 colleagues who are critical to
the success of our business. Attracting talented colleagues, investing
in training and development, maintaining good relations, and
rewarding colleagues fairly are essential to the efficiency and
sustainability of business operations. An inability to attract, motivate
and retain talent, specific skill sets and capability impacts our ability
to deliver strategic objectives, including the integration with Argos.
In addition, the challenging trading environment requires a focus on
efficient operations, which may include change initiatives affecting
colleagues, therefore presenting a risk of loss of colleague trust or
engagement.
Direct oversight: Operating Board
Link to strategy:
Movement:
— Employment policies and remuneration and benefits packages
are regularly reviewed and are designed to be competitive,
with other companies, fair and consistent, as well as providing
colleagues with fulfilling career opportunities
— In addition to strong leadership and nurturing of talent by
line managers, formal processes are also in place to identify
talent and actively manage succession planning throughout
the business
— Reviews are performed to help develop the skills colleagues
need to deliver objectives and this is supported by embracing
new ways of attracting talent
— Our business priority ‘Be a place where we all love to work’
reinforces our commitment to giving people the opportunity
to be the best they can be
— Colleague surveys, performance reviews, listening groups,
communications with trade unions, regular communication
of business activities and colleague networking forums such
as Yammer, the updated colleague portal (Our Sainsbury’s)
and the colleague learning portal are some of the methods the
business uses to understand and respond to colleagues’ needs
— As change initiatives are implemented, the methods described
above will continue to be employed to understand and maintain
colleague trust and engagement
Strategic ReportJ Sainsbury plc Annual Report 2020 Data security
Risk
It is essential that the security of customer, colleague and company
confidential data be maintained. A major breach of information
security could have a significant negative financial and reputational
impact on the business. The risk landscape is increasingly
challenging with deliberate acts of cybercrime on the rise, targeting
all markets and heightening the risk exposure to broader business
disruption as well as to data breaches. We continue to invest in
improving our data governance and information security defences,
however, we recognised the net risk increased during the year.
This was primarily driven by the value of fines levied in the UK
market for data breaches.
Direct oversight: Data Governance Committee
Link to strategy:
Movement:
41
RISK DEEP DIVE
Mitigations
— A Group Data Governance Committee is established and
is supported by focused working groups looking at the
management of colleague data, customer data, information
security, commercial data and awareness and training
— We have combined our Data Governance and Information
Security functions and the Head of Data Governance and Chief
Information Security Officer continues to develop information
security strategies and to build the necessary capability to deliver
against those strategies alongside focusing on improving how we
handle data across the organisation
— Various information security policies and standards are in place,
which focus on encryption, network security, access controls,
system security, data protection and information handling
— All colleagues are required to complete mandatory training on
how to keep our information safe. This is supplemented by regular
awareness campaigns, focusing on specific aspects of data and
information security
— Reviews of key third parties who hold sensitive customer or
colleague data continue to take place and progress is monitored
by the Data Governance Committee
— A risk-based security testing approach across IT infrastructure
and applications is in place to identify ongoing vulnerabilities
— Reflecting the importance of data security, two deep-dive reviews
of this risk have been performed with the Operating Board and
Audit Committee in the year. These have covered mitigating
controls and activities to manage this risk. These discussions
are conveyed to the Board as part of our normal governance
processes. We have also conducted a review of risk appetite
in this area which has been reported to the plc Board
Environment and sustainability
RISK DEEP DIVE
Risk
Mitigations
The environment and sustainability are core to Sainsbury’s values.
The key risk facing the business in this area relates to reducing
the environmental impact of the business, which could result in
a financial and/or reputational risk.
Direct oversight: Operating Board, Corporate Responsibility and
Sustainability Committee
Link to strategy:
Movement:
— The Corporate Responsibility and Sustainability Committee met
twice during the year. The Committee assesses the impact of
Sainsbury’s corporate responsibility and sustainability strategy on
how we help customers live well for less and in terms of building
customer trust
— In January 2020 we committed to investing £1 billion over 20 years
towards becoming Net Zero across our own operations by 2040.
This is in line with the highest ambition of the Paris Climate
Change Agreement to limit global temperature rise to 1.5 degrees.
We have refreshed our sustainability governance structure with
the creation of the Net Zero Steering Group, along with specific
working groups, who will be responsible for driving and executing
this strategy
— We will use the £1 billion investment to support seven
commitments focused on reducing carbon emissions, food waste,
plastic packaging and water usage and increasing recycling,
biodiversity and sustainable diets in order to improve our climate
change resilience
— As part of our Net Zero by 2040 strategy, we will provide clear,
frequent disclosures on our progress. As signatories of Task Force
on Climate-related Financial Disclosures (TCFD), we will use
scenario modelling to further assess the impact of current and
emerging climate change on our business model and strategy
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
42
Financial and treasury
Risk
Mitigations
RISK DEEP DIVE
The main financial risks are the availability of short and long-term
funding to meet business needs and fluctuations in interest,
commodity and foreign currency rates.
— plc Board approved Treasury policies are in place to address
liquidity risk, refinancing risk, financial markets risk and
counterparty credit risk
Direct oversight: The Board of J Sainsbury plc
Link to strategy:
Movement:
— The Treasury function is responsible for managing the liquid
resources, funding requirements, commodity, interest rate and
currency exposures as set out in line with the Treasury policy and
is overseen by the Treasury Committee
— The Treasury function has clear operating procedures, which are
regularly reviewed and audited
— A long-term funding plan is formed as part of the annual
corporate plan process, which includes an assessment of short
and long-term core funding requirements and contingent funding
requirements
— A short-term funding plan is formalised as part of the annual
budget process, which includes an assessment of the core and
contingent funding requirements for the following year and
the market conditions for each of the debt markets accessible
to the business
— The business funding strategy and Treasury policies are approved
annually by the plc Board
— Annually, the Audit Committee reviews and approves the viability
and going concern statements and reports into the plc Board
— Finance Commercial review sessions are held each period, chaired
by the Chief Financial Officer to review the Company balance
sheet, P&L, and net debt in detail with relevant actions and
mitigations agreed
— There is a long-term funding framework in place for the pension
deficit and there is ongoing communication and engagement
with the Pension Trustees
— Financial and Treasury risk in respect of Sainsbury’s Bank are
detailed separately
Examples of risk deep dives in the last year
A programme of risk deep dives has
continued, with half of the principal risks
being reviewed by the Operating Board
or Audit Committee in year. We have set
out some examples.
We reconfirmed risk appetite for all
corporate risks with the plc and Operating
Boards in the year. A programme of deep
dive reviews, focussed on risk appetite,
will continue.
Data security
plc Board and Audit Committee
Biannual risk deep dives are presented by
the Head of Data Governance and Chief
Information Security Officer to the Operating
Board and Audit Committee. The Operating
Board also receives reports from the Data
Governance Committee.
This year, a risk deep dive with the plc
Board was held in March 2020. The plc Board
reviewed our risk appetite across data and
information security risks.
Health and safety –
people and product
Audit Committee
The plc Board receives quarterly updates
on safety and a risk deep dive is facilitated
annually.
In addition, the Director of Retail and
Operations presented a paper to the March
2020 Audit Committee on how relevant
safety and legal risks are managed in the
retail estate.
Financial and treasury
plc Board and Audit Committee
Business continuity
Operating Board
Environment and sustainability
Operating Board
An annual funding deep dive covers going
The Operating Board performed a deep dive
The Net Zero by 2040 strategy was
concern considerations, our diversified
review of our approach to business continuity,
reviewed in detail by the Operating Board,
portfolio of secured and unsecured borrowings
operational resilience and major incident
including an evaluation of risks, and
and core elements of the Group’s financing
management, presented by the Director of
was approved by the plc Board and
arrangement in place to maintain funding
Audit, Risk and Resilience in March 2020.
CR&S Committee.
headroom.
In addition, the business funding strategy
also actively reviews this risk during the year.
and Value Management Groups actively
and Treasury policies are approved annually
Quarterly updates are also provided to the
reviewed this risk during the year
The Group Operational Resilience Committee
The Sainsbury’s Net Zero Steering Group
by the plc Board.
Audit Committee.
and presented reports to the Corporate
Responsibility and Sustainability
Committee.
Strategic ReportJ Sainsbury plc Annual Report 2020
Health and safety – people and product
RISK DEEP DIVE
Risk
Mitigations
Prevention of injury or loss of life for both colleagues and customers
is of utmost importance and is paramount to maintaining the
confidence our customers have in our business.
— Clear policies and procedures are in place detailing the controls
required to manage health and safety, and product safety risks
across the business and to comply with all applicable regulations
43
Direct oversight: Group Safety Committee
Link to strategy:
Movement:
— These cover the end-to-end operations, including the auditing
and vetting of construction contractors, the health and safety
processes in place in our depots, stores and offices and the controls
in place to ensure people and product safety and integrity
— In addition, established product testing programmes are in place
to support rigorous monitoring of product traceability and provide
assurance over product safety and integrity
— Supplier terms, conditions and product specifications set clear
standards for product/raw material safety and quality with which
suppliers are expected to comply
— Process compliance is supported by external accreditation and
internal training programmes, which align to both health and
safety laws and Sainsbury’s internal policies
— Resource is dedicated to manage the risk effectively, in the form
of the Group Safety Committee and specialist safety teams
— The Board receives quarterly reports on safety, including a deep
dive facilitated by the Head of Group Safety and the Head of
Technical Operations
Examples of risk deep dives in the last year
A programme of risk deep dives has
continued, with half of the principal risks
being reviewed by the Operating Board
or Audit Committee in year. We have set
out some examples.
Data security
plc Board and Audit Committee
Biannual risk deep dives are presented by
the Head of Data Governance and Chief
Health and safety –
people and product
Audit Committee
We reconfirmed risk appetite for all
corporate risks with the plc and Operating
Boards in the year. A programme of deep
dive reviews, focussed on risk appetite,
will continue.
Information Security Officer to the Operating
on safety and a risk deep dive is facilitated
The plc Board receives quarterly updates
Board and Audit Committee. The Operating
annually.
Board also receives reports from the Data
Governance Committee.
This year, a risk deep dive with the plc
Board was held in March 2020. The plc Board
safety and legal risks are managed in the
reviewed our risk appetite across data and
retail estate.
In addition, the Director of Retail and
Operations presented a paper to the March
2020 Audit Committee on how relevant
information security risks.
Financial and treasury
plc Board and Audit Committee
An annual funding deep dive covers going
concern considerations, our diversified
portfolio of secured and unsecured borrowings
and core elements of the Group’s financing
arrangement in place to maintain funding
headroom.
In addition, the business funding strategy
and Treasury policies are approved annually
by the plc Board.
Business continuity
Operating Board
The Operating Board performed a deep dive
review of our approach to business continuity,
operational resilience and major incident
management, presented by the Director of
Audit, Risk and Resilience in March 2020.
Environment and sustainability
Operating Board
The Net Zero by 2040 strategy was
reviewed in detail by the Operating Board,
including an evaluation of risks, and
was approved by the plc Board and
CR&S Committee.
The Group Operational Resilience Committee
also actively reviews this risk during the year.
Quarterly updates are also provided to the
Audit Committee.
The Sainsbury’s Net Zero Steering Group
and Value Management Groups actively
reviewed this risk during the year
and presented reports to the Corporate
Responsibility and Sustainability
Committee.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
44
Political and regulatory environment
Risk
Mitigations
There is an increasing trend of regulation, together with enforcement
action, across all areas of our business. This adds additional cost
as we respond to the regulations and drives complexity into our
business processes.
— We complete a bi-annual regulatory risk assessment with key
areas of the business to identify current and emerging regulation
affecting the business, so that we can respond appropriately
— Regulatory updates are regularly presented to our oversight
Direct oversight: Operating Board
Link to strategy:
Movement:
Sainsbury’s Bank
Risk
Sainsbury’s Bank is exposed to a number of risks. These include
operational risk, regulatory risk, credit risk, capital risk, funding risk,
liquidity risk, and market risk.
Direct oversight: The Boards of J Sainsbury plc and Sainsbury’s
Bank plc
Link to strategy:
Movement:
boards and committees, including the Regulatory Pay Forum,
which was established in 2019 to oversee National Living Wage/
National Minimum Wage compliance across the business,
with flexibility to support other areas of reward compliance
if necessary
— To influence current and emerging regulatory requirements,
we continue to engage actively with Government, industry and
regulatory bodies
— We publicly communicate matters where we believe industry
change is required, with a view to enabling fair competition that
is beneficial to our customers
— We communicate our views, and those of our customers and
colleagues, regarding geopolitical issues with the aim of informing
the debate and ensuring our opinions are represented in the
policy and decision-making processes
Mitigations
— The Bank is managed through defined governance structures that
include the Board of Sainsbury’s Bank plc, its Risk Committee and
Audit Committee. The Board of Sainsbury’s Bank plc is comprised
of Executive Directors, Non-Executive Directors and a J Sainsbury
plc Operating Board member
— The Bank has a defined risk appetite aligned to delivery of
strategic objectives and has implemented a risk management
framework that is overseen by its Risk Committee. This
Committee monitors the effectiveness of risk management
activities against strategic, operational, compliance and financial
risks and is updated on and discusses emerging risk areas.
In particular, the Risk Committee reviews the results of stress
testing including the internal liquidity and capital adequacy
assessments
— The actual management of risks is through an executive
governance structure, which manages the day-to-day operations
of the business. This includes the Sainsbury’s Bank Management
Board, an Executive Risk Committee and an Asset and Liability
Committee
— Oversight by J Sainsbury plc is provided through:
— Membership of the Board of Sainsbury’s Bank plc – one
J Sainsbury plc Operating Board member is on the Board of
Sainsbury’s Bank plc and provides updates to the Board of
J Sainsbury plc on Bank matters
— Updates on key matters arising from meetings of the Risk
Committee and Audit Committee are reported to the
J Sainsbury plc Audit Committee
— There are a number of reserved matters where Sainsbury’s
Bank plc needs to obtain permission from J Sainsbury plc
Strategic ReportJ Sainsbury plc Annual Report 2020
45
Trading environment and competitive landscape
RISK DEEP DIVE
Risk
Mitigations
Effective management of the trading account is key to the
achievement of performance targets. The sector outlook has been
and is set to remain very competitive. The trading environment,
driven by ongoing competitive retail pricing combined with growing
inflationary cost pressures, may adversely affect our performance.
There is also an ongoing risk of supplier failure, with possible
operational or financial consequences for the business.
Direct oversight: Customer Trading Forum, Operating Board
Link to strategy:
Movement:
— We adopt a differentiated strategy with a continued focus on
delivering quality products and services with universal appeal,
at fair prices, helping our customers Live Well for Less
— This is achieved through the continuous review of our product
quality, key customer metrics, monitoring of current market
trends and price points across competitors, active management
of price positions, development of sales propositions and
increased promotional and marketing activity
— We continue with our commitment to offer customers even better
value with lower regular prices
— In delivering our strategic plan, including our price investment,
we will maintain the strength of our balance sheet and have
identified a series of measures to conserve cash in the business
— Concerning supplier continuity, Sainsbury’s maintains regular,
open dialogue with key suppliers concerning their ability to trade
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
46
Statement of Viability
1 How Sainsbury’s assesses its prospects
The Group’s business activities and strategy are central to assessing
its future prospects. These, together with factors likely to affect its
future development, performance and position are set out in the
Strategic Report on pages 1 to 47. The financial position of the Group,
its cash flows and liquidity are highlighted in the Financial Review
on pages 30 to 35.
— Reverse stress-testing was performed to determine the extent to
which cash flows would need to deteriorate before fully-utilising
the Group’s funding headroom, and after taking into account any
mitigating actions as detailed above
Whilst each of the risks on pages 36 and 45 and pages 7 to 9 has a
potential impact and has been considered as part of the assessment,
only those that represent severe but plausible scenarios were selected
for modelling through the corporate plan.
The Group manages its financing by diversifying funding sources,
structuring core borrowings with long-term maturities and
maintaining sufficient levels of standby liquidity via the Revolving
Credit Facility. This seeks to minimise liquidity risk by maintaining
a suitable level of undrawn additional funding capacity.
The Group’s prospects are assessed primarily through its corporate
planning process. This includes an annual review which considers
profitability, the Group’s cash flows, committed funding and liquidity
positions and forecasted future funding requirements over three
years, with a further two years of indicative movements. As part
of the strategic planning process, the Directors make a number of
assumptions about business performance and the ability of the
Group to raise further financing. In particular, liquidity forecasting
gives visibility of the Group’s headroom, comparing net debt to the
level of committed facilities over the planning period.
The most recent corporate plan was signed off in October 2019, and
refreshed in March 2020 as part of the normal budgeting process.
This is reviewed by the Operating Board and ultimately by the plc
Board with involvement throughout from both the CFO and CEO.
Part of the Board’s role is to consider the appropriateness of any key
assumptions, taking into account the external environment, business
strategy and model.
2 The assessment period
The Directors have determined that the three years to March 2023
is an appropriate period over which to provide its viability statement.
This was considered the appropriate timeframe by the Directors
because:
— This period is consistent to that used for the Group’s corporate
planning process as detailed above, and reflects the Directors’
best estimate of the future prospects of the business
— The Group does not earn revenue through long-term contracts.
Therefore changes to the Group’s corporate plan are
predominantly impacted by sales and cost assumptions. These
are more difficult to predict beyond a three-year time-horizon.
Both have been stress-tested as part of the viability assessment
— The Directors considered whether the assessment period of
three years should be revisited in light of COVID-19. However,
given the outcomes of the modelling below, combined with the
lesser impact to which the food sector is adversely impacted
than others, it was concluded that the three-year timeframe
remained appropriate
3 Assessment of viability
To make the assessment of viability the following has been performed:
— Scenarios have been modelled over and above those in the
corporate plan, based upon a number of the Group’s principal
risks and uncertainties (as documented on pages 36 to 45).
The scenarios were overlaid into the corporate plan to assess the
potential impact on net debt of one or more of these crystallising
over the assessment period, and have been tested in isolation
and in combination with one another. The movements in net debt
were then compared to the Group’s funding headroom. Where
required, available mitigating actions to maintain liquidity were
considered as part of the assessment. These include reducing any
non-essential capital expenditure and operating expenditure on
projects, bonuses and dividend payments
COVID-19
The COVID-19 outbreak has developed rapidly in 2020, with a
significant number of infections across many countries. Lockdown
restrictions have been implemented in the UK in an effort to curtail
the spread of the virus. The Group is exposed to a number of areas
as follows:
— Sales impact from the closure of certain stores,
predominantly Argos
— Changing customer behaviours during lockdown
— Twelve-month business rates holiday
— Operational cost increases
— Supply chain disruptions
— Exposure to credit risk within the Financial Services business
As the outbreak continues to progress and evolve it is challenging at
this time to predict the full extent and duration of its business and
economic impact. The potential impact of the COVID-19-related
economic changes on the Group’s ability to continue as a going
concern, as well as its ability to meet its liabilities as they fall due
over the Group’s viability assessment period, have been considered
through scenarios modelled below.
FY2021
— Assumes lockdown period until end of June
— Food sales growth of three per cent, impacted by high single-digit
percentage growth over the lockdown period, followed by low
single digit percentage sales growth over the remainder of H1
and a return to normal grocery market conditions in H2. The
movements in H1 assume a greater number of meals are being
eaten inside the home rather than in schools, workplaces, cafes
and restaurants
— A 13 per cent decline in Argos sales, impacted by sales declines
whilst in lockdown and thereafter that reflects the closure of
standalone Argos stores and anticipated subdued discretionary
spending after lockdown
— Decline in General Merchandise and Clothing sales of 16 per cent
and 25 per cent respectively, with both being impacted by
significant sales declines during lockdown. It is then assumed the
sales declines continue throughout the year, however to a lesser
extent as the year progresses
— A 19 per cent decline in fuel sales, impacted by fuel volume
declines until the end of lockdown, easing through quarter two
with a return to normal market conditions in the second half of
the year
— Additional cash outflows of over £400 million in respect of
unbudgeted costs and working capital impacts including
accelerated supplier payments, delays in cost saving targets,
supporting concession partners and increased store costs,
including payroll
— These are broadly offset by business rates relief of £450 million
Strategic ReportJ Sainsbury plc Annual Report 2020 47
In addition to the above, scenarios were modelled that affect the
Financial Services business, including the impacts of:
— Closure of travel bureau throughout lockdown and beyond to
September
— Reductions to new business volumes in loans and credit cards
— Reductions in Argos Financial Services trading with Argos
standalone stores now closed
— Reduced base rate
— The impact of higher unemployment on credit losses
FY2022 – FY2023
— UK GDP movements seen during the recession of FY2008/09
have been applied to forecast sales, however to differing extents
per category
— This equates to between three per cent and eight per cent
reductions in forecast sales across Grocery, General Merchandise
and Clothing, Argos and Fuel in FY2022
— Reductions in forecast sales move to between two per cent and
four per cent in FY2023
— Increased cash outflows of £120 million in FY2021/22 against
corporate plan, decreasing to £65 million in FY2022/23
Further downsides were also modelled including scenarios in which
the rates relief is fully repaid during FY2021, as well as increased
declines in forecast sales over the assessment period equating to
between five per cent and 14 per cent in FY2022, and three per cent
to seven per cent in FY2023.
The principal risks that the above modelling links to are as follows:
— Business continuity, operational resilience and major incident
response
— Business strategy and change
— Colleague engagement, retention and capability
— Health and safety – people and product
— Sainsbury’s Bank
— Trading environment and competitive landscape
All scenarios modelled and their link to the Group’s principal Risks
and uncertainties are detailed below:
Scenario modelled
Scenario 1
COVID-19
As detailed above.
Link to principal uncertainties
Scenario 2
Competitive price cutting/price matching
Given the challenging trading environment, driven by ongoing competitive retail pricing combined with growing inflationary cost pressures,
additional price investment of £150 million per year has been modelled in each of the three assessment years.
— Trading environment and
competitive landscape
Scenario 3
Data and legal breaches
The impact of any regulatory fines has been considered. The largest considered are the General Data Protection Regulation (“GDPR”) fine for
data breaches, and fines levied by the Groceries Supply Code of Practice (“GSCOP”).
Fines were considered both in isolation, and in conjunction with a fall in sales volumes as a result of any reputational brand damage in each
of the assessment years.
— Data security
— Health and safety, people and product
— Political and regulatory environment
Scenario 4
UK’s withdrawal from the EU
Uncertainty around the UK’s future relationship with the EU restricts the Group’s ability to fully mitigate risks for customers, suppliers and
colleagues. The impacts of a range of outcomes have been modelled and considered jointly on a reasonable worst case basis. Modelling
has taken account of the likely disruption of goods entering the UK, sales reductions, margin pressures resulting from tariff increases,
operational and labour cost increases and small supplier working capital considerations.
— Brexit
— Financial and treasury risk
Scenario 5
Sainsbury’s Bank capital and liquidity requirements
The impact of COVID-19 on the Financial Services business was considered as above, and the level of capital contributions that could
be required.
— Sainsbury’s Bank
Scenario 6
Failure to deliver sustainable cost savings
The Group corporate plan assumes savings of £500 million over the next five years. Through the COVID-19 modelling detailed above,
delays in achieving cost savings of circa £140 million over the three-year assessment period were considered.
— Business strategy and change
Scenario 7
Reverse stress test
In addition to modelling regulatory fines and price investments as above, the level of forecast sales decline required before the Group fully
utilises its available funding and mitigations was considered. The required reduction was considered extreme and implausible.
In performing the above analysis, the Directors have made certain
assumptions around the availability of future funding options,
including the ability to raise future finance, as well as the availability
and effectiveness of the mitigating actions available to the Group.
The scenarios above are hypothetical and severe for the purpose
of creating outcomes that have the ability to threaten the viability of
the Group; however, multiple control measures are in place to prevent
and mitigate any such occurrences from taking place.
In years one and two, the modelling has shown that the business
is able to withstand a combination of all of the scenarios and still
maintain headroom. For year three, none of the scenarios modelled
individually caused a breach in headroom. However, all of the scenarios
modelled together would cause a breach. Management does, however,
have controllable mitigating actions available as detailed above with
which to respond that ensure the Group remains viable.
Viability statement
Taking into account the Group’s current prospects and principal risks
and uncertainties, the Directors confirm that they have a reasonable
expectation that the Group will be able to continue in operation and
meet its liabilities as they fall due over the three years to March 2023.
4 Going concern
As a consequence of the work performed to support the viability
statement above, the Directors also considered it appropriate to
adopt the going concern basis in preparing the financial statements
which are shown on pages 99 to 208.
Strategic ReportJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
48
J Sainsbury plc
Board of Directors
Martin Scicluna
Chairman
Appointment to the Board: 1 November 2018.
Martin joined the Board as Chairman Designate
and Non-Executive Director on 1 November 2018.
He was appointed Chairman of the Board on
10 March 2019.
Mike Coupe
Chief Executive Officer
Appointment to the Board: 1 August 2007.
Mike has served as an Executive Director since
1 August 2007 and as Chief Executive Officer since
9 July 2014. He will retire from the Company on
2 July 2020.
Skills and experience: Martin is Chairman of
RSA Insurance Group plc and was previously
Chairman of Great Portland Estates plc. He brings
a wealth of past and current experience from over
25 years’ service as an executive and non-executive
board director in a wide range of companies.
Career experience: Previous roles include
Chairman of Great Portland Estates plc, Senior
Independent Director and Chair of the Audit
Committee of Worldpay Inc., and Non-Executive
Director and Chair of the Audit Committee of
Lloyds Banking Group plc. He was a partner at
Deloitte LLP for 26 years, serving as Chairman
from 1995 to 2007, where his clients included
Dixons, WH Smith, Alliance Unichem and Cadbury.
Current directorships/business interests:
Chairman of RSA Insurance Group plc.
Specific contributions to the Company:
Martin has held board positions for over 25 years,
with extensive experience as a Chair. In addition,
he brings valuable knowledge and skills in
developing strategy and evaluating business
opportunities, along with understanding of the
financial services sector and how it operates.
Martin also led a robust selection process,
culminating in the appointment of Simon Roberts
as Sainsbury’s next Chief Executive Officer.
Key to Committee members
Audit Committee
Corporate Responsibility and
Sustainability Committee
Nomination Committee
Remuneration Committee
Denotes Chair of Committee
Skills and experience: Mike has vast retail
industry experience in trading, strategy,
marketing, digital and online functions, as well
as multi-site store experience. He has applied
this knowledge to manage the business and to
implement the strategy and policies approved
by the Board.
Career experience: Mike 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 PLC, where he
served in a variety of senior management roles.
Specific contributions to the Company:
As an experienced retail industry leader, Mike’s
knowledge and understanding of the retail sector
and customer behaviour have led to the creation
of a multi brand, multi channel business through
key strategic investments in convenience, online
and digital services, and the acquisitions of Argos
and Nectar.
Retirements in 2019/20
John Rogers retired from the Board
on 31 October 2019.
Kevin O’Byrne
Chief Financial Officer
Appointment to the Board: 9 January 2017.
Skills and experience: Kevin brings a wealth
of retail and finance experience to the Board from
his various Chief Executive and Chief Financial
Officer roles. His skills and experience in leading
Finance and driving performance improvement
provide the business with valuable expertise in
pursuing its strategy.
Career experience: Kevin was previously Chief
Executive Officer of Poundland Group Limited
until December 2016 and held executive roles
at Kingfisher plc from 2008 to 2015, including
Divisional Director UK, China and Turkey, Chief
Executive Officer of B&Q UK & Ireland and Group
Finance Director. Prior to this, he was Group
Finance Director of Dixons Retail plc and European
Finance Director of Quaker Oats. He was a
Non-Executive Director of Land Securities Group
PLC from 2008 to September 2017, where he was
Chairman of the Audit Committee and Senior
Independent Director.
Current directorships/business interests:
Non-Executive Director and Chairman of the Audit
Committee of Centrica plc.
Specific contributions to the Company:
Kevin is a skilled Chief Financial Officer, with
extensive UK and international retail and finance
experience gained during previous and current
executive and non-executive positions. He has
applied this knowledge to the Finance, Internal
Audit, Investor Relations, Property, Procurement
and Strategy functions, driving the performance
of the business.
Matt Brittin
Non-Executive Director
Brian Cassin
Non-Executive Director
Jo Harlow
Non-Executive Director
Appointment to the Board: 27 January 2011.
Appointment to the Board: 1 April 2016.
Appointment to the Board: 11 September 2017.
Matt will retire from the Board on 2 July 2020.
Skills and experience: Brian brings present
Skills and experience: Jo brings a wealth of
Skills and experience: Matt has extensive
day experience of running a FTSE 30 group with
experience in consumer-facing businesses and in
experience of running a high profile, fast moving,
knowledge of big data and analytics, both topics of
the telecoms and technology industries, both in
innovative digital business and is able to provide
key importance to Sainsbury’s. As CEO of Experian
the UK and internationally.
first hand guidance to the Board on building and
plc, Brian brings with him strong leadership
driving digital customer journeys across the
experience and a substantial background in
business. This knowledge enables him to develop
operating within a regulated environment.
Career experience: Jo most recently held the
position of Corporate Vice President of the Phones
Business Unit at Microsoft Corporation. She was
and monitor the delivery of the strategy within
the risk and control framework set by the Board.
Career experience: Brian joined Experian plc as
previously Executive Vice President of Smart
Chief Financial Officer in April 2012, a post he held
Devices at Nokia Corporation, following a number
Career experience: Since 2015, Matt has been
until his appointment as Chief Executive Officer
of senior management roles at Nokia from 2003.
responsible for Google’s business and operations
in July 2014. Prior to this, Brian spent his career
Prior to that, she held marketing, sales and
in Europe, the Middle East and Africa, and he has
in investment banking at Greenhill & Co, where
management roles at Reebok International
served in leadership roles at Google since 2007.
he was Managing Director and Partner. Brian
Limited from 1992 to 2003 and at Procter &
Prior to that, Matt spent much of his career in
has also held various roles at Baring Brothers
Gamble Company from 1984 to 1992.
media and marketing, with particular interest
International and at the London Stock Exchange.
Current directorships/business interests:
Current directorships/business interests:
Jo currently serves as Non-Executive Director
in strategy, commercial development and sales
performance. This included commercial and
digital leadership roles in UK media.
Current directorships/business interests:
Google’s President – Europe, Middle East and
Africa, and Director of The Media Trust.
Specific contributions to the Company:
Matt shares his experience as a senior leader in
the digital, online and technology sector, which is
key to the Company’s strategic priorities.
Chief Executive Officer of Experian plc.
Specific contributions to the Company:
Brian’s experience as a current chief executive
and his work in the financial and technology
sector provide valuable industry insight.
and Chair of the Remuneration Committee of
InterContinental Hotels Group plc, Non-Executive
Director and Chair of the Remuneration
Committee of Halma plc, and a Member of
the Supervisory Board of Ceconomy AG.
Specific contributions to the Company:
Jo has broad experience from executive and
non-executive roles and, as Chair of the Corporate
Responsibility and Sustainability Committee,
she has helped the business deliver the business’s
sustainability strategy. She also brings current
external Remuneration Committee experience.
GovernanceJ Sainsbury plc Annual Report 2020
49
Martin Scicluna
Chairman
Mike Coupe
Chief Executive Officer
Kevin O’Byrne
Chief Financial Officer
Appointment to the Board: 1 November 2018.
Appointment to the Board: 1 August 2007.
Appointment to the Board: 9 January 2017.
Martin joined the Board as Chairman Designate
Mike has served as an Executive Director since
and Non-Executive Director on 1 November 2018.
1 August 2007 and as Chief Executive Officer since
He was appointed Chairman of the Board on
9 July 2014. He will retire from the Company on
10 March 2019.
2 July 2020.
Skills and experience: Martin is Chairman of
Skills and experience: Mike has vast retail
RSA Insurance Group plc and was previously
industry experience in trading, strategy,
Skills and experience: Kevin brings a wealth
of retail and finance experience to the Board from
his various Chief Executive and Chief Financial
Officer roles. His skills and experience in leading
Finance and driving performance improvement
provide the business with valuable expertise in
Chairman of Great Portland Estates plc. He brings
marketing, digital and online functions, as well
pursuing its strategy.
a wealth of past and current experience from over
as multi-site store experience. He has applied
25 years’ service as an executive and non-executive
this knowledge to manage the business and to
board director in a wide range of companies.
implement the strategy and policies approved
Career experience: Previous roles include
by the Board.
Career experience: Kevin was previously Chief
Executive Officer of Poundland Group Limited
until December 2016 and held executive roles
at Kingfisher plc from 2008 to 2015, including
Chairman of Great Portland Estates plc, Senior
Career experience: Mike joined Sainsbury’s
Divisional Director UK, China and Turkey, Chief
Independent Director and Chair of the Audit
from Big Food Group, where he was a board
Executive Officer of B&Q UK & Ireland and Group
Committee of Worldpay Inc., and Non-Executive
director of Big Food Group PLC and Managing
Finance Director. Prior to this, he was Group
Director and Chair of the Audit Committee of
Director of Iceland Food Stores. He previously
Finance Director of Dixons Retail plc and European
Lloyds Banking Group plc. He was a partner at
worked for both Asda and Tesco PLC, where he
Finance Director of Quaker Oats. He was a
Deloitte LLP for 26 years, serving as Chairman
served in a variety of senior management roles.
Non-Executive Director of Land Securities Group
from 1995 to 2007, where his clients included
Dixons, WH Smith, Alliance Unichem and Cadbury.
Specific contributions to the Company:
As an experienced retail industry leader, Mike’s
Current directorships/business interests:
knowledge and understanding of the retail sector
PLC from 2008 to September 2017, where he was
Chairman of the Audit Committee and Senior
Independent Director.
Chairman of RSA Insurance Group plc.
and customer behaviour have led to the creation
Current directorships/business interests:
of a multi brand, multi channel business through
Non-Executive Director and Chairman of the Audit
key strategic investments in convenience, online
Committee of Centrica plc.
and digital services, and the acquisitions of Argos
and Nectar.
Specific contributions to the Company:
Kevin is a skilled Chief Financial Officer, with
extensive UK and international retail and finance
experience gained during previous and current
executive and non-executive positions. He has
applied this knowledge to the Finance, Internal
Audit, Investor Relations, Property, Procurement
and Strategy functions, driving the performance
of the business.
Specific contributions to the Company:
Martin has held board positions for over 25 years,
with extensive experience as a Chair. In addition,
he brings valuable knowledge and skills in
developing strategy and evaluating business
opportunities, along with understanding of the
financial services sector and how it operates.
Martin also led a robust selection process,
culminating in the appointment of Simon Roberts
as Sainsbury’s next Chief Executive Officer.
Key to Committee members
Audit Committee
Corporate Responsibility and
Sustainability Committee
Nomination Committee
Remuneration Committee
Denotes Chair of Committee
Retirements in 2019/20
John Rogers retired from the Board
on 31 October 2019.
Matt Brittin
Non-Executive Director
Appointment to the Board: 27 January 2011.
Matt will retire from the Board on 2 July 2020.
Skills and experience: Matt has extensive
experience of running a high profile, fast moving,
innovative digital business and is able to provide
first hand guidance to the Board on building and
driving digital customer journeys across the
business. This knowledge enables him to develop
and monitor the delivery of the strategy within
the risk and control framework set by the Board.
Career experience: Since 2015, Matt has been
responsible for Google’s business and operations
in Europe, the Middle East and Africa, and he has
served in leadership roles at Google since 2007.
Prior to that, Matt spent much of his career in
media and marketing, with particular interest
in strategy, commercial development and sales
performance. This included commercial and
digital leadership roles in UK media.
Current directorships/business interests:
Google’s President – Europe, Middle East and
Africa, and Director of The Media Trust.
Specific contributions to the Company:
Matt shares his experience as a senior leader in
the digital, online and technology sector, which is
key to the Company’s strategic priorities.
Brian Cassin
Non-Executive Director
Appointment to the Board: 1 April 2016.
Skills and experience: Brian brings present
day experience of running a FTSE 30 group with
knowledge of big data and analytics, both topics of
key importance to Sainsbury’s. As CEO of Experian
plc, Brian brings with him strong leadership
experience and a substantial background in
operating within a regulated environment.
Career experience: Brian joined Experian plc as
Chief Financial Officer in April 2012, a post he held
until his appointment as Chief Executive Officer
in July 2014. Prior to this, Brian spent his career
in investment banking at Greenhill & Co, where
he was Managing Director and Partner. Brian
has also held various roles at Baring Brothers
International and at the London Stock Exchange.
Current directorships/business interests:
Chief Executive Officer of Experian plc.
Specific contributions to the Company:
Brian’s experience as a current chief executive
and his work in the financial and technology
sector provide valuable industry insight.
Jo Harlow
Non-Executive Director
Appointment to the Board: 11 September 2017.
Skills and experience: Jo brings a wealth of
experience in consumer-facing businesses and in
the telecoms and technology industries, both in
the UK and internationally.
Career experience: Jo most recently held the
position of Corporate Vice President of the Phones
Business Unit at Microsoft Corporation. She was
previously Executive Vice President of Smart
Devices at Nokia Corporation, following a number
of senior management roles at Nokia from 2003.
Prior to that, she held marketing, sales and
management roles at Reebok International
Limited from 1992 to 2003 and at Procter &
Gamble Company from 1984 to 1992.
Current directorships/business interests:
Jo currently serves as Non-Executive Director
and Chair of the Remuneration Committee of
InterContinental Hotels Group plc, Non-Executive
Director and Chair of the Remuneration
Committee of Halma plc, and a Member of
the Supervisory Board of Ceconomy AG.
Specific contributions to the Company:
Jo has broad experience from executive and
non-executive roles and, as Chair of the Corporate
Responsibility and Sustainability Committee,
she has helped the business deliver the business’s
sustainability strategy. She also brings current
external Remuneration Committee experience.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
50
J Sainsbury plc
Board of Directors continued
Key to Committee members
Audit Committee
Corporate Responsibility and
Sustainability Committee
Nomination Committee
Remuneration Committee
Denotes Chair of Committee
David Keens
Non-Executive Director
Appointment to the Board: 29 April 2015.
Skills and experience: David has extensive retail
experience and knowledge of consumer-facing
businesses, together with core skills in finance.
Career experience: David was formerly Group
Finance Director of NEXT plc from 1991 to 2015
and their Group Treasurer from 1986 to 1991.
Previous management experience includes nine
years in the UK and overseas operations of
multinational food manufacturer Nabisco and,
prior to that, seven years in the accountancy
profession.
Current directorships/business interests:
Non-Executive Director, Senior Independent
Director and Chair of the Audit Committee of
Auto Trader Group plc.
Specific contributions to the Company:
David contributes with his expertise in finance
and the industry knowledge that he has gained
over almost 30 years as a board member,
providing continuity and knowledge to our
long-term decision-making processes as Chair
of the Audit Committee. He plays a key role in
monitoring the integrity of financial information
provided to shareholders and the systems of
internal controls and risk management.
Dame Susan Rice
Senior Independent Director
Appointment to the Board: 1 June 2013.
Susan has been the Senior Independent Director
since 6 July 2016.
Skills and experience: Susan has extensive
experience as a Non-Executive Director, as well
as in retail banking, financial services, leadership
and sustainability. Her career in retail banking
is particularly relevant to the ownership of
Sainsbury’s Bank and Argos Financial Services.
Career experience: Susan has been a member
of the Scottish First Minister’s Council of Economic
Advisors, a Managing Director of Lloyds Banking
Group Scotland and Chief Executive, and then
Chairman, of Lloyds TSB Scotland plc. She has
also held a range of non-executive directorships,
including at the Bank of England and SSE plc.
Current directorships/business interests:
Chair of Scottish Water and Business Stream,
Chair of the Banking Standards Board, Chair of
the Scottish Fiscal Commission and Senior
Independent Director of the North American
Income Trust.
Specific contributions to the Company:
Susan provides insight to the Board from her
extensive experience gained as Chair, Senior
Independent Director and Non-Executive
Director of various businesses. As Chair of the
Remuneration Committee, she has played a key
role in revising the Remuneration Policy and
strategy, which will be presented for approval
by shareholders at this year’s Annual General
Meeting. Susan also led the selection process to
recruit the current Chairman. She is an expert in
financial services, which is invaluable to the Board
as part of its oversight of Sainsbury’s Bank and
Argos Financial Services.
Simon Roberts
Jean Tomlin
Chief Executive Officer from 1 June 2020.
Non-Executive Director
Appointment to the Board: 1 June 2020.
Appointment to the Board: 1 January 2013.
Skills and experience: Simon joined
Skills and experience: Jean has extensive
Sainsbury’s and the Operating Board in July 2017
experience and breadth of skills in human
as Retail & Operations Director responsible for
resources and corporate responsibility, enabling her
Stores, Central Operations and Logistics. He
to challenge the Executive Directors constructively
brought a wide range of experience and
leadership skills to the Board from previous
executive and non-executive roles.
and monitor the delivery of the strategy within
the risk and control framework set by the Board.
Career experience: Jean was formerly Director
Career experience: Simon has over 30 years’
of HR, Workforce and Accreditation for The
experience leading major UK retail brands, having
London Organising Committee of the Olympic
spent 15 years at M&S and 13 years at Boots.
and Paralympic Games, where she set the
Prior to joining Sainsbury’s, Simon was Executive
strategic direction to ensure the mobilisation of
Vice President of Walgreens Boots Alliance and
the combined 200,000-strong workforce including
President of Boots UK and Ireland. During his
paid staff, volunteers and contractors. This
tenure, Simon led Boots UK to achieve growth
represented the recruitment and mobilisation
in sales and transactions, increased retail gross
of the largest peacetime workforce and set the
margin and doubled sales online. Before Boots,
industry standard for volunteering with the highly
Simon was at Marks and Spencer Group Plc,
where he started his career in stores.
Current directorships/business interests:
Non-Executive Chairman at the Institute of
Customer Service.
Specific contributions to the Company:
Simon led Sainsbury’s industry leading store
operations restructure and digitisation
throughout 2018, which is now delivering
acclaimed Games. She was previously Group
HR Director at Marks and Spencer Group Plc,
HR Director and founder member of Egg plc, and
Sales & Operations Director of Prudential Direct.
Jean is a Fellow of the Chartered Institute of
Personnel and Development (FCIPD).
Current directorships/business interests:
Independent Board member of Capri Holdings
Limited, Non-Executive Director of Holdingham
Group Ltd and Chief Executive Officer of Chanzo
improved customer satisfaction, market leading
productivity and further investment in value for
Limited.
customers. Simon recently took responsibility
Specific contributions to the Company:
for Argos’s retail operations as part of our
Jean’s experience in human resources and
continued integration. Simon is a dedicated,
understanding of values-led organisations have
determined and enthusiastic champion of the
provided instrumental insight on workforce
customer and of our colleagues. He is a champion
engagement and helped the Board in progressing
of diversity and inclusion and has enabled a
Sainsbury’s culture and values. She has also
significant transformation in capabilities and
helped to evolve and enhance the Company’s
leadership across Sainsbury’s operations.
diversity and inclusion strategies.
GovernanceJ Sainsbury plc Annual Report 2020
51
Key to Committee members
Audit Committee
Corporate Responsibility and
Sustainability Committee
Nomination Committee
Remuneration Committee
Denotes Chair of Committee
David Keens
Non-Executive Director
Dame Susan Rice
Senior Independent Director
Appointment to the Board: 29 April 2015.
Appointment to the Board: 1 June 2013.
Skills and experience: David has extensive retail
experience and knowledge of consumer-facing
since 6 July 2016.
Susan has been the Senior Independent Director
businesses, together with core skills in finance.
Skills and experience: Susan has extensive
Career experience: David was formerly Group
Finance Director of NEXT plc from 1991 to 2015
and their Group Treasurer from 1986 to 1991.
Previous management experience includes nine
years in the UK and overseas operations of
experience as a Non-Executive Director, as well
as in retail banking, financial services, leadership
and sustainability. Her career in retail banking
is particularly relevant to the ownership of
Sainsbury’s Bank and Argos Financial Services.
multinational food manufacturer Nabisco and,
Career experience: Susan has been a member
prior to that, seven years in the accountancy
of the Scottish First Minister’s Council of Economic
profession.
Current directorships/business interests:
Non-Executive Director, Senior Independent
Director and Chair of the Audit Committee of
Auto Trader Group plc.
Specific contributions to the Company:
David contributes with his expertise in finance
and the industry knowledge that he has gained
over almost 30 years as a board member,
providing continuity and knowledge to our
long-term decision-making processes as Chair
of the Audit Committee. He plays a key role in
Advisors, a Managing Director of Lloyds Banking
Group Scotland and Chief Executive, and then
Chairman, of Lloyds TSB Scotland plc. She has
also held a range of non-executive directorships,
including at the Bank of England and SSE plc.
Current directorships/business interests:
Chair of Scottish Water and Business Stream,
Chair of the Banking Standards Board, Chair of
the Scottish Fiscal Commission and Senior
Independent Director of the North American
Income Trust.
Specific contributions to the Company:
monitoring the integrity of financial information
Susan provides insight to the Board from her
provided to shareholders and the systems of
extensive experience gained as Chair, Senior
internal controls and risk management.
Independent Director and Non-Executive
Director of various businesses. As Chair of the
Remuneration Committee, she has played a key
role in revising the Remuneration Policy and
strategy, which will be presented for approval
by shareholders at this year’s Annual General
Meeting. Susan also led the selection process to
recruit the current Chairman. She is an expert in
financial services, which is invaluable to the Board
as part of its oversight of Sainsbury’s Bank and
Argos Financial Services.
Simon Roberts
Chief Executive Officer from 1 June 2020.
Appointment to the Board: 1 June 2020.
Skills and experience: Simon joined
Sainsbury’s and the Operating Board in July 2017
as Retail & Operations Director responsible for
Stores, Central Operations and Logistics. He
brought a wide range of experience and
leadership skills to the Board from previous
executive and non-executive roles.
Career experience: Simon has over 30 years’
experience leading major UK retail brands, having
spent 15 years at M&S and 13 years at Boots.
Prior to joining Sainsbury’s, Simon was Executive
Vice President of Walgreens Boots Alliance and
President of Boots UK and Ireland. During his
tenure, Simon led Boots UK to achieve growth
in sales and transactions, increased retail gross
margin and doubled sales online. Before Boots,
Simon was at Marks and Spencer Group Plc,
where he started his career in stores.
Current directorships/business interests:
Non-Executive Chairman at the Institute of
Customer Service.
Specific contributions to the Company:
Simon led Sainsbury’s industry leading store
operations restructure and digitisation
throughout 2018, which is now delivering
improved customer satisfaction, market leading
productivity and further investment in value for
customers. Simon recently took responsibility
for Argos’s retail operations as part of our
continued integration. Simon is a dedicated,
determined and enthusiastic champion of the
customer and of our colleagues. He is a champion
of diversity and inclusion and has enabled a
significant transformation in capabilities and
leadership across Sainsbury’s operations.
Jean Tomlin
Non-Executive Director
Appointment to the Board: 1 January 2013.
Skills and experience: Jean has extensive
experience and breadth of skills in human
resources and corporate responsibility, enabling her
to challenge the Executive Directors constructively
and monitor the delivery of the strategy within
the risk and control framework set by the Board.
Career experience: Jean was formerly Director
of HR, Workforce and Accreditation for The
London Organising Committee of the Olympic
and Paralympic Games, where she set the
strategic direction to ensure the mobilisation of
the combined 200,000-strong workforce including
paid staff, volunteers and contractors. This
represented the recruitment and mobilisation
of the largest peacetime workforce and set the
industry standard for volunteering with the highly
acclaimed Games. She was previously Group
HR Director at Marks and Spencer Group Plc,
HR Director and founder member of Egg plc, and
Sales & Operations Director of Prudential Direct.
Jean is a Fellow of the Chartered Institute of
Personnel and Development (FCIPD).
Current directorships/business interests:
Independent Board member of Capri Holdings
Limited, Non-Executive Director of Holdingham
Group Ltd and Chief Executive Officer of Chanzo
Limited.
Specific contributions to the Company:
Jean’s experience in human resources and
understanding of values-led organisations have
provided instrumental insight on workforce
engagement and helped the Board in progressing
Sainsbury’s culture and values. She has also
helped to evolve and enhance the Company’s
diversity and inclusion strategies.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
52
J Sainsbury plc
Operating Board
Mike Coupe
Chief Executive Officer
See page 48.
Kevin O’Byrne
Chief Financial Officer
See page 48.
Simon Roberts
Chief Executive Officer from 1 June 2020.
See page 51.
Jim Brown
Chief Executive Officer, Sainsbury’s Bank
Date of appointment: June 2019.
Skills and experience: Jim joined Sainsbury’s
Bank in June 2019. He has held a number of senior
international financial services roles, most
recently for RBS in the UK as CEO of Williams and
Glyn and, prior to that, as CEO of Ulster Bank in
Northern Ireland and the Republic of Ireland.
Before moving to Ireland, Jim was based in Hong
Kong and was CEO Retail and Commercial
Banking, Asia and the Middle East for RBS and
ABN AMRO. He has also been a member of the
RBS Group Management Committee, ABN AMRO
Top Executive Group, ABN AMRO Global Consumer
Leadership Team and the RBS/Bank of China Joint
Steering Committee. Earlier in his career, he held
a number of senior executive roles for Citibank
in Asia, Australia and New Zealand. Jim has also
held various board positions, including at Ulster
Bank, Saudi Hollandi Bank, The Royal Bank of
Scotland (China) Co. Ltd and RBS (Pakistan) Ltd.
He is a past President of the Institute of Banking
in Ireland. He is currently a Certified Bank Director.
Tim Fallowfield OBE
Company Secretary and Corporate
Services Director
Date of appointment: September 2004.
Skills and experience: Tim joined Sainsbury’s
in 2001 as Company Secretary, having previously
held the position of Company Secretary and
General Counsel at Exel plc, the global logistics
company, now part of DHL. Tim is a qualified
solicitor and began his career at the international
law firm, Clifford Chance. He joined Sainsbury’s
Operating Board in September 2004 and, in
addition to his role as Company Secretary, he is
responsible for the Corporate Services Division
comprising Legal Services, Data Governance and
Information Security, Safety, Shareholder
Services, Insurance and Central Security. He chairs
the Group Safety Committee and the Data
Governance Committee.
Tim is Chairman of the Disability Confident
Business Leaders Group, which works with
Government in shaping the disability employment
agenda and in raising awareness of the benefits
of employing disabled people. He was awarded
an OBE for services to disability awareness in the
2020 New Year’s Honours List.
Phil Jordan
Chief Information Officer
Date of appointment: January 2018.
Skills and experience: Phil joined the Board
in January 2018 and has brought a fresh, global
perspective on technology to the Operating
Board, in addition to a wealth of experience in
digital, data and business transformation. Prior to
joining Sainsbury’s, Phil had a long and successful
track record in telecommunications. Most recently,
he was Global Chief Information Officer at
Telefonica, overseeing Digital Transformation and
Information Technology and, prior to that, was
Chief Information Officer for Vodafone UK/Ireland.
Phil has worked as a Non-Executive Adviser on
Technology in the investment and retail banking
sector and is currently a Non-Executive Director,
member of the Audit Committee and Chair of the
Cyber-Security Committee of TalkTalk Telecom
Group PLC.
Paul Mills-Hicks
Commercial Director
Clodagh Moriarty
Chief Digital Officer
Angie Risley
Group HR Director
Date of appointment: May 2014.
Date of appointment: June 2018.
Date of appointment: January 2013.
Skills and experience: Paul joined the
Skills and experience: Clodagh was appointed
Skills and experience: Angie was appointed
Operating Board in May 2014 as Food Commercial
Chief Digital Officer in June 2018, when she also
Group HR Director and member of the Operating
Director, having spent over ten years at Sainsbury’s.
joined the Operating Board. Clodagh is responsible
Board with responsibility for human resources
He was closely involved in the formation and
for our e-commerce channels, digital products
in January 2013. Before joining Sainsbury’s, Angie
execution of the ‘Making Sainsbury’s Great Again’
and digital strategy, ensuring customers
was the Group HR Director for Lloyds Banking
strategy and has held a variety of roles in
experience an integrated and seamless digital
Group and an Executive Director of Whitbread PLC
commercial, strategy and finance, most recently
experience across Sainsbury’s, Argos, Tu,
with responsibility for HR and Corporate Social
as Business Unit Director for Grocery. Prior to
Sainsbury’s Bank and Nectar. In addition to
Responsibility. Prior to her current role as
Sainsbury’s, Paul was European Controller at
being the Operating Board sponsor for Wellbeing,
Non-Executive Director and Chair of the
Marks and Spencer Group Plc and a Director at
she is also a newly appointed member of the
Remuneration Committee at Smith & Nephew plc,
UBS Warburg.
Sainsbury’s Bank Board and sits on its Nomination
Angie spent six years as Non-Executive Director
and Remuneration Committees. Prior to this,
and Chair of the Remuneration Committee of
Clodagh has been Director of Online, Head of
Serco plc.
Online Trading, Merchandising & Content and
Category Manager for the Meal Solutions
business. She joined Sainsbury’s as Head of
Strategy, following nine years at Bain & Company.
Whilst there, she worked across the London,
New York and Johannesburg offices in corporate,
private equity and not-for-profit sectors across
multiple industries.
GovernanceJ Sainsbury plc Annual Report 2020 53
Paul Mills-Hicks
Commercial Director
Date of appointment: May 2014.
Skills and experience: Paul joined the
Operating Board in May 2014 as Food Commercial
Director, having spent over ten years at Sainsbury’s.
He was closely involved in the formation and
execution of the ‘Making Sainsbury’s Great Again’
strategy and has held a variety of roles in
commercial, strategy and finance, most recently
as Business Unit Director for Grocery. Prior to
Sainsbury’s, Paul was European Controller at
Marks and Spencer Group Plc and a Director at
UBS Warburg.
Angie Risley
Group HR Director
Date of appointment: January 2013.
Skills and experience: Angie was appointed
Group HR Director and member of the Operating
Board with responsibility for human resources
in January 2013. Before joining Sainsbury’s, Angie
was the Group HR Director for Lloyds Banking
Group and an Executive Director of Whitbread PLC
with responsibility for HR and Corporate Social
Responsibility. Prior to her current role as
Non-Executive Director and Chair of the
Remuneration Committee at Smith & Nephew plc,
Angie spent six years as Non-Executive Director
and Chair of the Remuneration Committee of
Serco plc.
Clodagh Moriarty
Chief Digital Officer
Date of appointment: June 2018.
Skills and experience: Clodagh was appointed
Chief Digital Officer in June 2018, when she also
joined the Operating Board. Clodagh is responsible
for our e-commerce channels, digital products
and digital strategy, ensuring customers
experience an integrated and seamless digital
experience across Sainsbury’s, Argos, Tu,
Sainsbury’s Bank and Nectar. In addition to
being the Operating Board sponsor for Wellbeing,
she is also a newly appointed member of the
Sainsbury’s Bank Board and sits on its Nomination
and Remuneration Committees. Prior to this,
Clodagh has been Director of Online, Head of
Online Trading, Merchandising & Content and
Category Manager for the Meal Solutions
business. She joined Sainsbury’s as Head of
Strategy, following nine years at Bain & Company.
Whilst there, she worked across the London,
New York and Johannesburg offices in corporate,
private equity and not-for-profit sectors across
multiple industries.
Mike Coupe
Chief Executive Officer
See page 48.
Kevin O’Byrne
Chief Financial Officer
See page 48.
Simon Roberts
Chief Executive Officer from 1 June 2020.
See page 51.
Jim Brown
Tim Fallowfield OBE
Phil Jordan
Chief Executive Officer, Sainsbury’s Bank
Company Secretary and Corporate
Chief Information Officer
Date of appointment: June 2019.
Services Director
Skills and experience: Jim joined Sainsbury’s
Date of appointment: September 2004.
Date of appointment: January 2018.
Skills and experience: Phil joined the Board
Bank in June 2019. He has held a number of senior
Skills and experience: Tim joined Sainsbury’s
in January 2018 and has brought a fresh, global
international financial services roles, most
in 2001 as Company Secretary, having previously
perspective on technology to the Operating
recently for RBS in the UK as CEO of Williams and
held the position of Company Secretary and
Board, in addition to a wealth of experience in
Glyn and, prior to that, as CEO of Ulster Bank in
General Counsel at Exel plc, the global logistics
digital, data and business transformation. Prior to
Northern Ireland and the Republic of Ireland.
company, now part of DHL. Tim is a qualified
joining Sainsbury’s, Phil had a long and successful
Before moving to Ireland, Jim was based in Hong
solicitor and began his career at the international
track record in telecommunications. Most recently,
Kong and was CEO Retail and Commercial
law firm, Clifford Chance. He joined Sainsbury’s
he was Global Chief Information Officer at
Banking, Asia and the Middle East for RBS and
Operating Board in September 2004 and, in
Telefonica, overseeing Digital Transformation and
ABN AMRO. He has also been a member of the
addition to his role as Company Secretary, he is
Information Technology and, prior to that, was
RBS Group Management Committee, ABN AMRO
responsible for the Corporate Services Division
Chief Information Officer for Vodafone UK/Ireland.
Top Executive Group, ABN AMRO Global Consumer
comprising Legal Services, Data Governance and
Phil has worked as a Non-Executive Adviser on
Leadership Team and the RBS/Bank of China Joint
Information Security, Safety, Shareholder
Technology in the investment and retail banking
Steering Committee. Earlier in his career, he held
Services, Insurance and Central Security. He chairs
sector and is currently a Non-Executive Director,
a number of senior executive roles for Citibank
the Group Safety Committee and the Data
member of the Audit Committee and Chair of the
in Asia, Australia and New Zealand. Jim has also
Governance Committee.
Cyber-Security Committee of TalkTalk Telecom
held various board positions, including at Ulster
Bank, Saudi Hollandi Bank, The Royal Bank of
Scotland (China) Co. Ltd and RBS (Pakistan) Ltd.
He is a past President of the Institute of Banking
in Ireland. He is currently a Certified Bank Director.
Group PLC.
Tim is Chairman of the Disability Confident
Business Leaders Group, which works with
Government in shaping the disability employment
agenda and in raising awareness of the benefits
of employing disabled people. He was awarded
an OBE for services to disability awareness in the
2020 New Year’s Honours List.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
54
Governance Report
Dear Shareholder
My first year as Chairman has been an extremely busy
one for the Board and the business, with the focus on
our strategic priorities, continued significant operational
change, the appointment of Simon Roberts as our
new Chief Executive Officer, and our oversight of the
Company’s response to the COVID-19 crisis.
The Board is convinced that governance of this business is strong, and this
was confirmed in our independently led evaluation exercise at the end of the
financial year. We were deeply engaged in setting the strategic priorities
which responded to the feedback of our major shareholders in mid-2019.
These set a clear direction for our value proposition, distinctive food offer
and the acceleration of our technology and digital investments, as well as
repositioning our Financial Services business under Jim Brown’s leadership.
Together with our General Merchandise, Clothing and Argos businesses,
we believe the business is well positioned as a multi brand, multi channel
business that can drive long-term value for shareholders, with a five-year
cost transformation programme enabling net debt reduction and strong
cash generation.
I have already thanked Mike Coupe for his outstanding stewardship of the
Company in my Chairman’s letter on pages 2 and 3. His retirement has led
to a robust succession process conducted by myself and the Nomination
Committee, and we are delighted that we have been able to appoint
Simon Roberts as his successor. The Board is looking forward to working
with Simon and his leadership team when he takes over the Chief Executive
Officer role on 1 June 2020.
We are also conducting succession processes to find replacements for
Matt Brittin and Jean Tomlin, both of whom have contributed so much
during their years on the Board. Our objective is to find exceptional new
Non-Executive Directors who will bring a range and depth of experience to
the Board and maintain our broad diversity, continuing our good gender
and ethnicity balance.
Statement of Compliance
The Board considers that the Company has complied in full with the
Principles and Provisions of the UK Corporate Governance Code 2018
(Code) for the financial year ended 7 March 2020. The Code can be
found at www.frc.org.uk. The way the Company has applied the
Code Principles is set out in the following sections of the Annual
Report as follows:
— Strategic Report (Stakeholder Engagement, Principal Risks and
Uncertainties, Viability and Going Concern Statements)
— Governance Report
Principles and Provisions
Governance report content
Page
Board leadership and
Company purpose
Division of
responsibilities
Composition,
succession and
evaluation
Audit, risk and
internal control
Chairman’s statement
Stakeholder engagement
How we are governed
Key areas of focus for the Board
Strategic priorities
How the Board operates
Director independence
Time commitment and conflicts of interest
Director development
Board evaluation
Nomination Committee Report
Succession planning
Diversity and inclusion
Corporate Responsibility and Sustainability
Committee Report
Audit Committee Report
Committee activities
Significant financial and reporting matters
Internal controls framework
Risk management and internal controls
Remuneration
Annual Statement from the Remuneration
Committee Chair
Summary of 2019/20 remuneration decisions
Summary of remuneration for 2020/21
Remuneration in context
Annual Report on Remuneration
Remuneration Policy
54
54
55
56
57
58
58
58
59
60
62
62
63
64
66
67
70
71
71
72
74
75
76
78
90
The Board also played its part in the announcement of our Net Zero by 2040
plan, which followed in-depth discussions with Mike and the Operating
Board. We will continue to monitor progress against the key commitments
with regular oversight by our Corporate Responsibility and Sustainability
Committee and the Board.
Our external Board evaluation exercise also reflected on our culture and
values and concluded that the Board has an open and honest culture which
reflects the strong values of the business. We have well established ways of
engaging with our stakeholders, listening to their views and bearing them
in mind when taking our key decisions.
Stakeholder engagement
Under the Code Provision 5, the Board is required to understand the views of
the Company’s key stakeholders and describe in the Annual Report how their
interests and the matters set out in Section 172 of the Companies Act 2006 have
been considered in Board discussions and decision-making. Details of how we
engage with our stakeholders and how stakeholders have been considered in
Board discussions and decision-making can be found on pages 14 to 17.
For workforce engagement, the Code has listed one or a combination of the
following methods for use:
Over recent weeks we have received regular updates on the business’s
reaction to the COVID-19 crisis with detailed updates on trading, the financial
consequences of our virus-related activities, our future funding requirements
and on shareholder returns. We are proud of the immense contributions of Mike,
Simon, the management team and our colleagues throughout the business
who have done so much to ensure that we can play our part in feeding the
nation and responding to all our customers’ needs fairly and safely.
Martin Scicluna
Chairman
— a director appointed from the workforce
— a formal workforce advisory panel
— a designated non-executive director
In compliance with the Code, the Board has decided to have a formal
workforce advisory panel, and to share workforce engagement responsibility
amongst the Non-Executive Directors so that each is able to benefit directly
from hearing colleague feedback. All Directors are encouraged to attend
sessions with our Workforce Advisory Panel, the Great Place to Work National
Group, which is made up of colleagues across the business elected by their
peers to represent their views. In addition, Board members are invited to
Talking Shop listening sessions; these are question and answer style
discussions that give colleagues and members of the Board and Operating
Board the opportunity to meet each other face to face and discuss any work
matters directly. For more details on the topics discussed at our Workforce
Advisory Panel see page 57.
GovernanceJ Sainsbury plc Annual Report 2020
Board leadership and Company purpose
55
How we are governed
The Board is the principal decision-making
body in the Company. To assist with carrying
out its responsibilities, the Board has
formally delegated certain governance
responsibilities to Board Committees.
Role of the Board
The Board is collectively responsible for the
long-term success of the business and we
achieve this through the creation and delivery
of sustainable shareholder value. In addition to
setting the business’s strategy and overseeing
its implementation by management, we provide
leadership to the business including on purpose,
culture, values and ethics, monitoring the
business’s overall financial performance,
and ensuring effective corporate governance,
succession planning and stakeholder
engagement. The Board is also responsible
for ensuring that effective internal control and
risk management systems are in place.
The Matters Reserved for the Board can be
found on our website at
www.about.sainsburys.co.uk.
Operating Board
Operating Board Committees
Customer and Trading Forum
The Customer and Trading Forum oversees the
development and delivery of the commercial
and customer strategic priorities and budget.
Investment Board
The Investment Board has delegated authority
to approve capital investment within agreed
financial limits. This includes, but is not limited
to store, supply chain, property, new business
activity, and digital and technology
investments.
Group Data Governance
Committee
The Group Data Governance Committee has
oversight of the programmes that deliver
compliance with Data Protection, Data Security
and Payment Card Industry data security
standards across the business. It oversees
effective information security throughout
the business.
Group Safety Committee
The Group Safety Committee is responsible for
implementing food safety, health and safety
and fire safety management systems. It also
oversees standards for the management and
monitoring of colleague and customer safety.
Group Diversity and
Inclusion Steering Group
The Group Diversity and Inclusion Steering Group
is made up of five Operating Board sponsors, each
of whom champions a strand of diversity, and
is chaired by our Group HR Director, Angie Risley.
The Group meets to govern progress and drive our
inclusion and wellbeing strategies.
Group Operational
Resilience Committee
The Group Operational Resilience Committee
sets the operational resilience strategy,
including business continuity and disaster
recovery arrangements, for the business and
monitors implementation.
Net Zero Steering Group
The Net Zero Steering Group leads operational
execution of Net Zero by 2040 plan by
overseeing the working groups’ activities,
ensuring delivery of performance.
Matters not specifically reserved for the Board
have been delegated to the Operating Board
which during the year was chaired by Mike
Coupe. The Operating Board concentrates on the
day-to-day management of the business and the
execution of the strategy set out by the Board.
Each Operating Board member has a range of
responsibilities, which are detailed in their
biographies on pages 52 to 53. To support its
work the Operating Board has delegated certain
powers to the Operating Board Committees,
each of which has approved Terms of Reference
setting out its areas of responsibility.
Sainsbury’s Bank
Sainsbury’s Bank plc Board membership
includes an independent Chairman, four
Independent Non-Executive Directors and a
Non-Executive Director from the Operating
Board representing J Sainsbury plc together with
the Bank’s Chief Executive Officer and Chief
Financial Officer. The Bank’s Chief Executive
Officer is supported by the Sainsbury’s Bank
Executive Committee and is responsible for the
day-to-day management of the business and
executing its strategy. The Bank’s Chief
Executive Officer is a member of the Operating
Board and brings the Bank’s priorities and
perspective into the business’s overview.
Committees
Audit Committee
The Audit Committee reviews the integrity of
financial information prior to publication,
oversees the systems of internal control and risk
management and approves the internal and
external audit process. It carries out in-depth
reviews of specific risks, including information
security and data governance.
More details on page 66.
Remuneration Committee
The Remuneration Committee recommends and
reviews the Remuneration Policy, ensuring it is
aligned to the long-term success of the business.
It also approves the remuneration and benefits
of Executive Directors and the Operating Board,
and broader remuneration principles throughout
the business.
More details on page 72.
Nomination Committee
The Nomination Committee reviews the balance
of skills, knowledge, experience, independence
and diversity of the Board, and succession plans
at Board and senior management levels.
More details on page 62.
Corporate Responsibility and
Sustainability (CR&S) Committee
The CR&S Committee reviews the sustainability
strategy; our Net Zero by 2040 plan. It also
monitors the business’s engagement with
colleagues, customers, suppliers, the community,
shareholders and government on sustainability
and corporate responsibility matters.
More details on page 64.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
56
Key areas of focus for the Board
The following pages summarise the Board’s principal activities over the course of the year.
Area of focus
Principal matters considered by the Board
Strategy
(see further details below)
Agreed the strategy focussing on the strategic priorities and held regular
reviews of all business areas
COVID-19
In-depth strategic and performance reviews on the following items:
— The five-year strategy for Sainsbury’s Bank and Argos Financial Services
— The Net Zero by 2040 plan
Discussed:
— Keeping our customers and colleagues safe
— Feeding the nation
— Help for communities and suppliers
— Safety in our stores
— Trading performance and costs incurred
— Financial impact
Succession and leadership
Chief Executive Officer and Board appointments. Succession planning for the
Board and senior management
Effectiveness of the Board and its Committees
Financial and operational performance
Reviewed and discussed business performance including market and trading updates
Reviewed:
— KPIs
— The annual budget and five-year corporate plan
— Five-year cost transformation plan
— The financing strategy
— The Company’s Preliminary and Interim results, trading statements and
the Annual Report
— Going Concern and Viability Statements
— The Dividend, Treasury and Tax strategies
— Customer satisfaction metrics, including service standards and the
overall customer offer
Reviewed the funding for the defined benefit pension scheme
Reviewed and discussed:
— The culture, vision and values
— The organisational structure throughout the business
— Talent management
— Inclusion and diversity
— Feedback from colleagues
— Feedback from the Workforce Advisory Panel and Colleague Listening Groups
Colleagues, values and culture
Links to rest of the
report see page(s)
57
57
6 to 9
62
60, 61
30 to 35
28
–
25
34
–
46, 47
34
5
35
10, 11, 18
5
62
63
14, 15
14, 15
Committee updates
Other stakeholder engagement
Received detailed summaries from each Committee Chair – Audit, CR&S,
Nomination and Remuneration – following the relevant Committee meetings
62, 64, 66, 72
Received and discussed:
— Updates on supplier relationships and feedback from suppliers
— Feedback from investors throughout the year including on the strategic priorities
14, 15
16, 17
Governance and risk
Reviewed the risk framework and internal controls, and approved the
36 to 45, 71
Cyber security and data governance
Principal Risks and Uncertainties
Received regular updates on corporate governance developments and
current litigation
Reviewed and considered quarterly reports on safety (health and safety and food)
Brexit updates
Discussed the business’s approach to information security and data governance
Reviewed systems, plans and processes to protect the business’s
key information assets
–
42
39
–
61, 69
GovernanceJ Sainsbury plc Annual Report 2020
57
Sustainability
The Board and CR&S Committee debated the timescale, costs, commitments,
vision and values of our Net Zero by 2040 plan. The Net Zero by 2040 plan
was approved at the January 2020 Board meeting and further details can be
found on page 27.
Digital eco-system
Developing the digital eco-system is a core part of our strategic direction.
The Board discussed the investment being made to build a digitally
integrated, multi brand, multi channel business at a number of its meetings.
For more information see page 23.
Creating a place where we all love to work
Culture and ‘creating a place where we all love to work’ is a key focus of the
Board and is discussed throughout the year. The Board discussed Sainsbury’s
purpose, vision and values and the results from our annual ‘We’re Listening’
colleague engagement survey. This survey invites every colleague to give
honest confidential feedback on what it is like to work for the business.
Further details on the feedback from our colleague engagement survey can
be found on page 15. Non-Executive Directors also fed back to the Board on
the engagement they had with the Workforce Advisory Panel, our Great
Place to Work National Group, on matters such as digital Nectar, Brexit,
Winning Teams, security and safety, colleague development, pay and
recognition, the remuneration process and the Chief Executive Officer’s pay.
Inclusion and the improvements being made in the gender and ethnicity
balance at senior management level were discussed and more information
can be found on page 63.
The Board’s programme of meetings allows a regular review of these
activities. The Board regularly holds meetings in different business locations
in order to meet management teams and colleagues, review performance,
discuss progress and agree key priorities for the short and medium term.
The following paragraphs explain the governance behind agreeing our
strategic priorities.
Strategic priorities
The Board was fully involved in agreeing our strategic priorities. Six of the
priorities were presented to investors at the Capital Markets Day in
September 2019, and our seventh priority – our Net Zero by 2040 plan – was
announced in January 2020. Further details on our priorities can be found on
pages 20 to 27. In agreeing and reviewing our strategic priorities, the Board
had regular presentations on the following:
Strengthen our core food and grocery business
The Board had a number of updates on the overall food strategy and grocery
business from Paul Mills-Hicks and Simon Roberts. They covered areas such
as product and pricing, customer value, service levels and online performance.
The Board also discussed progress on the store investment programme.
In June, the Board visited our new store at Selly Oak to discuss these matters
in detail and to meet with senior management responsible for executing the
agreed priorities and those responsible for General Merchandise, Clothing
and Argos.
General Merchandise, Clothing and Argos
The Board was updated on the General Merchandise, Clothing and Argos
strategy and discussed bringing Sainsbury’s and Argos operations closer
together to deliver industry leading service, convenience and efficiency while
lowering our cost to serve our customers. The Board also discussed the
impact this strategy would have on our stakeholders specifically colleagues
and suppliers.
Reposition Financial Services
The Board had a number of in-depth reviews and discussions on the
Sainsbury’s Bank and Argos Financial Services strategy and agreed the vision
to be the provider of simple, easily accessible financial services for loyal
Sainsbury’s customers. In September 2019, the Board visited Sainsbury’s
Bank in Edinburgh to meet senior managers and colleagues and discuss
strategy and performance.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
58
Division of responsibilities
How the Board operates
The Board and its Committees have a scheduled forward programme of
meetings to ensure that sufficient time is allocated to each key area and
the Board’s time is used effectively. There is sufficient flexibility for items
to be added to the agenda which enables us to focus on key matters relating
to the business at the right time.
In addition to eight scheduled meetings in 2019/20, there were a number
of informal Board meetings to agree the strategic priorities and meetings
of the Nomination Committee relating to the appointment of the new Chief
Executive Officer. These meetings were often at short notice and very well
attended by Board and Committee members.
Our Board comprises the Chairman, two Executive Directors and six
independent Non-Executive Directors. Simon Roberts will join the Board
as Chief Executive Officer on 1 June 2020. Search processes are in place to
replace Jean Tomlin and Matt Brittin. Each of their responsibilities are listed
below and more information on their specific contributions can be found in
their biographies on pages 48 to 51.
Chairman
Martin Scicluna
Responsible for the leadership and effectiveness of
the Board and for setting the Board agenda. Ensures
effective communication so that the Board is aware
of the views of shareholders and other stakeholders,
and demonstrates objective judgement. Promotes
a culture of openness and debate in the boardroom
and constructive relations between Executive and
Non-Executive Directors. Led the search for the new
Chief Executive Officer and continues to lead the search
for the new Non-Executive Directors.
Chief Executive
Officer
Mike Coupe
(Simon Roberts from
1 June 2020)
Responsible for the day-to-day management of the
business and for executing the strategy agreed by the
Board. Creates a framework of strategy, values, culture
and objectives to ensure the successful delivery of
results for the business, and allocates management
responsibilities accordingly. Responsible for managing
risk and creating a framework of internal controls.
Chief Financial
Officer
Kevin O’Byrne
Supports the Chief Executive Officer in implementing
the strategy and in the financial performance of the
business. His executive responsibilities are described
on page 48.
Senior Independent
Director
Susan Rice
Independent
Non-Executive
Directors
Matt Brittin
Brian Cassin
Jo Harlow
David Keens
Jean Tomlin
Acts as a sounding board for the Chairman and
a trusted intermediary for other Directors. Available
to discuss with shareholders any concerns that
cannot be resolved through the normal channels of
communication with the Chairman or the Executive
Directors. Leads the other Directors in evaluating
the performance of the Chairman.
Responsible for bringing an external perspective, sound
judgement and objectivity to the Board’s deliberations
and decision-making. Support and constructively
challenge the Executive Directors, holding them to
account and offering specialist advice using their wide
and varied experience. Monitor delivery of the agreed
strategy within the risk management framework set
by the Board. Independent of management and free
from any business or other relationships that could
compromise their independence.
Company Secretary
and Corporate
Services Director
Tim Fallowfield
Advises and assists the Board and the Chairman,
particularly in relation to governance, Board evaluations,
induction, training and formulating the agenda for
Board meetings. Ensures that Board procedures are
effective and there is good information flow to the
Board and its Committees.
The Chairman and Non-Executive Directors also met without the Executive
Directors being present and the Non-Executive Directors, led by the Senior
Independent Director, met without the Executive Directors or the Chairman
being present.
Directors were made aware of the key discussions and decisions made at
each of the four principal Committees – Audit, Nomination, Remuneration,
and Corporate Responsibility and Sustainability. The Chair of each Committee
provided a detailed summary at the Board meeting following the relevant
Committee meeting.
On the rare occasions that a Director is unavoidably unable to attend a
meeting, they receive a briefing from the Chairman before the meeting so
that their comments and input can be taken into account at the meeting
and the Chairman provides an update to them after the meeting.
The following table shows the attendance of Directors at scheduled
Board meetings:
Martin Scicluna
Matt Brittin
Mike Coupe
Brian Cassin
Jo Harlow
8(8)
8(8)
8(8)
8(8)
8(8)
David Keens
Kevin O’Byrne
Susan Rice
John Rogers1
Jean Tomlin
8(8)
8(8)
8(8)
4(6)
8(8)
Notes: The number of scheduled meetings held during the year that each Director could attend is shown
in brackets.
1
John Rogers did not attend the two Board meetings held in October 2019 following his resignation.
Director independence
The Chairman satisfied the independence criteria of the Code on his
appointment to the Board and all the Non-Executive Directors are considered
to be independent. The independence of the Non-Executive Directors is
closely monitored by the Board.
Time commitment and conflicts
of interest
Prior to appointment, each prospective Non-Executive Director confirms
that they will have sufficient time available to be able to discharge their
responsibilities effectively and that they have no conflicts of interest, and
this is discussed by the Board before any appointment is made. In addition,
the Board reviews and approves in advance, requests by Directors wishing to
undertake new responsibilities or directorships and considers both the time
commitments involved and any potential conflicts. The conflicts of interest
register is reviewed annually to ensure it is up to date and that there are
no new conflicts to consider. No changes were recorded during the year,
which would impact the independence of any of the Directors.
The Board supports Executive Directors having a non-executive directorship
as part of their continuing development provided they have sufficient time
to balance their commitments to the business with any external role. Subject
to Board approval, each Executive Director may have one non-executive
director position. Whilst recognising the benefits of Non-Executive Directors
having varied and broad experiences, the Board keeps in mind investor
guidance and reviews the commitments of each Director annually.
Throughout the year, all Directors have good attendance records at scheduled
meetings, and demonstrated high levels of availability and responsiveness
for additional meetings and discussions where these have been required.
The Board remains confident that individual members continue to devote
sufficient time to undertake their responsibilities effectively.
GovernanceJ Sainsbury plc Annual Report 2020 Composition, succession and evaluation
59
Director development
Induction
We have a comprehensive and tailored induction programme in place for
Directors when they join the Board to enable them to gain an understanding
of all aspects of the business, including our purpose, vision, strategy, culture,
values, sustainability, governance, and the opportunities and challenges
facing the business.
Simon Roberts has started his induction programme as an Executive Director
in preparation for joining the Board on 1 June 2020. When joining the Board,
a new Non-Executive Director typically meets individually with each Board
and Operating Board member, and also with senior management from key
areas of the business to give them insight into their areas of responsibility.
The Company Secretary and Corporate Services Director briefs them on
policies, Board and Committee procedures, and core governance practice.
They visit a number of business locations and meet key advisers. They also
receive induction materials including recent Board and Committee papers
and minutes, strategy papers, investor presentations, Matters Reserved
for the Board and the Board Committees’ Terms of Reference. Directors’
inductions are ongoing processes over a number of years during which they
will cover the following:
The Directors’ induction process
Understanding the
business
Understanding the sector
and environment
Meet the Sainsbury’s internal
team and advisers
Visit Group
operations
— Business strategy, purpose
and vision
— Customer trends
— Consumer and regulatory
— Overview of each business area
environment
— Directors
— Committee Chairs
— Company Secretary and
— Store visits
— Distribution centres
— Store Support Centres
— Brand perception and reputation
— Analyst and investor
perspectives
Corporate Services Director
— Members of the Operating Board
— Senior management across
— Key stakeholders’ views
the business
— Members of the external
audit team
— Remuneration consultants
— Brokers
and its opportunities
— Operating plans, current KPIs
and targets
— Key business relationships
— Board and governance procedures
— Board effectiveness reviews and
actions
— Matters relevant to the Board
Committees they join
— Key people and succession plans
— Remuneration and reward across
the business
— Finance, treasury and tax
overviews
— Risk profile and approach
— Internal audit, risk and internal
controls
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
60
Continuing development
Non-Executive Directors continue to learn about the business by meeting
with management, colleagues, suppliers and other stakeholders including
in the ways described above. Other examples of continuing engagement
with different aspects of the business are described below.
During the year, Jo Harlow in her capacity as Chair of the Corporate
Responsibility and Sustainability Committee, joined Chapter Zero, a network
of company Chairs, Committee Chairs and Non-Executive Directors,
committed to developing their knowledge of the implications of climate
change for UK businesses. She visited a Sainsbury’s Active Kids Club and
attended the Sainsbury’s Farmers Conference and Sainsbury’s Capital
Markets Day where the strategic priorities were outlined to investors.
She had regular meetings with the Chair of the Sainsbury’s Foundation
and participated in a Talking Shop Listening Session at our Nine Elms store
with Simon Roberts as well as a Workforce Advisory Panel meeting. More
information on these sessions can be found on page 57.
As Audit Committee Chair, David Keens has engaged directly with business
operations to gain greater understanding and insight. He has met with teams
across Group Finance to discuss aspects of internal controls and risk
management, met with the Treasury team to discuss refinancing as well as
senior management at Sainsbury’s Bank and Nectar. He visited the Bedford
distribution centre and Antsy Park Store Support Centre to discuss Tu clothing
and logistics and he also held meetings with the Groceries Supplier Code
Adjudicator. More information on his work can be found on page 66.
Professional development and training
To ensure the Board updates and refreshes its skills and knowledge, we have
a programme to support Directors’ training and development requirements
in relation to governance, investor expectations and regulatory impacts. This
includes regular presentations from management on relevant governance
matters. Both the Audit and Remuneration Committees received updates on
relevant accounting and remuneration developments, trends and changing
disclosure requirements from external advisers and management, and the
Board and Committees were updated on compliance with the Task Force on
Climate-related Financial Disclosures, the 2018 UK Corporate Governance
Code and Directors’ responsibilities under Section 172 of the Companies Act.
The Directors also had access to the advice of the Company Secretary and
independent professional advice is available at the Company’s expense,
if necessary, in fulfilling their duties and responsibilities.
Board evaluation
We review our effectiveness as a Board on an annual basis, including an
assessment of the Board and its Committees. An external evaluator
conducts the review every third year, and in the two intervening years this is
carried out by the Company Secretary, Tim Fallowfield, to ensure continuity
over the three-year cycle.
This year’s review was conducted from November 2019 to February 2020 by
Clare Chalmers, an experienced independent provider of board effectiveness
reviews. She has provided evaluation services to a number of FTSE companies,
as well as the broader private sector, public sector, Government and
not-for-profit sectors. Clare has no association with Sainsbury’s or individual
Directors other than being involved in a separate review of the Board of
Sainsbury’s Bank in 2015.
We provided Clare with relevant documents, including details of last year’s
internal report, Board and Committee minutes and the slides presented to
investors on the Capital Markets Day in September 2019. She was appointed
following a tender process conducted by the Chairman, Martin Scicluna, and
Tim Fallowfield which included other potential suppliers.
Clare met Martin and Tim to agree the scope of the review and the key areas
of focus. This resulted in an agreed agenda for the meetings between Clare
and each member of the Board, Tim and Angie Risley (Group HR Director).
A scoping agenda was sent to each of them before their individual meetings.
Their discussions were confidential and no views were attributed to any
individual in the final report.
The key areas of focus included: the role and priorities of the Board and
Committees; the Board’s composition, skills, succession and culture; the
alignment of purpose, strategy and values; leadership of the Board and
the business; engagement with stakeholders; long-term sustainability;
and internal controls and assurance. Each Director was given the opportunity
to raise their own additional points.
Following the individual discussions, Clare discussed her key findings with
Martin and Tim, and then presented a written report to the Board. A separate
meeting with the Board was held to discuss the findings and the Board then
agreed the key actions.
Clare met Martin separately to discuss feedback on individual Directors, and
met with Susan Rice to discuss feedback for Martin, which she subsequently
shared with him as part of his review meeting.
Findings of the 2019/20 review
The report identified a number of strengths of the Board including:
— A positive dynamic with a constructive tone and an appropriate level of
challenge under the Chairman’s leadership
— Good access to the executive team
— Experienced Non-Executive Directors with a good mix of relevant skills
and diversity with each Non-Executive Director continuing to contribute
effectively
— The Chief Executive Officer’s succession process (which at that time had
not concluded) was progressing well and was thorough and inclusive,
with good communication flows and a clearly agreed brief
— The new Chairman is making a positive contribution to the Board and the
business and is driving the pace and challenge in the boardroom
— Stakeholder engagement is working well, with strong investor relations,
effective workforce engagement and clear customer orientation
— The approach to risk management is strong, with an effective Audit
Committee
— The other Committees are working well, with clear priorities and strong
management support. The process to find two new Non-Executive
Directors to replace Jean Tomlin and Matt Brittin has clear objectives
around skills, diversity and board balance
GovernanceJ Sainsbury plc Annual Report 2020 61
Year 3
Year 2 progress
reviewed and
areas of focus
identified
A combination of
Board evaluation
and Director
appraisal
Progress and
actions
implemented
during 2019/20
Agreed actions
for 2020/21
Board evaluation cycle
Year 2
Review focussed
on Year 1 issues
raised and any
new issues arising
Year 1
Independent and
externally facilitated
review
Key areas of focus from 2018/19 review
Progress and actions implemented during 2019/20
Culture and stakeholder engagement
Continue to build on current activities and the Board agenda to maintain
oversight of the business’s culture and to further engage with stakeholders.
Determine the preferred method of engaging with colleagues to comply with
the Code, by learning more from the range of activities planned for the year.
Business performance and strategic priorities
The Board agreed to continue to focus on the KPIs of each business unit
and the business in the overall market and to hold detailed discussions
about the context and drivers of trading performance and value creation.
The Board has developed its engagement with all key stakeholders as set
out on pages 14 to 17.
The management accounts have been updated and the Board regularly
receives detailed updates on customer satisfaction, colleague engagement
and sector comparative performance. Regular performance updates are built
into the Board’s programme to review progress against the performance and
strategic commitments made in the strategic priorities.
Data security
The Board will continue with its oversight of, and assurance over, the
business’s plans and priorities for information security and data
governance through additional review sessions by the Audit Committee.
The Audit Committee has regularly assessed progress against the
information security and data governance plans, and the Board received
a detailed presentation of the specific information security risks and risk
appetite, plans and targets for 2020/21.
Agreed actions and areas for development for 2020/21
— The Board will continue to drive a performance culture whilst maintaining Sainsbury’s colleague-focussed ethos
— The Board and Nomination Committee will revise the Board’s skills matrix for the future to assist with succession planning
— The Board will continue to build its connectivity with the Sainsbury’s Bank Board, whilst observing the independence of the Bank’s governance,
particularly in light of the recent appointment of the Bank’s new Chief Executive Officer and the planned succession of the Bank’s Chairman and
other changes to the Bank Board of Directors
— The Board will develop its strategic thinking with external thought leadership in a changing retail environment
— The Non-Executive Directors will mentor the new Chief Executive Officer as he takes over leadership of the business
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
62
Nomination Committee Report
Dear Shareholder
This has been a busy year for the Committee, with our
particular focus on appointing a new Chief Executive
Officer to succeed Mike Coupe and seeking two new
Non-Executive Directors to replace Jean Tomlin and
Matt Brittin, in addition to our usual programme
overseeing talent, succession, diversity and inclusion.
The following pages explain the governance around the search process
for our new Chief Executive Officer and two new Non-Executive Directors.
Our independently led Board evaluation gave us the chance to assess how
the search of the Chief Executive Officer was progressing at that point.
It concluded that the Committee was working effectively, that the search
process was well set up with clear objectives, that all of the members of the
Committee were well informed of progress and their role in key decisions,
and that there was good support from our external advisers and key
members of the executive team. We are delighted that we have appointed
Simon Roberts to lead the business from 1 June 2020. Our search for two
new Non-Executive Directors continues.
Martin Scicluna
Chairman
Principal role and responsibilities
The responsibilities of the Nomination Committee include reviewing
the balance of skills, knowledge, experience, independence and
diversity of the Board and its Committees, and making
recommendations to the Board for any changes. It is responsible for
formulating plans for succession at Board and senior management
levels, taking into account the challenges and opportunities facing the
Company, and the skills and expertise needed to ensure the long-term
success of the business.
The Committee’s Terms of Reference are available on the Company’s
website www.about.sainsburys.co.uk.
The Committee held two scheduled meetings in the year, together with
six unscheduled meetings relating to the Chief Executive Officer’s search
process and appointment.
Attendance at the scheduled Nomination Committee meetings.
Martin Scicluna
Matt Brittin
Brian Cassin
Jo Harlow
David Keens
Susan Rice
Jean Tomlin
2(2)
2(2)
2(2)
2(2)
The number of meetings held during the year is shown in brackets.
2(2)
2(2)
2(2)
Committee membership
The Committee consists of all of the current Non-Executive Directors, all
of whom are independent. The Chairman of the Board is also the Chair of
the Committee, and the Company Secretary acts as the Secretary of
the Committee. Mike Coupe and Angie Risley, Group HR Director, attend
meetings by invitation. In line with good governance, Mike Coupe played
no part in the process to identify his successor.
Succession planning
Chief Executive Officer succession
The Committee, led by the Chairman, oversaw the search and appointment
of a new Chief Executive Officer to replace Mike Coupe following notice that
he wished to retire. The process was thorough and inclusive. An extensive
internal and external search was followed by an interview process which
gave the Non-Executive Directors the opportunity to meet the shortlisted
candidates. There was good communication throughout and the Chairman
received support from the Group HR Director and the Company Secretary.
The Non-Executive Directors were kept well informed throughout the process.
The Committee held six unscheduled meetings between October 2019 and
January 2020 as part of the appointment process and received a number
of informal updates as set out below. The Committee also agreed to tender,
to identify an executive search consultancy to help with the search. The
Chairman met suppliers and it was agreed that MWM Consulting would
be appointed. MWM Consulting had no connection with the Company prior
to appointment and had no relevant connections with individual directors.
It also received the Hampton-Alexander Enhanced Code of Conduct for
FTSE 350s accreditation in 2019, one of 10 executive search firms that met
the new performance criteria and best practice standards in gender-
balanced selection for FTSE 350 boards.
Identify
Interview
Select
The Committee agreed a detailed job specification
and preferred attributes of the new appointee.
A thorough review of potential external and internal
candidates was undertaken including a diverse
long list of external candidates presented by MWM
Consulting. The Committee shortlisted a number
of candidates.
The Chairman and Non-Executive Directors met
with the shortlisted candidates who confirmed
their interest in the role. Following the interviews,
the Nomination Committee members met to
discuss feedback.
The Committee was unanimous in its final
selection and recommended to the Board that
Simon Roberts be appointed as Chief Executive
Officer. Simon has been extremely effective during
his three years at Sainsbury’s, leading our store
teams through great change in that time. Simon is
a dedicated, determined and enthusiastic champion
of our customers and colleagues and has overseen
sustained improvements in our competitiveness
during his time with the Company.
Considerations
The Remuneration Committee approved the
terms and conditions relating to Simon Roberts’s
remuneration arrangements.
Appoint
Simon Roberts’s appointment as Chief Executive
Officer was announced on 22 January 2020 and
will take effect on 1 June 2020 when he will also
become a member of the CR&S Committee.
Non-Executive Director succession
The Committee is following a similar approach for each of the two Non-
Executive Directors’ search processes. MWM Consulting is assisting with
each, providing a long list of potential candidates from a broad range of
backgrounds, matching the terms of the detailed specification for each role.
Members of the Committee are involved at each stage of the process and
the new Directors will be announced once the Board has confirmed their
appointments.
GovernanceJ Sainsbury plc Annual Report 2020 Diversity and inclusion
The aspiration of our business is to be the most inclusive retailer, and the
Board is highly supportive of the initiatives in place to promote diversity and
inclusion throughout the business. Clear leadership of our inclusion agenda
has been established by Mike Coupe and the Operating Board, and senior
management have been set annual objectives to drive progress through the
business. The Group Diversity and Inclusion Steering Group is chaired by
the Group HR Director and is also attended by five other Operating Board
Directors who each champion an inclusion stream:
— Gender Balance
— Ethnicity, Religion and Belief
— Lesbian, Gay, Bisexual and Transgender
— Age, Carers and Disability
— Wellbeing
The Board receives regular inclusion updates and both the CR&S Committee
and the Nomination Committee receive detailed presentations throughout
the year on our inclusion priorities and the progress we are making. The
Remuneration Committee also reviewed and approved the Gender Pay
Report which can be found on our website. More about these initiatives
and the progress being made can be found on page 26.
Board diversity
We promote diversity on our Board and we believe there is good balance
amongst our Non-Executive Directors, with extensive and wide-ranging
experience of retail and other consumer-facing businesses and varying
length of service. Our Non-Executive Directors also have other highly relevant
skills derived from serving in a range of major executive and non-executive
positions throughout their careers and an array of cognitive and personal
strengths. The Board’s approach to its own diversity is as follows:
Aim to maintain a level of at least 33% female Directors and at
least one Director who identifies as Black, Asian and Minority
Ethnic (BAME) on the Board.
Three of our nine Board Directors are women (33%) and one identifies as
BAME. The Committee continues to make recommendations for new
appointments to the Board based on merit, with candidates measured
against objective criteria and on the skills and experience they offer.
The Board continues to review the development of the pipeline of both BAME
and female senior management within the business. Of the nine members
of our Operating Board, two are women (22%). 35.7% of our Operating Board
and their direct reports (excluding PAs) are women and 7.1% identify as
BAME. More information can be found on page 26.
Board balance
2
Consider candidates for appointment as Non-Executive Directors
from a wide pool.
During the year, the Nomination Committee discussed Non-Executive
Director appointments and succession. It is working closely with MWM
Consulting in compiling long and short lists of candidates from various
backgrounds and sectors. Candidates are being identified, interviewed and
measured against a detailed job specification and preferred attributes.
Assist the development of a pipeline of high-potential
colleagues by encouraging key members of senior management
within the business to take on additional roles to gain valuable
Board experience.
The Board supports and encourages initiatives that strengthen the pipeline
of talent in the Company including:
— A comprehensive talent management review presented to the Board
— Highly personalised plans and initiatives for high-potential colleagues to
broaden their skill sets and experience to prepare them for future senior
roles; for example, through boardroom exposure, and non-executive and
trustee roles outside of the business
— Senior management mentoring schemes sponsored by Board and
Operating Board Directors
Board skills matrix
Strategy development/
implementation
Operations/general
retailing experience
Consumer/customer service
E-commerce/Technology
Current or recent CEO/
PLC experience
HR/people
Remuneration
Sustainability
Risk management/audit
Finance/accounting/audit
Financial services
Corporate transactions
63
Board tenure (Non-Executive Directors and Chairman)
0-3 years
4-6 years
7-9 years
2
1
4
Board gender diversity
3
Men
Women
Board ethnic diversity
1
6
7
8
Non BAME
BAME
Black, Asian and
Minority Ethnic (BAME)
Non-Executive Directors
Executive Directors
10
8
8
8
8
9
9
9
9
5
6
6
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
In order to oversee the implementation of our new Net Zero by 2040 plan
and to have more time to understand and hear from our stakeholders, we
have increased the number of Committee meetings. From 2020/21 we will be
holding at least three meetings a year, with additional updates to the Board,
and I am pleased to welcome Martin Scicluna and Simon Roberts to the
Committee as members, effective from 1st June 2020. We have also refreshed
our sustainability governance structure in the business with the creation
of a Net Zero Steering Group, as well as specific working groups. This will
allow us to be more agile amid changing dynamics and emerging issues
and support the delivery of our commitments.
Jo Harlow
Chair, Corporate Responsibility and Sustainability Committee
Principal role and responsibilities
The Committee’s principal role is to review the sustainability strategy,
ensuring it is aligned with the Company’s purpose, strategy, culture,
vision and values. The Committee also plays a part in monitoring
the business’s engagement with stakeholders including customers,
suppliers, the community, colleagues, shareholders and government
on sustainability and corporate responsibility matters.
Attendance at scheduled Committee meetings. Meetings were also attended
by Martin Scicluna.
Jo Harlow
Mike Coupe
2(2)
2(2)
Jean Tomlin
2(2)
The number of meetings held during the year is shown in brackets.
64
Corporate Responsibility and
Sustainability Committee Report
Dear Shareholder
Our purpose is to help our customers live well for less,
now and in the future. In delivering that purpose, we take
our responsibility as a sustainable retailer seriously.
The Committee oversees the governance of being
a sustainable business. Now in my second year as Chair,
I am pleased to see the accomplishments against our
agenda: the significant progress that has been made
against our 2020 Sustainability Plan since its inception
in 2011; the development of our new ‘Net Zero by 2040’
sustainability plan; and the increased focus
on our stakeholders.
This year sees the conclusion of our 2020 Sustainability Plan and I am proud
of the progress and achievements we have made against our commitments.
Our activities have spanned our five values, governed by our Value
Management Groups, to help customers live healthier lives, make a positive
difference to our communities, source with integrity, have respect for our
environment, and create a great place to work for our colleagues. Highlights
include reducing our absolute carbon emissions by 42 per cent against our
2005 baseline, reaching our 30 per cent target a year early, and retaining
our Gold standard accreditation from Investors in People for the fourth year
running. We also celebrated our 150th birthday by delivering our 150 Days
of Community programme which saw over 35,000 of our colleagues pledge
their time to good causes in their communities. We were unable to reach
every target we set out to achieve in 2011 but we have learned a lot in the
process. We are confident we are taking the right approach in areas such
as improving animal health and welfare by focussing on data-led health
outcomes, whilst on deforestation we understand that despite our high
levels of certification and sustainable sourcing of raw materials, such as
palm oil and timber, we have been unable to impact the rise of deforestation
on our own. You can read more about how we have performed against our
2020 Sustainability Plan on page 18 and see our full 2019/20 performance
scorecard in our Sustainability Update on our corporate website.
This year has also seen the Committee increase its focus on stakeholder
engagement including our customers, colleagues, suppliers and the
community. We have listened to and engaged with our stakeholders and
more information about our work can be found on pages 14 to 17.
The Committee was instrumental in the development of our Net Zero by
2040 plan. I was delighted that we launched it in January 2020 and that it
is one of our strategic priorities. Our Net Zero by 2040 plan includes key
areas of focus across carbon, water, sustainable diets, plastics, food waste,
recycling and biodiversity, which will guide our activity over the next
20 years to ensure we become Net Zero in our own operations by 2040.
We have also committed to investing £1 billion over 20 years to help us
achieve this. You can read more about our new commitments on page 27.
GovernanceJ Sainsbury plc Annual Report 2020 65
Principal activities in the year
The Committee met twice during the year. Prior to each meeting, members
received insights on how we engaged with our stakeholders – colleagues,
customers, the community and suppliers – as well as progress updates on
the 2020 Sustainability Plan. During the meetings, discussions and reviews
of stakeholder engagement and development of our Net Zero by 2040 plan
took place.
how our supply chains source products ethically and sustainably and the
work undertaken by the Fair Development Fund and Sainsbury’s Fairly
Traded programme. More information on our suppliers can be found on
page 14. The Committee also reviewed the steps we are taking to prevent
modern slavery and human trafficking in our business operations and
supply chain and recommended that the Board approve our Modern Slavery
Statement, which can be found on our corporate website.
The Committee was engaged in our 150 Days of Community programme
which ran from May to October 2019, to celebrate the Company’s 150th
birthday. The programme offered the opportunity for each colleague to
volunteer during working hours. In total, we supported 2,456 projects which
saw colleagues volunteer on a wide range of initiatives to support their local
communities.
Culture and ‘creating a place where we all love to work’ was a key part of the
Committee’s agenda. The Committee was provided with the feedback from
colleague engagement surveys and discussed ways to build colleague trust
with the management team.
This year the Committee received a comprehensive update on supplier
engagement, including the results of the Advantage Suppliers Survey and
Groceries Code Adjudicator report. Committee members were keen to
understand the actions being taken to build relationships with our suppliers,
As we focused on our new sustainability plan, we listened intently to our
customers, noticing a shift in their views on sustainability. While climate
change and being ‘green’ are really important to them, they are not fully
aware of the extensive work that Sainsbury’s does in this area, an insight
that has helped inform the communications plan for our new strategy.
The Committee was engaged in upcoming regulatory developments on
childhood obesity, resources and waste, clean air, employment reform and
the cost of these to the business, which fed into the development of the new
Net Zero by 2040 plan. Learnings from the 2020 Sustainability Plan and other
stakeholders were also considered. After a broad discussion, at a number of
Committee and Board meetings between September 2019 and January 2020,
the Net Zero by 2040 plan was approved as our seventh strategic priority.
See page 18 for progress on our 2020 Sustainability Plan commitments and
page 27 for our Net Zero by 2040 commitments.
J Sainsbury plc Board
Oversight of the sustainability strategy.
Chair: Martin Scicluna
Corporate Responsibility and
Sustainability Committee
Reviews the sustainability strategy; our Net Zero by 2040 plan. It also
monitors the business’s engagement with colleagues, customers, suppliers,
the community, shareholders and government on sustainability and
corporate responsibility matters.
Chair: Jo Harlow
Operating Board
Defines business-wide strategy, adapting to new regulatory requirements
and trends. Reviews cross-value progress and signs off major investments.
Chair: Mike Coupe, Group Chief Executive Officer
Value Management Groups1
Led operational execution of sustainability activities for our
2020 Sustainability Plan commitments by value, ensuring delivery
of performance.
1. Living Healthier Lives
Chair: Judith Batchelar, Director of Sainsbury’s Brand
2. Making a Positive Difference to our Community
Chair: Simon Roberts, Director of Retail & Operations
3. Sourcing with Integrity
Chair: James Brown, Director of Non-Food Commercial
4. Respect for our Environment
Chair: John Rogers, CEO of Argos (until Oct 2019) / Patrick Dunne,
Director of Property, Procurement and Cost Transformation
(since March 2020)²
5. Great Place to Work
Chair: Angie Risley, Director of Group HR
1 These groups are currently being reviewed on conclusion of our
2020 Sustainability Plan.
2 An interim Chair was in place between John Rogers and Patrick Dunne’s
appointments.
Net Zero Steering Group (since Feb 2020)
Leads operational execution of Net Zero by 2040 commitments by
overseeing working group activity, ensuring delivery of performance.
Chair: Simon Roberts, Director of Retail & Operations and
Paul Mills-Hicks, Commercial Director
Working groups:
1. Carbon & Water
2. Sustainable Diets
3. Plastics
4. Food Waste
5. Recycling
6. Biodiversity
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
66
Audit, risk and internal control
I have not summarised in this introduction specific matters addressed by
the Committee during the year, so would urge you to read our full report,
in conjunction with our Independent Auditor’s Report starting on page 101
and indeed Sainsbury’s 2020 Financial Statements in general.
The Audit Committee’s effectiveness was considered as part of the annual
Board evaluation process (pages 60 and 61). I am pleased to report that
the Board has again confirmed the effectiveness of this Committee in
supporting the Sainsbury Board in its duties.
David Keens
Chair, Audit Committee
Principal role and responsibilities
The Audit Committee assists the Board in fulfilling its oversight
responsibilities by reviewing and monitoring the integrity of the
financial information provided to shareholders, the Company’s
systems of internal control and risk management, the internal and
external audit process, the auditors, and the process for compliance
with relevant laws and regulations.
The Committee’s Terms of Reference are available on the Company’s
website www.about.sainsburys.co.uk
Attendance at scheduled Audit Committee meetings:
David Keens
Brian Cassin
4(4)
4(4)
Jean Tomlin
4(4)
The number of meetings held during the year is shown in brackets.
Audit Committee Report
Dear Shareholder
Each year brings new challenges and opportunities to
our business, as it does to businesses in general. The
year just ended has been no different and in this report,
my fifth as Audit Chair, you will find details of both
continuous and new reviews undertaken by the
Audit Committee. I appreciate the open culture within
Sainsbury’s which facilitates our work.
The Audit Committee membership remained unchanged throughout the
year and I again thank Jean Tomlin and Brian Cassin for their invaluable
contributions. We each bring different but complementary skills, and this
has ensured that discussions with management and the external auditor
are both robust and productive. These discussions are not confined to
Committee meetings, nor are there any limitations or constraints placed on
us. We are well supported by our Director of Internal Audit and her Internal
Audit team; they play an important role and their work is respected
throughout the business.
My, and the Committee’s, style is to be pro-active and engage directly with
business operations where we feel this will give us greater understanding
and insight. In addition, it enables those in our management team who
would not ordinarily be aware of Audit Committee responsibilities to increase
their knowledge of our role and purpose in corporate governance. The open
nature of Sainsbury’s culture facilitates this approach and I thank the Board
and all colleagues for making this possible.
Sainsbury’s Bank operates its own audit and other committees, which are
governed by specific banking industry regulators and regulations. However,
we welcome representatives of the Bank to each of our Audit Committee
meetings and, where appropriate, we share knowledge and resources for the
benefit of the business including the Bank.
This year, in the UK and globally, regulators and stakeholders have increased
their attention to the role of the external auditor, with particular reference to
the quality and independence of audit. Prime responsibility for these two
aspects lies firmly with a company’s board and its external auditor. We
follow the debate with interest, together with the increasing regulation and
reporting that this entails. As Committee members, we have taken practical
steps to challenge ourselves and our auditors on the question of independence.
We have continued to propose topics which the Committee considers our
auditors, both internal and external, should address rather than be passive
by simply accepting repeat audit programmes. We have given examples of
these processes in the Committee report which follows.
GovernanceJ Sainsbury plc Annual Report 2020 67
Committee membership
The members of the Committee are independent Non-Executive Directors
who, together, have competence relevant to the retail sector. They also have
extensive general business and management experience. Their biographies
are on pages 48 to 51.
Regular attendees at Committee meetings include the Chairman of the
Board, Chief Executive Officer, Chief Financial Officer, Director of Internal
Audit, Director of Group Finance, Company Secretary and Corporate Services
Director, Deputy Company Secretary, representatives of Sainsbury’s Bank
and the external auditor.
The Board has determined that David Keens has recent and relevant
financial experience.
Committee activities
Area of focus
Activity
Financial Reporting
The integrity of the financial statements and formal announcements
relating to financial performance
The Committee reviewed the Annual Report, the Preliminary and
Interim results, and was provided with supporting information to assist
in these reviews.
Items excluded from underlying results
Implementation of new accounting standard IFRS 16
See “Significant financial and reporting matters” on page 70.
Pensions strategy and accounting
Treasury funding and liquidity
Assumptions and qualifications in support of the Viability and Going
Concern statements
Assessment of whether the Annual Report is fair, balanced
and understandable
Risk Management and Internal Controls, and Principal Risks
and Uncertainties
Risk management reviews of principal risks and uncertainties, and emerging
risks and opportunities, compared to corporate plans
Reports from the Audit and Risk Committees of Sainsbury’s Bank, including
risk and compliance reporting processes
The Committee assessed the business’s secured and unsecured borrowing
facilities and their appropriateness in tenor and amount to Group requirements.
The Committee assessed the business’s financial projections over three
years, which continues to be an appropriate timeframe for the Viability
Statement as approved by the Board. The key factors underpinning the
projections beyond three years were reviewed.
The Committee considered all known key risks during the year, including
those relating to Brexit developments and latterly the COVID-19 threat.
These matters were also discussed by the Board as a whole.
The Viability Statement, in full, can be found on page 46.
The Board is required to confirm that the Annual Report and Financial
Statements are fair, balanced and understandable (see page 100). To enable
the Board to make this declaration, there is a year-end review process to
ensure that the Committee and the Board have access to all relevant
information, including management’s papers on significant issues. The
Committee reviewed the key factors considered in determining whether
the Annual Report is fair, balanced and understandable. The Committee
and all Board members received a draft of the Annual Report and Financial
Statements in sufficient time to review and challenge the disclosures therein.
In addition, the Committee took into consideration the external auditor’s
reviews of the consistency between the reporting narrative of the Annual
Report and the Financial Statements.
See pages 36 to 45 and page 71.
Sainsbury’s Bank plc is a subsidiary of the Company, with an independent
Board responsible for setting the Bank’s strategy, risk appetite and annual
business plan. It has an independent Chairman, a majority of independent
Non-Executive Directors and a Non-Executive Director representing
J Sainsbury plc. The Bank’s Chief Executive Officer and Chief Financial Officer
also sit on the Bank’s board. The Chief Executive Officer, supported by the
Executive Committee, is responsible for day-to-day management of the
business.
The Chairs of the Bank’s Audit and Risk Committees, the Chief Financial
Officer and the Chief Executive Officer (as appropriate) attend meetings of
the Committee. There is communication between Sainsbury’s Internal Audit
function and its equivalent within the Bank. See “Significant financial and
reporting matters” on page 70.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
68
Area of focus
Activity
External Audit
Scope of the external audit plan and fee proposal
The Committee reviewed EY’s overall work plan and approved their
remuneration and terms of engagement.
Independence, objectivity and effectiveness of external audit
Provision of non-audit fees
Recommendation of the reappointment of EY as auditor
Tender of external auditor
Internal Audit
Director of Internal Audit
The independence and objectivity of the external audit function is a
fundamental safeguard to the interests of the Company’s shareholders.
The EY Partner responsible for the Company’s audit since 2018 will retire in
2020. His proposed replacement is part of the current audit team and will
therefore bring continuity. His tenure will be limited to 2021 due to EY partner
rotation policies.
The Committee has overseen the Company’s policy which restricts the
engagement of EY in relation to non-audit services. The intention is to ensure
that the provision of such services does not impact on the external auditor’s
independence and objectivity. It identifies certain types of engagement
that the external auditor shall not undertake, including internal audit and
actuarial services relating to the preparation of accounting estimates for
the financial statements. It requires that individual engagements above
a certain fee level may only be undertaken with pre-approval from the
Committee or, if urgent, from the Chair of the Committee and ratified by
the subsequent meeting of the Committee. It recognises that there are some
types of work where a detailed understanding of the Company’s business
is advantageous. The policy is designed to ensure that the auditor is only
appointed to provide a non-audit service where it is considered to be the
most suitable supplier of that service.
The Committee received a report on the non-audit services being provided.
The annual aggregate of non-audit fees is capped at 70 per cent of the
annual average of the audit fees for the business for the preceding
three-year period.
Following an effectiveness review, the Committee concluded that EY
remained effective, objective and independent in their role as external
auditor. The Committee review was supported by feedback from
management which was compiled from questionnaires completed by
Directors and managers in the business who were directly involved in the
audit. The questionnaire covered the audit team, and audit planning,
communication and execution. EY maintained good and efficient working
relationships, was robust in its questioning, and provided good support
whilst challenging management effectively.
The Committee has confirmed compliance with the provisions of the
Statutory Audit Services Order 2014.
The majority of the non-audit work undertaken by EY during 2019/20 related
to the interim audit. The total non-audit fees were £0.1 million. The audit fees
for the year in respect of the Group and subsidiaries were £3.9 million. For a
breakdown of the fees, refer to note 9 of the consolidated financial statements.
The Committee has recommended to the Board the reappointment of EY as
auditor for the 2020/21 financial year. A resolution to this effect will be tabled
at the 2020 AGM.
EY was appointed in July 2015 as the Company’s external auditor following
a tender process. We are next required to undertake a tender in 2024 or we
may do so at an earlier time as determined by the Company.
The Director of Internal Audit reports to the Committee Chair and has direct
access to all members of the Committee. The purpose, authority and
responsibility of Internal Audit are defined in the Internal Audit Charter,
which the Committee reviews annually.
Internal controls framework
See page 71.
Management’s responsiveness to Internal Audit’s findings
and recommendations
The Committee was provided with updates on Internal Audit’s findings and
agreed actions at each meeting.
Scope of the Internal Audit Plan
Effectiveness of the Internal Audit function
Other
Audit Committee’s effectiveness
The scope of the Internal Audit Plan and subsequent amendments to the
Plan were reviewed and approved by the Committee.
The Committee reviewed Internal Audit resources, budget, work programme,
results, and management’s implementation of required actions.
The Director of Internal Audit provides an annual overview of Internal Audit’s
performance to the Audit Committee, including key performance indicators
and stakeholder feedback. Improvement and actions required are
highlighted, and used to assist in reviewing the effectiveness of Internal
Audit. The Committee concluded that Internal Audit continued to be effective.
The review of the Committee’s effectiveness formed part of the Board
evaluation. See pages 60 and 61.
GovernanceJ Sainsbury plc Annual Report 2020 Area of focus
Activity
69
Other continued
Significant issues raised through the whistleblowing process
Data governance and information security
Store audits
Critical suppliers
Compliance with the Groceries Supply Code of Practice (‘GSCOP’)
Ongoing material litigation
Business continuity management
The Committee received updates at each meeting on any significant
whistleblowing matters. The Committee Chair receives earlier notification
of matters that may develop into a significant incident. No issues arose
that required the Committee to be updated ahead of a scheduled meeting.
All issues were escalated to the relevant manager for investigation.
The Committee reviewed the consistency of whistleblowing arrangements
across the business and its application by the Company’s suppliers. The
Chairman reported any material matters to the Board. Each of the Business
Unit Directors are responsible for rolling out process amendments where
appropriate. The availability of the Rightline whistleblowing facility will be
communicated across the business in 2020.
Updates on the data governance programme were provided during the year
covering processes, technology changes, customer data, culture, discipline,
Information Commissioner’s Office, and the move of some retail and
banking security responsibility to Sainsbury’s Tech. The Committee also
received updates on strategic risks, third party assurance, cyber security,
and cookie consent. The data governance and information security functions
were merged in 2020 and a separate review of data governance and
information security was given at a 2020 Board meeting. See pages 56 and 61.
The Retail and Operations Director presented on store audits, covering key
drivers, productivity, and increased use of digital tools.
The Commercial Director presented on critical food suppliers and the
relationship and risk management framework. The business’s Net Zero by
2040 priorities will become part of supplier assessment. The Committee
also reviewed goods not for resale supplier risk.
In 2010, GSCOP was implemented following the recommendation of the
Competition Commission. Each grocery retailer to which it applies has to
appoint a Code Compliance Officer (CCO) whose duties include hearing
disputes between suppliers and the retailer. Sainsbury’s has appointed the
Director of Internal Audit as its CCO.
GSCOP requires that the business delivers an annual compliance report to
the Groceries Code Adjudicator (GCA), as approved by the Chairman of the
Committee, and a summary must be included in the Annual Report and
Financial Statements. This is set out below.
Summary Annual Compliance Report
Sainsbury’s compliance with the Code is based on clear policies and procedures,
mandatory training and regular monitoring of compliance. Sainsbury’s has
specific internal resource who provide all relevant colleagues with day-to-day
advice and guidance. We have an established compliance monitoring
programme which is embedded within the business. Compliance results,
including performance against KPIs, are reported to the Commercial Leadership
Team quarterly. Additional assurance is provided, as required, by Internal Audit.
During the year, we reviewed the GSCOP governance risk assurance
framework and formalised meetings between the CCO, Legal, Internal Audit
and the Commercial team who monitor Code Compliance in key risk areas.
This helps ensure emerging Code-related matters are identified promptly.
We review our processes to ensure our ways of working take into
consideration the GCA’s feedback, Code clarifications and internal review
processes. Relevant policies and GSCOP training are reviewed and updated
on at least an annual basis to ensure they remain current.
17 potential breaches of GSCOP were investigated in the year. Although four
allegations were found not to relate to GCSOP, all were resolved either within our
Trading Division using standard escalation procedures, or through discussions
between the CCO and the supplier. None were pursued as formal disputes with
the CCO and none required referral to the GCA for arbitration. Group Legal, the
Compliance team, and the CCO review the root causes of alleged breaches to
identify areas for improvement and to agree actions with the business.
The CCO and the Committee Chair meet with the GCA on a regular basis. Senior
employees of the Trading Division also meet the GCA to facilitate collaboration.
During the year, we continued to improve our processes and in particular,
implemented a new supplier portal to make it easier for suppliers to find the
information they need and simplify interactions between us.
The Committee is appraised on all material litigation and potential impacts
on financial reporting disclosures. These are also provided to the Board.
A number of desktop exercises were run during the year and learnings
applied where appropriate. The Committee received updates on operational
resilience and crisis management, which this year included the early
impacts of COVID-19.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
70
Significant financial and reporting matters
The Committee considered the following significant financial and reporting issues during the year.
Matters considered and how the issues have been addressed
COVID-19-related disclosures
It is important to consider the economic impact of COVID-19 on the
annual financial statements, in particular the measurement of assets
and liabilities and also the business’s ability to continue as a going concern.
Accounting standards implemented during the year
Management implemented one new accounting standard during the
year, IFRS 16, using the full retrospective approach and comparative
balances have been restated. The Committee received regular updates
on IFRS 16, showing the outcome and supporting disclosures. Disclosures
relating to IFRS 16 are included in note 5 of the financial statements.
Pensions
The Group’s balance sheet shows a pension surplus of £1,119 million,
which comprises £11,491 million of assets, and £(10,372) million of
liabilities. This compares to a net surplus in the prior year of £959 million.
See note 35 of the financial statements. The Committee reviewed a
summary of the actuarial assumptions used in arriving at the valuation
for the defined benefit pension scheme.
The discount rate methodology used has been amended and is now
consistent with the external auditor’s methodology.
The year-end valuation of scheme assets has been impacted by market
disruption from COVID-19. Those assets which are unquoted are more
difficult to value, however our approach to valuing these assets was
discussed and agreed with the external auditor.
A new asset backed contribution scheme was introduced during the year
and the Committee received papers on the accounting and tax treatment.
See note 35 of the financial statements.
Sainsbury’s Bank reporting
The Committee receives updates on the key agenda items discussed at
the Bank’s Audit Committees. These include accounting judgements and
estimates, important operating and regulatory matters such as liquidity,
cash flows, capital adequacy and risk management processes. The
Committee’s meetings are attended by the Bank’s Audit Committee
Chair, Risk Committee Chair, Chief Financial Officer, and the Bank’s Chief
Executive Officer (as appropriate).
The accounting judgements and estimates reviewed by the Committee
included impairment of loans to the Bank’s customers and progress on
the Bank’s transition programme.
The Committee reviewed management’s analysis and agreed that the
impact of COVID-19 represented a non-adjusting post balance sheet
event. Further information is included in notes 4 and 41 of the financial
statements.
Going concern and viability
The Committee undertook a detailed review of the business’s financial
liquidity over the viability assessment period of three years, taking into
account cash flows, current levels of debt and the availability of future
finance. The viability assessment was discussed by the Committee in
March 2020 and scenarios to be stress-tested through the business’s
corporate plan were agreed. The full analysis was discussed in April,
and included specific scenarios in relation to COVID-19. The Viability
Statement is included on page 46.
Presentation of financial statements
The Group uses Alternative Performance Measures (APMs) and in line
with guidance issued by the European Securities and Markets Authority
(ESMA) includes additional disclosures, including reconciliations to
statutory measures – see pages 205 to 208. Any changes to APMs are
detailed in note 4 of the financial statements.
The Committee considers it important to take account of both the
statutory measures and the APMs when reviewing these financial
statements.
In particular, items excluded from underlying results were reviewed by
the Committee and it is satisfied that the business’s presentation of these
items is clear, applied consistently across years, and that the level of
disclosure is appropriate. The net non-underlying charge against profits
this year was £331 million (2019: £399 million). All excluded items are
detailed on pages 122 to 124. Some items are of a recurring nature and
can be expected to feature in future years. Other items are specific and
relate to decisions made or activities undertaken during the year.
Impairment of assets
The Committee discussed reports produced by management that
detailed the assumptions and outcome of an impairment review of
property and technology assets. A store profitability review was
undertaken and a closure programme agreed, which resulted in a
non-underlying charge of £253 million. Further information is included
in note 6 and note 17 of the financial statements.
GovernanceJ Sainsbury plc Annual Report 2020 71
Risk management and internal controls
The Board has overall responsibility for risk management and internal
controls, and for reviewing their effectiveness. The risk management process
is designed to manage rather than eliminate the risk of failure to achieve the
Company’s business objectives and can only provide reasonable, not absolute
assurance against material misstatement or loss. Certain responsibilities have
been delegated to the Audit Committee as outlined below.
The risk management process and 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 UK Financial Reporting Council’s Guidance
on Risk Management, Internal Control and Related Financial, Business
Reporting and the 2018 Code. The annual risk management process is
illustrated in the diagram on page 37.
The Board received updates on risk management and internal controls
from the Chair of the Audit Committee (see page 67 for further details).
All Committee papers and minutes were made available to the whole Board.
The Board also received reports on matters relating to safety, other relevant
risks, controls and governance. Any significant matters which could have
affected the Company’s reputation were reported to the Board as they occurred.
The Audit Committee assesses the effectiveness of our internal controls on
an ongoing basis, enabling a cumulative assessment to be made.
The annual risk management process concludes with the Board’s assessment
of the Company’s Principal Risks and Uncertainties disclosure, including
those that would threaten its business model, future performance, solvency
or liquidity, and the completion of an annual internal controls certification.
More details on all of these key risk management activities are provided on
pages 36 and 37.
Internal controls framework
The internal controls framework encompasses controls relating to financial
reporting, preparation of consolidated Group accounts, operations and
compliance, risk management and Sainsbury’s interests in joint ventures.
The Audit Committee reviews the effectiveness of internal controls on an
ongoing basis and monitors any remedial action required. An overview of
key elements of the control framework is set out below.
Our control environment
— The Board discusses and approves the Company’s strategy, plans,
objectives, budget and the risks to achieving them
— Group-wide policies covering delegations of authority, ethical conduct
and key compliance requirements such as keeping information safe and
HR policies set clear parameters for colleagues
— Management regularly reviews risks to achieving objectives, with
mitigating controls identified and actions taken
Controls embedded in the business
— Policies, procedures and controls are embedded within business processes
— Specific teams such as Central Retail and Technical Operations, support
the design and implementation of specific controls across the business
— Training programmes are provided to support implementation and
compliance with key policies, processes and controls
Monitoring and oversight
— Compliance with policies, standards and controls is monitored and
evaluated in finance, accounting, treasury, information security and
safety management
— The Investment Board provides oversight and approval of capital spend
and monitors benefits realisation
— Quarterly commercial reviews by Executive Directors of financial and
operational performance cover all business areas
— Oversight and governance committees have delegated responsibility
for monitoring key risk areas; for example, the Data Governance,
Group Safety, Operational Resilience and Treasury Committees
Our assurance framework
— Operating Board members certify annually that they are responsible
for managing their business objectives and internal controls to provide
reasonable, but not absolute, assurance that the risks in their areas
of responsibility are appropriately identified, evaluated and managed
— The Board and the Committee review any significant fraudulent activity
and whistleblowing by colleagues, suppliers or other parties and actions
being taken to remedy any control weaknesses
— Reports from management are presented to the Operating Board and
Audit Committee on how we manage material risks
— Management and the Audit Committee review the scope and results of
the work of Internal Audit across the Company and of the implementation
of their recommendations
— Reviews by the Committee of the scope and results of the work of the
external auditor and any significant issues arising
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
72
Annual Statement from the
Remuneration Committee Chair
Dear Shareholder
I’m pleased to present the Directors’ Remuneration
Report for the year ended 7 March 2020. This year we
will also be presenting our Remuneration Policy to
shareholders for approval – there are no major changes
proposed but we are simplifying our arrangements.
The Remuneration Committee reviews executive pay
in the context of Company results, the broader retail
and economic environment, as well as having regard to
pay throughout the business. It remains committed
to pay for performance.
During the year we continued to make strong progress against the strategy
we set out at the Capital Markets Day in September 2019 to create one multi
brand, multi channel business. The retail market remained challenging and
we invested in price and created new convenient ways for people to shop
which generated momentum to help us outperform our main supermarket
peers by the year-end, as well as improve our customer satisfaction. General
Merchandise sales declined while Clothing sales grew, particularly online
sales. While underlying profit before tax (UPBT)1 declined by two per cent to
£586 million, we delivered strong free cash flow1 and reduced non-lease net
debt1 by £343 million, in line with guidance.
We are now faced with unique circumstances as a result of COVID-19 that are
impacting our colleagues, customers and communities. During the last few
days of our financial year, we saw an uplift in grocery sales as a result of
COVID-19, as well as the beginning of a decline in non-food sales. As I write
this statement, we do not yet know the full longer-term impact on the
business or the broader economy but our colleagues are continuing to work
tirelessly to help feed the nation. I’m full of admiration not just for the work
they’re doing but for their willingness to do it and the spirit they’ve shown.
When considering executive pay, the Remuneration Committee has focused
on both the short-term and longer-term implications on the business,
alongside the impact on our stakeholders including colleagues, customers,
suppliers, pensioners and shareholders. We have made our decisions
reflecting a number of guiding principles. We have taken into account the
actual performance for 2019/20, against the backdrop of the current and
continuing uncertainty in the retail market and the UK economy. We have
considered payout levels relating to short-term 2019/20 performance versus
longer-term three-year performance. The delivery mechanism and timeframe
of any reward has been considered, preferring that there is future alignment
with shareholders, i.e. in deferred shares rather than cash. Underpinning all of
this is our commitment to pay for performance, ensuring executives do the
right thing no matter what reflecting the interests of all our stakeholders.
Pay across Sainsbury’s
The Remuneration Committee continues to consider wider colleague reward
when determining pay arrangements for the Executive Directors, and this
remains a fundamental part of our approach to pay.
For a number of years, Sainsbury’s has emphasised how our values make us
different and we seek to adopt a responsible approach to pay that reflects
our culture and values at all levels throughout the organisation. It continues
to be important to us that the pay for all our colleagues remains consistent
with the principles of simplicity and fairness.
During the year, the Committee reviewed the Group’s Gender Pay Report
on behalf of the Board. We pay colleagues according to their role, not their
gender, and the Board is committed to improving the representation of
women at senior levels. In 2019, our mean gender pay gap reduced by
1.6 percentage points to 10.5 per cent and our median gender pay gap
remained at 3.8 per cent.
The Committee was pleased to hear about the decisions the Company has
made to support our colleagues during this difficult time. Safety has been
the main priority, ensuring colleagues are protected when working in stores
and depots. The Company is providing support on mental and physical
wellbeing as well as financially supporting colleagues who are unable to
work. We are offering full pay to all colleagues who are classed by the
government as ‘extremely vulnerable’, vulnerable or living with people who
are ‘extremely vulnerable’ for up to 12 weeks. We are also offering full pay for
those that need to self-isolate for up to 14 days. In addition, to recognise the
hard work and dedication of our front line colleagues and managers who
have been working to help feed the nation, we made an additional Thank
You payment. Around 140,000 hourly-paid colleagues and 12,000 managers
benefited from a payment equivalent to 10 per cent of pay for the four-week
period from 8 March 2020.
Remuneration in 2019/20
Market conditions over the last financial year have been challenging, and
despite the progress made by the business against its strategic priorities,
overall remuneration levels for the Executive Directors are c. 13 per cent
lower for 2019/20 than the previous year. The Remuneration Committee has
decided that no cash annual bonuses will be paid to Executive Directors and
the wider senior executive population in respect of 2019/20 – the year to
which the deferral of the dividend decision relates. All variable remuneration
earned in the year will be deferred into shares for two years to ensure
alignment with our shareholders.
The below summarises the outturns under each incentive plan:
— Annual bonus – The Remuneration Committee determined it was
appropriate to use an adjusted UPBT figure of £576 million for the bonus
which is £10 million lower than the reported UPBT1. Using the adjusted
UPBT figure, the outcome was at the threshold performance level
resulting in no payout under the profit element of the bonus. While the
Executive Directors have both individually performed strongly through
the year, the Committee determined that no annual bonus should be
paid to the Executive Directors in respect of the year.
— Deferred Share Award (DSA) – The Committee determined that awards
under the DSA should be granted at 44 per cent of the maximum. This
recognises the performance of the business against our internal targets,
market expectations and our competitors in a highly challenging and
competitive retail market and the achievements made on our strategic
priorities setting the business up for future success. This award is
deferred into shares which are released after two years, aligning the
Executive Directors’ experience to that of shareholders. Full details of the
metrics, targets and achievements are set out on pages 79 and 80.
— Overall annual incentive outcome – The net outcome of the above is
that Executive Directors will receive 22 per cent of the maximum annual
incentive opportunity, all of which will be deferred into shares.
— 2017 Future Builder – Reflecting our three-year performance against the
performance metrics, a performance multiplier of 2.6 (out of a maximum
of 4.0) was applied to the core award for all participants resulting in
vesting of 65 per cent of the maximum. These share awards are subject
to an additional two-year retention period, again aligning the Executive
Directors’ experience to that of shareholders.
In line with the 2018 Corporate Governance Code (Code), the Committee
reviewed the outcomes of the individual incentive plans as well as the overall
levels of remuneration to ensure that they remained consistent with the
underlying performance of the business. The Committee is satisfied that
the total remuneration received by Executive Directors in respect of 2019/20
is a fair reflection of performance over the period as well as taking into
account the current circumstances.
1 These measures and other measures in this section are defined in the Alternative Performance
Measures section of the Annual Report on pages 205 to 208.
GovernanceJ Sainsbury plc Annual Report 2020 Leadership changes
After almost six years as Chief Executive and 15 years working for the business,
Mike Coupe has confirmed his intention to retire this year. Mike will continue
as Chief Executive until 31 May 2020 and will remain a Director until the AGM
on 2 July 2020 at which point he will retire from the Company. In line with the
shareholder approved Remuneration Policy, the Remuneration Committee
has approved good leaver status for Mike in relation to bonus and share awards
that will be outstanding when he retires. Mike has waived any entitlement
to bonus and share awards in relation to his period of employment during
the 2020/21 financial year.
Simon Roberts will be promoted to the position of Chief Executive on 1 June
2020, and his remuneration is consistent with our Remuneration Policy.
Simon’s salary will be £875,000 (which is over 10 per cent lower than
Mike Coupe’s current salary) and he will receive a pension salary supplement
of 7.5 per cent of salary, in line with the pension available to the majority of
the workforce. This results in Simon’s fixed pay (salary, benefits and pension)
being 25% lower than Mike’s.
John Rogers resigned from his Board position as Chief Executive Officer of
Sainsbury’s Argos on 31 October 2019. John was not entitled to any bonus for
the financial year ending 7 March 2020, and his outstanding executive share
awards lapsed upon resignation.
2020 Remuneration Policy renewal
Our previous Remuneration Policy, which governs executive pay at
Sainsbury’s, was approved by 96 per cent of our shareholders at the 2017
AGM and the Committee considers that it continues to work well. Under
the normal three-year renewal cycle, an updated policy will be presented
to shareholders for approval at the 2020 AGM.
When reviewing our Remuneration Policy for Executive Directors, we gave
careful consideration to the views of our shareholders, the internal and
external context and the updated Code, with a particular focus on ensuring
our approach to remuneration is fully aligned with our Company values
and culture. Taking a responsible and sustainable approach to business
is a defining characteristic of Sainsbury’s culture and this extends to the
approach to executive remuneration.
The over-arching objectives of the Remuneration Policy are to ensure rewards are
fair, performance-based and encourage long-term shareholder value creation.
The Committee also believes it is important that a significant portion of the
Executive Directors’ package is performance-related and that the performance
conditions applying to incentive arrangements support the delivery of the
Company’s strategy and the long-term sustainable success of the Company.
While we are not proposing any major changes to our Remuneration Policy
for 2020, we have taken the opportunity to simplify our incentive structure
for Executive Directors in direct response to shareholder feedback. We have
also kept overall incentive levels unchanged. In early 2020, we consulted
with our major shareholders regarding our updated policy and as a result
the following changes have been made to our approach:
— Annual bonus – The current cash bonus and DSA will be replaced with
a conventional single bonus structure. As a result, the maximum annual
bonus award in 2020/21 will be 220 per cent of salary for Simon Roberts
and 180 per cent of salary for Kevin O’Byrne, of which 50 per cent will be
paid in cash and 50 per cent in shares deferred for two years.
— Future Builder – We are simplifying the operation of the Future Builder
arrangement (our long-term incentive plan) by reducing the number of
metrics used. Awards for 2020 will be based on: free cash flow (50 per
cent), return on capital employed (25 per cent) and earnings per share
(25 per cent).
73
that it would be prudent to allow the new metrics to fully embed before
we set incentive targets against them. The Committee will keep this under
review in future years.
Once the Board is in a position to make a decision regarding dividend payments,
the Committee will consider the impact on shareholders and if there should be
any implications on executive pay for 2020/21. When determining executive pay
outcomes for the year, the Committee has discretion to apply judgement and to
adjust incentive payouts and award levels.
At the time of writing, the COVID-19 pandemic is still unfolding and, given
the uncertainty, we cannot be as prescriptive as we would usually be about
the targets for the 2020/21 incentive plans. Therefore, we have delayed
setting the bonus and Future Builder targets while we understand the
impacts of the pandemic on the business and the broader economy. We will
ensure that management are focused on the key financial and non-financial
metrics to ensure the financial wellbeing and sustainability of the business
in both the short and longer term. Once finalised, targets for 2020 Future
Builder awards will be published on our website.
Given the highly exceptional circumstances the Committee recognises that,
any targets ultimately set may need to be adjusted to take account of the
circumstances which unfold during the course of the year in light of COVID-19.
The Committee will monitor business conditions and exercise judgement
in applying discretion in relation to the 2020/21 incentive plans. At year-end,
when we assess performance, we will consider results in light of the context
during the year and the shareholder experience. Full disclosure will be
provided in next year’s Remuneration Report.
AGM
In line with the UK reporting regulations, the Directors’ Remuneration Policy
will be put to a binding vote and the Annual Report on Remuneration will be
put to an advisory vote at the AGM on 2 July 2020. In addition, shareholder
approval for the renewal of the Company’s Share Incentive Plan (SIP) is being
sought at the 2020 AGM, and a summary of the SIP is contained in the
Notice of AGM.
We hope that the disclosure provided in this report provides clear insight into
the Committee’s decisions and we look forward to receiving your support at
the AGM.
Dame Susan Rice
Chair, Remuneration Committee
Attendance of Directors at scheduled Remuneration Committee meetings:
Susan Rice
Matt Brittin
4(4)
4(4)
Jo Harlow
4(4)
The number of meetings held during the year is shown in brackets.
Principal role and responsibilities
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,
— Retirement benefits – For any new appointments, including Simon
Executive Directors and Operating Board Directors;
Roberts, the maximum retirement benefits will be capped in line with
that available to the wider workforce – 7.5 per cent. We will also be
reducing the existing pension of our Chief Financial Officer, Kevin O’Byrne,
to this level over time.
— Shareholding guidelines – We have increased the shareholding guideline
for the incoming Chief Executive to three times salary. We have also
introduced a requirement for Executive Directors to maintain their
shareholding guideline for two years after they leave the business.
As part of the review, the Committee also considered whether ‘ESG’ targets
should be included in the bonus or Future Builder, following the launch of our
new sustainability plan Net Zero by 2040. At this stage we have concluded
— Reviewing and noting the pay and benefits applying to colleagues
across the Company and taking these into account when
determining executive pay;
— Approving the service agreements of each Executive Director,
including termination arrangements; and
— Considering the achievement of the performance conditions
under annual and long-term incentive arrangements.
The Committee’s Terms of Reference are available on the Company’s
website www.about.sainsburys.co.uk.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
74
Summary of 2019/20 remuneration decisions
Pay element
2019/20 decisions
Salary
Increases in line
with colleagues
Annual bonus
No payout
— Annual salary: Mike Coupe – £981,543, Kevin O’Byrne – £650,250 and John Rogers – £723,496.
— Salary increase of two per cent for Executive Directors in March 2019, in line with other management and central colleagues.
— For 2019/20 the adjusted underlying profit before tax was equal to the threshold performance level, resulting in no payout
under the profit element of the bonus.
— The Executive Directors performed strongly against individual annual operational objectives, however the Committee
determined that no annual bonus should be paid to the Executive Directors in respect of the year.
— Further details of the bonus measures and outturn can be found on pages 78 and 79.
Deferred Share Award
Awards of 44 per cent
of maximum
Maximum opportunity
Actual % of maximum
Group profit • Annual operational objectives
• Group profit • Annual operational objectives
70%
30%
— Performance assessed taking into account financial performance, returns to shareholders, relative performance against peers
and strategic priorities.
— Overall the financial targets were partially met, with outperformance on free cash flow and non-lease net debt reduction;
under-performance on Group sales, UPBT and EPS.
— The prudent approach taken to defer the dividend decision is reflected in the returns to shareholders metric, resulting in the
target being partially met.
— Strong relative Sainsbury’s sales performance, while the General Merchandise markets remain challenging; with progress on
service, price and quality measures across the business.
— Strong performance against strategic priorities, setting the business up for future success.
— Further details of targets and achievements can be found on pages 79 and 80.
Deferred Share Award
• Group profit • Annual operational objectives
Maximum opportunity
30%
Financial
Actual % of maximum
10%
20%
Returns to shareholders • Relative performance • Strategic priorities
30%
20%
22%
7%
5%
Financial
Returns to shareholders • Relative performance • Strategic priorities
LTIP/Future Builder
Vesting at 65 per cent
of maximum
— Future Builder, based on performance to March 2020, will vest at 65 per cent of the maximum.
— Partial vesting was achieved under the ROCE and cash flow elements, full vesting was achieved under the cost savings and
synergies elements and no vesting under the EPS element.
Future Builder
Maximum opportunity
• Group profit • Annual operational objectives
20%
Financial
Actual % of maximum
7.5%
20%20%
Returns to shareholders • Relative performance • Strategic priorities
20%
20%20%
17.5%
20%
20%
20%
ROCE
EPS
Cash Flow • Cost Savings • Synergies
Total remuneration for 2019/20
Fixed pay
Salary
Benefits
Pension
Performance-related pay
Annual bonus
Deferred Share Award
LTIP/Future Builder
Total pay
Mike Coupe1
£000
Kevin O’Byrne
£000
John Rogers2
£000
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
982
17
294
0
475
1,349
3,117
962
17
289
593
582
1,126
3,569
650
17
163
0
257
715
638
17
159
316
316
616
469
28
117
0
0
0
709
85
177
357
351
664
1,802
2,062
614
2,343
1. On leaving, Mike Coupe’s Deferred Share Awards and Future Builder awards will be pro-rated to reflect his period of employment during the deferral/performance period.
2. The 2019/20 figures for John Rogers relate to the period to 31 October 2019 when he stepped down from the Board. Of the values shown in the table, the 2018/19 Deferred Share Award and half of the unvested Future
Builder award lapsed on his resignation.
GovernanceJ Sainsbury plc Annual Report 2020 75
Summary of remuneration for 2020/21
Pay element
Salary
Summary of policy
Approach for 2020/21
Increase for Chief Financial Officer in line with
management
The 2020/21 annual salaries are:
— Mike Coupe – £981,543, no increase in March 2020 (to 2 July 2020)
— Simon Roberts – £875,000, from appointment as Chief Executive on
1 June 2020
— Kevin O’Byrne – £657,403, increase of 1.1 per cent effective from
March 2020 in line with other management and central colleagues
Benefits
No changes
— No changes to current arrangements.
Retirement benefits
Rate for new hires aligned with workforce;
Chief Financial Officer’s rate to be aligned over time
Annual bonus
New bonus structure
— Salary supplement in lieu of pension for new hires, including Simon
Roberts, will be aligned with the rate available to the majority of
colleagues. This is currently 7.5 per cent of salary.
— The rate for Kevin O’Byrne will be gradually reduced to 7.5 per cent of
salary. For 2020/21 it will be reduced from 25 per cent to 22.5 per cent
of salary. Over the course of the 2020 Remuneration Policy, his pension
will be initially reduced to 12.5 per cent by March 2023, which aligns with
the rate offered to c. 1,200 senior management roles. The pension will
be then reduced further to 7.5 per cent from March 2024.
— Based on key financial, operational and individual annual objectives
assessed over the financial year. The metrics and targets will be disclosed
next year. In line with our Remuneration Policy, at least 50 per cent will
be subject to financial measures.
— Bonus paid 50 per cent in cash after the year-end and 50 per cent
deferred into shares for two years.
— Maximum opportunity of up to 250 per cent of salary per annum.
— The maximum award for 2020/21 is:
— Simon Roberts – 220 per cent of salary
— Kevin O’Byrne – 180 per cent of salary
LTIP/Future Builder
No change to quantum;
performance measures simplified
— Awards are subject to a three-year performance period followed
by a two-year retention period.
— Maximum award of up to 250 per cent of salary per annum.
— Awards are structured as core awards, with a performance multiplier
of up to four times. The 2020 awards are:
— Simon Roberts – core award of 62.5 per cent of average 2020/21 salary
(max 250 per cent)
— Kevin O’Byrne – core award of 50 per cent of salary (max 200 per cent)
— The Committee reviewed the plan for the 2020 awards and simplified
the performance measures by removing cost savings as a measure and
increasing the weighting on free cash flow (now 50 per cent). Return on
capital employed and underlying basic earnings per share retain a 25 per
cent weighting.
— Due to the current uncertainty due to COVID-19, we have delayed setting
the targets but once set the performance targets will be published on the
Company’s website.
— The Executive Directors are required to build a significant shareholding
in the Company. For the incoming Chief Executive this is increased to
three times salary, and for the Chief Financial Officer this is two times salary.
— Post-employment shareholding guidelines introduced following the AGM:
Executives will be required to hold shares equivalent to their in-employment
shareholding guideline for two years post departure. This requirement
will apply only to shares acquired from Company incentive plans.
Shareholding
guidelines
Post-employment guidelines introduced
Recovery provisions
No changes
— The Executive Directors’ incentive arrangements are subject to malus
and clawback.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
76
Remuneration in context
Our reward objectives
Our objective is to have a fair, equitable and competitive total reward package that supports our vision of being the most trusted retailer where people love
to work and shop, encourages colleagues to perform in ways that deliver great service for customers, drives profitable sales and provides opportunities for
colleagues to share in Sainsbury’s success.
Executive remuneration principles
The above reward objectives apply to our senior executive population as well. In addition, the Committee believes it is important that a significant portion
of the Executive Directors’ package is performance-related, delivered in shares and that the performance conditions applying to incentive arrangements
support the delivery of the Company’s strategy and long-term shareholder value.
The Remuneration Policy for our senior executives is, therefore, based on the following principles:
Linked to our
business strategy
Aligned to
our values and
culture
Encourages the
right behaviours
to deliver
long-term growth
Secures high
calibre leaders
Enables share
ownership
Linking Executive pay to our business strategy
The Committee carefully considers the performance metrics incorporated into the annual bonus and Future Builder to ensure they support our strategic
priorities. The annual bonus is linked to key financial and individual strategic objectives, while the Future Builder rewards for the delivery of long-term free cash
flow, return on capital employed and earnings per share targets. The achievement of these metrics supports long-term sustainable performance and value
creation for our shareholders.
Key considerations
When reviewing the Remuneration Policy for Executive Directors and determining the approach to pay, in line with the Code, the Committee gives
consideration to the following:
— Simplicity and transparency: The Remuneration Policy has been designed to incentivise senior executives to achieve clearly defined financial,
operational and individual objectives. The Committee reviews performance metrics and targets each year to ensure that they continue to be clear
and aligned to the delivery of the strategy. The changes made in 2020 support this.
— Alignment to our purpose, values and culture: Sainsbury’s has a clear purpose and strong value set resulting in a unique culture which plays an
essential role in achieving our strategy. Our culture is underpinned by our Vision (what we want to achieve); our colleague values (how we want to
behave); and being a Great Place to Work (encouraging colleagues to want to be their best). The Committee ensures our pay practices drive the
right behaviours in line with our values and culture.
— Risk mitigation: The Committee reviews and sets performance targets each year to ensure that they drive the right behaviours and are
appropriately stretching without encouraging unnecessary risks. Under the annual bonus and Future Builder the Committee has the ability to
adjust incentive outcomes to ensure that they are reflective of the underlying financial and non-financial performance of the participants and the
Company. The Committee believes that this discretion is an important feature of the incentive plans and mitigates the risk of unwarranted vesting
outcomes. In addition, in the event that certain risk events come to light the Committee may operate recovery provisions on all incentive awards.
— Potential outcomes: When setting, and subsequently implementing, the policy for senior executives, the Committee considers our business goals,
the retail market and competitors, the potential and actual outcome and cost to the Company, stakeholder views and best practice. The Committee
believes it is important to exercise sound judgement at all stages during the process to ensure that executive pay levels appropriately reflect
performance and are aligned with the interests of shareholders.
Fair pay for colleagues
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 receives regular updates of any major changes to the pay and benefits of colleagues
generally. The Committee also reviews information on internal measures, including details of our gender pay gap and the ratio of Chief Executive
remuneration to the remuneration of our colleagues and how these compare externally.
Sainsbury’s employs over 172,000 colleagues who work hard to deliver for our customers. The Committee recognises that our colleagues are the foundation of
our business and critical to the overall success of our strategy. The remuneration objectives for our colleagues follow the same principles as the policy for the
Executive Directors. Pay and benefits reflect the nature and contribution of the role and take into account levels of pay in comparable roles in the market.
GovernanceJ Sainsbury plc Annual Report 2020 77
Reward and benefits
— All colleagues are entitled to base salary, pension and a range of benefits.
— Managers participate in annual bonus plans which are aligned under a common set of principles, with senior executives also participating in
long-term incentive plans.
— We offer colleague discount in Sainsbury’s, Argos and Habitat and access to other retail discounts. During 2019/20 colleagues saved over £60 million
in Sainsbury’s and Argos, and have saved nearly £1 million from our partner offers.
Recognition, development and wellbeing
— Being a place where colleagues love to work is really important to us and we recognise colleagues that go the extra mile and bring our values to life
through LOVE, our colleague recognition scheme. During 2019/20 over £6 million of financial recognition has been awarded to colleagues.
— We want to support colleagues in their career goals and operate a number of development programmes including one designed to support retail
colleagues looking to move into front line management and leadership roles.
— Physical and mental wellbeing is important to us and we offer a range of support mechanisms. We have an Employee Assistance Programme and
offer Cycle to Work, season ticket loans and health and dental cash plans.
Pensions and life assurance
— Participation in a pension plan is offered to all colleagues on a contributory basis, with the Company contribution varying by grade.
Hourly-paid store colleagues are offered a matching scheme up to 7.5 per cent of salary.
— We have over 110,000 colleagues in our pension plans.
— Colleagues in our pension plan also receive six times life assurance (one times if not in a pension or in an auto-enrolled scheme).
Share ownership
— All colleagues have the opportunity to become shareholders in the Company through our all-employee share plans.
— Around 25,000 colleagues participate in our Sharesave plans, representing an uptake rate of 15 per cent.
— Colleagues can also participate in Sainsbury’s Share Purchase Plan (SSPP), which is our name for the partnership element of the Share
Incentive Plan.
Gender pay
— We want to be the most inclusive retailer where people to love to work and shop.
— In 2019, our mean gender pay gap reduced by 1.6 percentage points to 10.5 per cent and our median gender pay gap remained at 3.8 per cent.
— Colleagues are paid according to their role not their gender; men and women doing the same job are paid the same. Like a lot of companies our
gender pay gap is caused by the fact that we have more men than women in our most senior roles, more women than men in our hourly paid
roles, and more men in hourly paid specialist roles that attract premiums, such as online delivery drivers.
— The Board is committed to improving gender and BAME representation and we have aspirational targets of 40 per cent female and 10 per cent
BAME in senior management roles and above by 2021.
CEO pay ratios
— This year we have disclosed CEO pay ratio data for the first time. The ratio of 173:1 reflects the size and make up of our colleague base.
— The 25th, 50th and 75th percentiles ranked by total remuneration are all store-based hourly paid colleagues.
Colleague engagement
— The Board recognises the important role our colleagues play in the success of Sainsbury’s. It takes colleague engagement and the views of
colleagues seriously.
— We communicate regularly with colleagues to provide information about their pay and benefits, development opportunities as well as business
matters. This helps to build trust in our corporate strategy, vision and values and enables our colleagues to do a good job.
— We also operate a range of initiatives to help understand and adapt to colleague views.
— An annual colleague engagement survey called We’re Listening, where every colleague from across Sainsbury’s is invited to give
honest feedback.
— Talking Shop listening sessions, where store colleagues have the opportunity to meet members of the plc and Operating Board.
— Our Great Place to Work groups operate at store level rolling up to a national group (which is our Workforce Advisory Panel), which meets with
Board members on a regular basis to discuss current issues. Whilst we do not formally consult with colleagues on the setting of the Executive
Director Remuneration Policy, we have used these discussion groups for Non-Executive Directors to engage with colleagues directly on
executive remuneration to give them the opportunity to share their views and opinions.
— Colleagues are able to become shareholders in the Company and can comment on the policy in the same way as other shareholders.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
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Annual Report on Remuneration
Single total figure of remuneration for Executive Directors (audited information)
The table below shows a single remuneration figure for all qualifying services for the 52 weeks to 7 March 2020, together with comparative figures for the
52 weeks to 9 March 2019.
Base salary
Benefits
Pension
Total fixed pay
Annual bonus
Deferred Share Award
LTIP/Future Builder
Total variable pay
Total
Mike Coupe5
£000
Kevin O’Byrne
£000
John Rogers6
£000
Notes
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
1
2
3
4
982
17
294
1,293
0
475
1,349
1,824
3,117
962
17
289
1,268
593
582
1,126
2,301
3,569
650
17
163
830
0
257
715
972
1,802
638
17
159
814
316
316
616
1,248
2,062
469
28
117
614
0
0
0
0
614
709
85
177
971
357
351
664
1,372
2,343
1 Benefits include a combination of cash and non-cash benefits, valued at the taxable value. For all Executive Directors, this includes a cash car allowance (£15,250) and private medical cover. For John Rogers this also
includes a travel allowance and accommodation costs payable until he left the business (in relation to a change of location to Milton Keynes following his appointment as Chief Executive of Sainsbury’s Argos) and
accrued holiday.
2 Annual bonus relates to performance during the financial year, paid in May following the relevant year-end.
3 The 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.
4 The Long-Term Incentive Plan value relates to the Future Builder award vesting in May following the end of the relevant financial year, which is the third year of the performance period. For the 2016 awards, 50 per
cent of the shares are released in May after the end of the relevant performance period and the balance one year later. For the 2017 awards, they are subject to an additional two-year retention period. The figures
include accrued dividend equivalent shares over the performance period. The 2018/19 values are based on the actual share price on the first date of vesting, £2.090. Awards were granted on 12 May 2016 at a share
price of £2.650. The award for Kevin O’Byrne was made on 26 January 2017 at a share price of £2.606. The values shown above reflect the decline in the share price since grant of: -£270k for Mike Coupe, -£136k for
Kevin O’Byrne and -£159k for John Rogers. The 2019/20 values are based on the average share price over the fourth quarter for 2019/20 of £2.091. Awards for Mike Coupe, Kevin O’Byrne and John Rogers were granted
on 11 May 2017 at a share price of £2.671. The values shown above reflect the share price decline since grant of: -£333k for Mike Coupe and -£176k for Kevin O’Byrne.
5 On leaving, Mike Coupe’s Deferred Share Awards and Future Builder awards will be pro-rated to reflect his period of employment during the deferral/performance periods.
6 The 2019/20 figures for John Rogers relate to the period to 31 October 2019 when he stepped down from the Board. Of the values shown in the table, the Deferred Share Award and half of the unvested Future Builder
award lapsed on his resignation.
Base salary (audited information)
Mike Coupe
Kevin O’Byrne
John Rogers
Salary
effective from
10 March 2019
£981,543
£650,250
£723,496
Pension
During 2019/20, in lieu of pension plan participation, Mike Coupe received
a cash pension supplement of 30 per cent of salary and Kevin O’Byrne and
John Rogers received 25 per cent of salary. No Director has any entitlement
to a Sainsbury’s defined benefit pension.
Benefits
For 2019/20, benefits for Executive Directors include the provision of
company car benefits, private medical cover, long-term disability insurance,
life assurance and colleague discount. Benefits for John Rogers also included
a travel allowance and accommodation costs, in relation to a change of
location to Milton Keynes, following appointment as Chief Executive of
Sainsbury’s Argos.
Annual bonus for 2019/20 (audited information)
For 2019/20 the maximum annual bonus award opportunity for the Chief
Executive was 110 per cent of base salary and for the Chief Financial Officer
was 90 per cent of base salary. John Rogers left the business during the
year so was not eligible for a 2019/20 annual bonus.
The performance measures for 2019/20 were Group profit (70 per cent) and
annual operational objectives (30 per cent).
Profit performance for the year was equal to the threshold target and
therefore no bonus is payable under this element. Although the Executive
Directors performed strongly against their annual operational objectives,
the Remuneration Committee determined that no cash annual bonus would
be payable to the Executive Directors.
Profit performance
The profit targets were robustly set at the start of the year reflecting both
our internal and external forecasts at that time.
The Remuneration Committee determined it was appropriate to use an
adjusted profit definition in relation to the annual bonus to remove the
impact of a number of non-repeatable, one-off items that fall outside of
normal activity (largely driven by a refinement of accounting policy as we
aligned Sainsbury’s Bank and AFS policies) that net to minus £10 million.
Therefore, the UPBT1 figure of £586 million has been adjusted downwards
to £576 million for bonus purposes. Using the adjusted profit figure, the
outcome was at threshold performance level resulting in no payout under
the profit element of the bonus.
The table below sets out the threshold and stretch profit targets and the
actual adjusted outturn for 2019/20.
Profit1
Threshold2
Stretch2
Outcome
£576m
£656m
£576m
1 Underlying profit before tax. This measure is defined in the Alternative Performance Measures section
of the Annual Report on pages 205 to 208.
2 Targets were adjusted on a like-for-like basis to reflect the adoption of IFRS 16 for lease accounting.
GovernanceJ Sainsbury plc Annual Report 2020 79
Annual operational performance
The annual operational objectives are split into two equally weighted elements, (i) individual strategic and (ii) customer and colleague. During 2019/20 the
Executive Directors performed strongly against their objectives, however, the Committee determined that there should be no payout under this element. The
table below sets out a summary of the achievements of the Executive Directors in relation to these objectives as assessed by the Remuneration Committee.
Director
Mike Coupe
Kevin O’Byrne
Individual strategic (weighting 15% of max)
Driving strategy
Continued focus on core
retail business and
progress against
creating multi brand,
multi channel business
Future finance
Formulated a detailed
business wide systems
platform resulting in
lower costs and
increased efficiencies
going forward
Deliver for our
shareholders
Built on financial
strength of the
organisation including
increase in retail free
cash flow1 to £611m
and maintained ROCE1
at 7.4%
Deliver for our
shareholders
Improved cultural focus
on free cash flow
throughout the business
resulting in a reduction
to non-lease net debt
of £343m
Managing our cost base
Cost savings exceeded
cost inflation, and
progress towards target
of £500m
Performance-led culture
Cascaded a refreshed
finance agenda to raise
the performance culture
for the business
Customer and colleague
(weighting 15% of max)
Customer
Improved customer
satisfaction ranking
Colleague
Significant transformation
activity in stores and
centrally, resulted in a
small decline in colleague
engagement scores
Inclusion
Significant progress
towards aspirational
targets of 40% female
and 10% BAME senior
managers and Directors
by 2021 – currently 35%
and 8% respectively
Outcome
The Executive
Directors performed
strongly against
their objectives but
the Committee
determined that
there should be no
payout under the
annual operational
element
1. These measures are defined in the Alternative Performance Measures section of the Annual Report on pages 205 to 208.
Deferred Share Award for 2019/20 (audited information)
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 and how
this contributes to the Company’s future sustainable growth and success.
The Committee reviews performance against expectations using the
following assessment grid:
Rating
Performance
Outperformance
Good
On track
Partially met
Underperformance
Delivers strong performance beyond
expectations, raising the bar on
expected results
Clear evidence of raising strategic ambition/
progression
Demonstrates a good performance against
all objectives and performance areas
Is consistent with progression against the
Company’s strategic targets
Delivers a solid rounded performance against
most objectives and all critical performance
areas
Delivers against some objectives and most
critical performance areas
During the year, overall financial targets were partially met, with
outperformance on free cash flow and non-lease net debt reduction. The
prudent approach taken to defer the dividend decision is reflected in the
returns to shareholders metric, alongside TSR growth over the longer term.
While Sainsbury’s sales outperformed the IGD index, Argos under-performed
the BRC index, while showing progress on service, price and quality measures.
In addition, the Company performed strongly against its strategic priorities,
setting the business up for future success. The performance gateway for the
award was achieved.
The Committee, therefore, agreed that for 2019/20 awards would be made
at 44 per cent of the maximum level, compared with 55 per cent last year.
Although some of the specific measures and targets are commercially sensitive,
the table on the following page presents a selection of performance highlights
which the Committee took into account within each of the four categories.
The table below sets out details of the awards and these are the figures set
out in the DSA row of the single total figure table. The share award is made
after the end of the 2019/20 financial year and the shares vest in March
2022 subject to continued employment. As he stepped down during the
year, John Rogers was not eligible for a DSA for the financial year ending
7 March 2020.
Maximum
opportunity
Per cent of
salary
110%
90%
Outcome
Per cent of
salary
48.4%
39.6%
Value
£000
£475
£257
Performance is low with important objectives
and targets not achieved
Mike Coupe
Kevin O’Byrne
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80
Category (weighting)
Metric
Expectation/target
Result
Achievement
Financial
(30%)
Group sales / UPBT
In line with expectations
Balance sheet measures
Hit budget for other financial metrics
Return to shareholders
(20%)
TSR/Dividend
Relative performance
(20%)
Sales/profit vs. peers
TSR growth and above median of peers
and maintain dividend cover policy of
1.9x and competitive dividend payment
Sainsbury’s flat against IGD;
Argos flat against BRC
% of profit pool flat vs. 2019/20
Quality, price and
service vs. peers
Quality, price and service perception
above peers
Win Grocer 33
Flat Group sales1, UPBT down 2% and
decline in EPS1
Outperformance – strong free cash
flow1 and reduced non-lease net debt1
by £343m in line with guidance
Target partially met; TSR growth and
above peers over 5 years
Interim dividend of 3.3p, but full year
dividend decision deferred
Targets partially met; Sainsbury’s
like-for-like sales outperformed the
IGD but Argos sales under-performed
the BRC index
Profit pool % decline due to recovery
in performance of peers
Improved customer satisfaction
ranking although ranked second
in Grocer 33 (second year in a row).
Improvement in price perceptions
against peers. Quality and service
measures partially met
Strategic priorities
(30%)
Overall outcome
(% of max)
Be competitive on price
Distinctive products and new categories
Personalised and seamless physical
and digital
Fast, friendly and convenient
Drive efficiency to reinvest
Remuneration Committee assessment
in the round – key achievements
summarised below
Outperformance
Outperformance
On track
Outperformance
On track
1 These measures are defined in the Alternative Performance Measures section of the Annual Report on pages 205 to 208.
Strategic priorities
10%
(out of 30%)
5%
(out of 20%)
7%
(out of 20%)
22%
(out of 30%)
44%
Be competitive on price
— Cheapest supermarket for branded groceries
Distinctive products and
new categories
Personalised and seamless physical
and digital
(Which? 2019)
— Taste the Difference has one of the biggest
— Increased digital sales to £6bn
— 390 basis point improvement in value index
versus Aldi for commodity lines1
— Investment in price during year –
Price Lockdown campaign (prices on 2,300
products reduced or held at lower price)
premium market shares by volume, and grew
by 0.3%
— Outperformed market on meat alternatives
and plant-based food ranges
— Rollout of new beauty offering to 134 stores
— In General Merchandise and Clothing focus on
increasing sales
everyday low prices
— Tu clothing range increased market share
— SmartShop roll out; accounts for up to 20%
in handset stores
— Nectar extended to Argos customers and
growth in customer digital participation
— Over 75 per cent of Sainsbury’s Bank
customers are Nectar card holders
Fast, friendly and convenient
— Improved customer satisfaction ranking
— Argos Click & Collect grew by nearly 8%
(now in 184 convenience stores) and Fast Track
delivery grew by nearly 5%
— £164m invested in 12,500 store projects
— Maximising space with carefully chosen
concession partners
Drive efficiency to reinvest
— Savings covering cost inflation, making
progress towards £500m target
— Creating smarter stores, and utilising
replenishment and stock apps to drive
efficiency and availability
— Strategic cost transformation programmes,
including review of central support functions,
are all largely in execution phase
— Good progress on property strategy – new
stores, closures and mixed use developments
1 Sainsbury’s value index, based on Edge by Ascential SKU matching data, to March 2020.
GovernanceJ Sainsbury plc Annual Report 2020 81
2017 Future Builder (2017/18 to 2019/20 performance period) (audited information)
The Long-Term Incentive Plan operated at Sainsbury’s is known as Future Builder. Around 250 senior managers across the business participate in this
arrangement. Awards are granted under the Long-Term Incentive Plan approved by shareholders in 2016. A core award of shares is granted, calculated
as a percentage of salary and scaled according to level of seniority. Vesting of the core award is dependent on performance against specific targets tested
at the end of a three-year performance period. The core awards can grow up to four times at stretch levels of performance. Any vested award is subject
to a two-year retention period.
The 2017 Future Builder award was subject to ROCE, EPS, cash flow, cost savings and Home Retail Group (HRG) synergy targets. In addition, a performance
gateway had to be achieved before any element could vest. The ROCE and EPS targets have been re-stated on a like-for-like basis to reflect the adoption of
the new accounting standard, IFRS 16. The Committee is comfortable that the re-stated target ranges are comparable to the original target ranges set on the
basis of the previous accounting rules. Consistent with the approach taken for the 2016 award, the Committee determined that it was appropriate to make
an adjustment to the calculation of underlying cash flow so that the costs associated with the structural changes made in stores were included as they were
incurred as a result of management actions.
A performance multiplier of 2.6x will be applied to the core award, i.e. 65 per cent of the maximum available award vested. The table below sets out the extent
to which each performance measure was achieved. The Committee reviewed the outcome of the awards in the context of award performance and
determined that it was appropriate.
ROCE1, 2
Underlying basic EPS1
Cumulative underlying cash flow from retail operations after capex1, 3
Cumulative strategic cost savings
HRG acquisition synergies
Performance gateway
Threshold
target
(1.0x core
award)
7.1%
21.5p
Maximum
target
(4.0x core
award)
10.1%
28.5p
Achieved
7.37%
19.8p
£3,500m
£5,150m
£4,934m
£450m
£160m
£550m
£200m
£590m
£212m
Weighting
20%
20%
20%
20%
20%
Multiplier
achieved
(out of a
maximum
4.0x)
0.3x
0.0x
0.7x
0.8x
0.8x
The Remuneration Committee must be satisfied
that the Company’s underlying performance over
the period justifies the level of vesting.
Achieved
Total
2.6x out of a
maximum of 4.0x
1 These measures are defined in the Alternative Performance Measures section of the Annual Report on pages 205 to 208.
2 Figure relates to ROCE excluding pension fund/surplus.
3 Cumulative underlying cash flow from retail operations based on the reported cash flow generated from core retail operations over the performance period after adding back net rent and cash pension costs
and adjusted for the cash impact of non-underlying items. Only core retail operations are included in recognition of the differences in cash generation between the retail business and Sainsbury’s Bank.
Departure terms for John Rogers
As announced on 1 October 2019, John Rogers (Chief Executive of Sainsbury’s Argos) left the business on 31 October 2019. John continued to receive salary,
pension and benefit payments until his departure on 31 October 2019. He was not eligible for any bonus for the financial year ending 7 March 2020. In line with
the plan rules, all unvested Future Builder and Deferred Share awards lapsed in full with effect from 31 October 2019.
John participated in the HMRC-approved all-employee Share Incentive Plan, known as the Sainsbury’s Share Purchase Plan. In accordance with the relevant
legislation, he was able to withdraw relevant Partnership Shares following departure.
There were no payments in lieu of notice.
Departure terms for Mike Coupe
After almost six years as Chief Executive and 15 years working for the business, Mike Coupe has confirmed his intention to retire this year. Mike will continue
as Chief Executive until 31 May 2020. Thereafter he will remain a Director until the AGM on 2 July 2020 at which point he will retire from the Company.
In line with the shareholder approved Remuneration Policy, the Remuneration Committee has approved good leaver status for Mike in relation to bonus and
share awards that will be outstanding when he retires. All awards will be treated in accordance with the plan rules and will remain subject to performance
(as applicable) and pro-rated for the period of employment. Share awards will be released on the normal dates.
Mike’s salary and benefits will continue until he retires from the Company on 2 July 2020, but Mike has agreed to waive any entitlement to bonus and share
awards in relation to his period of employment during the 2020/21 financial year.
There are no payments in lieu of notice.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
82
Shareholding guidelines
(audited information)
The Executive Directors are required to build up a specified level of
shareholding in the Company. This is to create greater alignment of the
Directors’ interests with those of shareholders, in line with the objectives
of the Remuneration Policy.
The guidelines in the 2017 Directors’ Remuneration Policy require the
Chief Executive to have a holding of 2.5 times salary and other Executive
Directors to hold shares with a value of two times salary. In the 2020
policy the guideline for the new Chief Executive, Simon Roberts, is three
times salary. Mike Coupe, and John Rogers while he was a Director,
exceeded the shareholding guideline. Kevin O’Byrne was appointed
to the Board in January 2017 and is expected to build his shareholding
during the course of his tenure.
Historically Directors are required to build this shareholding within five
years of appointment to the relevant role. From 2020, Executive Directors
are required to hold all vested share awards (net of tax) until the guideline
has been met. In addition to shares held, share awards under the DSA
and Future Builder awards where the performance period has ended
count towards the guideline (on a net of tax basis).
Post-departure, Executive Directors will be expected to maintain a
shareholding equal to their guideline (or actual shareholding if lower) for
two years post-employment irrespective of the reason for leaving. This
requirement will apply to shares acquired from Company incentive plans.
Remuneration in 2020/21
Base salary
When considering salaries the Committee takes account of a number of
factors, with particular focus on the general level of salary increases awarded
throughout the Company. Where relevant, the Committee also considers
external market data on salary and total remuneration but the Committee
applies judgement when considering such data. The salary review for
management and central colleagues in March 2020 was generally 1.1 per cent.
For 2020/21 Kevin O’Byrne will receive a salary increase of 1.1 per cent effective
March 2020, in line with other management colleagues. In recognition of his
forthcoming retirement Mike Coupe received no salary increase for 2020/21.
Mike Coupe (to 2 July 2020)
Simon Roberts (Chief Executive from 1 June 2020)
Kevin O’Byrne
Salary
effective from
8 March 2020
£981,543
£875,000
£657,403
Pension
Under the revised Remuneration Policy, the pension supplement for any
future appointments is capped at 7.5 per cent of salary, in line with the
opportunity offered to the majority of the workforce. This is the rate that
Simon Roberts will receive on appointment as Chief Executive.
In 2019/20 Kevin O’Byrne received a contractual cash supplement of 25 per
cent of salary. Kevin has agreed to a reduction in his pension supplement
over a period of time to the rate offered to the majority of the workforce
(7.5 per cent of salary). His supplement will reduce to 22.5 per cent in March
2020, 20 per cent in March 2021, 17.5 per cent in March 2022 and 12.5 per cent
in March 2023 which is aligned with the rate offered to the c. 1,200 management
roles. The rate will reduce further to 7.5 per cent in March 2024.
Benefits
Benefits for Executive Directors in 2020/21 are unchanged and will include
the provision of company car benefits, private medical cover, long-term
disability insurance, life assurance and colleague discount.
Shareholding guidelines
)
0
0
0
(
s
e
r
a
h
s
f
o
r
e
b
m
u
N
3,000
2,500
2,000
1,500
1,000
500
0
5.4 x salary
1.8 x salary
Mike Coupe
Kevin O’Byrne
Shareholding
Share awards
Guidelines
Annual bonus
For 2020/21 we will operate a revised approach to the annual bonus,
following the removal of the Deferred Share Award.
The maximum annual bonus award opportunity for the Chief Executive is
220 per cent of base salary and for the Chief Financial Officer is 180 per cent
of base salary. 50 per cent will be paid in cash and 50 per cent in shares
deferred for two years.
The Board is of the opinion that any performance targets for the current
year annual bonus are commercially sensitive as the Company operates
in a highly competitive, consumer-facing sector. The disclosure of targets
would provide competitors with insights into the Company’s strategic aims,
budgeting and growth projections. However, in line with previous years, the
Company will retrospectively disclose the targets in next year’s Annual Report.
In light of the uncertainty due to COVID-19, the Committee has decided to
delay setting the bonus targets for 2020/21 while we understand the impact
on the business and the broader economy. In line with our policy, the bonus
will be based on key financial, operational and individual annual objectives
assessed over the financial year and at least 50 per cent will be subject to
financial measures.
The Committee will monitor business conditions and exercise judgement in
applying discretion in relation to the 2020/21 annual bonus. At year-end,
when the Committee assesses performance, we will consider results in light
of the context during the year and the shareholder experience. Full disclosure
will be provided in next year’s Remuneration Report.
GovernanceJ Sainsbury plc Annual Report 2020
83
2020 Future Builder awards
Award levels will remain unchanged for the coming year. In 2020 Simon
Roberts will receive a core award of 62.5 per cent of salary based on his
average salary for 2020/21 (maximum 250 per cent of salary) and Kevin
O’Byrne will receive a core award of 50 per cent of salary (maximum 200
per cent of salary). Due to his retirement Mike Coupe will not receive a 2020
Future Builder award.
Future Builder awards are subject to a two-year retention period following
the end of the three-year performance period. This will result in awards to
Executive Directors being released after a five-year period.
The awards granted in 2019 were based on four equally weighted metrics:
EPS, cash flow, ROCE and cost savings. For awards made in 2020, the
Committee intends to simplify the assessment framework by removing
the measure based on cost savings, and increasing the focus on cash. The
business has achieved significant cost savings since the measure was added
to the Future Builder in 2015. Although cost savings remains a key area of
focus for the business, the Committee has concluded that there is now scope
to simplify the assessment framework for the Future Builder, as future cost
savings will ultimately be reflected in the outcomes for the remaining
financial metrics.
The 2020 awards will therefore be subject to three metrics: free cash flow
(50 per cent weighting), ROCE (25 per cent) and EPS (25 per cent).
Due to COVID-19, the Committee has decided to delay setting the 2020 Future
Builder targets. Once set they will be published on the Company’s website.
In line with previous grants, the Remuneration Committee must be satisfied
that the Company’s underlying performance over the period justifies the level
of vesting; vesting will be reduced if this is not the case. When making this
judgement the Committee has scope to consider such factors as it deems
relevant. The Committee believes that this discretion is an important feature
of the Future Builder arrangement and mitigates the risk of unwarranted
vesting outcomes. This performance gateway assessment applies to all
outstanding Future Builder awards.
2020 Future Builder performance measures (definitions for
other awards can be found in the relevant Annual Report)
ROCE
— ROCE reflects the returns generated for shareholders and measures
Free cash flow
— Free cash flow measures the total flow of cash in and out of the
business as well as providing an assessment of underlying
profitability.
— Free cash flow for these purposes is retail operating cash flow after
changes in working capital, normal pension contributions, interest
and corporate tax paid, normal net capex (for example, this would
exclude strategic purchases and sale and leaseback of assets) and
capital injections into the Bank. It is cumulative over the
performance period.
the efficiency of capital use.
— It is based on the underlying profit before interest and tax for the
whole business, with Sainsbury’s Bank fully consolidated, including
the underlying share of post-tax profit from joint ventures. The capital
employed figure excludes the impact of movements in the pension
deficit/surplus.
EPS
— EPS directly reflects returns generated for shareholders.
— Underlying basic EPS is based on underlying profit after tax divided
by the weighted average number of ordinary shares in issue during
the year.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
84
Non-Executive Director remuneration
Single total figure of remuneration for Non-Executive Directors (audited information)
The table below shows a single remuneration figure for all qualifying services for the 52 weeks to 7 March 2020 for each Non-Executive Director, together with
comparative figures for the 52 weeks to 9 March 2019.
Martin Scicluna3
Matt Brittin
Brian Cassin
David Keens
Susan Rice
Jean Tomlin
Jo Harlow
2019/20
Benefits2
£000
0
0
0
17
11
0
2
Fees1
£000
475
68
68
87
107
68
81
Total
£000
475
68
68
104
118
68
83
2018/19
Fees1
£000
Benefits2
£000
84
68
68
87
107
69
79
0
0
0
5
15
2
2
Total
£000
84
68
68
92
122
71
81
1 Paid in relation to the year.
2 The benefits for the other Non-Executive Directors relate to the reimbursement of travelling expenses to Board meetings held at the Company’s registered office.
3 Martin Scicluna was appointed to the Board on 1 November 2018.
Non-Executive Directors’ shareholdings and share interests
The beneficial interest of the Non-Executive Directors, in post at the
year-end, in the shares of the Company are shown below.
Martin Scicluna
Matt Brittin
Brian Cassin
David Keens
Susan Rice
Jean Tomlin
Jo Harlow
Ordinary shares1
9 March 2019
7 March 2020
29 April 2020
15,000
14,090
25,000
15,000
14,090
25,000
15,000
14,090
25,000
100,000
100,000
100,000
4,000
4,415
8,000
4,000
4,415
8,000
4,000
4,415
8,000
1
Ordinary shares are beneficial holdings which include the Directors’ personal holdings and those of their
spouses and minor children.
Martin Scicluna was appointed to the Board as Chairman-Designate on
1 November 2018. His fee as Chairman-Designate was £237,500. Following his
appointment as Chairman on 10 March 2019, Martin’s fee was set at £475,000.
Martin’s fee increased by 1.1 per cent to £480,225 from March 2020, as a result
of a regular review. Martin receives no benefits other than a colleague
discount card.
Non-Executive Directors receive a base annual cash fee; additional fees
are paid to the Senior Independent Director and to the Chairs of the Audit,
Remuneration and Corporate Responsibility and Sustainability Committees.
Non-Executive Directors receive no benefits other than a colleague discount
card and reasonable business travel expenses.
Non-Executive Director fees for 2020/21
In March 2020, the Non-Executive Director fees were reviewed against the
market and as a result the basic fee was increased by 1.1 per cent to £68,250.
The fee for the Chair of the Corporate Responsibility and Sustainability
Committee was also increased from £13,500 to £15,000, in recognition of the
increasing focus on this area both externally and internally in light of our
Net Zero by 2040 commitment. The following table sets out the fees effective
from 8 March 2020:
Base fee
Senior Independent Director fee (additional)
Chair of Remuneration Committee fee (additional)
Chair of Audit Committee fee (additional)
Chair of Corporate Responsibility and Sustainability
Committee fee (additional)
Fees effective
from 8 March
2020
£68,250
£19,500
£19,500
£19,500
£15,000
GovernanceJ Sainsbury plc Annual Report 2020 85
Pay in the wider organisation
Relative importance of spend on pay
The table below illustrates the year-on-year change in total colleague pay
(being the aggregate staff costs as set out in note 34 to the financial
statements) and distributions to shareholders (being declared dividends).
Percentage change in Chief Executive’s remuneration
The table below shows how the percentage change in the Chief Executive’s
salary, benefits and bonus between 2018/19 and 2019/20 compares with the
percentage change in the average of each of those components of pay for all
our colleagues.
Colleague pay
Distribution to shareholders
2018/19
£m
3,170
2019/20
£m
3,227
% change
2%
2018/19
£m
224
2019/20
£m
247
% change
10.4%
Chief Executive1
All colleagues2
Salary
% change
Benefits
% change
2.0%
11.2%
0.0%
1.9%
Bonus
% change
-100%
-70%
1 The bonus percentage change relates to the cash annual bonus and there was no payment in 2019/20.
2 Figures relate to average based on number of full-time equivalent colleagues. In September 2018, the
base rate for Sainsbury’s store colleagues increased and the bonus ceased; a partial bonus was paid
to this population in relation to 2018/19. Therefore, the change in bonus for all colleagues is not on a
like-for-like basis.
Chief Executive pay ratio
The following table provides pay ratio data in respect of the Chief Executive’s total remuneration (as shown in the single figure table on page 78 compared
to the remuneration of the 25th, 50th and 75th percentile of UK colleagues. All three of these colleagues are store-based hourly paid colleagues, with the
25th and 50th percentile colleagues earning the same pay and the 75th percentile colleague earning additional premiums such as out of hours premium.
Financial year
2019/20
Method
Option B
25th percentile pay ratio
(lower quartile)
50th percentile pay ratio
(median)
75th percentile pay ratio
(upper quartile)
173:1
173:1
153:1
The colleagues used to calculate the pay ratios were identified using our 2019 gender pay gap data. In line with the regulations, our 2019 gender pay gap data
identifies employees using a snapshot date of 5 April 2019. This method has been chosen as it makes use of our gender pay data which provided a readily
available and robust dataset, and did not require a further analysis into the more than 172,000 colleagues employed by the business.
A full-time equivalent total pay figure was calculated for each of these colleagues using the single figure methodology. The approach includes base salaries,
pension contributions and any relevant pay premiums. As the gender pay gap data does not include amounts in respect of overtime and bank holiday pay
these amounts have been excluded from the calculations. To ensure these three colleagues were a suitable representative of their quartile, the total pay
figures calculated were compared against a sample of colleagues either side of the three identified colleagues.
The following table provides base salary and total remuneration information in respect of the 25th, 50th and 75th percentile colleagues, on a full-time
equivalent basis.
Financial year
2019/20
Remuneration
Base salary
Total remuneration
Chief Executive
£982,000
£3,117,000
25th percentile pay ratio
(lower quartile)
50th percentile pay ratio
(median)
75th percentile pay ratio
(upper quartile)
£17,581
£18,039
£17,581
£18,039
£19,822
£20,370
The Remuneration Committee considers pay ratios as one of many reference points when reviewing executive remuneration and considers that the median
pay ratio for 2019/20 is consistent with the pay, reward and progression policies for the Company. Due to the nature of the role of the Chief Executive,
the Committee believes that it is important for a significant portion of the Chief Executive’s remuneration package to be performance-related and aligned
to the long-term, sustainable success of the Company. As a result, the Chief Executive’s single figure fluctuates each year depending on the Company’s
performance and the outturns of the incentive plans and this will impact the pay ratio reported in any single year.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
86
Performance and Chief
Executive remuneration
The graph shows the TSR performance
of an investment of £100 in J Sainsbury
plc shares over the last ten years
compared with an equivalent
investment in the FTSE 100 Index.
The FTSE 100 Index has been selected
to provide an established and
broad-based index. The graph also
includes data for the FTSE All-Share
Food & Drug Retailers Index. The
Company is a constituent of both
indices. The table details the total
remuneration for the Chief Executive
over this period.
TSR performance since March 2010
250
200
150
100
50
0
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Mar 19
Mar 20
Sainsbury’s
FTSE 100
FTSE All-Share Food & Drug Retailers
CEO
2010/11
2011/12
2012/13
2013/14
2014/151
2015/16
2016/17
2017/18
2018/19
2019/20
Single figure remuneration
(£000)
Bonus/DSA award as a
percentage of maximum
LTIP vesting percentage of
maximum
M Coupe:
J King:
M Coupe:
J King:
M Coupe:
J King:
–
4,380
–
65%
–
48%
–
3,471
–
61%
–
43%
–
4,366
–
84%
–
44%
–
3,906
–
73%
–
40%
1,507
405
26%
0%
0%
0%
2,802
–
78%
–
0%
–
2,354
–
35%
–
22.5%
–
3,630
–
57%
–
42.5%
–
3,569
–
56%
–
55%
–
3,117
–
22%
–
65%
–
1
Justin King’s figures relate to the time he was Chief Executive during 2014/15. Consistent with the single figure table, the figures for Mike Coupe relate to the whole of 2014/15; he was Chief Executive from 9 July 2014.
Governance – The Remuneration Committee
Committee membership
The Remuneration Committee during the year comprised Susan Rice (Chair),
Matt Brittin and Jo Harlow. All members of the Committee are independent
Non-Executive Directors.
Tim Fallowfield, Company Secretary, acts as secretary to the Committee.
Martin Scicluna, Mike Coupe, Angie Risley (Group HR Director), the Group
Head of Reward and the Director of Group Finance are invited to attend
Committee meetings either fully or partially. The Committee considers their
views when reviewing the remuneration of the Executive Directors and
Operating Board Directors. Individuals who attend Remuneration Committee
meetings are not present when their own remuneration is being determined.
The Committee typically meets four times each year, or more often as
required. 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. In 2019/20 there were a number of unscheduled meetings regarding
the remuneration arrangements in relation to changes to the Executive
Directors, the review of the Remuneration Policy and responding to the Code
changes. The Committee complies with relevant regulations and considers
the Code and best practice when determining pay and policy.
During the year they provided advice to the Committee on a range of topics
including remuneration trends, corporate governance, incentive plan design,
incentive plan rules and the Remuneration Policy. Their consultants attended
all of the Committee meetings. In relation to their advice, Deloitte received
fees of circa £131,000 (fees are based on hours spent). During the year, Deloitte
provided the Company with unrelated advice and consultancy in respect of
information technology, operating models, data analytics and taxation.
Statement of voting at general meeting
The table below sets out the votes on the Annual Report on Remuneration
at the 2019 AGM and on the Directors’ Remuneration Policy at the 2017 AGM.
The Committee is keen to hear the views of all shareholders and continually
reviews the Remuneration Policy and its implementation.
Remuneration Report (2019 vote)
Remuneration Policy (2017 vote)
Votes for
Votes against
Votes
abstained
90.44%
1,507 million
9.56%
159 million
–
0.2 million
95.60%
1,519 million
4.40%
70 million
–
57 million
Directors’ appointment dates
Advisers to the Remuneration Committee
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).
Deloitte were reappointed by the Committee as advisers in 2013 following
a competitive tender.
Mike Coupe
Simon Roberts
Kevin O’Byrne
John Rogers
1 August 2007
(appointment as Chief Executive 9 July 2014)
1 June 2020
9 January 2017
19 July 2010
Deloitte 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. During the year, the Committee reviewed the advice
provided by Deloitte and has confirmed that it has been objective and
independent. The Committee has also determined that the Deloitte partner
who provides remuneration advice to the Committee does not have any
connections with the Company that may impact their independence. The
Committee has reviewed the potential for conflicts of interest and judged
that there were appropriate safeguards against such conflicts.
Martin Scicluna
1 November 2018 (Chairman from 10 March 2019)
Matt Brittin
Brian Cassin
David Keens
Susan Rice
Jean Tomlin
Jo Harlow
27 January 2011
1 April 2016
29 April 2015
1 June 2013
1 January 2013
11 September 2017
GovernanceJ Sainsbury plc Annual Report 2020
87
SAYE
0
3,461
Executive Directors’ shareholdings and share interests (audited information)
The table below sets out details of the Executive Directors’ shareholdings and a summary of their outstanding share awards at the end of the 2019/20
financial year. Further details of the movements of the Executive Directors’ share awards during the year are set out on page 88.
Ordinary shares3
9 March 2019
7 March 2020
29 April 2020
Deferred Share
Awards5
Scheme interests4
Future Builder
awards with
performance
period
completed6
Future Builder
awards with
performance
period
outstanding7
1,602,727
2,105,567
2,105,567
180,000
329,116
329,116
517,382
280,435
241,157
131,907
2,801,892
1,484,948
Mike Coupe1
Kevin O’Byrne
Former Director:
John Rogers2
938,059
1,171,119
N/A
0
0
0
0
1 As noted above, a portion of the shares shown will lapse following retirement.
2 As at date of cessation of employment.
3 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.
4 Deferred Share Awards and Future Builder awards are structured as nil-cost options.
5 Relates to 2017/18 and 2018/19 Deferred Share Awards.
6 Relates to 2016 Future Builder awards.
7 Relates to 2017, 2018 and 2019 Future Builder awards (maximum) where the performance period has not ended. As noted above, following the year-end, the 2017 award will vest at 65 per cent of maximum.
Note: 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 6.2 million shares (2019: 6.1 million) held by the Trustees.
Share awards made during the financial year (audited information)
The following share awards were made to Executive Directors during the year. The Future Builder award levels are determined by the normal grant policy for
the role and, in the case of the DSA, performance over the previous year.
Scheme
Basis of award
(maximum)
Face value
Percentage vesting at threshold
performance
Number of shares
Performance period
end date
Mike Coupe3
Future Builder1
250% of salary
£2,453,853
25% of each element
1,118,540
6 March 2021
DSA2
61% of salary
£582,188
N/A
Kevin O’Byrne
Future Builder1
200% of salary
£1,300,493
25% of each element
John Rogers4
Future Builder1
200% of salary
£1,446,987
25% of each element
DSA2
50% of salary
£315,563
N/A
DSA2
50% of salary
£351,107
N/A
265,379
592,804
143,843
659,580
160,045
N/A
6 March 2021
N/A
6 March 2021
N/A
1 The performance conditions applying to 2019 Future Builder awards are set out later in this section. The basis of award shows the maximum value being four times the core award. The award was made on 9 May 2019
and the number of shares has been calculated using the five-day average share price prior to grant (1 to 8 May 2019) of £2.1938. Subject to performance, the award will vest in May 2022 and will be released after
a two-year retention period. The award is structured as a nil-cost option with an exercise period of up to six years from grant.
2 The DSA was made on 9 May 2019 based on performance over the 2018/19 financial year. The award was made at 55 per cent of the maximum level (maximum of 110 per cent of salary for Mike Coupe and 90 per cent
of salary for the other Executive Directors). The number of shares has been calculated using the five-day average share price prior to grant (1 to 8 May 2019) of £2.1938. No further performance conditions apply. Awards
become exercisable in March 2021. The award is structured as a nil-cost option with an exercise period of up to ten years from grant.
3 As noted above, a portion of the shares shown will lapse following retirement.
4 All of John Roger’s share awards lapsed on resignation.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
88
Details of the Executive Directors’ share awards and movements during the year (audited information)
The table below shows the conditional awards granted and exercised under each of the Company’s share plans.
Share
price at
date of
award
(pence)
Option
price
(pence)
Number of
options held at
9 March 2019
Number of
options
granted/
dividend
shares
allocated
during the
year
Number of
options
exercised
during the
year
Number of
options
lapsed
during the
year
Share price
on exercise
(pence)
28,743
28,271
204,880
269,428
–
394,622
Name
Award
Mike Coupe
Long-Term
Incentive Plan1
Deferred Share
Award2
Date of
award
14/05/2015
12/05/2016
11/05/2017
11/05/2018
09/05/2019
11/05/2017
11/05/2018
09/05/2019
Kevin O’Byrne
John Rogers
Sharesave3
11/12/2013
Total
Long-Term
Incentive Plan1
Deferred Share
Award2
26/01/2017
11/05/2017
11/05/2018
09/05/2019
11/05/2018
09/05/2019
Sharesave3
07/12/2018
Total
14/05/2015
12/05/2016
11/05/2017
11/05/2018
09/05/2019
11/05/2017
11/05/2018
09/05/2019
Long-Term
Incentive Plan1
Deferred Share
Award2
Total
269
253
265
307
211
265
307
211
388
258
265
307
211
307
211
300
269
253
265
307
211
265
307
211
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
332
Nil
Nil
Nil
Nil
Nil
Nil
260
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
176,137
876,936
883,092
800,260
479,660
468,024
424,120
93,940
517,112
520,744
471,896
161,610
151,978
0
1,118,540
267,973
252,003
0
4,518
19,150
287,123
–
265,379
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,518
–
–
–
–
–
–
–
–
–
–
–
–
–
374,907
520,744
471,896
659,580
–
–
–
–
–
–
–
0
592,804
136,592
0
3,461
–
143,843
–
1,511,857
752,110
147,368
215,848
15,327
16,670
109,267
158,875
1 The LTIP share figures relate to the maximum that could be achieved.
2 The Deferred Share Award figures are after the application of performance conditions.
3 Sharesave is an all-employee share option plan and has no performance conditions as per HMRC Regulations.
4 This is the notional gain on the date of exercise had all shares been sold.
209
08/05/2019
600
Date of
exercise
08/05/2019
08/05/2019
–
–
–
209
209
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
209
209
–
–
–
–
–
–
–
–
–
–
08/05/2019
08/05/2019
–
–
–
–
–
–
–
–
–
Notional
gain on
exercise
(£000)4
Number of
options held
at 7 March
2020
428
563
–
–
–
–
–
–
–
–
–
–
–
–
0
241,157
883,092
800,260
1,118,540
0
252,003
265,379
0
131,907
468,024
424,120
592,804
136,592
143,843
3,461
308
1,900,751
228
332
–
–
–
362
–
–
922
0
0
0
0
0
0
0
0
0
0
659,580
11,547
173,157
–
209
08/05/2019
0
160,045
–
–
151,978
160,045
1,917,280
863,169
441,229
2,339,150
3,260,919
1,460,083
761,431
399,140
1,591
3,560,431
15,463
147,368
215,848
209
08/05/2019
308
GovernanceJ Sainsbury plc Annual Report 2020 Unvested Future Builder awards
The targets for Future Builder awards granted in 2018 and 2019 are set out in the tables below. The ROCE and EPS targets have been re-stated on a like-for-like
basis to reflect the adoption of the new accounting standard, IFRS 16. The Committee is comfortable that the re-stated target ranges are comparable to the
original target ranges set on the basis of the previous accounting rules.
89
2018 Future Builder
(2018/19 to 2020/21 performance period)
ROCE1
Underlying basic EPS1
Cumulative free cash flow1
Cumulative strategic cost savings
2019 Future Builder
(2019/20 to 2021/22 performance period)
ROCE1
Underlying basic EPS1
Cumulative free cash flow1
Cumulative strategic cost savings
Threshold
target
(1.0x core
award)
6.75%
21.5p
£800m
£450m
Threshold
target
(1.0x core
award)
6.75%
21.5p
£900m
£600m
Maximum
target
(4.0x core
award)
9.75%
28.5p
£1,300m
£550m
Maximum
target
(4.0x core
award)
9.75%
28.5p
£1,400m
£750m
Weighting
25%
25%
25%
25%
Weighting
25%
25%
25%
25%
1 These measures are defined in the Alternative Performance Measures section of the Annual Report on pages 205 to 208.
Dilution
The Company ensures that the level of shares granted under the Company’s share plans and the means of satisfying such awards remain 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 7 March 2020, an estimated 6.8 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 2.5 per cent over ten years in respect of its executive plans. This is on the basis
that all outstanding awards vest in full.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
90
Remuneration Policy
Directors’ Remuneration Policy
The following section sets out our Directors’ Remuneration Policy. This policy is subject to a binding shareholder vote at the AGM on 2 July 2020 and,
if approved, will be effective from this date.
In determining the new Remuneration Policy the Committee followed a robust process which included discussions on the content of the policy at each of the
Remuneration Committee meetings during the year. The Committee considered input from management and our independent advisers while ensuring that
conflicts of interest were suitably mitigated. The Committee also took into account best practice and guidance from major shareholders.
Changes to the Remuneration Policy
The Remuneration Policy was last approved at the 2017 AGM, and an updated policy will be presented at the 2020 AGM. The overall structure is not materially
different to the previous policy, but in direct response to shareholder feedback, steps have been taken to simplify the arrangements.
As part of the review minor amends have been made to simplify arrangements and to respond to emerging market and best practice. The key changes include:
— Simplification of the annual incentives – the legacy annual cash bonus and the Deferred Share Award have been combined into a single plan. There will be
no change in the combined maximum opportunity and the same proportion, 50 per cent, will be deferred into shares.
— Retirement benefits for any future appointment, including for Simon Roberts, are reduced to 7.5 per cent of salary, in line with the rate currently available
to the majority of the workforce. The rate for Kevin O’Byrne will reduce to this level over time.
— Shareholding guidelines for the Chief Executive are increased from 2.5 times to three times salary.
— Introduction of a new post-employment shareholding guideline.
Policy Table for Executive Directors
The table below summarises each element of the policy for Executive Directors, with further details set out after the table.
Base salary
Purpose and link
to strategy
Core element of remuneration used to attract and retain executives who can deliver our strategic objectives.
Operation
Typically reviewed annually in March.
Consideration is given to a number of internal and external factors including business and individual performance, role,
responsibilities, scope, market positioning, inflation and colleague pay increases.
Opportunity
Salary increases (in percentage of salary terms) for Executive Directors will normally be within the range of those for the wider
workforce. There is no maximum salary opportunity.
Where the Committee considers it necessary and appropriate, larger increases may be awarded in individual circumstances such as:
— A change in scope or responsibility;
— If a new Executive Director is appointed at a lower rate and the salary is realigned over time as the individual gains experience
in the role; or
— Alignment to market level.
Salary levels effective for 2020/2021:
— Simon Roberts – £875,000 (on appointment as Chief Executive on 1 June 2020)
— Kevin O’Byrne – £657,403
Performance details None
Benefits
Purpose and link
to strategy
Operation
Competitive benefits to assist in attracting and retaining executives.
A range of benefits may be provided including, but not limited to, the provision of company car benefits (or cash equivalent), private
medical cover, life assurance, long-term disability insurance, all-employee share plan participation and colleague discount.
The Committee keeps the benefits offered, the policies and the levels provided under regular review.
Opportunity
The value of benefits provided will be reasonable in the context of relevant market practice for comparable roles and taking into
account any individual circumstances (e.g. relocation). There is no maximum monetary value.
Participation in any HMRC-approved all-employee share plan is limited to the maximum award levels permitted by the relevant
legislation.
Performance details None
GovernanceJ Sainsbury plc Annual Report 2020 91
Retirement benefits
Purpose and link
to strategy
Provides an income following retirement and assists colleagues in building funds for their future.
Operation
JS Self Invested Pension Plan (SIPP, a defined contribution plan) and/or a cash salary supplement.
Opportunity
For the Chief Executive and for future appointments, the value of any pension provided will be in line with the rate available to the
majority of the workforce (currently 7.5 per cent of salary per annum).
For the Chief Financial Officer the maximum pension under the previous policy was 25 per cent of salary. The pension for 2020/21
will be 22.5 per cent of salary, with further reductions to be made over time.
Performance details None
Annual bonus
Purpose and link
to strategy
Rewards performance on an annual basis against key financial, operational and individual objectives, as well as strategic priorities.
Awards partially delivered in shares to provide further alignment with shareholders.
Operation
Performance measured over the financial year.
Bonus level determined by the Committee after the year-end based on performance against targets.
Normally 50 per cent of the total bonus is paid in cash, with the balance deferred into shares for a period of two years.
Dividend equivalent shares may accrue until the award vests.
Measures and targets are reviewed annually.
Recovery provisions (i.e. malus and clawback) apply.
Opportunity
Maximum opportunity of up to 250 per cent of salary per annum.
The level of threshold payment for performance varies depending on the performance measure, with payouts from zero per cent.
Full payout requires outperformance of stretch objectives. Maximum opportunity for 2020/21:
— Simon Roberts – 220 per cent of salary
— Kevin O’Byrne – 180 per cent of salary
Performance details
Based on a combination of financial (e.g. profit), operational and individual metrics.
The detail of the measures, targets and weightings may be varied by the Committee year-on-year based on the Company’s strategic
goals. At least half of any award will be subject to financial measures.
Long-Term Incentive Plan (‘LTIP’) – Future Builder
Purpose and link
to strategy
Operation
Recognises and rewards for delivery of Company performance and shareholder value over the longer term.
Share-based to provide greater alignment with shareholder interests.
Awards of conditional share awards (or equivalent) with vesting dependent on performance measured over a period of at least
three financial years.
Awards will normally be subject to a retention period following the end of the performance period which means awards will be
released after five years.
The Committee reviews the metrics, targets and weightings prior to each grant to ensure that they remain appropriate.
Recovery provisions (i.e. malus and clawback) apply.
Dividend equivalent shares may accrue until the awards are released, to the extent awards vest.
Opportunity
Maximum award of up to 250 per cent of salary per annum in respect of any financial year.
Awards structured as core award (up to 62.5 per cent per annum) with a performance multiplier of up to four times.
For achievements at threshold levels of performance, up to 25 per cent of maximum under each element may vest. Based on the
current structure this is equivalent to a multiplier of one times the core award.
Award levels for 2020/21:
— Simon Roberts – core award of 62.5 per cent of salary
— Kevin O’Byrne – core award of 50 per cent of salary
Performance details
Based on a combination of financial and strategic measures appropriate within the context of the Company strategy and external
environment over the relevant performance period.
Prior to granting awards, the Committee will review the performance conditions and may opt to vary the metrics and weightings to
ensure measures and targets remain aligned with its objectives. The Committee would seek to consult as appropriate with its major
shareholders regarding any material changes.
Metrics and weightings for 2020/21 awards:
— Free cash flow –50 per cent
— ROCE – 25 per cent
— EPS – 25 per cent
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
92
Shareholding guidelines
Purpose and link
to strategy
Alignment of Executive Directors with shareholders.
Operation
Guidelines are Chief Executive three times salary, other Executive Directors two times salary.
Executive Directors are normally expected to hold all vested share awards (net of tax) until the guideline has been met.
Executive Directors normally will be expected to maintain a shareholding for two years following stepping down from the Board.
Further detail on the operation of the shareholding guidelines are set out in the Annual Report on Remuneration.
Legacy arrangement
Executive Directors retain interests in the legacy Deferred Share Award which formed part of the 2017 Remuneration Policy. The final awards under this plan
will be made in 2020, relating to performance in 2019/20. It is not intended that this plan will be operated in future years.
Deferred Share Award (‘DSA’)
Purpose and link
to strategy
Rewards for delivery of short-term strategic and financial objectives which contribute towards long-term sustainable growth.
Awards delivered in shares to provide further alignment with shareholders.
Operation
Performance measured over one year, after which award made as conditional shares (or equivalent) deferred for two financial years.
Dividend equivalent shares may accrue until the award vests.
Recovery provisions apply.
Opportunity
The final awards were granted under this plan in 2020 and current Executive Directors retain an interest in awards relating to
previous years.
Setting performance measures and targets
The Committee believes it is important that the performance conditions
applying to incentive arrangements are aligned with the short and long-term
objectives of the Company, while supporting the Company’s purpose,
culture, values and risk profile. We operate in a dynamic market with
evolving challenges and the Committee reviews the performance measures
and targets each year to ensure that they remain relevant and stretching.
Further details of the performance measures are set out in the Annual
Report on Remuneration.
The performance measures in the annual bonus are selected as they are the
key drivers of business performance. The targets for the annual bonus are
set with reference to the corporate strategy and internal budgets as well as
the external context (e.g. market forecasts). This approach seeks to ensure
that the threshold and stretch targets are appropriately challenging.
The Future Builder performance measures focus on longer-term growth and
returns to shareholders, and a similar target-setting approach is used.
The Committee may vary or rebalance the weighting of the performance
metrics for future annual bonus and Future Builder awards, in order to
ensure that they remain aligned with the Company’s strategic objectives.
In line with the 2018 UK Corporate Governance Code, the Committee retains
the ability to adjust incentive outcomes to ensure that they remain reflective
of underlying financial and non-financial performance of participants or the
Group or where the formulaic outcome is not appropriate in the context of
circumstances that were unexpected or unforeseen when the targets were
set. The Committee may also adjust the targets for awards or the calculation
of performance measures and vesting outcomes for events not foreseen
at the time the targets were set to ensure they remain a fair reflection of
performance over the relevant period. When making such judgements,
the Committee may take into account all such factors deemed relevant.
Recovery provisions (malus and clawback) – preventing rewards
for failure
The Remuneration Committee may operate recovery provisions (malus and
clawback) on all incentive awards. The Committee may reduce or cancel an
unvested award, or impose further conditions on an unvested award in the
event of material mis-statement of financial results, serious reputational
damage, serious misconduct, fraud, or other cases of extreme failure where
the Committee considers such adjustment to be warranted.
In addition, in the circumstances outlined above, the Committee may
clawback incentives, by requiring an Executive Director to make a
repayment in relation to bonus payments and share awards. This provision
would apply for up to two years following the end of the relevant
performance period.
Consideration of colleague pay and conditions
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 receives an annual update on pay, incentives
and benefits across the business as well as ad hoc updates on any major
changes to the pay of colleagues generally. The Committee takes into
account the wider pay context, including the overall salary increase budget
for management, the increase in rate of pay for hourly-paid colleagues and
the Chief Executive pay ratio.
The Board receives regular updates on the views of colleagues via our annual
engagement survey, ‘Talking Shop’ listening sessions and national Great
Place to Work Group (our Workforce Advisory Panel). In addition, the
Non-Executive Directors have engaged with the Great Place to Work Group on
executive pay giving them the opportunity to share their views and opinions.
The Company operates all-employee share plans which support colleagues
to become shareholders in the Company, who can then comment on the
policy in the same way as other shareholders.
Differences in Remuneration Policy for all colleagues
Many aspects of the Remuneration Policy for Executive Directors are
consistent with the reward strategy for other colleagues across the Company.
Below executive level, pay and benefits are scaled to reflect the nature of the
role and based on the levels of pay in comparable roles in the market.
All colleagues are entitled to base salary, benefits including pension and
colleague discount. Eligible colleagues participate in our annual bonus plans
which are aligned under a common set of principles with performance
metrics tailored to different populations.
Senior executives expected to have the greatest influence on Company
performance over time are eligible for participation in long-term incentive
plans. All colleagues have the opportunity to become shareholders in the
Company through our all-employee share plans.
Participation in a pension plan is offered to all colleagues on a contributory
basis, with the Company contribution varying by grade. Following auto-
enrolment, we now have over 110,000 colleagues in our pension plans.
GovernanceJ Sainsbury plc Annual Report 2020 93
Potential total remuneration opportunity under our pay policy
The Committee believes it is important that a significant portion of the package for Executive Directors is performance-related and delivered in shares to align
their interests with shareholders. The balance between fixed pay (base salary, pension and benefits) and variable pay (annual bonus and Future Builder)
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 mid-point performance and this proportion increases to at least three-quarters of the package at maximum
levels of performance.
The charts below show the total remuneration potential of the Executive Directors, in accordance with the Remuneration Policy, under three
performance scenarios.
Chief Executive – Simon Roberts
Chief Financial Officer – Kevin O’Byrne
s
0
0
0
£
6,000
5,000
4,000
3,000
2,000
1,000
0
£3,014
36%
32%
32%
£958
100%
£5,070
43%
38%
19%
4,000
3,000
s
0
0
0
£
2,000
1,000
0
£2,071
32%
29%
40%
£822
100%
£3,320
40%
36%
25%
Minimum
Mid-point
Maximum
Minimum
Mid-point
Maximum
Fixed pay
Annual Bonus
Future Builder
Fixed pay
Fixed pay
Annual Bonus
Future Builder
Future Builder
Opportunity
Minimum
Mid-point
Maximum
Fixed pay
Annual bonus
Future Builder
Simon Roberts – 220% of salary
Kevin O’Byrne – 180% of salary
Simon Roberts – core award of 62.5% of salary
Kevin O’Byrne – core award 50% of salary
Salary – Simon Roberts £875,000
Kevin O’Byrne £657,403
Benefits – value in line with 2019/20 actuals for the
Chief Executive and Chief Financial Officer
Pension – Simon Roberts 7.5% of salary; Kevin O’Byrne 22.5% of salary
Nil
Nil
50% of maximum
100% of maximum
Multiplier of 2x
Multiplier of 4x
Impact of share price
As Future Builder awards are granted in shares, the value can vary significantly depending on the movement of the share price over the relevant vesting
and retention period. For example, if the share price increased by 50 per cent over the relevant vesting and retention period, the maximum values shown
in the charts above would increase to £6.2 million for Simon Roberts and £4.0 million for Kevin O’Byrne. Similarly, if the share price was to fall by 50 per cent,
the maximum values shown in the charts above would reduce to £4.0 million for Simon Roberts and £2.7 million for Kevin O’Byrne.
Our approach to recruitment
The Committee believes it is vital to be able to attract and recruit leaders of the calibre required to deliver our strategic objectives, while remaining mindful
of the cost to the Company. When determining remuneration arrangements for new appointments, the Committee intends to pay no more than it believes
is necessary to secure the required talent. The Committee will seek to align the remuneration package with the approved Remuneration Policy.
Fixed Pay
Salary and benefits (including retirement benefits) would be determined in accordance with the Policy Table above. An alternative
package may also be necessary where an individual fulfils an executive role on an interim basis.
In certain cases, the initial salary for a new appointment may be set at a lower level, with the intention of increasing the salary over
time as the executive gains experience in the role.
Benefits may need to be tailored based on the individual circumstances (e.g. relocation, housing or travel allowances may be required).
Variable pay
The maximum variable remuneration which may be offered to an executive will be no more than 500 per cent of salary (excluding any
buy-out arrangements). This limit is consistent with the overall maximum set out in the Policy Table.
Within these limits and where appropriate the Committee may tailor the award (e.g. timeframe, form, performance criteria) based on
the commercial circumstances.
Shareholders will be informed of the terms for any such arrangements.
Buy outs
The Committee may need to buy out remuneration terms forfeited on joining the Company. In such circumstances, the Committee
will seek to ensure any buy out is of comparable commercial value and capped as appropriate.
The quantum, form and structure of any buy out arrangement will be determined by the Committee taking into account the terms
of the previous arrangement being forfeited (e.g. form and structure of award, timeframe, performance criteria, likelihood of vesting,
etc.). The buy out may be structured as an award of cash or shares. However, the Committee will normally have a preference for
replacement awards to be made in the form of shares and to be within the Company’s existing incentive plans.
Where an executive is appointed from either within the Company or following corporate activity/reorganisation (e.g. acquisition of
another company), the normal policy would be to honour any legacy arrangements in line with the original terms and conditions.
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
94
Service contracts and policy for departing Executive Directors
The Company’s policy is for Executive Directors’ service contracts to be
terminable on 12 months’ notice by either party.
Contracts contain non-compete and non-solicit clauses with key suppliers
and colleagues. The Company’s normal practice is that Executive Directors
may take up one non-executive role outside the Company, with approval
from the Board, subject to the role being in a business that does not compete
with the Company and with consideration of the time commitment. Directors
are normally entitled to retain the fees earned from such appointments.
In the event of early termination without notice, any severance payment
would be limited to one-year’s salary and benefits (including pension),
normally payable on a phased basis and subject to mitigation. Benefits
payable may include certain one-off benefits in connection with termination
such as legal costs and the costs of meeting any settlement agreement.
There are no specific terms relating to a change of control.
The Executive Directors’ service contracts are available for shareholders to
view at the Company’s registered office.
The Committee retains discretion to determine the exact termination terms
of any Executive Director, having regard to all the relevant facts and
circumstances available to them at the time. The table below sets out
the general position and range of approaches in respect of incentive
arrangements. In accordance with the terms of the relevant incentive plan
rules, based on the circumstances of any departure the Committee has
discretion to determine how an Executive Director should be categorised for
each element and determine vesting levels accordingly based on the range
shown below.
‘Bad leaver’
(e.g. termination for cause, etc.)
‘Good leaver’
(e.g. cessation due to ill-health, injury, etc.
Annual bonus
No entitlement following date notice served.
Any unvested deferred bonus shares lapse
on cessation.
Long-Term
Incentive Plan
(i.e. Future Builder)
Unvested awards will lapse on notice.
All-employee share
plans
Deferred Share
Award
(Legacy arrangement)
In line with HMRC rules.
Unvested awards will lapse on notice.
Detailed provisions
All share awards are subject to the terms of the relevant plan rules under
which the award has been granted. Since 2017 share awards are normally
granted under the LTIP rules approved by shareholders at the 2016 AGM.
The Committee may adjust or amend awards only in accordance with the
provisions of the relevant plan rules. This includes making adjustments to
awards to reflect one-off corporate events, such as a change in the Company’s
capital structure. In accordance with the plan rules, awards may be settled
in cash rather than shares, where the Committee considers this appropriate.
On a change of control, deferred bonus awards would be released or vest
in full. Future Builder awards may vest taking account of relevant factors
including progress against relevant performance conditions and may be
pro-rated based on time.
In the event of a demerger or other significant distribution, share awards
may be allowed to vest wholly or in part. A winding up, administration or a
voluntary arrangement event would result in deferred bonus awards being
released or vesting in full and Future Builder awards would normally vest
subject to achievement of the relevant performance conditions on the same
time pro-rated basis as above.
In similar corporate events, awards under HMRC approved all-employee
plans would vest in accordance with the standard approved terms.
Bonus may be payable subject to performance. Awards normally pro-rated
based on the period worked during the financial year, with payments
usually occurring following the year-end.
Any unvested deferred bonus shares will normally will be pro-rated for the
proportion of the deferral period elapsed on cessation, unless the Committee
determines otherwise. Awards normally vest at the standard time, unless the
Committee determines that awards should vest on cessation of employment.
On death, unvested awards will be released and vest in full.
Unvested awards normally vest at the normal time subject to performance.
Awards normally will be pro-rated by reference to the proportion of the
performance period that has elapsed since cessation, unless the Committee
determines otherwise.
Awards normally will remain subject to any applicable retention period.
On death, awards vest early on cessation with performance measured at this
time. Awards are pro-rated by reference to the proportion of the performance
period that has elapsed at cessation.
If the Director leaves in the first six months after the start of the
performance period, the award normally lapses in full.
Outstanding unvested awards normally do not lapse. Awards may be
pro-rated for the proportion of the deferral period elapsed on cessation,
unless the Committee determines otherwise. Awards may vest following
cessation or at another date.
On death, unvested awards will be released and vest in full.
The Committee may approve payments to satisfy commitments agreed
prior to the implementation of this Policy where such commitment was
either: (i) made prior to the implementation of the 2014 Remuneration Policy;
or (ii) agreed during the term of, and was consistent with, the Remuneration
Policy in force at the time. This includes previous incentive awards that are
currently outstanding and unvested (e.g. prior year Deferred Share Awards).
The structure of these legacy awards is generally consistent with the
Policy Table but the performance conditions applying may be different.
Further details of outstanding awards are set out in the Annual Report
on Remuneration.
The Committee may also approve payments outside of this policy, in order
to satisfy any legacy arrangements made to a colleague prior to (and not
in contemplation of) promotion to the Board of Directors. This policy applies
equally to any individual who is required to be treated as a Director under
the applicable regulations.
The Committee may make minor amendments to the Remuneration
Policy to aid its operation or implementation without seeking shareholder
approvals (e.g. for regulatory, exchange control, tax or administrative
purposes or to take account of a change in legislation) provided that any
such change is not to the material advantage of colleagues.
GovernanceJ Sainsbury plc Annual Report 2020 95
Remuneration Policy for the Non-Executive Chairman and Non-Executive Directors
The remuneration of the Non-Executive Chairman is determined by the Remuneration Committee and the remuneration of the Non-Executive Directors
by the Non-Executive Chairman and Executive Directors. The Non-Executive Chairman and Non-Executive Directors receive fees and may be eligible for
certain benefits. Non-Executive roles are not entitled to any performance-related pay or pension.
The Non-Executive Chairman and Non-Executive Directors do not have service contracts. The Company’s policy is to appoint the Non-Executive Chairman
and Non-Executive Directors for an initial three-year period, which may be extended for a further term by mutual consent. The initial appointments and any
subsequent reappointments are subject to annual election or re-election by shareholders.
Non-Executive Directors’ appointments may be terminated at any time by serving three months’ written notice by either party; six months’ in the case of
the Non-Executive Chairman. The Non-Executive Directors’ letters of appointment are available for shareholders to view at the Company’s registered office.
Non-Executive Director Remuneration Policy
Approach to setting
remuneration
The fees for Non-Executive Directors are set at a level which is considered appropriate to attract individuals with the necessary
experience and ability to oversee the business. Fees may be paid in cash or shares.
Typically reviewed annually in March.
Judgement is used but consideration is given to a number of internal and external factors including responsibilities, market
positioning, inflation and colleague pay increases.
Where appropriate benefits may be provided such as private medical cover, annual medical assessment and colleague discount.
Travel and other reasonable expenses (including any associated taxes) incurred in the course of performing their duties are
reimbursed to Non-Executive Directors.
Opportunity
Fee opportunity reflects responsibility and time commitment.
Additional fees are paid for further responsibilities such as chairing committees.
The value of benefits provided will be reasonable in the market context and take account of the individual circumstances and
benefits provided in comparable roles.
Fee levels for 2020/21:
— Non-Executive Chairman – £480,225 per annum
— Basic fee – £68,250 per annum
— Senior Independent Director, Chair of Remuneration and Audit Committees additional fee – £19,500 per annum
— Chair of Corporate Responsibility and Sustainability Committee additional fee – £15,000 per annum
Consideration of shareholder views
The Remuneration Committee values the views of the Company’s shareholders and guidance from shareholder representative bodies. The Committee
proactively consults extensively with our major shareholders to ensure that their views are represented in discussions on remuneration matters. As part of the
process for approaching the renewal of the Remuneration Policy, the Committee consulted with major shareholders on a range of topics. The renewed policy
reflects guidance received from major investors during the course of the engagement process.
Approved by the Board on 29 April 2020.
Dame Susan Rice
Chair, Remuneration Committee
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
96
Additional statutory information
Additional statutory information required by the Accounts Regulations can be found below:
Directors’ interests
Directors’ indemnities
Research and development
Employment policies
Colleague engagement
Political donations
Essential contracts
The beneficial interests of the Directors and their connected persons in the shares of the Company are
shown on pages 84 and 87. During the year, no Director had any material interest in any contract of
significance to the Group’s business.
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
2019/20, which has been renewed for 2020/21. Neither the indemnities nor the insurance provide cover in the
event that the Director is proved to have acted fraudulently.
In the ordinary course of business, the Company regularly develops new products and services. See page 22
for more information.
The Company values the different perspectives, experiences and abilities of all our colleagues. We ensure
that those living with a disability or long-term health condition are fully and fairly considered for employment
with the Company through well-developed policies for the equal treatment of all. We have a workplace
adjustments process in place for our colleagues who find themselves with a disability or long-term health
condition; workplace adjustments can be made at any point during a colleague’s employment with us.
We are committed to providing equal opportunities for all colleagues and applicants through training,
development and promotion. Further information can be found on page 26.
Details on how we engage with our colleagues can be found on pages 14 and 15.
The Company made no political donations in 2019/20 (2018/19: £nil).
Sainsbury’s has contractual and other arrangements with numerous third parties in support of its business
activities. None of the arrangements are individually considered to be essential to the business of Sainsbury’s.
Post balance sheet events
Details of the post balance sheet events are outlined in note 41 on page 189.
Financial risk management and financial
instruments
Notes 29 and 30 on pages 153 to 173 disclose details relating to financial risk management and financial
instruments.
Disclosure of information to the auditor
Dividends
Ordinary shares
Share capital
Change of control
Each Director has confirmed that, so far as he/she is aware, there is no relevant audit information of which
the auditor is 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 auditor
is aware of that information. For further information, please see the Statement of Directors’ responsibilities
on page 100.
The Board believes it is prudent to defer any dividend payment decisions until later in the financial year.
Further details can be found on pages 34 and 136.
Details of the changes to the ordinary issued share capital during the year are shown on page 149. As at
27 April 2020, 2,218,612,765 ordinary shares of 284/7 pence have been issued, are fully paid up and are listed
on the London Stock Exchange.
Except as described below in relation to the Company’s employee share plans, 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 for the Company’s employee share plans by the Trustee 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. All shares held by the
J Sainsbury Employee Benefit Trusts are held on an unallocated basis. As such, the Trustees waive their
rights to vote and to receive dividends on these shares. Total dividends waived by the Trustees during the
financial year amounted to £233,772.37. Some of the Company’s employee share plans include restrictions
on transfer of shares while the shares are held within the plan.
At the Annual General Meeting held in July 2019, 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.
A number 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.
GovernanceJ Sainsbury plc Annual Report 2020 Major interests in shares
As at 7 March 2020, the Company had been notified by the following
investors of their interests in three per cent or more of the Company’s shares.
These interests were notified to the Company pursuant to DTR5 of the
Disclosure Guidance and Transparency Rules:
Date
notified
Number of
ordinary shares
% of voting
rights1
Group (J Sainsbury plc)
Emission source
Total (tCO2e)
Intensity measurement
(tCO2e/’000 sq ft)
Qatar Holdings LLC
5 July 2017
481,746,132
BlackRock, Inc.
17 May 2017
109,699,242
21.99
5.01
Sainsbury’s
1 Percentages shown are as a percentage of the Company’s issued share capital when the Company was
Emission source
notified of the change in holding.
As at 27 April 2020, no further changes had been notified.
Directors’ Report
The Directors’ Report comprises pages 1 to 98 of this Annual Report and
Financial Statements. The following information required by Rule 9.8.4R of
the UK Listing Rules (LR) is also incorporated into the Directors’ Report:
Combustion of fuel and
operation of facilities
(Scope 1)
Electricity, heat, steam and
cooling purchased for own
use (Scope 2)
97
GHG emissions (tCO2e )
2005/06
2018/19
2019/20
1,554,492
1,006,333
907,832
89.77
39.71
36.02
GHG emissions (tCO2e )
2005/06
536,694
2018/19
481,230
2019/20
448,189
833,787
412,389
352,644
Total
1,370,481
893,619
800,833
Information requirement
Interest capitalised
Location within Annual Report
See note 14 of the
consolidated financial
statements
Intensity measurement
(tCO2e/’000 sq ft)
Argos and Habitat
90.37
38.49
34.72
Publication of unaudited financial information
See note 29
Details of any long-term incentive plans
See Remuneration
Report, Remuneration
Policy and note 36
Shareholder waiver of dividends
Shareholder waiver of future dividends
See note 28
See note 28
Other information requirements set out in LR 9.8.4R are not applicable to the
Company.
Greenhouse gas emissions
In line with the Greenhouse Gas (GHG) Protocol Corporate Accounting and
Reporting Standard (revised edition), we will be reflecting the performance of
Sainsbury’s, Argos and Habitat emissions separately, as well as a combined
J Sainsbury plc Group performance.
Sainsbury’s has measured our GHG footprint since 2005/06 (baseline).
We have set ourselves a challenging target to reduce our absolute emissions
by 30 per cent by 2020, compared to our baseline (and 65 per cent relative
to sales floor area).
Argos and Habitat have also set a target to reduce emissions by 40 per cent
relative to sales floor area by 2020.
Location-based emissions
Versus our 2005/06 baseline, in 2019/20, our location-based:
Emission source
Combustion of fuel and
operation of facilities
(Scope 1)
Electricity, heat, steam and
cooling purchased for own
use (Scope 2)
Total
Intensity measurement
(tCO2e/’000 sq ft)
GHG emissions (tCO2e )
2005/06
101,563
2018/19
73,706
2019/20
74,244
82,448
39,008
32,755
184,011
112,714
106,999
85.55
51.29
50.04
Market-based emissions
The market-based emissions method reflects the emissions from the
electricity that a company is using, which may be different from emissions
for the electricity that is generated as a UK average. For example, different
electricity suppliers emit more or less greenhouse gases depending on the
energy source or technology, and companies who have invested in their own
renewable or low carbon energy generation by this method can show the
actual emissions level for the energy used.
Versus 2005/06, in 2019/20, our market-based:
— Group emissions reduced by 46 per cent absolute and 63 per cent relative
— Sainsbury’s emissions reduced by 46 per cent absolute and 65 per cent
relative
— Group emissions reduced by 42 per cent absolute and 60 per cent relative
— Argos and Habitat emissions decreased by 43 per cent absolute and
— Sainsbury’s emissions reduced by 42 per cent absolute and 62 per cent
relative
— Argos and Habitat emissions reduced by 42 per cent absolute and
42 per cent relative
43 per cent relative
Group (J Sainsbury plc)
Emission source
Total (tCO2e)
Intensity measurement
(tCO2e/’000 sq ft)
GHG emissions (tCO2e )
2005/06
2018/19
2019/20
1,554,492
942,950
843,741
89.77
37.21
33.48
GovernanceJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
98
Additional statutory information continued
Total
1,370,481
831,332
739,032
Sainsbury’s
Emission source
Combustion of fuel and
operation of facilities
(Scope 1)
Electricity, heat, steam and
cooling purchased for own
use (Scope 2)
Intensity measurement
(tCO2e/’000 sq ft)
Argos and Habitat
Emission source
Combustion of fuel and
operation of facilities
(Scope 1)
Electricity, heat, steam and
cooling purchased for own
use (Scope 2)
Total
Intensity measurement
(tCO2e/’000 sq ft)
Electricity use
As a result of our ongoing investment in energy reduction initiatives:
GHG emissions (tCO2e )
2005/06
536,694
2018/19
474,435
2019/20
448,189
— Sainsbury’s Group absolute UK electricity consumption decreased
year-on-year by six per cent and 22 per cent versus 2005/06 whilst adding
46 per cent more sales area
833,787
356,897
290,843
90.37
35.92
32.04
GHG emissions (tCO2e )
2005/06
101,563
2018/19
73,706
2019/20
74,244
82,448
37,911
30,464
— Sainsbury’s absolute UK electricity consumption has decreased
year-on-year by five per cent and 21 per cent versus 2005/06 whilst
adding 52 per cent more sales area
— Argos and Habitat absolute UK electricity consumption decreased
year-on-year by eight percent and 31 per cent versus 2005/06 whilst
decreasing by one per cent in space area.
Methodology
We have reported on all of the emission sources required under the
Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations
2013. We have calculated and reported our emissions in line with the GHG
Protocol Corporate Accounting and Reporting Standard (revised edition)
and emission factors from the UK Government’s GHG Conversion Factors for
Company Reporting 2019, and IEA 2017 for those overseas. The reporting
period is the financial year 2019/20, the same as that covered by the Annual
Report and Financial Statements. The boundaries of the GHG inventory are
defined using the operational control approach. In general, the emissions
reported are the same as those which would be reported based on a
financial control boundary. Emissions for previous years are retrospectively
adjusted as and when more accurate data is provided.
184,011
85.55
111,617
104,708
50.79
48.97
By order of the Board
Tim Fallowfield
Company Secretary and Corporate Services Director
29 April 2020
Dual emissions reporting
Overall emissions have been presented to reflect both location-based and
market-based methodologies, affecting both Scope 1 and Scope 2 emissions.
Scope 1: All Scope 1 market-based emissions have been calculated using
the UK Government’s GHG Conversion Factors for Company Reporting 2019
for all sources.
Scope 2: 17 per cent of electricity usage is covered by a Power Purchase
Agreement, which meets all of the required quality criteria; therefore 17 per
cent of electricity emissions have been reported at zero emissions. The
remaining UK electricity has been reported at supplier-specific emissions
rate, and non-UK electricity has been reported at local grid average, unless
supplied by a certified green tariff.
GovernanceJ Sainsbury plc Annual Report 2020
Financial Statements
99
100 Statement of Directors’ responsibilities
101
Independent auditor’s report to the members
of J Sainsbury plc
Consolidated Financial Statements
107
108
109
110
111
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated cash flow statement
Consolidated statement of changes in equity
Additional Disclosures
188
188
188
188
189
190
Note 37 Capital commitments
Note 38 Financial commitments
Note 39 Contingent liabilities
Note 40 Related party transactions
Note 41 Post balance sheet events
Note 42 Details of related undertakings
Company Financial Statements
Company balance sheet
194
Company statement of changes in equity
195
Note 1
Note 2
Note 3
Note 4
Notes to the Consolidated Financial Statements
112
112
113
115
General information
Significant accounting policies
Alternative Performance Measures
Significant accounting judgements,
estimates and assumptions
Note 5 Adoption of IFRS 16 ‘Leases’
118
Income Statement
122
125
129
130
131
131
135
136
Profit before non-underlying items
Segment reporting
Supplier arrangements
Operating profit
Note 6
Note 7
Note 8
Note 9
Note 10 Finance income and finance costs
Note 11 Taxation
Note 12 Earnings per share
Note 13 Dividends
198
198
198
199
199
199
200
200
Note 1
Note 2
Note 3
Note 4
Note 5
Notes to the Company Financial Statements
196
197
197
198
198
Basis of preparation
Property, plant and equipment
Investments in subsidiaries
Investments in joint ventures and associates
Financial assets at fair value through
other comprehensive income
Other receivables
Trade and other payables
Borrowings
Provisions
Note 6
Note 7
Note 8
Note 9
Note 10 Taxation
Note 11 Share capital and reserves
Note 12 Retained earnings
Note 13 Contingent liabilities
Financial Position
136
138
140
Note 14 Property, plant and equipment
Note 15 Leases
Note 16 Intangible assets
Note 17 Impairment of non-financial assets
Note 18 Investments in joint ventures and associates
Note 19 Financial assets at fair value through
other comprehensive income
Note 20 Inventories
Note 21 Receivables
Note 22 Assets and liabilities held for sale
Note 23 Payables
Note 24 Provisions
Note 25 Called up share capital, share premium
and merger reserve
Note 26 Capital redemption and other reserves
Note 27 Perpetual securities
Note 28 Retained earnings
Note 29 Financial risk management
Note 30 Financial instruments
143
144
145
145
146
146
147
149
150
151
152
153
163
Cash Flows
173
174
176
Note 31 Cash and cash equivalents
Note 32 Analysis of net debt
Note 33 Borrowings
Employee Remuneration
177
178
184
Note 34 Employee costs
Note 35 Retirement benefit obligations
Note 36 Share-based payments
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
100
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year that give a true and fair view of the state of affairs of the Group
and the Company as at the end of the financial year, and of the profit or loss
of the Group for the financial year. Under that law, the Directors have prepared
the Group financial statements in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union (EU) and have
elected to prepare the Parent Company financial statements in accordance
with United Kingdom Generally Accepted Accounting Practice, including
FRS 101 ‘Reduced Disclosure Framework’ (UK Accounting Standards and
applicable law). Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of the profit
or loss of the Group for that period. In preparing these financial statements,
the Directors are required to:
— select suitable accounting policies and then apply them consistently;
— make judgements and accounting estimates that are reasonable
and prudent;
— state whether IFRSs as adopted by the European Union and applicable
UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the Group and Company financial
statements respectively; and
— prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group and the Company will continue
in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group’s and the Company’s
transactions and disclose with reasonable accuracy at any time the financial
position of the Company and the Group and enable them to ensure that the
financial statements and the Directors’ Remuneration Report comply with
the Companies Act 2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation. They are also responsible for safeguarding
the assets of the Company and the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
Having taken all the matters considered by the Board and brought to the
attention of the Board during the year into account, we are satisfied that the
Annual Report and Financial Statements, taken as a whole, is fair, balanced
and understandable.
The Board believes that the disclosures set out in this Annual Report provide
the information necessary for shareholders to assess the Group’s
performance, business model and strategy.
The Directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed on pages
48 to 51, confirms that, to the best of their knowledge:
— the Group financial statements, which have been prepared in accordance
with IFRSs as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
— the Strategic Report and Directors’ Report contained in the Annual Report
and Financial Statements include a fair review of the development and
performance of the business and the position of the Group, together
with a description of the emerging and principal risks and uncertainties
that it faces.
By order of the Board
Tim Fallowfield
Company Secretary and Corporate Services Director
29 April 2020
Financial StatementsJ Sainsbury plc Annual Report 2020 Independent auditor’s report
to the members of J Sainsbury plc
101
Opinion
In our opinion:
— J Sainsbury plc’s Group financial statements and parent company
financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the parent company’s affairs
as at 7 March 2020 and of the Group’s profit for the year then ended;
— the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
— the parent company financial statements have been properly prepared
in accordance with United Kingdom Generally Accepted Accounting
Practice; 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 IAS Regulation.
We have audited the financial statements of J Sainsbury plc for the year
ended 7 March 2020 which comprise:
Parent company
Balance sheet as at 7 March 2020
Statement of changes in equity
for the year then ended
Related notes 1 to 13 to the financial
statements including a summary
of significant accounting policies
Group
Consolidated income statement
for the year then ended
Consolidated statement of
comprehensive income for
the year then ended
Consolidated balance sheet
as at 7 March 2020
Consolidated cash flow statement
for the year then ended
Consolidated statement of changes
in equity for the year then ended
Related notes 1 to 42 to the financial
statements, including a summary
of significant accounting policies
The financial reporting framework that has been applied in the preparation
of the Group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union.
The financial reporting framework that has been applied in the preparation
of the parent company financial statements is applicable law and United
Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure
Framework” (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for
the audit of the financial statements section of our report below. We are
independent of the Group and parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the
UK, including the FRC’s Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern
and viability statement
We have nothing to report in respect of the following information in the
Annual Report, in relation to which the ISAs(UK) require us to report to you
whether we have anything material to add or draw attention to:
— the disclosures in the Annual Report set out on page 36 that describe the
principal risks and explain how they are being managed or mitigated;
— the Directors’ confirmation set out on page 71 in the Annual Report that
they have carried out a robust assessment of the principal risks facing
the entity, including those that would threaten its business model, future
performance, solvency or liquidity;
— the Directors’ statement set out on page 46 in the financial statements
about whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of any
material uncertainties to the entity’s ability to continue to do so over
a period of at least twelve months from the date of approval of the
financial statements;
— whether the Directors’ statement in relation to going concern required
under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit; or
— the Directors’ explanation set out on page 46 in the Annual Report as
to how they have assessed the prospects of the entity, over what period
they have done so and why they consider that period to be appropriate,
and their statement as to whether they have a reasonable expectation
that the entity will be able to continue in operation and meet its liabilities
as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications
or assumptions.
Overview of our audit approach
Key audit matters
— Impact of COVID-19
— Transition impact on adoption of IFRS 16
— Supplier arrangements
— Aspects of revenue recognition
— Financial services customer receivables impairment
— IT environment
Audit scope
— We performed a full scope audit of the complete financial
information of the following components: J Sainsbury plc,
Sainsbury’s Supermarkets Ltd, Argos Limited and Sainsbury’s Bank
plc. We performed audit procedures on specific balances of Argos
Financial Services, Nectar, Habitat, material property companies,
the information systems company, material joint ventures and the
insurance company due to the size and risk of certain individual
balances within these components.
— The components where we performed full or specific audit
procedures accounted for 100% of Profit before tax before one-off
items, 100% of Revenue and 100% of Total assets.
Materiality
— Overall Group materiality is £31.8 million which represents 5 per
cent of profit before tax and before non-recurring Property
strategy costs. Sainsbury’s Bank transition costs, and other
one-off related costs (mainly integration and restructuring costs).
A reconciliation has been provided below.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
102
Independent auditor’s report to the members
of J Sainsbury plc continued
Key audit matters
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of
the engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion thereon, and
we do not provide a separate opinion on these matters.
Risk
The impact of COVID-19
Refer to the Audit Committee Report (page 66); Accounting policies
(page 112); and Notes 2.1 and 41 of the Consolidated Financial Statements
(page 112 and 189)
The COVID-19 pandemic has had a significant impact on the Sainsbury’s
business. We have considered the following matters as part of our 2019-20
audit;
— Going concern
— Post-balance sheet event considerations
— Other disclosures in the Annual Report and Accounts
Our response to the risk
Going concern
— We reviewed management’s going concern cash flow projections,
vouching them to the latest Board-reviewed forecasts that factored in a
revised COVID-19 case.
— We vouched the available facilities to our year end audit work.
— We reviewed the potential downside sensitivities that management had
applied and considered their likelihood and whether other scenarios, or
more severe scenarios could apply and the associated impact on liquidity
headroom.
— We reviewed management’s reverse stress testing and assessed the
likelihood of the various scenarios that could erode liquidity headroom.
— We reviewed the performance of the business since year end and
compared it to cash flow forecasts.
— We reviewed management’s basis of preparation note and validated that
it accurately described management’s going concern considerations.
Post balance sheet event considerations
— We challenged management’s judgement that COVID-19 is a non-
adjusting post balance sheet event, rather than an adjusting event, by
reviewing the events and evidence that they had considered in arriving at
their conclusion against the requirements of IAS 10.
— We considered which areas of the financial statements could be
materially impacted.
— We reviewed the post balance sheet event note disclosure of the impact
on the financial statements, as well as confirming that the non-adjusting
conclusion had been disclosed as a significant judgement.
Other disclosures in the Annual Report
— We reviewed the relevant disclosures in the Annual Report and Accounts,
including: the Directors’ Report, Principal Risks and uncertainties,
Corporate Governance and the Audit Committee’s Report against the
relevant reporting requirements and compared them to our knowledge
obtained from our audit.
Key observations communicated to the Audit Committee
— We are satisfied that we do not include a material uncertainty in respect
of going concern within our auditor’s report.
— We concurred with the Directors’ judgement that COVID-19 related events
were a non-adjusting post balance sheet event for the Group and we
agree with its disclosure as a significant judgement in the financial
statements.
— We are satisfied that the additional disclosures in the financial
statements are consistent with our knowledge from the audit.
Risk
Transition impact on adoption of IFRS16 Leases
(lease liability of £5.8bn)
Refer to the Audit Committee Report (page 66); Accounting policies
(page 118); and Note 5 of the Consolidated Financial Statements (page 118)
The accounting of the transition impact of IFRS 16 is complex and requires
a number of estimates, the most significant of which is the discount rate to
apply for each lease. Further, the Group has a high volume of leases, some
of which have been in place for a number of years and there is a risk that the
lease data which underpins the IFRS 16 transition calculation is incomplete
or inaccurate.
Our response to the risk
— Our audit procedures included assessing the design and implementation
of the key controls relating to the determination of the IFRS 16 transition
impact.
— We assessed the completeness of the population of leases and validated
that leases had been appropriately uploaded onto the lease accounting
IT application. On a sample basis, we performed testing of lease data
input into the lease accounting IT application.
— We assessed the appropriateness of the incremental borrowing rates by
reviewing management’s methodology with the support of our Corporate
Treasury specialists and reperforming the calculations and validating
with reference to observable market rates.
— We challenged the key judgements and assumptions used by
management, including those in respect of options and rent uplifts.
— For a sample of leases, we independently modelled the impact of IFRS 16
using our own internally designed tool and compared the results to the
Group’s accounting IT application.
— We audited management’s impairment assessment in relation to the
right-of-use asset. We validated that the assets had been appropriately
allocated to the correct cash generating unit and an appropriate value in
use calculation had been performed. We assessed the discount rate that
had been used with assistance from EY valuation specialists.
— We compared the disclosures provided in the financial statements on the
impact of IFRS 16 to the disclosure requirements of IFRS 16.
Key observations communicated to the Audit Committee
The key estimates and judgements underpinning the transition impact
on adoption of IFRS 16 are appropriate.
Risk
Supplier arrangements
Refer to Accounting policies (page 129); and Note 8 of the Consolidated
Financial Statements (page 129)
The Group receives material discounts from suppliers, referred to as supplier
arrangements. The accounting for some of these supplier arrangements is
complex since management applies judgement, processing is either manual
or more complex and the quantum of agreements is high. We focused our
audit procedures on these complex supplier arrangements.
Complex supplier arrangements recognised in the income statement for the
financial year are £451 million (2018/19: £457 million).
Our response to the risk
— We performed procedures over supplier arrangements at both the
Sainsbury’s Supermarkets Limited and Argos Limited components.
— We walked through the controls in place within the supplier
arrangements process. We were able to take a controls-reliance approach
over certain aspects of the process, testing the key controls, although
there were areas where we could not, as the process for recording deals
is manual.
— We selected a sample of suppliers to whom we sent confirmations across
all “deal” types to confirm key deal input terms. Where we did not receive
a response from the supplier, we performed alternative procedures,
including obtaining evidence of initiation and if settled, settlement of
the arrangement.
Financial StatementsJ Sainsbury plc Annual Report 2020
103
— We tested the existence and valuation of balance sheet amounts
recognised in accounts receivable and as a contra-asset in accounts
payable by reviewing post-period end settlement. We also performed a
‘look-back’ analysis of prior period balance sheet amounts to check that
these amounts were appropriately recovered.
— We tested the settlement of a sample of supplier arrangements
recognised in the income statement, which included settlement in cash
or by off-set to accounts payable.
— Using data extracted from the accounting system, we tested the
appropriateness of journal entries and other adjustments to supplier
arrangements to corroborating evidence.
— We tested deals recorded post period end and obtained the supplier
agreement to validate that the deal was correctly recorded post period end.
— We read management’s disclosure in respect of supplier arrangement
amounts recorded in the income statement and balance sheet to confirm
completeness and accuracy of amounts disclosed.
Key observations communicated to the Audit Committee
Supplier arrangement amounts are appropriately recognised in the income
statement and balance sheet and the disclosure in the financial statements
is appropriate.
Our response to the risk
— The loan impairment methodology was reviewed, to confirm it was
consistent with IFRS 9.
— We verified the completeness and accuracy of the data utilised from
underlying systems that were used in the impairment models.
— We challenged the key assumptions used by management, including the
probability of default and the loss given default, with reference to
industry/peer benchmarks and our financial services risk management
specialists.
— We tested that the key assumptions had been accurately reflected in the
impairment models.
— We independently calculated a reasonable range of outcomes to assess
the provision for high risk segments.
— We challenged the macro-economic scenarios, including Brexit and
COVID-19 scenarios, to the extent that they existed at year end, with the
support of our economic modelling experts.
Key observations communicated to the Audit Committee
We conclude that the impairment of Financial Services receivables due from
customers is appropriately recognised.
Risk
Aspects of revenue recognition
Refer to Accounting policies (page 125); and Note 7 of the Consolidated
Financial Statements (page 125)
Our assessment is that the vast majority of the Group’s revenue transactions
are non-complex, with no judgement applied over the amount recorded. We
focused our work on the manual adjustments that are made to revenue
where the amount of the revenue recorded can be different than the amount
of cash received.
Our procedures were designed to address the risk of manipulation of
accounting records and the ability to override controls.
Our response to the risk
— We performed procedures over adjustments to revenue at both the
Sainsbury’s Supermarkets Limited and Argos Limited components.
— We obtained a detailed understanding of these manual adjustments. Due
to the manual nature of these adjustments, we performed substantive
audit procedures.
— We used data analytics tools to identify those revenue journals for which
the corresponding entry was not cash. These entries include Nectar
points, coupons, vouchers and commission arrangements.
— We obtained corroborating evidence for such corresponding entries. For
the Nectar points adjustment we obtained evidence that revenue is
deferred appropriately based on the number of points issued and
redeemed and the breakage assumption. For third party coupons and
vouchers we obtained evidence of collection and settlement.
— Using data extracted from the accounting system, we tested the
appropriateness of journal entries impacting revenue, as well as other
adjustments made in the preparation of the financial statements. We
considered unusual journals such as those posted outside of expected
hours, or by unexpected individuals and for large or unusual amounts.
Key observations communicated to the Audit Committee
Adjustments to revenue have been appropriately recognised.
Risk
Financial Services customer receivables impairment
Refer to the Audit Committee Report (page 66); Accounting policies
(page 163); and Note 29 of the Consolidated Financial Statements (page 153)
Financial Services customer receivables relate to Sainsbury’s Bank
credit cards, loans and mortgages; and Argos store cards. Total amounts
recognised at year-end are £7,671 million (2018/2019: £7,234 million).
The provision for impairment is £267 million (2018/2019: £247 million).
The risk of collectability of Financial Services customer receivables, through
either credit cards, loans, mortgages or Argos store cards, is significant.
There is judgement in the assumptions applied to calculate the loan
provisions against outstanding balances.
Risk
The IT environment
The IT systems across the Group are complex and there are varying levels of
integration between them. The systems are vital to the ongoing operations
of the business and to the integrity of the financial reporting process.
Our response to the risk
— We held discussions with management to understand the IT environment
and walked through the key financial processes to understand where
IT systems were integral to the Group’s controls over financial reporting.
From this we identified which IT systems to include in the scope for our
detailed IT testing.
— We assessed the IT general controls environment for the key systems
impacting the accurate recording of transactions and the presentation of
the financial statements.
— We designed our IT audit procedures to assess the IT environment,
including an assessment of controls over changes made to the system
and controls over appropriate access to the systems.
— Where we found that adequate IT general controls were not in place, we
performed additional substantive testing to mitigate the risk of material
misstatement.
Key observations communicated to the Audit Committee
We have not identified misstatements in the financial statements due to the
limitations of the IT environment.
The key audit matters in our auditor’s report are consistent with those
included in our auditor’s report last year, with the exception of the matter in
respect of the impact of COVID-19. This matter is in respect of a specific set
of circumstances relevant to the current year audit.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation
of performance materiality determine our audit scope for each entity within
the Group. Taken together, this enables us to form an opinion on the
consolidated financial statements. We take into account size, risk profile,
the organisation of the Group and effectiveness of Group-wide controls,
changes in the business environment and other factors such as recent
internal audit results when assessing the level of work to be performed
at each component.
In assessing the risk of material misstatement to the Group financial
statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, of the 113 reporting
components of the Group, we selected 30 components, which represent the
principal business units within the Group.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
104
Independent auditor’s report to the members
of J Sainsbury plc continued
Of the 30 components selected, we performed an audit of the complete
financial information of 15 components (“full scope components”) which
were selected based on their size or risk characteristics. For the remaining 83
components (“specific scope components”), we performed audit procedures
on specific accounts within that component that we considered had the
potential for the greatest impact on the significant accounts in the financial
statements either because of the size of these accounts or their risk profile.
Of the remaining balances, none are individually greater than five per cent of
the Group’s profit before tax excluding one-off items. For these accounts, we
performed other procedures, including analytical review, testing of
consolidation journals and intercompany eliminations to respond to any
potential risks of material misstatement to the Group financial statements.
The table below illustrates the coverage obtained from the work performed
by our audit teams.
%
Group
Profit
before
tax
%
Group
Profit
before
tax
% Group
Revenue
% Total
assets
Number
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
15
15
30
69%
31%
100%
98%
42%
56%
2%
98% 100%
75%
81%
99%
0%
25%
19%
99% 100% 100%
83
0%
2%
0%
1%
0%
0%
113
100% 100% 100% 100% 100% 100%
Full scope
Specific scope
Full and
specific scope
coverage
Remaining
components
Total reporting
components
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the
type of work that needed to be undertaken at each of the components by us,
as the primary audit engagement team, or by component auditors from
other EY global network firms operating under our instruction. Of the 15 full
scope components, audit procedures were performed on the head office
company, J Sainsbury plc, Sainsbury’s Supermarkets Ltd, Sainsbury’s Bank
plc, Argos Limited and consolidation of the Group by the primary audit team
and EY teams in Edinburgh and Milton Keynes. The work at the specific
scope components was performed by EY teams in Edinburgh, Milton Keynes,
the Isle of Man and the primary team. For the full and specific scope
components, where the work was performed by component auditors, we
determined the appropriate level of involvement to enable us to determine
that sufficient audit evidence had been obtained as a basis for our opinion
on the Group as a whole.
The Senior Statutory Auditor is also responsible for the audit of Sainsbury’s
Supermarkets Ltd and Argos Limited. For Sainsbury’s Bank plc and Argos
Financial Services, the Senior Statutory Auditor met and held discussions
with management. The team discussed the audit approach with the
component team and significant issues arising from their work, reviewing
key audit working papers on risk areas. The closing meeting was attended
by the primary audit team. This, together with the additional procedures
performed at Group level, gave us appropriate evidence for our opinion on
the Group financial statements. For the insurance company, the team
discussed the audit approach with the component team and interacted
regularly with the component team where appropriate during various stages
of the audit in order to understand the key audit findings.
Our application of materiality
We apply the concept of materiality in planning and performing the audit,
in evaluating the effect of identified misstatements on the audit and in
forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in
the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides
a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £31.8 million (2018/19:
£30.5 million), which is five per cent (2018/19: five per cent) of profit before
tax excluding the items described below. We believe that this materiality
basis provides us with the best assessment of the requirements of the users
of the financial statements. This is consistent with the approach taken in the
prior year.
Starting basis
Profit before tax
Adjustments
Materiality
Property strategy costs
Other one-off costs (mainly restructuring
and acquisition integration costs)
Sainsbury’s Bank transition costs
Total
Profit before tax and adjustments
5% of adjusted profit before tax
£255m
£296m
£63m
£23m
£382m
£637m
£31.8m
We determined materiality for the parent company to be £150 million
(2018/19: £150 million), which is two per cent (2018/19: two per cent) of net
assets. The materiality of the parent company is greater than the Group
because the parent company is a holding company with significant net
assets. For any parent company balances that are consolidated into the
Group financial statements, an allocation of Group performance materiality
was used.
During the course of our audit, we reassessed initial materiality of
£33 million, which was based on forecast profit before tax and adjustments.
However, this did not result in a significant change to our audit strategy.
Performance materiality
The application of materiality at the individual account or balance level. It is
set at an amount to reduce to an appropriately low level the probability that
the aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our assessment of the
Group’s overall control environment, our judgement was that performance
materiality was 75 per cent (2018/19: 75 per cent) of our planning materiality,
namely £23.8 million (2018/19: £23.8 million). We have set performance
materiality at this percentage due to our assessment that the risk of material
misstatement is not high.
Audit work at component locations for the purpose of obtaining audit coverage
over significant financial statement accounts is undertaken based on a
percentage of total performance materiality. The performance materiality set
for each component is based on the relative scale and risk of the component
to the Group as a whole and our assessment of the risk of misstatement
at that component. In the current year, the range of performance materiality
allocated to components was £5 million to £23 million (2018/19: £5 million to
£23 million).
Reporting threshold
An amount below which identified misstatements are considered as being
clearly trivial.
We agreed with the Audit Committee that we would report to it all
uncorrected audit differences in excess of £1.5 million (2018/19: £1.5 million),
which is set at 5% of planning materiality, as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the Annual
Report set out on pages 1 to 98 other than the financial statements and
our auditor’s report thereon. The directors are responsible for the other
information.
Our opinion on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in this report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially
Financial StatementsJ Sainsbury plc Annual Report 2020
105
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude
that there is a material misstatement of the other information, we are
required to report that fact.
In preparing the financial statements, the Directors are responsible for
assessing the Group and parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the Directors either
intend to liquidate the Group or the parent company or to cease operations,
or have no realistic alternative but to do so.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility
to specifically address the following items in the other information and to
report as uncorrected material misstatements of the other information
where we conclude that those items meet the following conditions:
— Fair, balanced and understandable set out on page 100 – the
statement given by the Directors that they consider the Annual Report
and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders
to assess the Group’s performance, business model and strategy, is
materially inconsistent with our knowledge obtained in the audit; or
— Audit Committee reporting set out on page 66 – the section
describing the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit Committee; or
— Directors’ statement of compliance with the UK Corporate
Governance Code set out on page 54 – the parts of the Directors’
statement required under the Listing Rules relating to the Company’s
compliance with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance with Listing
Rule 9.8.10R(2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.
Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered
capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are: to identify and assess the
risks of material misstatement of the financial statements due to fraud; to
obtain sufficient appropriate audit evidence regarding the assessed risks of
material misstatement due to fraud, through designing and implementing
appropriate responses; and to respond appropriately to fraud or suspected
fraud identified during the audit. However, the primary responsibility for the
prevention and detection of fraud rests with both those charged with
governance of the entity and management.
Opinions on other matters prescribed
by the Companies Act 2006
In our opinion, the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
— the information given in the Strategic Report and the Directors’ Report
for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
Our approach was as follows:
We obtained an understanding of the legal and regulatory frameworks that
are applicable to the Group and determined that the most significant are:
— those that relate to the form and content of the financial statements,
such as the Group accounting policy, International Financial Reporting
Standards (IFRS), the UK Companies Act 2006 and the UK Corporate
Governance Code;
— those that relate to the Bank, such as capital maintenance requirements;
and
— the Strategic Report and the Directors’ Report have been prepared in
— industry related such as compliance with the requirements of the Grocery
accordance with applicable legal requirements.
Supply Code of Practice and payment of employees.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent
company and its environment obtained in the course of the audit, we have
not identified material misstatements in the Strategic Report or the
Directors’ Report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
— adequate accounting records have not been kept by the parent company,
or returns adequate for our audit have not been received from branches
not visited by us; or
— the parent company financial statements and the part of the Directors’
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
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on
page 100, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for
such internal control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
We understood how J Sainsbury plc is complying with those frameworks
by observing the oversight of those charged with governance, the culture
of honesty and ethical behaviour and a strong emphasis placed on fraud
prevention, which may reduce opportunities for fraud to take place, and
fraud deterrence, which could persuade individuals not to commit fraud
because of the likelihood of detection and punishment.
We assessed the susceptibility of the Group’s financial statements to
material misstatement, including how fraud might occur, by making an
assessment of the key fraud risks to the Group and the manner in which
such risks may manifest themselves in practice, based on our previous
knowledge of the Group as well as an assessment of the current business
environment.
Based on this understanding we designed our audit procedures to identify
non-compliance with such laws and regulations. Where the risk was
considered to be higher, we performed audit procedures to address each
identified fraud risk. These procedures included testing manual journals
and were designed to provide reasonable assurance that the financial
statements were free of fraud or error. We evaluated the design and
operational effectiveness of controls put in place to address the risks
identified, or that otherwise prevent, deter and detect fraud. We also
considered performance targets and their influence on efforts made by
management to manage earnings.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
106
Independent auditor’s report to the members
of J Sainsbury plc continued
Other matters we are required to address
Following the recommendation of the Audit Committee we were appointed
by the Company at its Annual General Meeting on 8 July 2015. We have been
the statutory auditor since that date. The period of total uninterrupted
engagement including previous renewals and reappointments is five years,
covering the years 2015/16 to 2019/20.
The non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the Group or the parent company and we remain independent
of the Group and the parent company in conducting the audit.
The audit opinion is consistent with the additional report to the Audit
Committee.
Use of our report
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the Company
and the Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Ben Marles
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
29 April 2020
Notes:
1.
The maintenance and integrity of the J Sainsbury plc website is the responsibility of the Directors; the
work carried out by the auditors does not involve consideration of these matters and, accordingly, the
auditors accept no responsibility for any changes that may have occurred to the financial statements
since they were initially presented on the web site.
Legislation in the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
2.
Financial StatementsJ Sainsbury plc Annual Report 2020
Consolidated income statement
for the 52 weeks to 7 March 2020
Revenue
Cost of sales
Gross profit
Administrative expenses
Other income
Operating profit
Finance income
Finance costs
Share of post-tax (loss)/profit from joint ventures and associates
Profit before tax
Income tax (expense)/credit
Profit for the financial year
Earnings per share
Basic earnings
Diluted earnings
2019 (restated)
Non-
underlying
items
£m
–
(11)
(11)
(383)
(17)
(411)
19
(3)
(4)
(399)
131
(268)
Before
non-
underlying
items
£m
29,007
(26,708)
2,299
(1,342)
55
1,012
5
(424)
8
601
(147)
454
Before
non-
underlying
items
£m
28,993
(26,699)
2,294
(1,345)
37
986
4
(404)
–
586
(149)
437
2020
Non-
underlying
items
£m
–
(278)
(278)
(114)
56
(336)
28
6
(29)
(331)
46
(285)
Note
7
9
9
10
10
18
11
Note
12
Total
£m
28,993
(26,977)
2,016
(1,459)
93
650
32
(398)
(29)
255
(103)
152
Pence
5.8
5.8
The notes on pages 112 to 193 form an integral part of these financial statements.
The restatements relate to the adoption of IFRS 16 as explained in note 5.
107
Total
£m
29,007
(26,719)
2,288
(1,725)
38
601
24
(427)
4
202
(16)
186
Pence
7.6
7.5
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
108
Consolidated statement of comprehensive income
for the 52 weeks to 7 March 2020
Profit for the financial year
Items that will not be reclassified subsequently to the income statement
Remeasurement on defined benefit pension schemes
Movements on financial assets at fair value through other comprehensive income
Deferred tax relating to items not reclassified
Items that may be reclassified subsequently to the income statement
Currency translation differences
Movements on financial assets at fair value through other comprehensive income
Items reclassified from financial assets at fair value through other comprehensive income reserve
Cash flow hedges effective portion of fair value movements
Items reclassified from cash flow hedge reserve
Current tax on items that may be reclassified
Deferred tax on items that may be reclassified
Total other comprehensive income for the year (net of tax)
Total comprehensive income for the year
The notes on pages 112 to 193 form an integral part of these financial statements.
The restatements relate to the adoption of IFRS 16 as explained in note 5.
Note
35
11
11
11
2020
£m
152
89
17
(18)
88
–
4
–
(1)
(19)
–
3
(13)
75
227
2019
(restated)
£m
186
1,269
–
(216)
1,053
1
55
(10)
71
(45)
2
(15)
59
1,112
1,298
Financial StatementsJ Sainsbury plc Annual Report 2020
Consolidated balance sheet
At 7 March 2020 and 9 March 2019
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Investments in joint ventures and associates
Financial assets at fair value through other comprehensive income
Trade and other receivables
Amounts due from Financial Services customers
Derivative financial assets
Net retirement benefit surplus
Current assets
Inventories
Trade and other receivables
Amounts due from Financial Services customers
Financial assets at fair value through other comprehensive income
Derivative financial assets
Cash and cash equivalents
Assets held for sale
Total assets
Current liabilities
Trade and other payables
Amounts due to Financial Services customers and other deposits
Borrowings
Lease liabilities
Derivative financial liabilities
Taxes payable
Provisions
Net current liabilities
Non-current liabilities
Other payables
Amounts due to Financial Services customers and other deposits
Borrowings
Lease liabilities
Derivative financial liabilities
Deferred income tax liability
Provisions
Total liabilities
Net assets
Equity
Called up share capital
Share premium
Merger reserve
Capital redemption reserve
Other reserves
Retained earnings
Total equity before perpetual securities
Perpetual capital securities
Perpetual convertible bonds
Total equity
109
2020
£m
2019
(restated)
£m
8,911
4,826
1,012
9
972
43
3,453
6
1,119
20,351
1,732
811
3,951
82
12
994
7,582
4
7,586
27,937
(4,275)
(6,890)
(48)
(510)
(53)
(163)
(108)
(12,047)
(4,461)
(11)
(1,204)
(1,248)
(5,264)
(36)
(265)
(89)
(8,117)
(20,164)
7,773
634
1,159
568
680
168
4,068
7,277
248
248
7,773
9,193
4,993
1,043
205
645
57
3,349
9
959
20,453
1,929
630
3,638
211
21
1,121
7,550
8
7,558
28,011
(4,373)
(5,797)
(816)
(533)
(17)
(204)
(109)
(11,849)
(4,291)
(87)
(1,804)
(844)
(5,298)
(17)
(235)
(95)
(8,380)
(20,229)
7,782
630
1,147
568
680
172
4,089
7,286
248
248
7,782
Note
14
15
16
18
19
21a
21b
30
35
20
21a
21b
19
30
31
22
23a
23b
33
15
30
24
23a
23b
33
15
30
11
24
25
25
25
26
26
28
27
27
The notes on pages 112 to 193 form an integral part of these financial statements. Restatements relate to the adoption of IFRS 16 as explained in note 5.
The financial statements on pages 107 to 193 were approved by the Board of Directors on 29 April 2020, and are signed on its behalf by:
Mike Coupe
Chief Executive
Kevin O’Byrne
Chief Financial Officer
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
110
Consolidated cash flow statement
for the 52 weeks to 7 March 2020
Cash flows from operating activities
Profit before tax
Net finance costs
Share of post-tax loss/(profit) from joint ventures and associates
Operating profit
Adjustments for:
Depreciation expense
Amortisation expense
Net impairment loss on property, plant and equipment, right-of-use assets, intangible assets
Non-cash adjustments arising from acquisitions
Financial Services impairment losses on loans and advances
(Profit)/loss on sale of properties and early termination of leases
Share-based payments expense
Defined benefit scheme expenses
Cash contributions to benefit schemes
52 weeks to
7 March
2020
£m
Note
52 weeks to
9 March
2019
(restated)
£m
255
366
29
650
1,127
129
263
(2)
80
(56)
37
9
(52)
202
403
(4)
601
1,119
143
3
(2)
98
17
39
108
(63)
14, 15
16
14, 15, 16
6
36
35
35
Operating cash flows before changes in working capital
2,185
2,063
Changes in working capital
Decrease/(increase) in inventories
Increase in financial assets at fair value through other comprehensive income
(Increase)/decrease in trade and other receivables
Increase in amounts due from Financial Services customers and other deposits
(Decrease)/increase in trade and other payables
Increase in amounts due to Financial Services customers and other deposits
Decrease in provisions and other liabilities
Cash generated from operations
Interest paid
Corporation tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Initial direct costs on new leases
Purchase of intangible assets
Proceeds from disposal of property, plant and equipment
Proceeds from financial assets at fair value through other comprehensive income
Investment in joint ventures
Interest received
Dividends and distributions received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Proceeds from borrowings
Repayment of borrowings
Repayment upon maturity of convertible bonds
Purchase of own shares
Repayment of capital element of lease obligations
Repayment of capital element of obligations under hire purchase arrangements
Dividends paid on ordinary shares
Dividends paid on perpetual securities
Net cash used in financing activities
Net decrease in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
197
(177)
(129)
(499)
(195)
492
(8)
1,866
(384)
(110)
1,372
(519)
(13)
(120)
81
–
–
2
143
(426)
15
250
(169)
(450)
(18)
(420)
(10)
(247)
(23)
(1,072)
(126)
1,120
994
(118)
(97)
92
(1,480)
71
1,077
(93)
1,515
(404)
(68)
1,043
(474)
(11)
(116)
64
39
(5)
4
18
(481)
22
135
(593)
–
(30)
(430)
(27)
(224)
(23)
(1,170)
(608)
1,728
1,120
18
18
25, 28
28
13
27
31
The notes on pages 112 to 193 form an integral part of these financial statements. Restatements relate to the adoption of IFRS 16 as explained in note 5.
Financial StatementsJ Sainsbury plc Annual Report 2020
Consolidated statement of changes in equity
for the 52 weeks to 7 March 2020
111
Called up
share
capital
£m
Share
premium
account
£m
630
1,147
Note
Merger
reserve
£m
568
Capital
redemption
and other
reserves
£m
Total equity
before
perpetual
securities
£m
Retained
earnings
£m
Perpetual
capital
securities
£m
Perpetual
convertible
bonds
£m
Total equity
£m
852
4,763
7,960
248
248
8,456
At 10 March 2019
(as previously reported)
Cumulative adjustment to opening
balance on adoption of IFRS 16
At 10 March 2019 (restated)
Profit for the year
Other comprehensive income
Tax relating to other comprehensive income
27, 28
26, 28
28
Total comprehensive income
for the year ended 7 March 2020
Transactions with owners:
Dividends
Distribution to holders of perpetual
securities
Amortisation of convertible bond
equity component
Share-based payment
Purchase of own shares
Allotted in respect of share option
schemes
Tax on items charged to equity
13, 28
27
26, 28
36
28
25, 28
–
630
–
1,147
–
568
–
852
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
–
–
–
12
–
–
–
–
–
–
–
–
–
–
–
–
(674)
4,089
129
89
(15)
(674)
7,286
129
90
(15)
203
204
(247)
–
(247)
–
–
1
–
1
–
–
(5)
5
–
–
–
–
37
(18)
(1)
–
–
37
(18)
15
–
–
248
16
–
–
16
–
(16)
–
–
–
–
–
–
248
(674)
7,782
7
–
–
7
152
90
(15)
227
–
(7)
(247)
(23)
–
–
–
–
–
–
37
(18)
15
–
At 7 March 2020
634
1,159
568
848
4,068
7,277
248
248
7,773
At 11 March 2018 (as previously reported)
Cumulative adjustment to opening
balance on adoption of IFRS 16
At 11 March 2018 (restated)
Day 1 accounting adjustments1
Profit for the period (restated)
Other comprehensive income/(expense)
Tax relating to other comprehensive
income
Total comprehensive (expense)/income for the
period ended 9 March 2019 (restated)
Transactions with owners:
Dividends
Distributions to holders of perpetual
securities
Amortisation of convertible bond
equity component
Share-based payment
Purchase of own shares
Allotted in respect of share option
schemes
Tax on items charged to equity
627
–
627
1,130
–
1,130
568
–
568
–
–
–
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
17
–
–
–
–
–
–
–
–
–
–
–
–
–
801
–
801
–
–
72
(13)
59
–
–
(8)
–
–
–
–
3,789
6,915
(641)
3,148
(74)
168
1,269
(216)
(641)
6,274
(74)
168
1,341
(229)
1,147
1,206
(224)
–
8
37
(30)
2
1
(224)
–
–
37
(30)
22
1
248
–
248
–
12
–
–
12
–
(16)
–
–
–
–
4
248
–
248
–
6
–
–
6
–
(7)
–
–
–
–
1
At 9 March 2019 (restated)
630
1,147
568
852
4,089
7,286
248
248
7,411
(641)
6,770
(74)
186
1,341
(229)
1,224
(224)
(23)
–
37
(30)
22
6
7,782
1 This is comprised of IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’ day 1 adjustments.
The notes on pages 112 to 193 form an integral part of these financial statements.
Restatements relate to the adoption of IFRS 16 as explained in note 5.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
112
Notes to the consolidated 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 7 March 2020 (prior financial
year: 52 weeks to 9 March 2019). The consolidated financial statements for
the 52 weeks to 7 March 2020 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 and associates.
The Group’s principal activities are Food, General Merchandise and Clothing
retailing and Financial Services.
2 Significant accounting policies
2.1 Basis of preparation
Sainsbury’s Bank Plc and its subsidiaries have been consolidated for the
twelve months to 29 February 2020 being the Bank’s year-end date (prior
financial year: 28 February 2019). Adjustments have been made for the
effects of significant transactions or events that occurred between this date
and the Group’s balance sheet date.
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 (IFRIC) and with those parts of the Companies Act 2006
applicable to companies reporting under IFRSs.
The financial statements are presented in sterling, rounded to the nearest
million (‘£m’) unless otherwise stated. They have been prepared under the
historical cost convention, except for derivative financial instruments,
defined benefit pension scheme assets and financial assets at fair value
through other comprehensive income that have been measured at fair value.
The financial statements have been prepared on a going concern basis. In
reaching this conclusion, the Directors have reviewed liquidity forecasts for
the Group, which have been updated for the expected impact of COVID-19
trading. The Directors also considered sensitivities in respect of potential
downside scenarios and the mitigating actions available in concluding that
the Group is able to continue in operation for a period of at least twelve
months from the date of approving the financial statements.
The Group has adopted IFRS 16 ‘Leases’ effective for the 52 weeks ending
7 March 2020. IFRS 16 has been applied fully retrospectively and therefore
comparatives for prior periods have been restated. Further details regarding
the impact of IFRS 16 are included in note 5.
Significant accounting policies have been included in the relevant notes to
which the policies relate, and those relating to the financial statements as
a whole can be read further below. Significant accounting policies have been
applied consistently to all periods presented in the financial statements
with the exception of the item noted below. Further details on the updated
accounting policies following the adoption of IFRS 16 ‘Leases’ are included
in note 15.
Tax treatment for dividends on perpetual securities
In December 2017, the International Accounting Standards Board issued
its annual cycle of improvements to IFRS, ‘Annual Improvements to IFRS
Standards 2015-2017 Cycle’. This included amendments to IAS 12 ‘Income
Taxes’ which became effective for reporting periods beginning on or after
1 January 2019, and was therefore adopted by the Group in the current
financial year.
The amendments clarified that an entity must recognise all income tax
consequences of dividends in profit or loss, other comprehensive income or
equity, depending on where the entity recognised the originating transaction
or event that generated the distributable profits giving rise to the dividend.
Previously the tax on dividends paid on the perpetual securities was
recognised in equity, however under the amended standard, this is now
recognised in the income statement.
2.2 Basis of consolidation
a) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the
Group has control. This is when the Group is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity. 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 companies are
eliminated upon consolidation.
Sainsbury’s Property Scottish Partnership, Sainsbury’s Property Scottish
Limited Partnership, Sainsbury’s Thistle Scottish Limited Partnership and
Nectar 360 Services LLP, are partnerships 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.
b) Joint ventures and associates
The Group applies IFRS 11 to all joint arrangements. Under IFRS 11, investments
in joint arrangements are classified as either joint operations or joint ventures
depending on the contractual rights and obligations of each investor. The
Group has assessed the nature of its joint arrangements and determined
them to be joint ventures. The Group’s share of the post-tax results of its
joint ventures and associates is included in the income statement using the
equity method of accounting. Where the Group transacts with a joint venture
or associate, profits and losses are eliminated to the extent of the Group’s
interest in the joint venture or associate.
Investments in joint ventures and associates are carried in the Group balance
sheet at historical cost plus post-acquisition changes in the Group’s share of
net assets of the entity, less any provision for impairment.
Associates are entities over which the Group has significant influence but
not control.
Financial StatementsJ Sainsbury plc Annual Report 2020 113
3 Alternative Performance Measures
(APMs)
In the reporting of financial information, the Directors use various APMs.
These APMs should be considered in addition to, and are not intended
to be a substitute for, IFRS measurements. As they are not defined by
International Financial Reporting Standards, they may not be directly
comparable with other companies’ APMs.
3.1 Purpose of APMs
The Directors believe that these APMs provide additional useful information
for understanding the financial performance and health of the Group.
They are also used to enhance the comparability of information between
reporting periods (such as like-for-like sales and underlying profit) by
adjusting for non-recurring or uncontrollable factors which affect IFRS
measures, to aid users in understanding the Group’s performance.
Consequently, APMs are used by the Directors and management for
performance analysis, planning, reporting and incentive setting purposes.
The APMs that the Group has focused on in the period are detailed on
page 205. All of the APMs relate to the current period’s results and
comparative periods.
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 (within the profit from joint ventures line item)
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.
c) Foreign currencies
The consolidated financial statements are presented in sterling, which is the
ultimate parent company’s functional currency.
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.
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.
2.3 Amendments to published standards
Effective for the Group and Company in these financial statements:
The Group considered the following amendments to published standards
that are effective for the Group for the financial year beginning 10 March 2019
and concluded that, with the exception of IFRS 16 ‘Leases’, they are either not
relevant to the Group or they do not have a significant impact on the Group’s
financial statements other than disclosures. These standards and
interpretations have been endorsed by the European Union.
— IFRS 16 ‘Leases’
— IFRIC Interpretation 23 ‘Uncertainty over Income Tax Treatments’
— Amendments to IFRS 9 ‘Financial Instruments’ on prepayment features
with negative compensation
— Amendments to IAS 19 ‘Employee Benefits’ on plan amendments,
curtailments or settlements
— Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’
on long term interests in associates and joint ventures
— Annual Improvements Cycle 2015-2017 (issued in December 2017)
Further information on the impact of IFRS 16 is included in note 5.
Standards and revisions effective for future periods:
The following standards and revisions will be effective for future periods:
— Amendments to References to Conceptual Framework in IFRS Standards
— Amendments to IFRS 3 ‘Business Combinations’ on the definition of a
business
— Amendments to IAS 1 ‘Presentation of Financial Statements’ and IAS 8
‘Accounting Policies, Changes in Accounting Estimates and Errors’ on the
definition of material
— Amendments to IFRS 9 ‘Financial Instruments’, IAS 39 ‘Financial
Instruments: Presentation’ and IFRS 7 ‘Financial Instruments:
Disclosures’ on interest rate benchmark reform
— IFRS 17 ‘Insurance Contracts’
The Group has considered the impact of the remaining above standards and
revisions and has concluded that they will not have a significant impact on
the Group’s financial statements.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
114114
3.2 Changes to APMs
The following APMs have been updated during the period:
APM
Prior definition
Updated definition
Explanation
IFRS 16 replaces rental payments presented within operating profit with
interest payments and capital repayments of the lease liability, with no
overall change in total cash flow for the Group. Redefining Retail free cash
flow to include payments of lease obligations ensures that the Group’s
reported free cash flow measures are consistent with those previously
reported.
Following the adoption of IFRS 16, the definition of net debt has been
updated to include lease obligations.
Whilst not impacted by IFRS 16, perpetual securities are now included within
net debt. Although accounted for as equity in the financial statements, they
have similarities to debt instruments due to the coupons, and are included
by management when assessing Group borrowing.
As net debt is a measure of Group indebtedness, the derivatives included
have been amended to only include derivatives used to hedge borrowings.
All other derivatives are used as part of operating activities rather than
financing activities, and have therefore now been excluded from net debt.
A reconciliation of net debt as previously reported to restated net debt for all
comparative periods is shown below:
Net debt as previously reported
Remove previously reported finance leases
(including hire purchase arrangements)
Add perpetual securities
Remove derivatives not linked to borrowings
Lease liabilities and hire purchase
arrangements (Retail)
Restated net debt
11 March
2018
£m
(1,364)
127
(496)
55
(5,897)
(7,575)
9 March
2019
£m
(1,142)
122
(496)
(6)
(5,824)
(7,346)
Hire purchase arrangements included in the above lease liabilities are
as follows:
Hire purchase arrangements
11 March 2018
£m
9 March 2019
£m
(37)
(10)
These are £nil at 7 March 2020.
Due to updates to net debt (see above), lease liabilities are now already
included within net debt.
Perpetual securities are now included within net debt (see above). They
are excluded for ROCE as they are accounted for as equity in the financial
statements and therefore not included within net assets.
Retail free cash flow
Net debt
Net cash generated
from retail operations,
adjusted for
exceptional pension
contributions, after
cash capital
expenditure but before
strategic capital
expenditure, and after
investments in joint
ventures and
associates and
Sainsbury’s Bank
capital injections.
Net debt includes the
capital injections into
Sainsbury’s Bank, but
excludes the net debt
of Sainsbury’s Bank
and its subsidiaries.
It is calculated as:
financial assets at fair
value through other
comprehensive income
(excluding equity
investments)
+ net derivatives +
net cash and cash
equivalents + loans +
finance lease
obligations.
Net cash generated
from retail operations,
after perpetual
security coupons
and cash capital
expenditure but before
strategic capital
expenditure, and
including payments
of lease obligations,
cash flows from
joint ventures and
associates and
Sainsbury’s Bank
capital injections.
Net debt includes the
capital injections into
Sainsbury’s Bank, but
excludes the net debt
of Sainsbury’s Bank
and its subsidiaries.
It is calculated as:
financial assets at fair
value through other
comprehensive income
(excluding equity
investments)
+ net derivatives to
hedge borrowings +
net cash and cash
equivalents + loans +
lease obligations +
perpetual securities.
Adjusted net debt to
EBITDAR
Return on capital
employed (ROCE)
Net debt plus capitalised
lease obligations divided
by Group underlying
EBITDAR.
Return on capital
employed is calculated
as return divided by
average capital
employed.
Return is defined as
underlying profit
before interest and tax.
Capital employed is
defined as net assets
excluding net debt. The
average is calculated
on a 14 point basis.
Net debt divided by
Group underlying
EBITDAR.
Return on capital
employed is calculated
as return divided by
average capital
employed.
Return is defined as
52 week rolling
underlying profit before
interest and tax.
Capital employed is
defined as Group net
assets excluding pension
deficit/surplus, less net
debt (excluding
perpetual securities).
The average is calculated
on a 14 point basis.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 3.2 Changes to APMs continued
115
APM
Interest cover
Gearing
Retail underlying
operating profit
Fixed charge cover
Prior definition
Updated definition
Explanation
Underlying operating
profit, plus underlying
share of post-tax profit
from joint ventures
and associates, divided
by underlying net
finance costs, where
interest on perpetual
securities is included in
underlying finance
costs.
Retail net debt divided
by Group net assets.
Underlying earnings
before interest, tax,
Financial Services
operating profit and
Sainsbury’s underlying
share of post-tax profit
from joint ventures
and associates.
Group underlying
EBITDAR divided by net
rent and underlying net
finance costs, where
interest on perpetual
securities is included in
underlying finance costs.
N/A
Interest cover is no longer included as an APM used by management.
N/A
Gearing is no longer included as an APM used by management.
Whilst the definition of Retail underlying operating profit has not changed, the prior period
comparatives have been restated as a result of adopting IFRS 16. A reconciliation between the
previously disclosed amounts and restated balances is included below:
Underlying operating profit pre IFRS 16
Add back rent
Depreciation on right-of-use assets
Other
Underlying operating profit post IFRS 16
52 weeks to
9 March 2019
£m
692
747
(470)
12
981
Redefining fixed charge cover to include payments of lease obligations
ensures that the Group’s reported fixed charge cover measures are
consistent with those previously reported.
Group underlying
EBITDAR divided by
rent (representing
capital and underlying
interest repayments
on leases) and net
underlying finance
costs, where interest
on perpetual securities
is treated as an
underlying finance
cost. All items are
calculated on a
52 week rolling basis.
4 Significant accounting judgements,
estimates and assumptions
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.
Those which are significant to the Group are discussed separately below:
Judgements
In the process of applying the Group’s accounting policies, management has
made the following judgements, which have the most significant effect on
the amounts recognised in the consolidated financial statements:
a) Lease term
The Group determines the lease term as the non-cancellable term of the
lease, together with any periods covered by an option to extend the lease if
it is reasonably certain to be exercised, or any periods covered by an option
to terminate the lease, if it is reasonably certain not to be exercised.
The Group has the option under some of its leases to either lease the assets
for additional terms, or terminate the lease early (a break option). The Group
applies judgement in evaluating whether it is reasonably certain to exercise
these options. That is, it considers all relevant factors that create an economic
incentive for it to exercise them. For leased properties, this includes the
current and expected profitability of the respective site, as well as the length
of time until the option can be exercised. The judgement currently applied is
that the Group assumes contractual terms unless it is reasonably certain that
an extension or break option will be applied.
After the commencement date, the Group reassesses the lease term if there
is a significant event or change in circumstances that is within its control
and affects its ability to exercise (or not to exercise) the options to renew
(e.g. a change in business strategy). Any reassessment of the lease term
will be reflected in a recalculation of the lease liability and respective
right-of-use asset.
b) Consolidation of structured entities
A structured entity is one in which the Group does not hold the majority
interest but for which management has concluded that voting rights are not
the dominant factor in deciding who controls the entity. In making such an
assessment, management considers the terms of the arrangement to assess
who has responsibility for the management of the entity and its assets.
Where the Group has this responsibility, it is deemed that the Group controls
the entity and it is fully consolidated into the Group accounts. The structured
entity applicable to the Group is Sainsbury’s Thistle Scottish Limited Partnership.
c) Aggregation of operating segments
Management has 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. Three operating segments were identified as follows:
— Retail – Food
— Retail – General Merchandise and Clothing
— Financial Services
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
116
4 Significant accounting judgements, estimates and assumptions continued
Management has considered the economic characteristics, similarity of
products, production processes, customers, sales methods and regulatory
environment of its two Retail segments. In doing so it has been concluded
that they should be aggregated into one ‘Retail’ segment in the financial
statements. This aggregated information provides users the financial
information needed to evaluate the business and the environment in which
it operates.
d) Non-underlying items
In order to provide shareholders with additional insight into the underlying
performance of the business, certain items are excluded from the Group’s
underlying results and presented as ‘profit before non-underlying items’
on the face of the income statement. This is consistent with how the
performance of the Group is reviewed by management. Determining which
items are to be adjusted requires judgement, and considers both the nature
and scale of the item, as well as the circumstances surrounding it. Reversals
of prior non-underlying items are considered based on the same criteria.
Profit before non-underlying items is not defined by International Financial
Reporting Standards and is one of the APMs used by the Group. Therefore it
may not be directly comparable with adjusted measures of other companies.
Further information on non-underlying items included in the Group’s income
statement are included in note 6, along with the impact on the Group cash
flow statement. More details on the Group’s APMs can be found on pages 205
to 208.
e) Impact of COVID-19
The COVID-19 outbreak has developed rapidly in 2020, with a significant
number of infections across many countries. Management has exercised
significant judgement when determining whether any adjustments are
required to the financial statements as at 7 March 2020.
The conditions that existed at the balance sheet date were that a disease,
present in a number of countries globally, was in existence. It had stabilised
in China, however had caused a level of uncertainty in the market. The UK
response to the outbreak was still minor and day-to-day life in the UK where
the Group operates was unchanged. Despite the lockdown in China, a UK
lockdown and subsequent economic impact was not readily apparent at this
stage. As a result none of the conditions at the balance sheet date indicated
that any adjustments would be required to the Group’s financial statements.
The subsequent rise in infections in the UK, significant market movements
and global lockdowns occurred after the year-end date, but do not provide
additional information about conditions that existed at the balance sheet
date. In particular, it was on 11 March that the World Health Organisation
declared the virus a pandemic, and from 16 March that the UK Government
announced major government-backed loans. It is also this date that
day-to-day life in the UK began to be impacted through announced social
distancing measures, with additional, stay at home measures being
enforced even later. The scale of these Government interventions and impact
on daily life in the UK were not apparent at the balance sheet date and
therefore represent non-adjusting events to the Group. Given the significance
of these events, additional disclosures, including sensitivities, are included
in note 41.
Sources of estimation uncertainty
The areas where estimates and assumptions are significant to the financial
statements are as described below. 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.
a) Impairment of non-financial assets
The Group is required to assess whether goodwill has suffered any
impairment loss, based on the recoverable amount of the cash-generating
unit (CGU) or group of CGUs to which it is allocated. 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 16. Actual outcomes
could vary from these estimates.
Other 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 dispose. Value in use is calculated from expected future cash flows
using suitable discount rates and includes management assumptions and
estimates of future performance. The recoverable amount is sensitive to the
discount rate used for the value in use model as well as the expected future
cash-inflows and the growth rate used for extrapolation purposes. During
the current financial period, an impairment charge was recognised of £263
million – further information on the key assumptions and sensitivities is
provided in note 17.
b) Impairment of loans and advances
IFRS 9 requires that the measurement of expected credit losses (ECLs)
should reflect an unbiased and probability weighted amount that is
determined by evaluating a range of forward-looking economic
assumptions. The Group has engaged an external supplier to provide
economic forecasts which are subject to review, challenge and approval.
The ECL models utilise three scenarios including a ‘base case’ scenario
considered to be the most likely outcome together with an upside and
downside scenario. The base case has been assigned a probability weighting
of 40% with the upside and downside scenarios each assigned 30%.
A revised downside scenario was introduced to replace the downside
scenario at 7 March 2020 with more extreme economic assumptions –
also with 30% probability.
The key macro-economic assumptions included in the ECL calculation were:
As at 7 March 2020
As at 9 March 2019
Unemployment rate
Consumer price growth
GDP
Mortgage debt as a percentage of
household income
Real household disposable income
Base
%
3.9
2.0
1.6
99.3
1.5
The above are based on five year averages from the reporting date.
3.9
1.4
2.1
96.5
2.2
Upside
%
Downside
%
Revised
Downside
%
6.1
2.4
1.1
103.4
4.1
2.2
1.3
101.0
1.2
0.2
Base
%
4.3
2.0
1.6
94.1
1.1
Upside
%
Downside
%
Revised
Downside
%
4.2
1.4
2.0
91.9
1.9
4.5
2.4
1.2
97.3
0.6
6.0
2.4
1.1
98.3
0.2
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
117
117
4 Significant accounting judgements, estimates and assumptions continued
Changing the probability of the revised economic downside risk from 30 per
cent to 100 per cent would result in an increase in impairment provisions of
£12 million (2019: £12 million). Note that these sensitivities are based on the
information available at 7 March and do not fully incorporate the effects of
the COVID-19 as this is determined to be a non-adjusting post balance sheet
event. For details regarding the impact on ECLs of COVID-19 in the post
balance sheet period see note 41.
c) Post-employment benefits
Liabilities
The Group operates one defined benefit scheme for employees, segregated
into two sections – the Sainsbury’s section and the Argos section. The
present value of the scheme’s liabilities recognised at the balance sheet
date and the net financing charge recognised in the income statement
are dependent on the discount rate applied which is derived from the
expected yields on high quality corporate bonds over the duration of
the Group’s pension scheme. High quality corporate bonds are those
for which at least one of the main ratings agencies considers them
to be at least AA (or equivalent).
During the year the Group refined it’s method of extrapolation for long
duration liabilities used for determining the discount rate. The corporate
bond dataset used remains unchanged. The Group believes this refinement
better reflects expected yields as it is based on existing data rather than
theoretical extrapolation.
The discount rate used following this refinement is 1.6 per cent. The resulting
actuarial loss is included within the £89 million of remeasurement gains
as disclosed in note 35.
Other key assumptions within this calculation are based on market
conditions or estimates of future events, including mortality rates, as set out
in note 35. The carrying value of the retirement benefit obligations will be
impacted by changes to any of the assumptions used, however is most
sensitive to changes in the discount rate. Sensitivities to movements in the
discount rate are included in note 35.
Assets
The Pension Scheme has circa £2 billion of private market assets, split
between private debt, private equity and property. These assets are held
as they are expected to deliver a greater risk/return profile vs public market
equivalents. The assets are genuinely illiquid (likely to be realised over 5+
years) but the Pension Scheme holds sufficient liquid assets (cash, gilts
and other liquid securities) to be confident that it can meet its pension and
collateral obligations over time.
The valuation of these assets is based on the audited accounts of the funds,
where available, and net asset value statements from the investment
managers where recent accounts are not available. For many of the
investments the valuations provided are at 31 December. In prior years,
these valuations have been used in the year-end pension deficit/surplus
calculation despite the time difference between the fund valuation and the
Group year-end and adjusted for any cash received or paid between the
valuation date and the year-end. This year, to reflect the high level of market
volatility, caused in part by the COVID-19 crisis, the Group has performed
a roll-forward for these valuations using relevant liquid indices as follows:
Asset Class
Global equity GBP return
Global High Yield Debt GBP return
US loans GBP return
Global High Yield Debt local currency return
US loans USD return
UK REITS return
Return
(6.8)%
(0.5)%
0.1%
(2.5)%
(1.8)%
(11.1)%
This has reduced the asset valuations by £57 million. A one per cent increase/
decrease in the indices used would have caused a £1 million decrease/£1
million increase in the adjustment.
d) Provisions
Provisions have been made for onerous contracts, dilapidations, restructuring,
insurance and Financial Services related provisions. These provisions are
estimates and the actual costs and timing of future cash flows are dependent
on future events and market conditions. Any difference between expectations
and the actual future liability will be accounted for in the period when such
determination is made. The carrying amount of provisions will be impacted
by changes in the discount rate. Details of provisions are set out in note 24.
e) Determining fair values
The fair values of financial assets and liabilities are based on prices available
from the market on which the instruments are traded. Where market values
are not available, the fair values of financial assets and liabilities have been
calculated by discounting expected future cash flows at prevailing interest
rates. The fair values of short-term deposits, trade receivables, overdrafts
and payables are assumed to approximate to their book values. Further
information in relation to the fair value of the Group’s financial assets and
liabilities is included within note 30.
f) Revenue recognition – Fair value of Nectar points
The Group estimates the fair value of points awarded under the Nectar
programme by reference to the value per point to a customer, multiplied
by expected breakage assumptions. Breakage represents management’s
estimate of points issued that will never be redeemed. As points issued
under the programme do not expire, such estimates are subject to
uncertainty. Breakage is estimated by management based on the terms
and conditions of membership and historical accumulation and redemption
patterns, and adjusted for changes to any terms and conditions that may
affect members’ redemption patterns.
If the breakage estimate used in determining the deferred revenue for the
Group had been 0.5 per cent lower, the deferred points liability would have
been £20 million higher. If the breakage estimate had been 0.5 per cent
higher, the deferred points liability would have been £20 million lower.
g) Effective interest rate
In calculating the effective interest rate of a financial instrument the Group
takes into account all amounts that are integral to the yield of a financial
instrument as well as incremental transaction costs. In the case of loans
and advances to customers significant judgement is applied in estimating
the effect of various factors, including future customer transactional and
repayment behaviours, on future cash flows.
Estimates are based on historical experience from similar product types.
Management considers that the most material judgement is the estimated
life of credit card balances which is a maximum of 60 months. To the extent
that estimated life differs by +/- 12 months, the value of loans and advances
to customers on the balance sheet would be £9.8 million higher or £11.2
million lower respectively.
h) Inventory
Inventory provisions are recognised in cases where the expected net
realisable value of inventory is lower than its carrying amount, including
provisions for obsolete, slow moving stock and waste. All inventory
provisioning requires a level of judgement, and is based on a number of
factors including current and expected sales performance, stock cover and
in the case of non-food, current trends and changes in technology.
i) Supplier arrangements
Supplier incentives, rebates and discounts, collectively known as ‘supplier
arrangements’, represent a material deduction to cost of sales and directly
affect the Group’s reported margin. The arrangements can be complex, with
amounts spanning multiple products over different time periods, and there
can be multiple triggers and discounts. The accrued value at the reporting
date is included in trade receivables or trade payables, depending on the
right of offset. A description of the different types of supplier arrangements,
and their values for the year, are provided in note 8.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
118118
4 Significant accounting judgements, estimates and assumptions continued
j) Lease liabilities
The discount rate used to calculate the lease liability is the rate implicit in the
lease if it can be readily determined, or the Group’s incremental borrowing
rate (IBR) if not.
The effect of adoption of IFRS 16 on the consolidated balance sheet as at
10 March 2018 is as follows:
11 March 2018
£m
The IBRs depend on the start date and term of the lease, and are determined
based on a number of inputs including a reference (risk free) rate and
adjustments to reflect the Group’s credit risk. The reference rates are based
on UK overnight swap rates and the credit risk adjustments are based on
the prices of instruments issued by the Group and quoted credit default
swaps (“CDS”).
Assets
Property, plant and equipment
Right-of-use asset
Intangible assets
Other receivables
The weighted average IBR applied on transition to IFRS 16 was 5.5 per cent,
with individual leases ranging from 0.7 per cent to 16.5 per cent.
5 Adoption of IFRS 16 ‘Leases’
IFRS 16 ‘Leases’ supersedes IAS 17 ‘Leases’, IFRIC 4 ‘Determining Whether
an Arrangement Contains a Lease’, SIC-15 ‘Operating Leases-Incentives’
and SIC-27 ‘Evaluating the Substance of Transactions in the Legal Form
of a Lease’. The standard sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires lessees
to account for most leases under a single on-balance sheet model.
The Group has adopted IFRS 16 with a date of initial application of 10 March
2019. The Group adopted IFRS 16 using the full retrospective method of
adoption as if it had already been effective at the commencement date
of existing lease contracts. Accordingly, the comparative information
in the consolidated financial statements has been restated.
The Group has elected to use the recognition exemptions for lease contracts
that, at the commencement date, have a lease term of 12 months or less and
do not contain a purchase option (‘short-term leases’), and lease contracts
for which the underlying asset is of low value (‘low-value assets’).
a. Effect of adoption of IFRS 16
The Group’s lease portfolio consists of properties including retail, distribution
and office properties, as well as vehicles and other equipment. Before the
adoption of IFRS 16, the Group classified each of its leases (as lessee) at the
inception date as either a finance lease or an operating lease. A lease was
classified as a finance lease if it transferred substantially all of the risks and
rewards incidental to ownership of the leased asset to the Group; otherwise
it was classified as an operating lease. Assets funded through finance leases
were capitalised as property, plant and equipment and depreciated over
the shorter of their estimated useful lives or the lease term. The amount
capitalised was the lower of the fair value of the asset or the present value
of the minimum lease payments during the lease term. The resulting
lease obligations were included in liabilities net of finance charges. Lease
payments were apportioned between interest (recognised as finance costs)
and reduction of the lease liability. For operating leases under IAS 17, the
lease payments were recognised as rental expense in the income statement
on a straight-line basis over the lease term. Any prepaid rent and accrued
rent were recognised within “Other receivables” and “Trade and other
payables”, respectively.
Upon adoption of IFRS 16, the Group now applies a single recognition and
measurement approach for all leases for which it is the lessee, except for
short-term leases and leases of low-value assets. The Group recognises a
right-of-use asset and a lease liability at the lease commencement date,
and the rental charge is replaced with depreciation on the right-of-use asset
and interest on the lease liability. The new accounting policies for leases are
detailed in note 15.
Non-current assets
Trade and other receivables
Current assets
Liabilities
Trade and other payables
Lease liabilities
Provisions
Current liabilities
Other payables
Lease liabilities
Deferred income tax liability
Provisions
Non-current liabilities
Net assets
Equity
Retained earnings
Total equity
Reconciliation from previously reported operating lease
commitments
Operating lease commitments (discounted) as previously
reported at 10 March 20181
Application of lease specific discount rates
Effect of extension / break periods
IFRS 16 lease liability
Add back finance lease liability already recognised
Net impact of IFRS 16 on lease liability
1.
Comprised of £5,931m retail discounted operating lease commitments and £8m relating to
financial services.
(500)
5,091
(1)
33
4,623
(25)
(25)
50
(503)
15
(438)
245
(5,275)
158
71
(4,801)
(641)
(641)
(641)
£m
(5,939)
178
(107)
(5,868)
90
(5,778)
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
5 Adoption of IFRS 16 ‘Leases’ continued
A full reconciliation of the impact of IFRS 16 on the Group income statement and balance sheet as at 9 March 2019 is set out below:
Group income statement
Revenue
Cost of sales1
Gross profit
Administrative expenses1
Other income
Operating profit
Finance income2
Finance costs1
Share of post-tax profit from joint ventures and associates
Profit before tax
Analysed as:
Underlying profit before tax
Non-underlying items
Income tax credit/(expense)
Profit for the financial year
Earnings per share
Basic earnings
Diluted earnings
Underlying basic earnings
Underlying diluted earnings
119
119
52 weeks to
9 March
2019
(restated)
£m
29,007
(26,719)
2,288
(1,725)
38
601
24
(427)
4
202
601
(399)
202
(16)
186
52 weeks to
9 March
2019
(reported)
£m
29,007
(27,000)
2,007
(1,733)
38
312
22
(99)
4
239
635
(396)
239
(20)
219
IFRS 16
impact
£m
–
281
281
8
–
289
2
(328)
–
(37)
(34)
(3)
(37)
4
(33)
Pence
Pence
Pence
9.1
8.9
22.0
20.3
(1.5)
(1.4)
(1.3)
(1.2)
7.6
7.5
20.7
19.1
1 Adjustments to cost of sales, administrative expenses and finance costs reflect rental expenses under IAS 17 being replaced with interest on lease liabilities and depreciation on right-of-use assets.
2 Adjustment to finance income relates to interest income on leases where the Group acts as lessor.
There is no material impact on other comprehensive income.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
120120
5 Adoption of IFRS 16 ‘Leases’ continued
Group balance sheet
Non-current assets
Property, plant and equipment1
Right-of-use asset2
Intangible assets
Investments in joint ventures and associates
Financial assets at fair value through other comprehensive income
Other receivables3
Amounts due from Financial Services customers
Derivative financial instruments
Net retirement benefit surplus
Current assets
Inventories
Trade and other receivables3
Amounts due from Financial Services customers
Financial assets at fair value through other comprehensive income
Derivative financial instruments
Cash and cash equivalents
Assets held-for-sale
Total assets
Current liabilities
Trade and other payables4
Amounts due to Financial Services customers and other deposits
Borrowings (including lease liabilities)5
Derivative financial instruments
Taxes payable
Provisions7
Net current liabilities
Non-current liabilities
Other payables4
Amounts due to Financial Services customers and other deposits
Borrowings (including lease liabilities)5
Derivative financial instruments
Deferred income tax liability6
Provisions7
Net assets
Equity
Called up share capital
Share premium account
Merger reserve
Capital redemption reserve
Other reserves
Retained earnings
Total equity before perpetual securities
Perpetual capital securities
Perpetual convertible bonds
Total equity
52 weeks to
9 March
2019
(reported)
£m
9,708
–
1,044
205
645
33
3,349
9
959
15,952
1,929
661
3,638
211
21
1,121
7,581
8
7,589
52 weeks to
9 March
2019
(restated)
£m
9,193
4,993
1,043
205
645
57
3,349
9
959
20,453
1,929
630
3,638
211
21
1,121
7,550
8
7,558
IFRS 16
impact
£m
(515)
4,993
(1)
–
–
24
–
–
–
4,501
–
(31)
–
–
–
–
(31)
–
(31)
23,541
4,470
28,011
(4,444)
(5,797)
(832)
(17)
(204)
(123)
(11,417)
(3,828)
(340)
(1,804)
(950)
(17)
(397)
(160)
(3,668)
8,456
630
1,147
568
680
172
4,763
7,960
248
248
8,456
71
–
(517)
–
–
14
(432)
(463)
253
–
(5,192)
–
162
65
(4,712)
(674)
–
–
–
–
–
(674)
(674)
–
–
(674)
(4,373)
(5,797)
(1,349)
(17)
(204)
(109)
(11,849)
(4,291)
(87)
(1,804)
(6,142)
(17)
(235)
(95)
(8,380)
7,782
630
1,147
568
680
172
4,089
7,286
248
248
7,782
1 Reduction in property, plant and equipment reflects previously capitalised direct costs in relation to leases now being included within right-of-use assets, and removal of finance leases recognised under IAS 17.
2 Recognition of right-of-use assets.
3 Adjustments to receivables reflect the recognition of lease receivables where the Group sublets leased properties, offset by the removal of any rent prepayments.
4 Predominantly the removal of any liabilities previously recognised due to lease incentives, along with rent accruals.
5 Recognition of lease liabilities.
6 Deferred tax asset recognised on transition.
7 Predominantly relates to the removal of onerous lease provisions.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
5 Adoption of IFRS 16 ‘Leases’ continued
Impact on Group cash flow statement
Prior to the adoption of IFRS 16, the repayment of interest on obligations under finance leases was presented within cash flows from financing activities.
This was to be consistent with the presentation of payments of capital elements of finance leases. The repayment of interest on all lease obligations
is now presented within cash flows from operating activities, as lease arrangements are part of the operating activities of the business. The impact of
adopting IFRS 16 on the Group consolidated cash flow statement as at 9 March 2019 is as follows:
Group cash flow statement
121
121
Cash flows from operating activities
Profit before tax1
Net finance costs2
Share of post-tax-profit from joint ventures and associates
Operating profit
Adjustments for:
Depreciation expense3
Amortisation expense
Non-cash adjustments arising from acquisitions
Financial Services impairment losses on loans and advances
Loss on sale of properties
Impairment charge of property, plant and equipment
Share-based payments expense
Non-cash defined benefit scheme expenses
Cash contributions to benefit schemes
Operating cash flows before changes in working capital
Changes in working capital
Increase in inventories
Increase in current financial assets
Decrease in trade and other receivables4
Increase in amounts due from Financial Services customers and other deposits
Increase in trade and other payables4
Increase in amounts due to Financial Services customers and other deposits
Decrease in provisions and other liabilities5
Cash generated from operations
Interest paid6
Corporation tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment7
Initial direct costs on right-of-use assets7
Purchase of intangible assets
Proceeds from disposal of property, plant and equipment
Proceeds from financial assets at fair value through other comprehensive income
Investment in joint ventures
Interest received
Dividends and distributions received
Net cash used in investing activities
52 weeks to
9 March
2019
(reported)
£m
52 weeks to
9 March
2019
(restated)
£m
IFRS 16
impact
£m
239
77
(4)
312
649
143
(2)
98
17
3
39
108
(63)
1,304
(118)
(97)
74
(1,480)
94
1,077
(105)
749
(63)
(68)
618
(478)
–
(116)
64
39
(5)
4
18
(474)
(37)
326
–
289
470
–
–
–
–
–
–
–
–
759
–
–
18
–
(23)
–
12
766
(341)
–
425
4
(11)
–
–
–
–
–
–
(7)
202
403
(4)
601
1,119
143
(2)
98
17
3
39
108
(63)
2,063
(118)
(97)
92
(1,480)
71
1,077
(93)
1,515
(404)
(68)
1,043
(474)
(11)
(116)
64
39
(5)
4
18
(481)
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
122122
5 Adoption of IFRS 16 ‘Leases’ continued
Group cash flow statement continued
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Proceeds from borrowings
Repayment of borrowings
Purchase of own shares
Repayment of capital element of lease obligations8
Repayment of capital element of obligations under hire purchase arrangements
Interest elements of lease obligations9
Dividends paid on ordinary shares
Dividends paid on perpetual securities
Net cash used in financing activities
Net decrease in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
52 weeks to
9 March
2019
(reported)
£m
52 weeks to
9 March
2019
(restated)
£m
IFRS 16
impact
£m
22
135
(593)
(30)
(5)
(27)
(7)
(224)
(23)
(752)
(608)
1,728
1,120
–
–
–
–
(425)
–
7
–
–
(418)
–
–
–
22
135
(593)
(30)
(430)
(27)
–
(224)
(23)
(1,170)
(608)
1,728
1,120
(1) Reduction in profit due to recognition of IFRS 16 depreciation and interest being greater than derecognised IAS 17 costs, predominantly rent.
(2) Add back of additional interest expense on recognition of lease liabilities.
(3) Depreciation on right-of-use assets added back as non-cash.
(4) Movement year-on-year of de-recognised accrual balances, predominantly prepaid and accrued rent.
(5) Movement year-on-year of de-recognised onerous leases.
(6) IFRS 16 interest paid offset by de-recognised existing IAS 17 finance leases.
(7) Initial direct costs capitalised as part of right-of-use assets removed from the purchase of property, plant and equipment with outflow now recognised in right-of-use asset along with initial direct costs
previously expensed.
(8) Repayment of IFRS 16 lease liability capital element offset by repayment of IAS 17 finance lease liabilities de-recognised.
(9) De-recognition of IAS 17 finance leases replaced by IFRS 16.
b. Summary of new accounting policies
The new accounting policies of the Group upon adoption of IFRS 16 are detailed within note 15.
c. Updates to judgements and estimates
New judgements and estimates as a result of adopting IFRS 16 are as disclosed in note 4.
6 Profit before non-underlying items
In order to provide shareholders with additional insight into the underlying performance of the business, items recognised in reported profit or loss before tax
which, by virtue of their size and/or nature do not reflect the Group’s underlying performance, are excluded from the Group’s underlying results. The adjusted
items are as follows:
— Financial Services transition – multi-year costs incurred in transitioning to a new, more flexible banking platform as part of the previously announced
New Bank Programme. These principally comprise contractor and service provider costs relating to the migration of data and other services to the Bank’s
new infrastructure and operating model.
— Profit on disposal of properties – such disposals are not part of the Group’s underlying business.
— 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 and are held within the property JVs. The valuations are impacted by external market factors and can
therefore vary significantly year-on-year.
— Perpetual securities coupons – these are accounted for as equity in line with IAS 32 ‘Financial instruments: Presentation’, however are accrued on a
straight-line basis and included as an expense within underlying profit as they are included by management when assessing Group borrowing.
— Non-underlying finance movements – these include fair value remeasurements on derivatives not in a hedging relationship. The fair value measurements
are impacted by external market factors and can fluctuate significantly year-on-year. Lease interest on impaired non-trading sites, including site closures,
is excluded from underlying profit as those sites do not contribute to the underlying business.
— IAS 19 pension expenses include the financing element and scheme expenses of the Group’s defined benefit scheme. These are reported outside
underlying profit as they no longer relate to the Group’s on-going activities following closure of the scheme to future accrual.
— Acquisition adjustments – these reflect the adjustments arising from acquisitions including the fair value unwind and amortisation of acquired
intangibles.
— Other – these are items which are material and infrequent in nature and do not relate to the Group’s underlying performance and in the current year
include the property strategy programme and retail restructuring programme.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
6 Profit before non-underlying items continued
The effects of these adjusted items are as follows:
Cost of sales
£m
Administrative
expenses
£m
Other income
£m
Net finance
income/
(costs)
£m
Share of loss
from JVs
£m
Total
adjustments
before tax
£m
Property strategy programme
Retail restructuring programme
Financial Services transition and other
Total strategic programmes
(255)
(21)
(2)
(278)
Property, finance, pension and
acquisition adjustments
Profit/(loss) on disposal of properties
Investment property fair value movements
Perpetual securities coupons
Non-underlying finance movements
IAS 19 pension expenses
Acquisition adjustments
Total property, finance, pension and
acquisition adjustments
Tax adjustments
Over provision in prior years
Revaluation of deferred tax balances
–
–
–
–
–
–
–
–
–
(41)
(11)
(27)
(79)
–
–
–
–
(9)
(26)
(35)
–
–
–
–
–
–
56
–
–
–
–
–
56
–
–
–
–
–
–
–
–
23
(17)
28
–
34
–
–
–
–
–
–
(21)
(3)
–
(5)
–
–
(29)
–
–
(296)
(32)
(29)
(357)
35
(3)
23
(22)
19
(26)
26
–
–
123
123
Total
adjustments
£m
(268)
(26)
(25)
(319)
38
(3)
19
(19)
15
(21)
29
8
(3)
Tax
£m
28
6
4
38
3
–
(4)
3
(4)
5
3
8
(3)
Total adjustments
(278)
(114)
56
34
(29)
(331)
46
(285)
(a) Property strategy programme
— The Group identified an impairment indicator during the period following an approved programme of store closures during the year. This programme
was initially announced at the Capital Markets Day in September. It was subsequently revisited during the second half of the year resulting in additional
planned closures. An impairment charge of £(252) million has been recognised on property, plant and equipment (£154 million), right-of-use assets
(£80 million) and goodwill allocated to stores (£18 million). £(126) million of the charge is in relation to properties identified for closure. The remaining
£(126) million relates to unprofitable and marginally profitable sites for which the cash flows no longer support the carrying amount. Further information
on the impairment charges, including sensitivities, can be found in note 17.
— In addition, store closure costs have been recognised in the period of £(44) million. They comprise £(41) million onerous contract charges and dilapidation
costs, and £(3) million of redundancy provisions.
(b) Retail restructuring programme
— Restructuring costs of £(32) million in the year mostly comprise redundancy payments following changes to the Group’s store management structure,
responding to changing customer shopping habits and reducing costs throughout the store estate, as well as the closure of one Argos distribution centre,
prior to the wider store closure programme announced at the Capital Markets Day.
— Also includes costs incurred following announced head-office restructures during the year.
(c) Financial Services transition and other
— These predominantly comprise Financial Services transition costs of £(19) million and were incurred in transitioning to a new, more flexible banking
platform as part of the previously announced New Bank Programme. These principally comprise contractor and service provider costs relating to the
migration of data and other services to the Bank’s new infrastructure and operating model.
— In addition, a number of ATMs were decommissioned during the year, leading to write-downs of £(6) million within property, plant and equipment.
(d) Property, finance, pension and acquisition adjustments
— Profit on disposal of properties for the financial period comprised £56 million for the Group and £(21) million for the joint ventures.
— The coupons on the perpetual subordinated capital securities and the perpetual subordinated convertible bonds are accounted for as equity in line with
IAS 32 ‘Financial Instruments: Presentation’, however are accrued on a straight-line basis and included as an expense within underlying profit before tax.
— Non-underlying finance movements for the financial year comprised £(17) million for the Group and £(5) million for the joint ventures. These are presented
separately in note 10.
— Defined benefit pension expenses comprise pension finance income of £28 million and scheme expenses of £(9) million (see note 35). Included in the prior
year-end were £(98) million non-cash past service costs relating to Guaranteed Minimum Pension (GMP) equalisation and £(2) million of pension related
expenses incurred directly by the Group.
— Acquisition adjustments of £(26) million reflect the unwind of non-cash fair value adjustments arising from the Sainsbury’s Bank, Home Retail Group and
Nectar UK acquisitions and are recognised as follows:
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
124124
6 Profit before non-underlying items continued
Revenue
Cost of sales
Depreciation
Amortisation
Comparative information
2019 (restated)
Retail restructuring programme
Financial Services transition and other
Argos integration costs
Asda transaction costs
Total strategic programmes
Property, finance, pension and
acquisition adjustments
Loss on disposal of properties
Impairments and investment property
fair value movements
Perpetual securities coupons
Non–underlying finance movements
IAS 19 pension expenses
Acquisition adjustments
Total property, finance, pension and acquisition
adjustments
Tax adjustments
Over provision in prior years
Revaluation of deferred tax balances
Total adjustments
2020
2019
Financial
Services
£m
Argos
£m
Nectar
£m
Total Group
£m
–
–
–
–
–
–
2
(2)
(18)
(18)
–
–
–
(8)
(8)
–
2
(2)
(26)
(26)
Financial
Services
£m
–
–
–
(1)
(1)
Argos
£m
Nectar
£m
Total Group
£m
–
2
(13)
(16)
(27)
–
–
–
(25)
(25)
–
2
(13)
(42)
(53)
Revenue
£m
Cost of sales
£m
Administrative
expenses
£m
Other
income
£m
Net finance
(costs)/
income
£m
Share of
loss from
JVs
£m
Total
adjustments
before tax
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11)
(11)
–
–
(11)
(81)
(70)
(40)
(37)
(228)
–
(3)
–
–
(110)
(42)
(155)
–
–
(383)
–
–
–
–
–
(17)
–
–
–
–
–
(17)
–
–
(17)
–
–
–
(9)
(9)
–
–
23
10
(8)
–
25
–
–
16
–
–
–
–
–
–
(2)
–
(2)
–
–
(4)
–
–
(4)
(81)
(70)
(40)
(46)
(237)
(17)
(5)
23
8
(118)
(53)
(162)
–
–
(399)
Cash flow statement
The table below shows the impact of non-underlying items on the Group cash flow statement:
Cash flows from operating activities
IAS 19 pension expenses
Sainsbury’s Bank transition
Argos integration costs
Property strategy programme
Restructuring costs
Transaction costs relating to the proposed merger with Asda
Cash used in operating activities
Cash flows from investing activities
Proceeds from property disposals
Cash generated from investing activities
Net cash flows
Tax
£m
15
13
8
2
38
9
–
(5)
(3)
23
10
34
61
(2)
131
2020
£m
(9)
(22)
(2)
(8)
(26)
(13)
(80)
81
81
1
Total
adjustments
£m
(66)
(57)
(32)
(44)
(199)
(8)
(5)
18
5
(95)
(43)
(128)
61
(2)
(268)
2019
£m
(10)
(66)
(52)
–
(152)
(39)
(319)
64
64
(255)
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
125
125
7 Segment reporting
Background
The Group’s businesses are organised into three (previously four) operating segments:
— Retail – Food;
— Retail – General Merchandising and Clothing;
— Financial Services (Sainsbury’s Bank plc and Argos Financial Services entities).
Previously the Group has disclosed a Property Investment segment, relating to its joint ventures with The British Land Company PLC and Land Securities
Group PLC. Following the sale of properties from the joint venture with British Land to Reality Income Corporation during the year, management has
reassessed this segment, and determined that it no longer meets the definition of an operating segment due to its results not being reviewed by the chief
operating decision maker to make decisions about resource allocations. As a result, financial information relating to this component is now included in the
Group’s Retail segment. Comparative information has been restated.
As discussed in note 4, the Food and General Merchandise and Clothing segments have been aggregated into a Retail segment in the financial statements.
The Operating Board assesses the performance of all segments on the basis of underlying profit before tax. Underlying profit before tax is an APM as
described in note 6. All material operations and assets are in the UK.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment
capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.
Accounting policies
Revenue
Revenue consists of sales through retail outlets and online and, in the case of Financial Services, interest receivable, fees and commissions and excludes Value
Added Tax. Revenue is recognised when the Group has a contract with a customer and a performance obligation has been satisfied, at the transaction price
allocated to that performance obligation.
a) Retail – sale of goods
For sales through retail outlets and online, the transaction price is the value of the goods, net of returns, colleague discounts, vouchers and sales made on an
agency basis. Revenue is recognised when the customer obtains control of the goods, which is when the transaction is completed in-store or, for online orders,
when goods have been delivered. Commission income is recognised in revenue based on the terms of the contract.
b) Nectar points
On issuance of Nectar points within the Group, a portion of the transaction price is allocated to the loyalty programme using the fair value of points issued
and corresponding deferred revenue recognised in relation to points issued but not yet redeemed. The deferral is treated as a deduction from revenue.
The fair value of the points awarded is determined with reference to the fair value to the customer and considers factors such as breakage and the money
off that each point entitles a customer to. Deferred revenue is subsequently recognised when Nectar points are redeemed.
c) Other income
Other income generally consists of profits and losses on disposal of assets.
d) Financial Services
Interest income is recognised in the income statement for all instruments measured at amortised cost using the effective interest method. This calculation
takes into account all amounts that are integral to the yield as well as incremental transaction costs. The effective interest rate is the rate that discounts the
expected future cash flows over the expected life of the financial instrument to the net carrying amount of the financial asset or liability at initial recognition.
Fees and commissions that are not integral to the effective interest rate calculation relate primarily to certain credit card and storecard fees, ATM interchange
fees, insurance introduction commission and warranty commission receivable. These are recognised in the income statement on an accruals basis 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 clawback, an appropriate element of the commission receivable is deferred
and amortised over the clawback period. Where the relevant contract requires Financial Services to perform future services in respect of the income receivable,
initial commission is recognised on completion of the service provided, with an element deferred to reflect services yet to be performed in future periods.
Margin from the sale of travel money, representing the difference between the cost price and the selling price, is recognised when the sale to the customer
takes place within other operating income.
Segment revenue presents a disaggregation of revenue from customers consistent with the Group’s primary revenue streams.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
126126
7 Segment reporting continued
Income statement and balance sheet
52 weeks to 7 March 2020
Segment revenue
Retail sales to external customers
Financial Services to external customers1
Underlying revenue
Revenue
Underlying operating profit
Underlying finance income
Underlying finance costs
Underlying share of post-tax profit from joint ventures and associates
Underlying profit before tax
Non-underlying expense (note 6)
Profit before tax
Income tax expense (note 11)
Profit for the financial period
Assets
Investment in joint ventures and associates
Segment assets
Segment liabilities
Other segment items
Capital additions2
Depreciation expense3
Amortisation expense4
Net impairment and onerous contract charge
Share-based payments
Retail
£m
Financial
Services
£m
28,424
–
28,424
28,424
938
4
(404)
–
538
–
569
569
569
48
–
–
–
48
Group
£m
28,424
569
28,993
28,993
986
4
(404)
–
586
(331)
255
(103)
152
18,463
9
18,472
9,465
–
9,465
27,928
9
27,937
(11,738)
(8,426)
(20,164)
1,021
1,119
106
300
34
37
8
23
6
3
1,058
1,127
129
306
37
1 Financial Services income includes £405 million recognised using the effective interest rate method.
2 Retail capital additions consists of right-of-use asset additions of £406 million, property, plant and equipment additions of £527 million and intangible asset additions of £88 million. Financial Services capital
additions consists of right-of-use asset additions of £nil, property, plant and equipment additions of £1 million and intangible asset additions of £36 million.
3 Depreciation within the Retail segment includes a £2 million charge in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK.
4 Amortisation expense within the Retail segment includes £26 million charge in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
7 Segment reporting continued
Income statement and balance sheet
52 weeks to 9 March 2019
Segment revenue
Retail sales to external customers
Financial Services to external customers1
Underlying revenue
Revenue
Underlying operating profit
Underlying finance income
Underlying finance costs
Underlying share of post-tax profit from joint ventures and associates
Underlying profit before tax
Non-underlying expense (note 6)
Profit before tax
Income tax expense (note 11)
Profit for the financial period
Assets
Investment in joint ventures and associates
Segment assets
Segment liabilities
Other segment items
Capital additions2
Depreciation expense3
Amortisation expense4
Net impairment and onerous contract charge
Share-based payments
Retail
(restated)
£m
28,466
–
28,466
28,466
981
5
(424)
8
570
Financial
Services
(restated)
£m
–
541
541
541
31
–
–
–
31
127
127
Group
(restated)
£m
28,466
541
29,007
29,007
1,012
5
(424)
8
601
(399)
202
(16)
186
18,885
205
19,090
8,921
–
8,921
27,806
205
28,011
(12,284)
(7,945)
(20,229)
941
1,111
127
3
36
44
8
16
–
3
985
1,119
143
3
39
1 Financial Services income includes £385 million recognised using the effective interest rate method.
2
Retail capital additions consists of right-of-use asset additions of £388 million, property, plant and equipment additions of £473 million and intangible asset additions of £80 million. Financial Services capital
additions consists of right-of-use asset additions of £nil, property, plant and equipment additions of £8 million and intangible asset additions of £36 million.
3 Depreciation within the Retail segment includes a £13 million charge in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK.
4
Amortisation expense within the Retail segment includes £41 million charge in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK. Amortisation expense within the
Financial Services segment includes a £1 million charge in relation to the unwind of fair value adjustments recognised on acquisition of Sainsbury’s Bank.
Geographical segments
The Group trades predominantly in the UK and the Republic of Ireland and consequently the majority of revenues, capital expenditure and segment net
assets arise there. The profits, turnover and assets of the businesses in the Republic of Ireland are not material to the Group.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
128128
7 Segment reporting continued
Cash flow
Profit/(loss) before tax
Net finance costs
Share of post-tax loss/(profit) from joint ventures and associates
Operating profit
Adjustments for:
Depreciation and amortisation expense
Net impairment charge on property, plant and equipment, right-of-use
asset, investment property and intangible assets
Non-cash adjustments arising from acquisitions
Financial Services impairment losses on loans and advances
(Profit)/loss on sale of properties and early termination of leases
Share-based payments expense
Non-cash defined benefit scheme expenses
Cash contributions to defined benefit scheme
Operating cash flows before changes in working capital
Changes in working capital
Increase in working capital
Cash generated from operations
Interest paid
Corporation tax paid
Net cash generated/(used) from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment excluding strategic capital
expenditure
Strategic capital expenditure
Purchase of property, plant and equipment
Initial direct costs on new leases
Purchase of intangible assets
Proceeds from disposal of property, plant and equipment
Proceeds from financial assets at fair value through other
comprehensive income
Investment in joint ventures
Interest received
Dividends and distributions received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Proceeds from borrowings
Repayment of borrowings
Repayment upon maturity of convertible bonds
Purchase of own shares
Repayment of capital element of obligations under lease liabilities
Repayment of capital element of obligations under hire purchase
agreements
Dividends paid on ordinary shares
Dividends paid on perpetual securities
Net cash used in financing activities
Intra group funding
Bank capital injections
Net cash (used in)/generated from intra group funding
Net decrease in cash and cash equivalents
52 weeks to 7 March 2020
52 weeks to 9 March 2019
Retail
(restated)
%
Financial
Services
(restated)
£m
Group
(restated)
£m
APM
reference
Retail
£m
235
363
29
627
1,225
257
(2)
–
(56)
34
9
(52)
Financial
Services
£m
20
3
–
23
31
6
–
80
–
3
–
–
Group
£m
255
366
29
650
223
403
(4)
622
1,256
263
1,238
3
(2)
80
(56)
37
9
(52)
(2)
–
17
36
108
(63)
(21)
–
–
(21)
24
–
–
98
–
3
–
–
202
403
(4)
601
1,262
3
(2)
98
17
39
108
(63)
a
b
d
f
a
f
e
d
d
d
e
c
d
a
2,042
143
2,185
1,959
104
2,063
(71)
1,971
(384)
(113)
1,474
(517)
–
(517)
(13)
(82)
81
–
–
2
143
(248)
(105)
–
3
(102)
(319)
1,866
(384)
(110)
1,372
(38)
1,921
(404)
(61)
1,456
(510)
(406)
–
(7)
(413)
(548)
1,515
(404)
(68)
1,043
(2)
(519)
(430)
(8)
(438)
–
(2)
–
(38)
–
–
–
–
–
–
(519)
(13)
(120)
81
–
–
2
143
(36)
(466)
(11)
(78)
64
39
(5)
4
18
–
(8)
–
(38)
–
–
–
–
–
(36)
(474)
(11)
(116)
64
39
(5)
4
18
(386)
(40)
(426)
(435)
(46)
(481)
15
250
(169)
(450)
(18)
(419)
(10)
(247)
(23)
(1,071)
–
–
–
–
–
(1)
–
–
–
15
250
(169)
(450)
(18)
(420)
(10)
(247)
(23)
(1)
(1,072)
(35)
(35)
(18)
35
35
(108)
–
–
(126)
22
135
(593)
–
(30)
(429)
(27)
(224)
(23)
(1,169)
(110)
(110)
(258)
–
–
–
–
–
(1)
–
–
–
(1)
110
110
(350)
22
135
(593)
–
(30)
(430)
(27)
(224)
(23)
(1,170)
–
–
(608)
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
129
129
8 Supplier arrangements
Supplier incentives, rebates and discounts, collectively known as ‘supplier arrangements’, represent a material deduction to cost of sales and directly affect
the Group’s reported margin. The arrangements can be complex, with amounts spanning multiple products over different time periods, and there can be
multiple triggers and discounts. The accrued value at the reporting date is included in trade receivables or trade payables, depending on the right of offset.
The four key types are as follows:
— Discounts and supplier incentives – these represent the majority of all supplier arrangements and are linked to individual unit sales. The incentive is
typically based on an agreed sum per item sold on promotion for a period and therefore is considered part of the purchase price of that product.
— Fixed amounts – these are agreed with suppliers primarily to support in-store activity including promotions, such as utilising specific space. These
involve a degree of judgement and estimation in ensuring the appropriate cut-off of arrangements for fixed amounts which span period-end. These
require judgement to determine when the terms of the arrangement are satisfied and that amounts are recognised in the correct period.
— Supplier rebates – these are typically agreed on an annual basis, aligned with the Group’s financial year. The rebate amount is linked to pre-agreed
targets such as sales volumes and requires estimates of the amount earned up to the balance sheet date, for each relevant supplier contract. Where
agreements span a financial period-end, estimations are required of projected turnover and judgement may also need to be applied to determine the
rebate level earned as agreements may involve multiple tiers. In order to minimise any risk arising from estimation, agreements from suppliers are
obtained to agree the value to be recognised at year-end, prior to it being invoiced. By aligning the agreements to the Group’s financial year, where
possible, the judgements required are minimised.
— Marketing and advertising income – relates to income which is directly linked to the cost of producing the Argos catalogue as well as advertising income
from suppliers through the Group’s subsidiary Nectar 360 Services LLP (previously Insight 2 Communication). Income relating to the Argos catalogue is
recognised once agreed with the supplier and when the catalogue is made available to the Group. Advertising income within Nectar 360 involves a level
of judgement to ensure amounts are recognised in the correct period.
The income for the above arrangements is recognised as a credit within cost of sales unless the income earned relates to inventory purchases which are held
by the Group at the reporting date, in which case the income is included within the cost of those inventories. It is then subsequently recognised when the
inventory is sold.
Of the above categories, fixed amounts, supplier rebates and marketing and advertising income involve a level of judgement and estimation. The amounts
recognised in the income statement for these three categories in the financial year are as follows:
Fixed amounts
Supplier rebates
Marketing and advertising income
Total supplier arrangements
Of the above amounts, the following was outstanding and held on the balance sheet at the period-end:
Within inventory
Within current trade receivables
Supplier arrangements due
Accrued supplier arrangements
Within current trade payables
Supplier arrangements due
Deferred income due
Total supplier arrangements
2020
£m
278
68
105
451
2020
£m
(7)
44
38
12
(2)
85
2019
£m
281
69
107
457
2019
£m
(7)
39
39
22
(1)
92
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
130130
9 Operating profit
Accounting policies
Cost of sales
Cost of sales consists of all costs that are directly attributable to the point of sale including warehouse, transportation costs and all the costs of operating
retail outlets. In the case of Financial Services, cost of sales includes interest expense on operating activities, calculated using the effective interest method.
Operating profit is stated after charging/(crediting) the following items:
Employee costs (note 34)
Depreciation expense (note 14 & note 15)1
Amortisation expense (note 16)2
(Profit)/loss on disposal of properties (note 6)
Foreign exchange (gains)/losses
IFRS 9 impairment losses on loans and advances
Impairment and onerous contract charges
1 Depreciation expense includes £2 million (2019: £13 million) in relation to the unwind of acquisition adjustments.
2 Amortisation expense includes £26 million charge (2019: £41 million) in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK.
Auditor's remuneration
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
Other non-audit fees
Total fees
2020
£m
3,227
1,127
129
(56)
20
80
306
2020
£m
1.0
2.9
0.1
–
4.0
2019
(restated)
£m
3,170
1,119
143
17
(12)
98
3
2019
£m
1.0
2.2
0.1
0.5
3.8
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
10 Finance income and finance costs
Accounting policies
Finance income and costs, excluding those arising from Financial Services, are recognised in the income statement for financial assets and liabilities measured
at amortised cost using the effective interest method. For Financial Services, finance income and finance costs are recognised in revenue and cost of sales.
Interest paid and interest received for the purpose of the cash flow statement relates to retail only, with Financial Services interest paid and interest received
included in the net operating cash flow.
The coupons on the perpetual capital securities and perpetual convertible bonds are accounted for as dividends in accordance with IAS 32 ‘Financial Instruments:
Presentation’ and hence are not a finance cost.
131
131
Interest on bank deposits and other financial assets
Fair value measurements
IAS 19 pension financing income
Finance income on net investment in leases
Finance income
Borrowing costs:
Secured borrowings
Unsecured borrowings
Lease liabilities
Fair value measurements
Other finance costs:
Interest capitalised – qualifying assets
IAS 19 pension financing charge
Transaction financing costs
Perpetual securities coupon
Finance costs
2020
Non–
underlying
£m
Underlying
£m
Total
£m
Underlying
£m
2019 (restated)
Non–
underlying
£m
2
–
–
2
4
(50)
(12)
(323)
–
(385)
4
–
–
(23)
(19)
(404)
–
–
28
–
28
–
–
(9)
(8)
(17)
–
–
–
23
23
6
2
–
28
2
32
(50)
(12)
(332)
(8)
(402)
4
–
–
–
4
3
–
–
2
5
(55)
(19)
(333)
–
(407)
6
–
–
(23)
(17)
(398)
(424)
–
19
–
–
19
–
–
(9)
–
(9)
–
(8)
(9)
23
6
(3)
Total
£m
3
19
–
2
24
(55)
(19)
(342)
–
(416)
6
(8)
(9)
–
(11)
(427)
Fair value remeasurements relate to net fair value movements on derivative financial instruments not designated in a hedging relationship. The prior year
includes a £10 million fair value gain on financial assets at fair value through other comprehensive income that was reclassified to the income statement on
disposal of the related debt-securities.
11 Taxation
Accounting policies
Current tax
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.
Amendments to IAS 12 ‘Income Taxes’ were adopted by the Group in the current financial year. The amendments clarified that an entity must recognise all
income tax consequences of dividends in profit or loss, other comprehensive income or equity, depending on where the entity recognised the originating
transaction or event that generated the distributable profits giving rise to the dividend.
Previously the tax on dividends paid on the perpetual securities was recognised in equity, however under the amended standard, this is now recognised in
the income statement. The tax on the perpetual securities was £5 million in the prior year. The comparative balances have therefore not been restated based
on materiality.
Deferred tax
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.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
132132
11 Taxation continued
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.
Current tax expense:
Current year UK tax
Current year overseas tax
Under/(over) provision in prior years
Total current tax expense
Deferred tax credit:
Origination and reversal of temporary differences
Under/(over) provision in prior years
Total deferred tax expense/(credit)
Total income tax expense in income statement
Analysed as:
Underlying tax
Non-underlying tax
Total income tax expense in income statement
Underlying tax rate
Effective tax rate
2020
£m
96
5
(13)
88
(2)
17
15
103
149
(46)
103
2019
(restated)
£m
102
5
(26)
81
(35)
(30)
(65)
16
147
(131)
16
25.4%
40.4%
24.5%
7.9%
The effective tax rate of 40.4 per cent (2019: 7.9 per cent (as restated)) is higher than (2019: lower than) the standard rate of corporation tax in the UK of 19%.
The differences are explained below:
Profit before tax
Income tax at UK corporation tax rate of 19.0% (2019: 19.0%)
Effects of underlying items:
Disallowed depreciation on UK properties
Under /(over) provision in prior years
Revaluation of deferred tax balances
Other
Effects of non-underlying items1:
Profit on disposal of properties
Investment property fair value movements
Property strategy programme
Financial Services transition and other
Asda transaction costs
Non-underlying finance movements
Under/(over) provision in prior years
Revaluation of deferred tax balances
Other
Total income tax expense in income statement
1 Disclosed where the tax on non-underlying items differs from the statutory rate.
2020
£m
255
48
24
11
1
2
(10)
1
28
2
–
1
(7)
3
(1)
103
2019
(restated)
£m
202
38
28
5
3
(3)
(5)
–
–
–
7
1
(61)
2
1
16
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
133
133
11 Taxation continued
The over provision in prior years reflected in 2019 includes a prior year deferred tax credit of £50 million that arose on the recognition of a UK capital loss
which crystallised as part of transactions undertaken by the Group in 2015/16 to eliminate dormant/limited activity companies relating to the US business.
The main rate of UK corporation tax reduced from 20 per cent to 19 per cent from 1 April 2017. A further reduction in the corporation tax rate to 17%, effective
from 1 April 2020, was substantively enacted in a prior period, so its effect is reflected in these financial statements. Deferred tax on temporary differences
and tax losses as at the balance sheet date is calculated at the substantively enacted rates at which the temporary differences and tax losses are expected to
reverse. A change to the corporation tax rate, so that it remains at 19 per cent rather than reducing to 17 per cent from 1 April 2020, was announced in the 2020
Budget. However, this rate change was not substantively enacted at the balance sheet date, so its effect is not reflected in these financial statements.
The effect of a two per cent increase in the corporation tax rate on the deferred tax balances at the balance sheet date would increase the deferred tax
liability by £32 million, which is primarily recognised in the income statement.
Income tax charged or (credited) to equity and/or other comprehensive income during the year is as follows:
52 weeks to 07 March 2020
Current tax recognised in equity or other comprehensive income
Deferred tax recognised in equity or other comprehensive income
Income tax charged
52 weeks to 09 March 2019
Current tax recognised in equity or other comprehensive income
Deferred tax recognised in equity or other comprehensive income
Income tax charged/(credited)
1 Recognised in other comprehensive income.
2 Recognised in equity.
Share based
payments2
£m
Retirement
benefit
obligations1
£m
Fair value
movements1
£m
Perpetual
security
coupons2
£m
IFRS 9
transition2
£m
–
–
–
(1)
1
–
–
15
15
–
216
216
–
–
–
(2)
15
13
–
–
–
(5)
–
(5)
–
–
–
(2)
(15)
(17)
Total
£m
–
15
15
(10)
217
207
The current and deferred tax in relation to the Group’s defined benefit pension scheme’s remeasurements, cash flow hedge movements and financial
assets at fair value through other comprehensive income fair value movements have been charged or credited through other comprehensive income
where appropriate.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
134134
11 Taxation continued
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:
At 10 March 2019 (restated)
Prior year adjustment to income
statement
Prior year adjustment to other
comprehensive income
(Charge)/credit to income statement
(Charge)/credit to equity or other
comprehensive income
Revaluation adjustment to income
statement
Revaluation adjustment to equity or other
comprehensive income
At 07 March 2020
At 11 March 2018 (restated)
Prior year adjustment to income
statement
Prior year adjustment to other
comprehensive income
(Charge)/credit to income statement
(Charge)/credit to equity or other
comprehensive income
Revaluation adjustment to income
statement
Revaluation adjustment to equity or other
comprehensive income
At 09 March 2019 (restated)
Accelerated
capital
allowances
£m
(146)
(17)
–
23
–
(3)
–
(143)
(159)
(1)
–
16
–
(2)
–
(146)
Capital losses
£m
Fair value
movements
£m
Rolled over
capital gains
£m
Retirement
benefit
obligations
£m
Share-based
payments
£m
Leases
(IFRS 16)
£m
Other
£m
93
1
–
(1)
–
–
–
93
35
52
–
7
–
(1)
–
93
(50)
–
(84)
–
(216)
–
–
5
–
(1)
–
(46)
(19)
–
3
(15)
(20)
(1)
2
(50)
–
1
–
–
–
(83)
(85)
–
–
1
–
–
–
(84)
–
19
(17)
(2)
2
(214)
(4)
–
–
4
(241)
–
25
(216)
14
(4)
–
2
–
–
–
12
10
–
–
6
(1)
(1)
–
14
162
–
–
(38)
–
–
–
124
158
–
–
4
–
–
–
162
(8)
3
–
(5)
–
2
–
(8)
(19)
(21)
–
17
15
–
–
(8)
Total
£m
(235)
(17)
–
6
(17)
(4)
2
(265)
(83)
30
3
40
(247)
(5)
27
(235)
Total deferred income tax liabilities
Total deferred income tax assets
Net deferred income tax liability recognised in non-current liabilities
2020
£m
(494)
229
(265)
2019
(restated)
£m
(504)
269
(235)
Deferred income tax assets have been recognised in respect of all temporary differences and tax losses 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.
The Finance Bill 2020 includes legislation restricting the amount of chargeable gains that a company can relieve with its carried-forward capital losses from
previous accounting periods. Broadly, a company will only be able to offset up to 50 per cent of chargeable gains using carried-forward capital losses. There is
no such restriction under current tax law. The proposed new legislation was not substantively enacted at the balance sheet date, so its effect is not reflected
in these financial statements.
The Group’s carried forward capital losses are fully recognised on the 2019/20 balance sheet. Management are considering the potential impact of the
proposed changes in tax law, but it is anticipated that they could affect the recognition of deferred tax assets on capital losses carried forward in a future
reporting period.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
135
135
12 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 Trusts (note 28), which are treated as cancelled.
For diluted earnings per share, the earnings attributable to the ordinary shareholders are adjusted by the interest on the senior convertible bonds (net of tax)
and by the coupons on the perpetual subordinated convertible bonds. 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 senior convertible bonds and perpetual
subordinated convertible bonds are assumed to be converted.
Underlying earnings per share is provided by excluding the effect of any non-underlying items as defined in note 6. This alternative measure of earnings per
share is presented to reflect the Group’s underlying trading performance. All operations are continuing for the periods presented.
Weighted average number of shares in issue
Weighted average number of dilutive share options
Weighted average number of dilutive senior convertible bonds
Weighted average number of dilutive subordinated perpetual convertible bonds
Total number of shares for calculating diluted earnings per share
Profit for the financial year (net of tax)
Less profit attributable to:
Holders of perpetual capital securities
Holders of perpetual convertible bonds
Profit for the financial year attributable to ordinary shareholders
Profit for the financial year attributable to ordinary shareholders
Add interest on senior convertible bonds (net of tax)
Add coupon on subordinated perpetual convertible bonds (net of tax)
Diluted earnings for calculating diluted earnings per share
Profit for the financial year attributable to ordinary shareholders of the parent
Adjusted for non-underlying items (note 6)
Tax on non-underlying items (note 11)
Add back coupons on perpetual securities1
Underlying profit after tax attributable to ordinary shareholders of the parent
Add interest on convertible bonds (net of tax)
Add coupon on subordinated perpetual convertible bonds (net of tax)
Diluted underlying profit after tax attributable to ordinary shareholders of the parent
Basic earnings
Diluted earnings
Underlying basic earnings
Underlying diluted earnings
2020
million
2,207.6
24.1
153.7
84.6
2,470.0
2019
(restated)
million
2,197.6
42.1
148.1
80.8
2,468.6
£m
152
(16)
(7)
129
£m
129
9
6
144
£m
129
331
(46)
23
437
9
6
452
£m
186
(12)
(6)
168
£m
168
12
6
186
£m
168
399
(131)
18
454
12
6
472
Pence
per share
Pence
per share
5.8
5.8
19.8
18.3
7.6
7.5
20.7
19.1
1 Underlying earnings per share calculation is based on underlying profit after tax attributable to ordinary shareholders. Therefore the coupons on the perpetual securities (note 27) are added back.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
136136
13 Dividends
Amounts recognised as distributions to ordinary shareholders in the year:
Final dividend of prior financial year
Interim dividend of current financial year
2020
Pence
per share
2019
Pence
per share
7.9
3.3
11.2
7.1
3.1
10.2
2020
£m
174
73
247
2019
£m
156
68
224
No final dividend is proposed. Given the wide range of potential profit and cash flow outcomes of COVID-19, the Board believes it is prudent to defer any
dividend payment decisions until later in the financial year, when there will be improved visibility on the potential impact of COVID-19 on the business.
14 Property, plant and equipment
Accounting policies
a) Land and buildings
Land and buildings are held at historical cost less accumulated depreciation and any recognised provision for impairment. Capital work in progress is held
at cost less any recognised provision for impairment. Cost includes the original purchase price of the asset and the costs to bringing the asset to its working
condition for intended use. This includes capitalised borrowing costs.
b) 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.
c) Depreciation
Depreciation is calculated to write down the cost of the assets to their residual values, on a straight-line basis, using the following rates:
— Freehold buildings and leasehold properties – 50 years, or the lease term if shorter
— Fixtures, equipment and vehicles – three to 15 years
— Freehold land is not depreciated
Capital work in progress is not depreciated.
Gains and losses on disposal are determined by comparing proceeds less any associated costs of disposal 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.
Capitalisation of interest
Borrowing 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.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
14 Property, plant and equipment continued
Cost
At 10 March 2019 (restated)
Additions
Disposals
Transfer from/(to) asset held for sale
At 7 March 2020
Accumulated depreciation and impairment
At 10 March 2019 (restated)
Depreciation expense for the year
Impairment loss for the year
Disposals
Transfer from/(to) asset held for sale
At 7 March 2020
Net book value at 7 March 2020
Capital work-in-progress included above
Cost
At 11 March 2018 (restated)
Additions
Disposals
At 9 March 2019 (restated)
Accumulated depreciation and impairment
At 11 March 2018 (restated)
Depreciation expense for the year
Impairment loss for the year
Disposals
At 9 March 2019 (restated)
Net book value at 9 March 2019 (restated)
Capital work-in-progress included above
137
137
Total
£m
15,028
528
(550)
9
15,015
5,835
634
160
(533)
8
6,104
Land and
buildings
£m
Fixtures and
equipment
£m
9,917
31
(245)
9
9,712
2,644
184
123
(269)
8
2,690
5,111
497
(305)
–
5,303
3,191
450
37
(264)
–
3,414
7,022
1,889
8,911
141
295
436
9,939
63
(85)
9,917
2,504
177
2
(39)
2,644
5,076
418
(384)
5,110
3,112
456
1
(379)
3,190
15,015
481
(469)
15,027
5,616
633
3
(418)
5,834
7,273
1,920
9,193
135
107
242
Impairment charges include £6 million in relation to decommissioned ATMs within the Financial Services business, and £154 million in relation to the property
strategy review. Further details are included in note 17.
Interest capitalised
Interest capitalised included in additions amounted to £4 million (2019: £6 million) for the Group. Accumulated interest capitalised included in the cost of
property, plant and equipment net of disposals amounted to £333 million (2019: £336 million) for the Group. The capitalisation rate used to determine the
amount of borrowing costs eligible for capitalisation is 4.1 per cent (2019: 4.1 per cent).
Security
Property, plant and equipment pledged as security is as follows:
Loan due 2031
Revolving credit facility
Asset backed pension contribution scheme
Bank loans due 2021
Loan due 2024
Other
2020
2019
Number of
properties
Net book
value
£bn
Number of
properties
Net book
value
£bn
48
60
48
10
5
6
177
0.9
1.3
1.2
0.2
0.1
0.1
3.8
48
60
24
10
–
6
148
0.9
1.3
0.5
0.2
–
0.1
3.0
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
138138
15 Leases
Accounting policies
Right-of-use assets
Right-of-use assets are recognised at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are
measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any subsequent remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement
date less any lease incentives received.
The recognised right-of-use assets are depreciated on a straight-line basis over the shorter of the estimated useful life and the lease term. Right-of-use assets
are subject to impairment.
Lease liabilities
Lease liabilities are recognised at the commencement date of the lease and are measured at the present value of lease payments to be made over the lease
term, discounted using the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.
The lease payments include fixed payments, including in-substance fixed payments, variable lease payments that depend on an index or a rate, less any
lease incentives receivable. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the
event or condition that triggers the payment occurs.
After the commencement date of the lease, the lease liability is subsequently measured at amortised cost using the effective interest rate method. The
carrying amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured when there is a change in the future lease payments due to a change in the lease term, a change in the in-substance
fixed lease payments or a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to those leases that have a lease term of 12 months or less from the commencement date and
do not contain a purchase option. It also applies the low-value asset recognition exemption to groups of underlying leases that are considered uniformly low
value (i.e. below £5,000). Lease payments on short-term leases and leases of low-value assets are expensed to the income statement, as well as costs relating
to variable lease payments dependent on performance of usage and ‘out of contract’ payments.
Lessor accounting
Where the Group subleases assets, the sublease classification is assessed with reference to the head lease right-of-use asset. This assessment considers,
among other factors, whether the sublease represents the majority of the remaining of life of the head lease. The ratio of rental income to head lease rental
payments is used to determine how much of the right-of-use asset should be derecognised. This assessment takes into consideration whether the sublet/
head lease are above/below market rate.
Amounts due from lessees under finance leases are recorded as a receivable at an amount equal to the net investment in the lease. This is initially calculated
and recognised using the IBR prevalent at the recognition date, at the appropriate duration. Any difference between the derecognised right-of-use asset and
the newly recognised amounts due for lessees under finance leases is recognised in the income statement.
The Group recognises finance income over the lease term, reflecting a constant periodic rate of return on the Group’s net investment in the lease. Operating
lease income is recognised as earned on a straight-line basis over the lease term.
Group as lessee
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period.
Net book value
At 10 March 2019 (restated)
Additions1
Depreciation charge
Impairment charge
At 7 March 2020
At 11 March 2018 (restated)
Additions1
Depreciation charge
At 9 March 2019 (restated)
1 Additions include cash and non-cash indirect costs and are offset by terminations which occurred during the period.
Land and
buildings
£m
Equipment
£m
4,747
285
(416)
(80)
4,536
4,858
303
(414)
4,747
246
121
(77)
–
290
233
85
(72)
246
Total
£m
4,993
406
(493)
(80)
4,826
5,091
388
(486)
4,993
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
15 Leases continued
Set out below are the carrying amounts of lease liabilities and the movements during the period:
At 10 March 2019 and 11 March 2018
Additions1
Interest expense
Payments
At 7 March 2020 and 9 March 2019
Current
Non-current
1 Additions are net of terminations which occurred during the period.
The following are the amounts recognised in profit or loss:
Depreciation of right-of-use assets
Interest on lease liabilities
Variable lease payments not included in the measurement of lease liabilities
Finance income from sub-leasing of right-of-use assets
Operating sublet income
Expenses relating to short-term leases
Expenses relating to leases of low-value assets
Total amount recognised in profit or loss
139
139
2019
£m
5,905
382
342
(798)
5,831
533
5,298
2019
£m
(486)
(342)
(1)
2
51
(29)
(9)
(814)
2020
£m
5,831
373
332
(762)
5,774
510
5,264
2020
£m
(493)
(332)
(1)
2
47
(28)
(8)
(813)
Total cash outflow for leases
(798)
(836)
There were no leases with residual value guarantees nor leases not yet commenced to which the Group is committed. The Group assumes contractual terms
unless it is reasonably certain that an extension or break option will be applied. There have been no sale or leaseback transactions during the period.
The Group does not hold any leases as investment properties under IAS 40. All right-of-use assets are recognised on a historical cost convention.
Maturity analysis
Lease liabilities:
Contractual undiscounted cash flows
Less than one year
One to five years
More than five years
Total undiscounted lease liability
Lease liabilities included in the statement of financial position
Current
Non-current
2020
£m
2019
£m
820
2,722
8,245
11,787
5,774
510
5,264
789
2,690
7,927
11,406
5,831
533
5,298
The Group is committed to payments totalling £38 million (2019: £96 million) in relation to leases that have been signed but have not yet commenced.
Group as lessor
The below tables sets out the maturity analysis of lease receivables classified as operating leases:
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total undiscounted lease payments receivable
The finance lease receivable (net investment in the lease) included in other receivables is £25 million (2019: £33 million).
2020
£m
19
16
14
11
9
54
123
2019
£m
19
19
16
14
11
64
143
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
140140
16 Intangible assets
Accounting policies
a) 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 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.
b) Computer software
Computer software is carried at cost less accumulated amortisation and any provision for impairment. Externally acquired computer software and software
licences are amortised on a straight-line basis over their useful economic lives of five to fifteen 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 expensed 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 fifteen years within administrative expenses.
c) Acquired intangible assets
Intangible assets acquired in a business combination are recognised at fair value at the acquisition date. Intangible assets with finite useful economic lives
are carried at cost less accumulated amortisation and any provision for impairment and are amortised on a straight-line basis over their estimated useful
economic lives, ranging from five to ten years, within administrative expenses.
Impairment of non-financial assets
At each reporting date, the Group reviews the carrying amounts of its 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, being the higher of its fair value less costs to dispose and its
value in use, is estimated in order to determine the extent of the impairment loss. Goodwill is tested for impairment annually.
Any impairment loss 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 notional accumulated depreciation if lower.
Goodwill
£m
Computer
software
£m
Acquired
brands
£m
Customer
relationships
£m
Cost
At 10 March 2019 (restated)
Additions
Disposals
At 7 March 2020
Accumulated amortisation and impairment
At 10 March 2019 (restated)
Amortisation expense for the year
Impairment loss for the year
Disposals
At 7 March 2020
400
–
–
400
4
–
18
–
22
617
124
(247)
494
122
105
5
(244)
(12)
Net book value at 7 March 2020
378
506
Cost
At 11 March 2018 (restated)
Additions
Disposals
At 9 March 2019 (restated)
Accumulated amortisation and impairment
At 11 March 2018 (restated)
Amortisation expense for the year
Disposals
At 9 March 2019 (restated)
401
–
(1)
400
4
–
–
4
524
116
(23)
617
45
100
(23)
122
231
–
–
231
89
20
–
–
109
122
231
–
–
231
66
23
–
89
Net book value at 9 March 2019 (restated)
396
495
142
32
–
–
32
22
4
–
–
26
6
32
–
–
32
2
20
–
22
10
Total
£m
1,280
124
(247)
1,157
237
129
23
(244)
145
1,012
1,188
116
(24)
1,280
117
143
(23)
237
1,043
Goodwill impairments of £18 million are detailed in note 17. The £5 million software impairment relates to assets written off in full for which replacements
are planned.
Acquired brands and customer relationships arose from the acquisition of Nectar UK and Argos. The Nectar brand is amortised over five years whilst the
customer relationships are amortised between one and five years. The Argos brand is being amortised over ten years.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
16 Intangible assets continued
Goodwill
Goodwill comprises the following:
Jacksons Stores Limited
Home Retail Group
Sainsbury's Bank plc
Nectar
Bells Stores Limited
Other
141
141
2019
£m
46
119
45
147
16
23
396
2020
£m
38
119
45
147
12
18
378
The goodwill balances above are allocated to the respective cash-generating units (CGUs) or group of CGUs within the Retail or Financial Services segments.
The CGUs to which goodwill has been allocated and the level at which it is monitored in the retailing segment are deemed to be the respective acquired retail
chains of stores. Financial Services is a separate CGU, as is Home Retail Group and Nectar. The goodwill arising on the purchases of Home Retail Group and
Nectar have been allocated to the Retail segment.
Goodwill impairments of £18 million were recognised in the year as part of the Group’s property review – these are detailed in note 17. Subsequently, the value
of the remaining goodwill was tested for impairment during the current financial year by means of comparing the recoverable amount of each CGU or group
of CGUs with the carrying value of its goodwill. The calculation of the Retail CGU’s value in use is calculated on the cash flows expected to be generated by the
stores using the same assumptions as detailed in note 17.
Goodwill balances relating to Financial Services, Home Retail Group and Nectar are calculated using Board approved cash flows discounted at a pre-tax rate
of nine per cent (2019: nine per cent) over a five-year period and then into perpetuity, with no growth rates applied.
Based on the operating performance of the CGUs, an impairment of goodwill of £18 million was identified in the current financial year (2019: £nil million).
The carrying amounts and respective headroom are shown below.
Sensitivity analysis on the impairment tests for each group of cash-generating units to which goodwill has been allocated has been performed. The
valuations indicate sufficient headroom such that a reasonably possible change to key assumptions would not result in any impairment of goodwill.
Management are satisfied that there are no reasonable changes to assumptions that would lead to an impairment.
Jacksons Stores Limited
Home Retail Group
Sainsbury’s Bank plc
Nectar UK
Bells Stores Limited
Other
Sensitivities (revised headroom)
Discount rate
Cash flows
Headroom
£m
Decrease of 1%
£m
Increase of 1%
£m
Decrease of 1%
£m
Increase of 1%
£m
32
325
584
460
3
88
35
485
790
544
4
88
29
197
419
393
3
88
31
312
568
453
3
87
33
338
600
467
4
89
Carrying
amount
£m
38
119
45
147
12
18
17 Impairment of non-financial assets
Accounting policies
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, being the higher of its fair
value less costs to dispose 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 Retail property, plant and equipment, the CGU is deemed to be each trading store, store pipeline development site
or in the case of Argos a cluster of stores. Non-store assets, including depots and IT assets, are reviewed separately.
Argos clusters relate to its multi-channel network that enables customers to source the most convenient pick-up point for a product from a number of local
stores. If unavailable at their chosen store, a customer can be directed to an alternative nearby store that holds the necessary stock, or it can be delivered to
their chosen store from another within the same catchment area. As a result, customers regularly switch between stores for their benefit and convenience.
Clusters are created using store location, proximity to other stores and postcode catchment areas.
Any impairment loss is recognised in the income statement in the year in which it occurs. Where an impairment loss 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
notional accumulated depreciation if lower.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
142142
17 Impairment of non-financial assets continued
Impairment review for the year-ended 7 March 2020
At the Capital Markets Day on 25 September 2019, a programme of store closures was announced. In doing so, the performance of all stores, including
pipeline developments, was reviewed, identifying stores whose economic performance was worse than expected and thus triggering a full impairment
review by management on the Group’s property portfolio.
A total impairment charge of £(252) million has been recognised during the year, allocated as follows:
— £154 million on property, plant and equipment;
— £80 million on right-of-use assets; and,
— £18 million on goodwill allocated to stores.
£(126) million of the charge is in relation to properties identified for closure – in these instances the carrying amounts of these stores has been written down
to £nil. The remaining £(126) million relates to unprofitable and marginally profitable sites for which the cash flows no longer support the carrying amount.
Assets with a carrying amount of £578 million were written down to their recoverable amount of £452 million.
The recoverable amounts for trading store CGUs has been determined using value in use calculations which are based on the cash flows expected to be
generated by the stores using the latest budget and forecast data, the results of which are reviewed by the Board. Budget and forecast data reflect both past
experience and future expectation of market conditions. The key assumptions in the value in use calculation are as follows:
Composition of CGU
— Property, plant and equipment and any goodwill attributable to individual stores.
Cash flow years / assumptions
— For leased assets, the CGU also includes right-of-use assets and corresponding lease liabilities as
management has concluded that lease liabilities need to be considered when determining the recoverable
amount of the CGU.
— Board approved cash flow projections for five years are used and then extrapolated for a further 20 years for
supermarkets and ten years for convenience stores with no assumed growth rate, representing the typical
time between refits.
— Where lease terms are shorter than this, the remaining lease term has been used.
Terminal value
— For owned sites, a terminal value is included in the final cash flow year, representing the net cash flows
expected to be received for the disposal of the assets at the end of their useful life.
— It is calculated using an assumed market rent for the stores, with an investment yield based on similar
properties in the area.
Discount rate
— A post-tax discount rate representing the Group’s weighted average cost of capital (WACC), subsequently grossed
up to a pre-tax rate of 9%.
— The post-tax WACC has been calculated using the capital asset pricing model, the inputs of which include a
risk-free rate for the UK, a UK equity risk premium, levered debt premium and a risk adjustment using a ten year
average beta for the Group.
For store pipeline development sites the carrying value of the asset is compared with its value in use using a methodology consistent with that described
above for sites that will be developed. Future cash flows include the estimated costs to completion. For sites where there is no plan to develop a store, the
recoverable amount is based on its fair value less costs to dispose.
Sensitivities
Of the above assumptions, the value-in-use calculations are most sensitive to changes in the discount rate, cash flows and inputs underpinning the terminal
value. The table below sets out the key sensitivities performed on the trading value-in-use model.
Sensitivity area
Discount rate
Cash flows
Rental yield (input for terminal values)
Market rent (input for terminal values)
Sensitivity
Increase of 1%
Decrease of 1%
Increase of 1%
Decrease of 1%
Increase of 1%
Decrease of 1%
Increase of 5%
Decrease of 5%
Increase/
(decrease) in
impairment
£m
38
(21)
(2)
2
4
(5)
(1)
1
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 143
143
18 Investments in joint ventures and associates
Accounting policies
The Group applies IFRS 11 to all joint arrangements. Under IFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures
depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to
be joint ventures. The Group’s share of the post-tax results of its joint ventures and associates is included in the income statement using the equity method
of accounting. Where the Group transacts with a joint venture or associate, profits and losses are eliminated to the extent of the Group’s interest in the joint
venture or associate.
Investments in joint ventures and associates are carried in the Group balance sheet at historical cost plus post-acquisition changes in the Group’s share of net
assets of the entity, less any provision for impairment.
Associates are entities over which the Group has significant influence but not control.
A full list of the Group’s joint ventures is included in note 42. Joint ventures with a different year-end date to the Group are reported to include the results up
to 29 February 2020, the nearest month-end to the Group’s year-end. Adjustments are made for the effects of significant transactions or events that occurred
between 29 February and the Group’s balance sheet date.
Following the announced sale of properties from the Group’s joint venture with The British Land Company PLC to Realty Income Corporation, BL Sainsbury
Superstores Limited is no longer considered a principal joint venture of the Group. Information is included below for comparative purposes.
BL Sainsbury Superstores Limited (British Land property investment)
At 10 March 2019
Disposals
Dividends and distributions received
Share of retained profit:
Underlying profit/(loss) after tax
Investment property fair value movements
Fair value movements
Share of (loss)/profit on disposal of properties
Share of retained loss
Share of joint venture loss after tax
Disposals from the Group
At 7 March 2020
At 11 March 2018
Additions
Disposals
Dividends and distributions received
Share of retained profit:
Underlying profit/(loss) after tax
Investment property fair value movements
Fair value movements
Share of (loss)/profit on disposal of properties
Share of retained profit
Share of joint venture profit after tax
Disposals from the Group
At 9 March 2019
Statutory
year–end
31 March
Share of
ordinary
allotted
capital
Country of
registration or
incorporation
50%
England
British Land
£m
Other joint
ventures
£m
173
–
(134)
2
(3)
(5)
(22)
(28)
(28)
(6)
5
187
–
–
(18)
9
–
(2)
(3)
4
4
–
173
32
(21)
(6)
(2)
–
–
1
(1)
(1)
–
4
45
5
(5)
–
(1)
(2)
–
3
–
–
(13)
32
Total
£m
205
(21)
(140)
–
(3)
(5)
(21)
(29)
(29)
(6)
9
232
5
(5)
(18)
8
(2)
(2)
–
4
4
(13)
205
The disposal in the current year relates to a capital repayment and is included within dividends and distributions in the cash flow statement. £18 million of
dividends had not been received at year-end.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
144144
18 Investments in joint ventures and associates continued
The total assets, liabilities, income and expenses of the Group’s joint venture BL Sainsbury Superstores Limited are detailed below:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Joint venture net assets
Group share of joint venture net assets (at 50%)
Goodwill
Unrealised loss on disposal of properties
Group share of joint venture net assets as disclosed above
Revenue
Other expenses
Interest expenses
Joint venture (loss)/profit before tax
Analysed as:
Underlying profit before tax
Investment property fair value movements
Finance fair value movements
Loss on disposal of properties
Underlying income tax expense
Joint venture profit/(loss) after tax
Total comprehensive (expense)/income
2020
£m
–
48
(38)
–
10
5
–
–
5
11
(58)
(7)
(54)
4
(6)
(10)
(42)
(54)
–
(54)
(54)
2019
£m
488
32
(15)
(172)
333
167
5
1
173
32
(11)
(12)
9
20
–
(4)
(7)
9
(2)
7
7
Included in current assets is £38 million of cash (2019: £1 million). Depreciation in both years was £nil.
The joint venture had no other contingent liabilities nor capital commitments other than those disclosed in notes 37 and 39.
19 Financial assets at fair value through other comprehensive income
Accounting policies
Financial assets that are held for both the purpose of collecting contractual cash flows and to sell are classified as fair value through other comprehensive
income (FVOCI). 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 at each period end with the movements
recognised in other comprehensive income until derecognition or impaired. On derecognition, the cumulative gain or loss previously recognised in other
comprehensive income reserves is recognised in the income statement for debt instruments. Gains and losses on equity instruments are never recycled to
the income statement. Dividends on financial assets at fair value through other comprehensive income are recognised in the income statement when the
entity’s right to receive payment is established.
Interest on financial assets at fair value through other comprehensive income debt instruments is recognised using the effective interest method.
Non-current
Equity
Other financial assets
Debt
Interest bearing financial assets
Financial Services related investment securities
Current
Debt
Financial Services related investment securities
2020
£m
251
1
720
972
82
1,054
2019
£m
233
1
411
645
211
856
The other financial asset predominantly 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 0.6 per cent (2019: 0.6 per cent) and a weighted average cost of
capital of nine per cent (2019: nine per cent). There were no disposals in the current year (2019: nil) and no impairment provisions in either the current or the
previous financial year.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
145
145
20 Inventories
Accounting policies
Inventories comprise goods held for resale and are valued on a weighted average cost basis and carried at the lower of cost or 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.
Goods held for resale
2020
£m
1,732
2019
£m
1,929
The amount of inventories recognised as an expense and charged to cost of sales for the 52 weeks to 7 March 2020 was £21,673 million (2019: £21,720 million).
21 Receivables
(a) Trade and other receivables
Accounting policies
Trade and other receivables are non-interest bearing and are on commercial terms. They are initially recognised at fair value and subsequently measured at
amortised cost less allowances for expected credit losses, using the simplified approach under IFRS 9, with adjustments for factors specific to each receivable.
Non-current
Other receivables
Prepayments and accrued income
Current
Trade receivables
Other receivables
Prepayments and accrued income
2020
£m
2019
(restated)
£m
36
7
43
140
499
639
172
811
49
8
57
144
322
466
164
630
Trade and other receivables include amounts relating to supplier arrangements where there is no right of offset. Refer to note 8. In addition, current other
receivables of £499 million (2019: £322 million), include £199 million (2019: £182 million) of bank funds in the course of settlement. The carrying amounts of
trade and other receivables are denominated in sterling.
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.
(b) Amounts due from Financial Services customers
Accounting policies
Loans and advances are initially recognised at fair value and subsequently held at amortised cost, using the effective interest method, less provision for
impairment and recognised on the balance sheet when cash is advanced.
The accounting policies for impairment under IFRS 9 are detailed in note 30.
Non-current
Loans and advances to customers
Impairment of loans and advances
Current
Loans and advances to customers
Impairment of loans and advances
2020
£m
3,528
(75)
3,453
4,143
(192)
3,951
2019
£m
3,426
(77)
3,349
3,808
(170)
3,638
Loans and advances to customers accrue interest at the effective interest rate. Financial Services has pledged the rights to £1,590 million (2019: £1,476 million)
of its personal loans book with the Bank of England as collateral for its funding facilities. As at 7 March 2020 £950 million (2019: £950 million) of borrowings
were drawn under the Term Funding Scheme and £75 million (2019: £75 million) of borrowings were drawn under the Indexed Long Term Repo facility.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
146146
21 Receivables continued
Financial Services has assigned the beneficial interest in £194 million (2019: £334 million) of its personal loans book to a Special Purpose Entity for use as
collateral in securitisation transactions, facilitating £101 million (2019: £275 million) of drawings. Refer to note 29 for details on Financial Services credit risk.
(c) Provision for impairment of loans and advances
Opening provision
IFRS 9 opening balance adjustment
Transfers between stages
Additional provisions less amounts recovered
Write-offs
Changes in credit risk during the year
Closing provision
2020
2019
Stage 1
£m
Stage 2
£m
Stage 3
£m
(34)
–
30
(6)
–
(27)
(37)
(64)
–
6
(6)
1
11
(52)
(149)
–
(36)
(1)
59
(51)
(178)
Total
£m
(247)
–
–
(13)
60
(67)
(267)
Stage 1
£m
Stage 2
£m
Stage 3
£m
Incurred loss
£m
–
(35)
31
(8)
–
(22)
(34)
–
(58)
4
(10)
1
(1)
(64)
–
(111)
(35)
(2)
54
(55)
(149)
(132)
132
–
–
–
–
–
Total
£m
(132)
(72)
–
(20)
55
(78)
(247)
(d) Major counterparties
The Group has six major counterparties totalling £167 million (2019: £30 million). No major counterparty balances are considered overdue or impaired.
22 Assets held for sale
Accounting policies
Assets are classified as held for sale if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. This
condition is regarded as met only when the sale is highly probable within one year from the date of classification and the assets are available for sale in their
present condition. Assets held for sale are stated at the lower of the carrying amount and fair value less costs to dispose.
Assets held for sale
Retail segment properties
2020
£m
4
2019
£m
8
Of the Group’s assets held for sale at 9 March 2019, £3 million were sold during the current financial year and £3 million are no longer classified as held for sale.
There were £2 million additional assets classified as held for sale during the current financial year. For the remaining assets, the sale is still considered
probable in the next financial year and so they remain classified as held for sale.
23 Payables
(a) Trade and other payables
Accounting policies
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.
Trade payables are initially recognised at fair value, which is typically in the invoiced amount, and then held at amortised cost. They are shown net of supplier
arrangements due where there is a contractual right of offset.
Current
Trade payables
Other payables
Accruals and deferred income/gains
Non-current
Other payables
Accruals and deferred income/gains
2020
£m
2019
(restated)
£m
2,960
508
807
4,275
8
3
11
3,044
561
768
4,373
10
77
87
Foreign currency risk
The Group has net euro denominated trade payables of £38 million (2019: £50 million) and US dollar denominated trade payables of £138 million
(2019: £209 million).
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
147
147
23 Payables continued
Supplier financing arrangements
The Group has four supply chain finance programmes across Sainsbury’s and Argos, with the largest in the UK and the remainder in Asia. The programmes
act as an alternative source of financing for the suppliers who have the option to trade their invoices with funding providers in order to receive cash earlier
than the invoice due dates. The payment terms offered to suppliers who are party to the supply chain finance programmes are within standard supplier
payment terms and agreed directly between the Group and the supplier. The financing arrangements are agreed between the supplier, the funding providers
and, where applicable, the third party platform provider. The Group is not party to these financing arrangements. As a result the balances outstanding under
the supply chain finance programme are classified as accounts payables.
Included in trade payables at 7 March 2020 are amounts of £590 million (9 March 2019: £618 million) drawn by suppliers who are party to the supply chain
finance programmes.
(b) Amounts due to Financial Services customers and banks
Accounting policies
With the exception of fixed rate bonds, amounts due to Financial Services customers are generally repayable on demand and accrue interest at retail
deposit rates.
Current
Customer accounts
Other deposits
Senior secured loan notes
Non-current
Customer accounts
Other deposits
Senior secured loan notes
2020
£m
6,059
730
101
6,890
253
951
–
1,204
2019
£m
5,514
167
116
5,797
436
1,209
159
1,804
Sainsbury’s Bank, via its subsidiary undertakings, is party to a bilateral securitisation transaction. This facility entered the amortisation phase in May 2019
where the facility is reducing in line with the maturity profile of the underlying secured assets. At 7 March 2020, £101 million remained drawn (9 March 2019:
£275 million). Interest on the notes is repayable at a floating rate linked to three-month LIBOR and their contractual repayment is determined by cash flows
on the relevant personal loans included in the collateral pool.
Other deposits of £1,681 million (2019: £1,376 million) relate to deposits from wholesale counterparties.
24 Provisions
Accounting policies and key information
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 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 contract provisions
Provisions for onerous contracts are recognised where expected cash outflows exceed the anticipated future benefits. The amounts provided are based on
the Group’s best estimate of the likely committed outflow, net of anticipated future benefits. Upon adoption of IFRS 16, these provisions no longer include
rent, however do include unavoidable costs related to the lease, such as service charges and business rates.
Insurance provisions
The provision relates to the Group’s outstanding insurance claims liabilities in relation to public and employer’s liability claims, and third party motor claims.
Claims provisions are based on assumptions regarding past claims experience and on assessments by an independent actuary and are intended to provide
a best estimate of the most likely or expected outcome.
Restructuring provisions
A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those
affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement
of a restructuring provision includes only the direct expenditures arising from the restructuring.
The charge for the year mostly comprises redundancy payments following changes to the Group’s store management structure, responding to changing
customer shopping habits and reducing costs throughout the store estate, the closure of one Argos distribution centre and costs incurred following
announced head-office restructures during the year.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
148148
24 Provisions continued
Financial services related provisions
Financial services loan commitment provisions reflect expected credit losses modelled in relation to loan commitments not yet recognised on the balance
sheet (on credit cards and Argos store cards).
Other financial services related provisions are primarily in relation to Argos Financial Services customers in respect of potential redress payable arising from
the historic sales of Payment Protection Insurance (PPI), and in respect of potential customer redress payable in relation to other customer conduct issues
arising from a review of the governance and risk management framework.
With regards to PPI provisions, the eventual cost is dependent on response rates, uphold rates, complaint rates, redress costs and claim handling costs.
The provision represents management’s best estimate of future costs and is expected to be fully utilised by August 2021. These assumptions are inherently
uncertain and the ultimate financial impact may differ from the amount provided.
The remaining customer redress costs incorporate detailed calculations combined with historic experience, therefore elements of these estimates are
inherently uncertain and the ultimate financial impact may be different from that provided. The provision reflects management’s best estimates and is
expected to be utilised within one year.
At 10 March 2019 (restated)
Additional provisions
Unused amounts reversed
Utilisation of provision
At 7 March 2020
At 11 March 2018 (restated)
IFRS 9 opening adjustment
Additional provisions
Unused amounts reversed
Utilisation of provision
At 9 March 2019 (restated)
Disclosed as:
Current
Non-current
Onerous
contracts
£m
Insurance
provisions
£m
Restructuring
£m
Financial
Services loan
commitment
provisions
£m
Other
Financial
Services
related
provisions
£m
Other
provisions
£m
34
46
(4)
(15)
61
37
–
20
(6)
(17)
34
71
25
(9)
(24)
63
78
–
29
(6)
(30)
71
22
22
–
(24)
20
94
–
67
–
(139)
22
18
2
–
–
20
–
17
2
(1)
–
18
39
9
(13)
(18)
17
52
(3)
8
(5)
(13)
39
20
14
(10)
(8)
16
19
–
18
–
(17)
20
2020
£m
108
89
197
Total
£m
204
118
(36)
(89)
197
280
14
144
(18)
(216)
204
2019
(restated)
£m
109
95
204
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
25 Called up share capital, share premium and merger reserve
Accounting policies
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.
149
149
Called up share capital
Allotted and fully paid ordinary shares 284/7p
Share premium account
Share premium
The movements in the called up share capital, share premium and merger reserve are set out below:
At 10 March 2019
Allotted in respect of share option schemes
At 7 March 2020
At 11 March 2018
Allotted in respect of share option schemes
At 9 March 2019
2020
million
2019
million
2,217
2,206
2020
£m
634
2019
£m
630
1,159
1,147
Number of
ordinary
shares
million
Ordinary
shares
£m
Share
premium
account
£m
2,206
11
2,217
2,194
12
2,206
630
4
634
627
3
630
1,147
12
1,159
1,130
17
1,147
Merger
reserve
£m
568
–
568
568
–
568
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
150150
26 Capital redemption and other reserves
At 10 March 2019
Financial assets at fair value through other comprehensive income
movements
Cash flow hedges effective portion of fair value movements
Items reclassified from cash flow hedge reserve
Amortisation of convertible bond – equity component
Deferred tax
At 7 March 2020
At 11 March 2018
Currency translation differences
Financial assets at fair value through other comprehensive income
movements
Items reclassified from financial assets at fair value through other
comprehensive income reserve
Cash flow hedges effective portion of fair value movements
Items reclassified from cash flow hedge reserve
Amortisation of convertible bond – equity component
Deferred tax
At 9 March 2019
Financial
assets at
fair value
through other
comprehensive
income
£m
Currency
translation
reserve
£m
Cash flow
hedge
£m
Convertible
bond
£m
Total other
reserves
£m
Capital
redemption
reserve
£m
5
–
–
–
–
–
5
4
1
–
–
–
–
–
–
5
192
21
–
–
–
(4)
209
156
–
55
(10)
–
–
–
(9)
192
(30)
–
(1)
(19)
–
4
(46)
(52)
–
–
–
71
(45)
–
(4)
(30)
5
–
–
–
(5)
–
–
13
–
–
–
–
–
(8)
–
5
172
21
(1)
(19)
(5)
–
168
121
1
55
(10)
71
(45)
(8)
(13)
172
680
–
–
–
–
–
680
680
–
–
–
–
–
–
–
680
The 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 financial assets at fair value through other comprehensive income reserve represents the fair value gains and losses on the financial assets at fair value
through other comprehensive income 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 £450 million convertible bond issued in November 2014. This bond matured in
November 2019.
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.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
151
151
27 Perpetual securities
Accounting policies and key information
Perpetual securities (perpetual capital securities and perpetual convertible bonds) are issued securities that qualify for recognition as equity. Accordingly any
periodic returns are accounted for as dividends and recognised directly in equity and as a liability at the time it becomes obligated to pay the periodic return.
Any associated tax impacts are recognised in the income statement as this is where the distributable profits were generated in line with the amendments
made to IAS 12 ‘Income Taxes’.
On 30 July 2015 the Group issued £250 million of perpetual subordinated capital securities and £250 million of perpetual subordinated convertible bonds,
collectively known as perpetual securities. Costs directly associated with the issue of £6 million were offset against the value of the proceeds. The securities
are perpetual with no fixed redemption date. Holders of the perpetual securities do not benefit from any put option rights however the Group does have
the right to call the perpetual subordinated capital securities at their principal amount on 30 July 2020, and the perpetual subordinated convertible bonds
on 30 July 2021. The perpetual subordinated convertible bonds may be converted into ordinary shares of the Company at the option of the holders at any
time up to 23 July 2021 at a conversion price of 288.2329 pence.
The Group has the right to defer coupons on the perpetual securities on any coupon payment date where the Company has not either paid a dividend on
its ordinary shares or bought back ordinary shares (excluding shares bought to satisfy employee share schemes) within the previous 12 month period. The
coupon rate on the perpetual subordinated capital securities increases after the fifth anniversary and for the perpetual subordinated convertible bonds after
the sixth anniversary.
The next coupon date on the perpetual securities is 30 July 2020. As the Company paid a dividend to ordinary shareholders in the 12 months prior to this date
(in January 2020), the periodic distributions of £16 million (2019: £16 million) for the perpetual subordinated capital securities and £7 million (2019: £7 million)
for the perpetual subordinated convertible bonds have been recognised in the financial year.
At 10 March 2019
Distributions to holders of perpetual securities
Profit for the year attributable to holders of perpetual securities
At 7 March 2020
At 11 March 2018
Distributions to holders of perpetual securities
Current tax relief on distributions to holders of perpetual securities
Profit for the year attributable to holders of perpetual securities
At 9 March 2019
Perpetual
capital
securities
£m
Perpetual
convertible
bonds
£m
248
(16)
16
248
248
(16)
4
12
248
248
(7)
7
248
248
(7)
1
6
248
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
152152
28 Retained earnings
At 10 March 2019 (as previously reported)
Cumulative adjustment to opening balance on adoption of IFRS 16
At 10 March 2019 (restated)
Profit for the year
Remeasurements on defined benefit pension schemes
Deferred tax on retirement benefit obligations
Dividends paid
Amortisation of convertible bond – equity component
Share-based payment
Purchase of own shares
Allotted in respect of share option schemes
At 7 March 2020
At 11 March 2018 (as previously reported)
Cumulative adjustment to opening balance on adoption of IFRS 16
At 11 March 2018 (restated)
Day 1 accounting adjustments (net of tax)
Profit for the year
Remeasurements on defined benefit pension schemes
Deferred tax on retirement benefit obligations
Dividends paid
Amortisation of convertible bond – equity component
Share-based payment
Purchase of own shares
Allotted in respect of share option schemes
Deferred tax on share based payment equity movement
At 9 March 2019
Own
shares
£m
(19)
–
(19)
–
–
–
–
–
–
(18)
21
(16)
(6)
–
(6)
–
–
–
–
–
–
–
(30)
17
–
(19)
Profit and
loss
account
£m
4,782
(674)
4,108
129
89
(15)
(247)
5
37
–
(22)
Total
retained
earnings
£m
4,763
(674)
4,089
129
89
(15)
(247)
5
37
(18)
(1)
4,084
4,068
3,795
(641)
3,154
(74)
168
1,269
(216)
(224)
8
37
–
(15)
1
4,108
3,789
(641)
3,148
(74)
168
1,269
(216)
(224)
8
37
(30)
2
1
4,089
Own shares held by Employee Share Ownership Trusts (ESOT)
The Group owns 7,269,702 (2019: 7,240,112) of its ordinary shares of 284/7 pence nominal value each. At 7 March 2020, the total nominal value of the own shares
was £2.1 million (2019: £2.1 million).
All shares (2019: all shares) are held by Group trusts for the Executive Share Plans. All Group trusts waive the rights to the dividends receivable in respect of the
shares 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 7 March 2020 was £15 million
(2019: £16 million).
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
153
153
29 Financial risk management
The principal financial risks faced by the Group relate to liquidity risk, counterparty credit risk, foreign currency risk, interest rate risk, commodity risk and
capital risk.
Financial risk management is managed by a central treasury department in accordance with policies and guidelines which are reviewed and 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 risk management policies also ensure sufficient liquidity is available to the Group
to meet foreseeable financial obligations and that cash assets are invested safely.
Financial risk management with respect to Financial Services is separately managed within the Financial Services’ governance structure. The risks are more
fully described in the Financial Services section below.
The Group uses forward contracts 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 Board approved policies which prohibits the use of derivative financial instruments for speculative purposes.
Liquidity risk
Liquidity risk is the risk that the Group could be unable to meet its financial obligations as they fall due.
The principal operational cash flow of the Group is largely stable and predictable reflecting the low business risk profile of the food retail sector and the
cyclical profile of the non-food retail sector. Cash flow forecasts are produced to assist management in identifying future liquidity requirements. The Group’s
liquidity policy sets a minimum funding headroom of £400 million in excess of forecast funding requirements 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 contingent committed
credit facilities. The Group has prepared additional cash flow forecasts in connection to COVID-19, to identify associated liquidity requirements.
The Group’s committed £1,450 million Revolving Credit Facility was undrawn at 7 March 2020. The facility is provided by a syndicate of 16 banking partners.
The Group has no financial covenants. In September 2019 the maturity of part of the £1,450 million RCF was extended by one year. The facility is split into two
Facilities, a £300 million Facility (A) and a £1,150 million Facility (B). Facility A has a final maturity of April 2025 and Facility B has a final maturity of October
2024. As at 7 March 2020, £nil had been drawn (2019: £35 million).
The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the remaining period to the contractual maturity 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.
At 7 March 2020
Non-derivative financial liabilities
Secured loans:
Loan due 20311
Unsecured loans:
Bank loans due 20212
Bank loans due 20242
Trade and other payables
Lease liabilities
Amounts due to Financial Services customers and banks5
Derivative contracts – net settled
Commodity contracts
Interest rate swaps in hedging relationships1, 4
Derivative contracts – gross settled
Foreign exchange forwards – outflow3
Foreign exchange forwards – inflow3
Commodity contracts – outflow
Commodity contracts – inflow
Less
than one
year
£m
One to
two years
£m
Two to
five years
£m
More
than five
years
£m
(72)
(74)
(233)
(488)
(3)
(3)
(3,835)
(820)
(6,883)
–
(8)
(1,837)
1,822
(11)
8
(201)
(3)
–
(772)
(1,116)
–
(4)
(193)
194
(8)
6
–
(258)
–
(1,950)
(95)
–
–
–
(8,245)
–
–
–
–
(18)
18
–
(1)
–
(16)
19
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
154154
29 Financial risk management continued
At 9 March 2019 (restated)
Non-derivative financial liabilities
Secured loans:
Loan due 20311
Unsecured loans:
Bank overdraft
Short-term borrowings
Bank loans due 20192
Convertible bond due 2019
Trade and other payables
Lease liabilities and hire purchase leases
Amounts due to Financial Services customers and banks5
Derivative contracts – net settled
Commodity contracts
Interest rate swaps in hedging relationships1, 4
Derivative contracts – gross settled
Foreign exchange forwards – outflow3
Foreign exchange forwards – inflow3
Commodity contracts – outflow
Commodity contracts – inflow
Less
than one
year
£m
One to
two years
£m
Two to
five years
£m
More
than five
years
£m
(71)
(73)
(236)
(619)
(1)
(135)
(199)
(450)
(4,087)
(789)
(5,836)
1
–
(1,342)
1,351
(11)
11
–
–
–
–
–
(749)
(738)
–
1
(63)
64
(11)
11
–
–
–
–
–
(1,941)
(1,086)
–
7
–
–
(21)
20
–
–
–
–
–
(7,927)
(2)
–
–
–
–
(22)
26
Assumptions:
1 Cash flows relating to debt and swaps linked to inflation rates have been calculated using an RPI of 2.6 per cent for the year ended 7 March 2020, 2.6 per cent for the year ending 7 March 2021 and 2.7 per cent for
future years (2019: RPI of 4.0 per cent for the year ended 9 March 2019, 2.6 per cent for the year ending 9 March 2020 and 3.4 per cent for future years).
2 Cash flows relating to debt bearing a floating interest rate have been calculated using prevailing interest rates as at 7 March 2020 and 9 March 2019.
3 Cash flows in foreign currencies have been translated using spot rates as at 7 March 2020 and 9 March 2019.
4 The swap rate that matches the remaining term of the interest rate swaps as at 7 March 2020 has been used to calculate the floating rate cash flows over the life of the interest rate swaps shown above
(2019: 9 March 2019).
5 Cash flows relating to amounts due to Sainsbury’s Bank customers and banks are calculated using contractual terms and interest rates for fixed rate instruments. Where balances are contractually repayable
on demand, behavioural assumptions are applied to estimate the interest payable on those balances. These are shown as due within one year.
Further information relating to liquidity risk in Financial Services is more fully described in the separate section on Financial Services financial risk factors below.
Counterparty credit risk
Counterparty credit risk is the risk of a financial loss arising from counterparty default or non-performance in respect of the Group’s holdings of cash and
cash equivalents, derivative financial assets, deposits with banks, investments in marketable securities, trade and other receivables and loans and advances
to customers. The Group considers its maximum credit risk to be £10,206 million (2019: £9,485 million), equivalent to the Group’s total financial assets and
commitments, and of this amount £9,266 million relates to Financial Services (2019: £8,891 million).
The Group (excluding Financial Services) sets counterparty limits for each of its banking and investment counterparties based on their credit ratings. The
minimum unsecured long-term credit rating accepted by the Group is BBB- (Standard & Poor’s and Fitch) or Baa3 (Moody’s) or, in the case of sterling liquidity
funds, AAA or Aaa/MR1+ from Moody’s. In the event of a split credit rating, the lower rating applies.
The table below analyses the Group’s cash and cash equivalents by credit exposure excluding bank balances, store cash, cash in transit and cash at ATMs:
Counterparty
Financial institutions – Money market deposits
Financial institutions – Money market deposits
Deposits at central banks
Long-term rating
AAAm/Aaa
AA+/Aa1 to A/A2
AA+/Aa1
Management does not expect any losses arising from non-performance of deposit counterparties.
Group
2020
£m
–
202
273
Group
2019
£m
84
120
308
Interest rate swaps, forward contracts and commodity contracts 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 swaps
FX forward contracts
Commodity forward contracts
Long-term rating
AA+/Aa1 to A/A2
AA+/Aa1 to A/A2
AA+/Aa1 to A/A2
Group
2020
£m
4
14
–
Group
2019
£m
10
18
2
Further information relating to counterparty credit risk in Financial Services is more fully described in the section on Financial Services financial risk
factors below.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 155
155
29 Financial risk management continued
Foreign currency risk
Currency risk is the risk of increased costs arising from unexpected movements in exchange rates impacting the Group’s foreign currency denominated
supply contracts.
The Group’s currency risk policy seeks to limit the impact of fluctuating exchange rates on the Group’s income statement by requiring highly probable foreign
currency cash flows to be hedged. Highly probable future cash flows, which may be either contracted or un-contracted, are hedged on a layered basis using
foreign currency forward contracts.
The Group has exposure to currency risk on balances held in 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 as at the balance sheet date, with all other variables held constant, is summarised in the table below:
USD/GBP
EUR/GBP
2020
Change in
exchange
rate impact
on post-tax
profit
+/-10%
£m
2020
Change in
exchange
rate impact
on cash flow
hedge reserve
+/-10%
£m
3/(3)
2/(2)
(120)/147
(27)/33
2019
Change in
exchange
rate impact
on post-tax
profit
+/-10%
£m
(1)/1
1/(1)
2019
Change in
exchange
rate impact
on cash flow
hedge reserve
+/-10%
£m
(101)/123
(23)/28
Interest rate risk
Interest rate risk is the risk of increased costs or lower income arising from unexpected movements in interest rates and inflation rates impacting on the
Group’s borrowing and investment portfolios. The Group’s interest rate policy seeks to limit the impact of fluctuating interest and inflation rates by
maintaining a diversified mix of fixed rate, floating rate and variable capped rate liabilities.
Interest on financial instruments is classified as fixed rate if interest re-sets on the borrowings are less frequent than once every 12 months. Interest on
financial instruments is classified as floating rate if interest re-sets on the borrowings occur every 12 months or more frequently. Floating rate instruments
are considered variable capped rate if the nominal interest rate is subject to a cap.
The mix of the Group’s financial assets and liabilities at the balance sheet date was as follows:
At 7 March 2020
Interest bearing financial assets at fair value through other comprehensive income
Amounts due from Financial Services customers
Cash and cash equivalents
Borrowings
Leases
Amounts due to Financial Services customers and banks
Derivative effect:
Interest rate swaps
Inflation linked swaps
Total
At 9 March 2019 (restated)
Interest bearing financial assets at fair value through other comprehensive income
Amounts due from Financial Services customers
Cash and cash equivalents
Borrowings
Leases
Amounts due to Financial Services customers and banks
Derivative effect:
Interest rate swaps
Inflation linked swaps
Total
Fixed
£m
Floating
£m
155
4,505
351
(180)
(2,954)
(1,262)
(4,407)
(490)
(4,282)
174
4,461
1,005
(621)
(3,143)
(1,124)
(4,106)
540
(2,814)
647
2,899
643
(449)
(2,820)
(6,832)
4,407
–
(1,505)
449
2,526
116
(335)
(2,688)
(6,477)
4,106
–
(2,303)
Variable
capped
£m
–
–
–
(667)
–
–
–
490
Total
£m
802
7,404
994
(1,296)
(5,774)
(8,094)
–
–
(177)
(5,964)
–
–
–
(704)
–
–
–
(540)
(1,244)
623
6,987
1,121
(1,660)
(5,831)
(7,601)
–
–
(6,361)
Further information relating to interest rate risk in Financial Services is more fully described in the section on Financial Services financial risk factors below.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
156156
29 Financial risk management continued
(i) Cash flow sensitivity for floating rate instruments
The Group considers that a 100 basis point movement in interest rates is a reasonable measure of volatility. The sensitivity of floating rate balances to a change
of 100 basis points in the interest rate (or such lesser amount as would result in a zero rate of interest) at the balance sheet date is shown below:
Change in floating rate +/-100bps
2020
Impact on
post-tax
profit
£m
2020
Impact on
cash flow
hedge reserve
£m
(13)/16
4/(4)
2019
Impact on
post-tax
profit
£m
(7)/5
2019
Impact on
cash flow
hedge reserve
£m
1/(1)
(ii) Cash flow sensitivity for variable capped rate liabilities
The Group holds £667 million of capped inflation-linked borrowings (2019: £704 million) of which £490 million (2019: £540 million) have been swapped into
fixed rate borrowings using inflation rate swaps maturing in April 2023.
The Group considers that a 100 basis point movement in the RPI rate is a reasonable measure of volatility. The sensitivity of variable capped balances to a
change of 100 basis points in the RPI rate at the balance sheet date is shown below:
Change in floating rate +/-100bps
2020
Impact on
post-tax
profit
£m
2020
Impact on
cash flow
hedge reserve
£m
2019
Impact on
post-tax
profit
£m
2019
Impact on
cash flow
hedge reserve
£m
(2)/2
13/(13)
(1)/1
17/(17)
Commodity risk
Commodity risk is the risk of increased costs arising from unexpected movements in commodity prices impacting the Group’s own use consumption of
electricity, gas and diesel.
The Group hedges own use consumption of electricity and gas with forward purchases under flexible purchasing arrangements with its suppliers. The Group
uses a combination of purchasing agreements and financial derivatives to hedge fuel exposures on a layered basis using contracts for difference.
The Group considers a ten per cent movement in commodity prices a reasonable measure of volatility.
Change in the fair value of electricity, diesel and gas price +/-10%
Capital risk management
The Group defines capital as total equity plus net debt.
2020
Impact on
cash flow
hedge
reserve
£m
2019
Impact on
cash flow
hedge
reserve
£m
3/(3)
3/(3)
The Board’s capital 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 status as a going concern. There has been no change to capital risk management policies during the year.
The Board monitors a broad range of financial metrics including return on capital employed, balance sheet gearing and fixed charge cover.
The Board can manage the Group’s capital structure by diversifying the 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.
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;
however the Group does not operate a defined share buy-back plan.
Part of the Group’s capital risk management is to ensure compliance with the general covenants included in the Group’s various borrowing facilities.
There have been no breaches of general covenants in the financial year ended 7 March 2020.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 157
157
29 Financial risk management continued
Information relating to Financial Services capital risk management is detailed below.
Financial Services
Liquidity and funding risk
Liquidity risk is the risk that the Bank cannot meet its payment obligations as they fall due, or can only do so at excessive cost. The Bank seeks to ensure that
financial obligations can be met at all times, even under liquidity stress conditions.
The annual Internal Liquidity Adequacy Assessment Process (ILAAP) enables the Bank to:
(1) Identify and assess its most relevant liquidity risk drivers
(2) Quantify its liquidity needs under various stress scenarios and
(3) Put in place appropriate limits and controls to mitigate liquidity risks.
In meeting its internal limits as well as PRA requirements, the Bank maintains a stock of high quality liquid assets that can be readily monetised by outright
sale or repurchase agreement to meet the Bank’s obligations to depositors and other creditors.
The Bank’s Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are regularly monitored and forecast alongside cash flow and funding ratios.
Long-term and short-term forecasts are prepared to assess liquidity requirements, taking into account factors such as ATM cash management, contractual
maturities and customer deposit patterns (stable or less stable deposits) as well as outflows regarding undrawn commitments. These reports support daily
liquidity management, with early warning indicators reviewed on a daily basis and appropriate triggers for escalation and action in line with risk appetite,
Liquidity and Funding Policy and Liquidity Contingency Plan. Asset encumbrance ratios and risk indicators for wholesale funding concentrations by type
(total/secured/unsecured), maturity, sector, geography and counterparty are also regularly monitored and reported to ALCO.
Market risk
Market risk is the risk that the value of the Bank’s assets, liabilities, capital and earnings are exposed to the adverse change of the market risk drivers.
The Bank’s market risks include Interest Rate Risk in the Banking Book (IRRBB) and Foreign Exchange (FX) risk. The Bank does not have a trading book.
a. Interest rate risk
IRRBB arises from interest rates movements which impact the present value and timing of future cash flows resulting in changes in the underlying value
of a bank’s assets, liabilities and off-balance sheet instruments and hence its economic value. Interest rates movements also affect a bank’s earnings by
altering interest-sensitive income and expenses, affecting its net interest income.
The main types of interest rate risk faced by the Bank are:
— Re-pricing gap risk: the risk arising from timing differences in the interest rate changes of bank assets and liabilities (e.g. fixed rate personal loans and
instant access savings accounts).
— Yield curve risk: the risk arising from changes in the slope and shape of the yield curve.
— Basis risk: risk arising from imperfect correlation between different interest rate indices (e.g. administered rate on savings products and treasury assets
linked to LIBOR).
— Prepayment risk: the risk arising from the timing of customer prepayments which differ from planning and hedging assumptions.
— Pipeline risk: the risk of a customer drawing down, or not, a product at a rate which is unfavourable for the Bank.
— Credit spread risk: the risk of adverse effects resulting from a change in credit spreads, arising via the Bank’s Treasury portfolio.
Interest risk exposure is actively managed within limits that are aligned with the Bank’s risk appetite by using financial instruments such as interest rate
swaps and by taking into account natural hedges between assets and liabilities with similar repricing characteristics. Hedging strategies are implemented
and reviewed to ensure the Bank remains within its limits.
In order to measure the exposure to interest rate risk the Bank adopts a Capital at Risk (‘CaR’) approach to assess the value sensitivity of the Bank’s capital
to movements in interest rates under various interest rates shock scenarios, as well as, via an annual earnings at risk metric which measures the sensitivity
of the Bank’s earnings to movements in interest rates over a 12 month period. The CaR measure is an aggregate measure of five separate risk components,
each being a distinct form of interest rate risk including repricing risk, basis risk, prepayment risk, MTM risk and credit spread risk.
For interest rate risk measurement, all products are allocated within a re-pricing gap analysis based on their nearest re-pricing date (all non-maturing
deposits are assumed to re-price in month one) and where applicable using a customer behavioural repayment profile.
b. Foreign exchange risk
The Bank is exposed to FX risk through its holding of cash denominated in foreign currencies, primarily Euro and US Dollar, within its travel money bureaux
in J Sainsbury’s stores. The FX positions are hedged on a daily basis. Furthermore a US dollar deposit is held with MasterCard. This exposure is also hedged.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
158158
29 Financial risk management continued
Credit risk
Credit risk is central to the Bank’s day to day activities and is managed in line with the Board approved risk appetite. Key developments over the course of the
year have been further enhancements of IFRS 9 forecasting and stress testing models and increased capture of income data for AFS applicants.
a. Retail credit risk
Retail credit risk is the possibility of losses arising from a retail customer failing to meet their agreed repayment terms as they fall due. Retail Credit utilise
automated scorecards to assess the credit worthiness and affordability criteria of new applicants and ongoing behavioural characteristics of existing
customers. The outcomes from all scorecard models are monitored utilising a set of credit quality metrics to ensure actual performance is in line with agreed
expectations. Additional expert underwriting of credit applications is undertaken by a specialist operational team where further consideration is appropriate.
The Retail Credit Risk Committee provides portfolio oversight control over credit strategy to maintain lending in line with the Board approved risk appetite,
with additional oversight and control provided by the Executive Risk Committee and Board Risk Committee. Internal Audit provide additional assurance by
undertaking regular reviews on the adequacy of credit risk policies and procedures.
b. Wholesale and derivative credit risk
The Bank’s treasury portfolio is held primarily for liquidity management purposes and in the case of derivatives, for the purpose of managing market risk.
The liquidity portfolio is invested in eligible investment securities that qualify for the regulatory Liquidity Coverage Ratio (LCR) and internal Operational
Liquidity Pool (OLP). These investments include the Bank of England’s (BoE) reserve account, UK government securities (gilts or Treasury bills), multilateral
development bank securities, government guaranteed agency securities, UK regulated covered bond programmes and asset backed securities.
Limits are established for all counterparty and asset class exposures based on their respective credit quality and market liquidity. Consideration is also given
to geographical region and the strength of relevant sovereign credit ratings. Derivatives are subject to the same credit risk control procedures as are applied
to other wholesale market instruments and the credit risk arising from mark to market derivative valuations is mitigated by daily margin calls, posting cash
collateral to cover exposures. Daily monitoring is undertaken by the Bank’s Treasury department, including early warning indicators with appropriate triggers
for escalation.
At 7 March 2020, the maximum credit exposure of the Bank in the event of other parties failing to perform their obligations is equal to the sum of loans and
advances to customers, loans and advances to banks, investment securities and credit lines and other commitments to lend. No account is taken of any
collateral held and the maximum exposure to loss is considered to be the instrument’s balance sheet carrying amount.
The table below shows the maximum exposure to credit risk for the components of the balance sheet, including derivatives. The maximum exposure is
shown gross, before the effect of mitigation through the use of collateral agreements.
Credit risk exposures relating to on balance sheet items
Loans and advances to customers
Unsecured
Secured
Cash and balances with central banks
Derivative financial instruments
Investment securities
Other assets
Credit risk exposures relating to off balance sheet items
Loan commitments and other related liabilities
Total credit risk exposures
2020
£m
2019
£m
5,542
1,862
547
4
802
428
80
9,265
5,546
1,441
655
10
622
290
323
8,887
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 29 Financial risk management continued
The commitments to lend disclosed in the above table do not include undrawn limits on credit cards and store cards. These are not considered contractual
commitments but, because in practice Financial Services does not expect to withdraw these credit limits from customers, they are within the scope of
impairment provisioning in the following tables.
An analysis by loan-to-value (LTV) ratio of the Bank’s residential mortgage lending is presented below. The value of collateral used in determining the LTV
ratios has been estimated based upon the last actual valuation, adjusted to take into account subsequent movements in house prices.
159
159
At 7 March 2020
Less than 70%
70% to 80%
80% to 90%
90% to 100%
Greater than 100%
Total mortgages
At 9 March 2019
Less than 70%
70% to 80%
80% to 90%
90% to 100%
Greater than 100%
Total mortgages
Neither past
due nor
impaired
£m
Past due but
not impaired
£m
Impaired
£m
Gross
£m
1,076
389
320
68
–
1,853
1
–
–
–
–
1
6
1
1
–
–
8
Neither past
due nor
impaired
£m
Past due but
not impaired
£m
Impaired
£m
779
314
229
109
6
1,437
–
–
–
–
–
–
4
–
–
–
–
4
1,083
390
321
68
–
1,862
Gross
£m
783
314
229
109
6
1,441
The following table shows the maximum exposure to credit risk for commitments and balances measured at amortised cost along with the related amounts
which are credit impaired at the reporting date.
Loan commitments
Of which credit impaired at 7 March 2020
Financial assets measured at amortised cost – Retail lending
Of which credit impaired at 7 March 2020
Total credit risk exposures
Of which credit impaired at 7 March 2020
Loan commitments
Of which credit impaired at 9 March 2019
Financial assets measured at amortised cost – Retail lending
Of which credit impaired at 9 March 2019
Total credit risk exposures
Of which credit impaired at 9 March 2019
Of which
secured by
collateral
(Residential
property)
£m
Maximum
exposure to
credit risk
£m
8,621
28
7,644
243
16,265
271
14
–
1,862
8
1,876
8
Of which
secured by
collateral
(Residential
property)
£m
Maximum
exposure to
credit risk
£m
8,392
35
7,235
201
15,627
236
210
–
1,441
4
1,651
4
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
160160
29 Financial risk management continued
Credit quality per class of financial asset
Loans and advances to customers are summarised as follows:
Impaired
Past due but not impaired
Neither past due nor impaired
Gross
Less: allowance for impairment
Less: hedging fair value adjustment
Net book value
Credit quality analysis:
7 March 2020
Past due and impaired
Less than three months, but impaired
Past due three to six months
Past due six to 12 months
Past due over 12 months
Recoveries
Total gross impaired loans
Past due less than three months but not impaired
Neither past due nor impaired
Total gross amount due
9 March 2019
Past due and impaired
Less than three months, but impaired
Past due three to six months
Past due six to 12 months
Past due over 12 months
Recoveries
Total gross impaired loans
Past due less than three months but not impaired
Neither past due nor impaired
Total gross amount due
2020
£m
243
67
7,334
7,644
(267)
27
7,404
2019
£m
201
63
6,971
7,235
(247)
(1)
6,987
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
–
–
–
–
–
–
9
6,824
6,833
–
–
–
–
–
–
58
510
568
Stage 1
£m
Stage 2
£m
–
–
–
–
–
–
6
6,207
6,213
–
–
–
–
–
–
57
764
821
38
39
35
2
129
243
–
–
243
Stage 3
£m
32
28
5
1
135
201
–
–
201
38
39
35
2
129
243
67
7,334
7,644
Total
£m
32
28
5
1
135
201
63
6,971
7,235
Mortgages held over residential properties represent the only collateral held by the Bank for retail exposures. The market value of collateral held for impaired
loans and loans past due but not impaired was £19 million (2019: £12 million). The fair value of collateral held against possession cases was £nil (2019: £nil).
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 29 Financial risk management continued
The Group defines the following classifications for all credit exposures: High, Satisfactory, Low and Credit impaired. These are segmented by 12 month
probability of default (PD) under IFRS 9. Unsecured lending represents Sainsbury’s Bank credit cards and personal loan lending in addition to Argos storecards
at 7 March 2020. Secured lending represents Sainsbury’s Bank mortgage lending.
161
161
High quality:
Satisfactory quality
Low quality
Credit impaired
Unsecured lending
7 March 2020
High quality
Satisfactory quality
Low quality
Credit impaired
Total
9 March 2019
High quality
Satisfactory quality
Low quality
Credit impaired
Total
Secured lending
7 March 2020
High quality
Satisfactory quality
Low quality
Credit impaired
Total
9 March 2019
High quality
Satisfactory quality
Low quality
Credit impaired
Total
IFRS 9 12 month PD
<=3.02%
>3.02%; < 11.11%
>= 11.11%
100%
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
4,515
502
39
–
5,056
Stage 1
£m
4,630
436
9
–
5,075
Stage 1
£m
1,778
–
–
–
1,778
Stage 1
£m
1,276
–
–
–
1,276
112
246
134
–
492
–
–
–
235
235
Stage 2
£m
Stage 3
£m
117
289
116
–
522
–
–
–
196
196
4,627
748
173
235
5,783
Total
£m
4,747
725
125
196
5,793
Stage 2
£m
Stage 3
£m
Total
£m
73
1
2
–
76
–
–
–
8
8
Stage 2
£m
Stage 3
£m
158
1
1
–
160
–
–
–
5
5
1,851
1
2
8
1,862
Total
£m
1,434
1
1
5
1,441
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
162162
29 Financial risk management continued
Financial Services capital resources (unaudited)
The following table analyses the regulatory capital resources under CRD IV. From a prudential perspective, the Bank is monitored and supervised on a
consolidated basis with its subsidiary, Home Retail Group Card Services Limited, from the point of acquisition of Argos Financial Services in September 2016.
The Bank has obtained an individual consolidation waiver from the PRA, which allows the Bank to monitor its capital position on a consolidated basis only.
Therefore, the capital position shown below is on a regulatory consolidated basis.
The Bank implemented IFRS 9, effective 1 March 2018. The following table analyses the regulatory capital resources under CRD IV and aligns to the phase-in
approach of IFRS 9 impacts on capital, over a five-year period.
Common Equity Tier 1 (CET 1) capital:
Ordinary share capital
Allowable reserves
Regulatory adjustments
Tier 1 capital
Tier 2 capital (loan notes – listed)
Total capital
Transitional
2020
IFRS 9
£m
Full impact
2020
IFRS 9
£m
Transitional
2019
IFRS 9
£m
Full impact
2019
IFRS 9
£m
901
93
(172)
822
167
989
901
93
(239)
755
167
922
866
66
(147)
785
172
957
866
66
(226)
706
172
878
Regulatory capital is calculated under the Capital Requirements Regulations and Capital Requirements Directive (collectively known as CRD IV) as enacted in
the UK. Common Equity Tier 1 (CET 1) capital includes ordinary share capital, other reserves, losses and regulatory deductions.
The movement of CET 1 capital during the financial year is analysed as follows:
At 1 March 2019 and 1 March 2018
Share capital issued
IFRS 9 adjustment to retained earnings
Verified profits/(losses) attributable to shareholders
Transitional adjustments
Other reserve movements
Movement in additional value adjustments
Increase in intangible assets
At 29 February 2020 and 28 February 2019
Transitional
2020
IFRS 9
£m
Full impact
2020
IFRS 9
£m
Transitional
2019
IFRS 9
£m
Full impact
2019
IFRS 9
£m
785
35
–
20
(13)
7
–
(12)
822
705
35
–
20
–
7
–
(12)
755
725
110
(84)
(24)
79
–
(1)
(20)
785
725
110
(84)
(24)
–
–
(1)
(20)
706
Leverage ratio (unaudited)
The leverage ratio is defined as the ratio of Tier 1 capital to adjusted assets, which is measured below on a regulatory consolidated basis. The denominator
represents the total non-risk weighted assets of the regulatory group (Bank and Home Retail Group Card Services Limited) adjusted for certain off balance
sheet exposures assets and regulatory deductions and provides a non-risk-weighted ‘backstop’ capital measure. The leverage ratio is calculated below as at
28 February 2020. The Bank’s leverage ratio of 8.1 per cent exceeds the minimum Basel leverage ratio of 3 per cent.
Components of the leverage ratio
Total assets as per published financial statements (Sainsbury’s Bank plc)
Uplift on consolidation of subsidiary undertakings
Exposure value for derivatives and securities financing transactions
Off balance sheet exposures: unconditionally cancellable (10%)
Off balance sheet: other (100%)
Other adjustments
Tier 1 capital
Leverage ratio
Transitional
2020
IFRS 9
£m
Full impact
2020
IFRS 9
£m
Transitional
2019
IFRS 9
£m
Full impact
2019
IFRS 9
£m
9,402
58
15
906
16
(238)
9,402
58
15
906
16
(238)
10,159
10,159
822
8.1%
755
7.4%
8,832
49
18
810
65
(226)
9,548
785
8.2%
8,832
49
18
810
65
(226)
9,548
706
7.4%
Capital management
The Bank manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its activities.
During the year to 29 February 2020, the Bank received further injections of £35 million of ordinary share capital from J Sainsbury plc. Capital adequacy is
monitored on an ongoing basis by senior management, the ALCO, the Executive Risk Committee and the Board Risk Committee. Our submissions to the PRA
in the year have shown that the Bank has complied with all externally imposed capital requirements. The Bank’s tier 1 capital ratio of 14.1 per cent exceeds
internal and regulatory thresholds.
The Bank will disclose Pillar 3 information as required by the Capital Requirements Regulations and PRA prudential sourcebook on the J Sainsbury plc
external website.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 163
163
30 Financial instruments
Accounting policies
a) Financial assets
The Group classifies all of its financial assets as either amortised cost, fair value through other comprehensive income (FVOCI) or fair value through profit
or loss (FVTPL).
To determine their classification and measurement category, IFRS 9 requires all financial assets, except equity instruments and derivatives, to be assessed
based on a combination of the entity’s business model for managing the assets and the instruments’ contractual cash flow characteristics.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely
payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an
instrument level.
The business model assessment reflects how the Group manages the risks relating to the underlying financial assets, including whether the Group’s principal
objective is to collect the contractual cash flows arising from the instruments (amortised cost), to sell the financial instruments (FVTPL) or a combination
thereof (FVOCI).
Financial instruments at amortised cost
Financial assets that are principally held for the collection of contractual cash flows and which pass the SPPI test are classified as amortised cost. For the
Group, these are financial assets that are held within a business model with the objective to hold financial assets in order to collect contractual cash flows,
and where the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding. The Group has no intention of trading these loans and receivables and they include amounts due from Financial Services
customers and amounts due from other banks. With the exception of trade receivables that do not contain a significant financing component, the Group
initially measures these financial assets at fair value plus transaction costs. Subsequently these assets are carried at amortised cost less impairment using
the effective interest rate method. Income from these financial assets is calculated on an effective yield basis and is recognised in the income statement.
Financial assets at fair value through other comprehensive income
Financial assets that are held for both the purpose of collecting contractual cash flows and to sell are classified as FVOCI. Initial recognition is at fair value
plus transaction costs, with subsequent movements in fair value being recognised through OCI. Interest income measured using the effective interest rate
method and impairment gains and losses are recognised in the income statement.
Upon initial recognition, the Group occasionally elects to classify irrevocably some of its equity investments as equity instruments at FVOCI when they meet
the definition of Equity under IAS 32 ‘Financial instruments: Presentation’ and are not held for trading. Such classification is determined on an instrument-by-
instrument basis. Fair value gains and losses on these equity instruments are never recycled to the income statement. Dividends are recognised in profit or
loss as other operating income when the right of the payment has been established, except when the Group benefits from such proceeds as a recovery of the
cost of the instrument, in which case, such gains are recorded in OCI. Equity instruments at FVOCI are not subject to an impairment assessment.
Financial assets at fair value through profit and loss
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value
through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are
acquired for the purpose of selling or repurchasing in the near term. Derivatives are also classified as held for trading unless they are designated as effective
hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through
profit or loss, irrespective of the business model.
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in
the income statement.
b) Impairment of financial assets
Loan loss impairments are accounted for using a three stage forward-looking expected credit loss (ECL) approach in line with IFRS 9. The Group is required to
record an allowance for ECL for all loans and other debt financial assets not held at FVTPL, together with loan commitments and financial guarantee contracts.
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to
receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held
or other credit enhancements that are integral to the contractual terms.
For trade receivables and contract assets, the Group establishes provisions against trade receivables to reflect the lifetime expected credit loss, consistent
with the simplified approach under IFRS 9.
c) Financial Services loans and advances including impairment
For Financial Services portfolios of loans, such as credit card lending, scorecard lending and personal loans, impairment provisions are calculated for groups
of assets, otherwise impairment is identified at a counterparty specific level. The allowance is calculated by reference to the estimated probability of default
(PD), exposure at default (EAD) and loss given default (LGD).
— The probability of default represents the likelihood of a borrower defaulting within 12 months from the balance sheet date or within the expected lifetime
of the borrower.
— Exposure at default represents the expected amount due from the borrower at the point of default by reference to exposure at the balance sheet date
adjusted for expected future changes including repayments and utilisation of undrawn facilities.
— Loss given default represents the expected percentage loss at the point of default relative to the EAD. The estimate takes into account utilisation of any
expected collections and recoveries strategies, debt sale arrangements and collateral.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
164164
Notes to the consolidated financial statements continued
30 Financial instruments continued
ECL three stage model
— Stage 1 – Impairment allowance on financial assets that have not significantly increased in credit risk since origination, nor are credit impaired, is
calculated using the probability that a borrower will default within 12 months from the balance sheet date. Interest income is recognised on the gross
carrying value of the financial asset.
— Stage 2 – Where a financial asset exhibits a significant increase in credit risk (SICR) but is not yet considered to be credit impaired, the probability of
default considered in the impairment allowance is based upon the lifetime probability of the borrower defaulting. Interest income continues to be
recognised on the gross carrying value of the financial asset.
— Stage 3 – Assets considered to be credit impaired resulting from one or more events have occurred that has resulted in a detrimental impact on the
estimated future cash flows of the asset. Stage 3 assets will continue to recognise lifetime expected impairment losses (with a 100% probability of default)
and interest income will be recognised on the net carrying amount (i.e. gross amount less impairment allowance).
In determining ECL allowances, expected future recoveries are discounted to the reporting date at the original effective interest rate of the relevant instrument.
Significant increases in credit risk
The Group determines whether there has been a significant increase in credit risk by reference to quantitative thresholds, qualitative indicators and has also
chosen to adopt the rebuttable backstop presumption that credit risk has significantly increased if contractual payments are more than 30 days past due.
Quantitative thresholds have been determined that when the lifetime PD of an instrument as at the reporting date has increased to greater than a specified
multiple of the origination lifetime PD, a significant increase in credit risk is deemed to have occurred.
Qualitative tests are based around the Group’s credit origination policy rules for Financial Services customers. These rules are in place at account origination
in order to decline accounts that may demonstrate risk factors outside of risk appetite that are not yet reflected in PD measures. At the reporting date, if an
account satisfies any policy decline rules that it had not at the point of origination, it will be considered to have significantly increased in credit risk.
There is no probationary period applied in respect of accounts that cure from stage 2 to stage 1. Transfer criteria have been subject to extensive analysis to
ensure that they appropriately reflect the flow of accounts from origination to default so as to maximise the number of accounts that flow through the
stages and minimise accounts that jump from stage 1 to stage 3, or that fail to enter stage 3 from stage 2.
The Group has applied the low credit risk exemption in respect of its high quality treasury portfolio held for liquidity purposes. This exemption permits low
credit risk loans (i.e. those considered investment grade) to remain in Stage 1 without an assessment of significant increase in credit risk.
Definition of default
The Group’s definition of default is used in determining those accounts classified as stage 3 (i.e. credit impaired). The Group has chosen not to rebut the
backstop presumption prescribed by IFRS 9 that where an account is 90 days or more past its due date then default has occurred.
The Group has also defined a number of unlikeliness-to-pay criteria that result in an account being deemed to have defaulted. These include:
— Where operational collections activities have been exhausted on accounts that are less than 90 days past due and the account is subject to recoveries
processes
— If any forbearance has been granted on the account
— Where the customer is subject to insolvency proceedings
— Where the customer is deceased
Where an account no longer meets any of the default criteria, such as by bringing payments back up to date, the Group will continue to consider the account
as being in default for a period of 24 months from the date when it last met the definition of default.
Write-off
Loans and advances to customers are written off (either partially or in full) when there is no realistic prospect of recovery. This is generally the case when the
Group determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to
write-off.
However, financial assets that are written off could be subject to enforcement activities in order to comply with the Group’s procedures for recovery of
amounts due. Subsequent recoveries of amounts previously written off result in impairment gains recorded in the statement of comprehensive income.
Expected lifetime
For the purposes of considering the lifetime probability of default, the expected lifetime of a financial asset is the contractual term where this is fixed within
the contract, or in the case of revolving products such as credit cards a behavioural life is determined by reference to historic trends.
Modified financial assets
When the contractual cash flows of a financial asset have been renegotiated or modified and the financial asset was not derecognised, its gross carrying
amount is recalculated as the present value of the modified contractual cash flows, discounted at the original effective interest rate with a gain or loss
recognised in the income statement.
Macro-economic scenarios
IFRS 9 requires that the measurement of ECL should reflect an unbiased and probability weighted amount that is determined by evaluating a range of
forward-looking economic assumptions. The Group has engaged an external supplier to provide economic forecasts which are subject to review, challenge
and approval. The ECL models utilise three scenarios including a ‘base case’ scenario considered to be the most likely outcome together with an upside
and downside scenario. The base case has been assigned a probability weighting of 40 per cent with the upside and downside scenarios each assigned
30 per cent. A revised downside scenario was introduced to replace the downside scenario at 7 March 2020 with more extreme economic assumptions
– also with 30 per cent probability.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
165
165
30 Financial instruments continued
d) Financial liabilities
The Group recognises all of its financial liabilities at amortised cost and all derivative financial liabilities are classified as FVTPL.
Financial liabilities costs, 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 rate 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 which is recognised in shareholders’ equity, net of income tax effects, and is not subsequently remeasured.
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.
Interest-bearing bank loans, overdrafts, other deposits and amounts due to Sainsbury’s Bank customers 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 rate method.
Financial liabilities are derecognised when the obligation under the liability is discharged, cancelled or expires.
Financial assets and liabilities by category
Set out below are the accounting classification of each class of financial assets and liabilities as at 7 March 2020 and 9 March 2019.
Group
At 7 March 2020
Cash and cash equivalents
Trade and other receivables
Amounts due from Financial Services customers
Financial assets at FVOCI
Trade and other payables
Current borrowings
Non-current borrowings
Amounts due to Financial Services customers and banks
Derivative financial instruments
Lease liabilities
Group
At 9 March 2019 (restated)
Cash and cash equivalents
Trade and other receivables
Amounts due from Financial Services customers
Financial assets at FVOCI
Trade and other payables
Current borrowings
Non-current borrowings
Amounts due to Financial Services customers and banks
Derivative financial instruments
Lease liabilities
Amortised
cost
£m
Fair value
through OCI
£m
Fair value
through profit
or loss
£m
841
506
7,404
–
(3,835)
(48)
(1,248)
(8,094)
–
(5,774)
(10,248)
–
–
–
1,054
–
–
–
–
–
–
1,054
153
169
–
–
–
–
–
–
(71)
–
251
Amortised
cost
£m
Fair value
through OCI
£m
Fair value
through profit
or loss
£m
929
371
6,987
–
(4,087)
(816)
(844)
(7,601)
–
(5,831)
–
–
–
856
–
–
–
–
–
–
(10,892)
856
192
144
–
–
–
–
–
–
(4)
–
332
Total
£m
994
675
7,404
1,054
(3,835)
(48)
(1,248)
(8,094)
(71)
(5,774)
(8,943)
Total
£m
1,121
515
6,987
856
(4,087)
(816)
(844)
(7,601)
(4)
(5,831)
(9,704)
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
166166
30 Financial instruments continued
e) Fair value estimation
Set out below is a comparison of the carrying amount and the fair value of financial instruments that are carried in the financial statements at a value
other than fair value. The fair values of financial assets and liabilities are based on prices available from the market on which the instruments are traded.
Where market values are not available, the fair values of financial assets and liabilities have been calculated by discounting expected future cash flows at
prevailing interest rates. The fair values of short-term deposits, trade receivables, other receivables, overdrafts and payables are assumed to approximate
to their book values.
Group
At 7 March 2020
Financial assets
Amounts due from Financial Services customers1
Financial liabilities
Loans due 2031
Bank loans due 2021
Bank loans due 2024
Tier 2 capital due 2023
Lease liabilities and hire purchase leases
Amounts due to Financial Services customers and other banks
Group
At 9 March 2019
Financial assets
Amounts due from Financial Services customers1
Financial liabilities
Loans due 2031
Short-term borrowings
Bank overdrafts
Bank loans due 2019
Convertible bond due 2019
Tier 2 capital due 2023
Lease liabilities and hire purchase leases (restated)
Amounts due to Financial Services customers and other banks
Group
Carrying
amount
£m
Group
Fair value
£m
7,405
7,455
(667)
(199)
(250)
(180)
(5,774)
(8,093)
(888)
(199)
(250)
(177)
(5,774)
(8,100)
(15,163)
(15,388)
Group
Carrying
amount
£m
Group
Fair value
£m
6,987
7,006
(704)
(135)
(1)
(199)
(445)
(176)
(5,831)
(7,601)
(894)
(135)
(1)
(199)
(452)
(177)
(5,831)
(7,577)
(15,092)
(15,266)
1
Included within a portfolio fair value hedging relationship with £4,512 million (2019: £4,734 million) of interest rate swaps.
The fair value of financial assets as disclosed in the table above as at 7 March 2020 was £7,455 million (2019: £7,006 million). The fair value of the financial
assets has been calculated by discounting cash flows at prevailing interest rates and is within Level 2 of the fair value hierarchy (see below for fair value
hierarchy description). The fair value of financial liabilities was £15,388 million (2019: £15,266 million) of which £15,389 million (2019 : £14,814 million) has been
calculated by discounting cash flows at prevailing interest rates and is within Level 2 of the fair value hierarchy. The fair value of the Level 1 financial liabilities
was £nil (2019: £452 million) and has been determined using market values.
Fair value measurements recognised in the balance sheet
The following table provides an analysis of financial instruments that are recognised at fair value, grouped into Levels 1 to 3 based on the degree to which the
fair value is observable:
— Level 1 fair value measurements are derived from quoted market prices (unadjusted) in active markets for identical assets or liabilities at the balance
sheet date. This level includes listed equity securities and debt instrument on public exchanges;
— Level 2 fair value measurements are derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices). The fair value of financial instruments is determined by discounting expected cash
flows at prevailing interest rates; and
— Level 3 fair value measurements are derived from valuation techniques that include inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 30 Financial instruments continued
Group
At 7 March 2020
Cash and cash equivalents
Trade and other receivables
Financial instruments at fair value through other comprehensive income
Interest bearing financial assets
Other financial assets
Investment securities
Derivative financial assets
Derivative financial liabilities
At 9 March 2019
Cash and cash equivalents
Trade and other receivables
Financial instruments at fair value through other comprehensive income
Interest bearing financial assets
Other financial assets
Investment securities
Derivative financial assets
Derivative financial liabilities
Reconciliation of Level 3 fair value measurements of financial assets and liabilities:
52 weeks to 7 March 2020
At 9 March 2019
In finance cost in the Group income statement
In other comprehensive income
At 7 March 2020
52 weeks to 9 March 2019
At 10 March 2018
In finance cost in the Group income statement
In other comprehensive income
At 9 March 2019
167
167
Total
£m
153
169
1
251
802
18
(89)
192
144
1
233
622
30
(34)
Total
£m
221
(4)
17
234
Total
£m
155
10
56
221
Level 1
£m
153
169
–
–
802
–
–
192
144
–
–
622
–
–
Level 2
£m
Level 3
£m
–
–
1
14
–
18
(86)
–
–
1
13
–
29
(34)
–
–
–
237
–
–
(3)
–
–
–
220
–
1
–
Financial
instruments
at FVTOCI
£m
Commodity
derivatives
£m
220
–
17
237
1
(4)
–
(3)
Financial
instruments
at FVTOCI
£m
Commodity
derivatives
£m
164
–
56
220
(9)
10
–
1
The financial instruments at fair value through OCI relate to the Group’s beneficial interest in a property investment pool. The net present value of the Group’s
interest in the various freehold reversions owned by the property investment pool has been derived by assuming a property growth rate of 0.6 per cent per
annum (2019: 0.6 per cent) and a discount rate of nine per cent (2019: nine per cent), (see note 19). The sensitivity of this balance to changes of one per cent in
the assumed rate of property rental growth and one per cent in the discount rate holding other assumptions constant is shown below:
Financial instruments at fair value through OCI
2020
Change in
growth rate
+/-1.0%
£m
2020
Change in
discount rate
+/-1.0%
£m
2019
Change in
growth rate
+/-1.0%
£m
2019
Change in
discount rate
+/-1.0%
£m
11/(10)
(7)/7
13/(12)
(9)/9
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
168168
30 Financial instruments continued
The Group has entered into several long-term fixed price Power Purchase agreements with independent producers. Included within derivative financial
liabilities is £(4) million (2019: £1 million) relating to these agreements. The Group values its Power Purchase agreements as the net present value of the
estimated future usage at the contracted fixed price less the market implied forward energy price discounted at the prevailing swap rate. The Group also
makes an assumption regarding expected energy output based on the historical performance and the producer’s estimate of expected electricity output.
The sensitivity of this balance to changes of 20 per cent in the assumed rate of energy output and 20 per cent in the implied forward energy prices holding
other assumptions constant is shown below:
Derivative financial instruments
2020
Change
in volume
+/-20.0%
£m
2020
Change in
electricity
forward price
+/-20.0%
£m
2019
Change
in volume
+/-20.0%
£m
2019
Change in
electricity
forward price
+/-20.0%
£m
(1)/1
6/(8)
(0)/0
9/(10)
f) 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. The legally enforceable right must not be
contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company
or the counterparty.
The following table sets out the Group’s financial assets and financial liabilities that are subject to counterparty offsetting or a master netting agreement.
The master netting agreements regulate settlement amounts in the event either party defaults on their obligations.
At 7 March 2020
Assets
Derivative financial assets
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Derivative financial liabilities
Trade and other payables
Total liabilities
At 9 March 2019 (restated)
Assets
Derivative financial assets
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Derivative financial liabilities
Bank overdrafts
Trade and other payables
Total liabilities
Amounts not offset
in balance sheet
Gross amounts of
recognised financial
assets and liabilities
£m
Amounts offset
in the
balance
sheet
£m
Net amounts
recognised
in the
balance
sheet
£m
Balances
subject to a
contractual
right of
offset
£m
Cash collateral
pledged
£m
Net amounts
£m
18
737
994
1,749
(89)
(3,897)
(3,986)
30
548
1,121
1,699
(34)
(1)
(4,120)
(4,155)
–
(62)
–
(62)
–
62
62
–
(33)
–
(33)
–
–
33
33
18
675
994
1,687
(89)
(3,835)
(3,924)
30
515
1,121
1,666
(34)
(1)
(4,087)
(4,122)
2
–
–
2
(2)
–
(2)
21
–
–
21
(21)
–
–
(21)
–
–
–
–
20
675
994
1,689
(28)
–
(28)
(119)
(3,835)
(3,954)
–
–
–
–
2
–
–
2
51
515
1,121
1,687
(53)
(1)
(4,087)
(4,141)
The Group holds certain financial derivatives which are subject to credit support agreements. Under these agreements cash collateral is posted by one party
to the other party should the fair value of the financial derivative exceed a pre-agreed level. As at 7 March 2020, the Group held no collateral against these
financial derivative assets (2019: nil).
Financial Services has derivatives that are governed by the International Swaps and Derivatives Association and their associated credit support annex
bilateral agreements whereby if the fair value exceeds a pre-agreed level, cash collateral is exchanged. As at 7 March 2020, Financial Services and its
subsidiary undertakings had received collateral of £28 million (2019: provided collateral of £2 million) against the derivatives.
The Group also operates a cash pooling arrangement and collective net overdraft facility with its main clearing bank. As at 7 March 2020 the Group had a £nil
overdraft (2019: £1m).
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 169
169
30 Financial instruments continued
g) Derivative financial instruments and hedge accounting
Accounting policies
The Group uses derivative financial instruments to hedge its exposure to foreign exchange, interest rate and commodity risks. 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. Where derivatives
do not qualify for hedge accounting, any changes in the fair value of the derivative financial instrument are recognised in the income statement as finance
income or costs as they arise.
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, the nature of the risks being hedged and an assessment of the effectiveness of the hedging
relationship to ensure it is highly effective on an ongoing basis.
Where a derivative does qualify for hedge accounting, any changes in fair value are recognised depending on the nature of the hedge relationship and the
item being hedged as follows:
i) Cash flow hedges
Hedge relationships are classified as cash flow hedges where the derivative financial instruments hedge the Group’s exposure to variability in cash flows
resulting from a highly probable forecasted transaction. These include the exchange rate risk of inventory purchases denominated in foreign currency,
interest rate risk and commodity risk on purchases of power and fuel. 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 a cash flow hedge is hedging a firm commitment or forecast transaction that 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.
ii) Fair value hedges
The Group designates certain derivatives as fair value hedges where the derivative financial instrument hedges the change in fair value of the particular risks
inherent in recognised assets or liabilities (fair value hedges).
The Group has adopted IFRS 9 hedge accounting requirements for its fair value hedges of investment securities and its one-for-one hedge on Tier 2 Debt
issuance within Sainsbury’s Bank. The Group continues to adopt IAS 39 for its macro portfolio fair value hedges of fixed rate personal loans and residential
mortgages, as it is permitted to do so under IFRS 9 and until the point that the new macro hedge accounting standard is finalised and adopted.
Fair value hedging matches the change in fair value of designated hedged items against the corresponding change in value of the hedging derivative.
The designated hedged item can be a recognised asset or liability, a firm commitment or an identified portion of an asset.
The effective part of any gain or loss on the hedged item adjusts the balance of the hedged item and is recognised in the income statement, offsetting
the gain or loss on the hedging derivative. Should circumstances arise where the hedge relationship subsequently proves ineffective, is early settled or is
terminated the adjustment to the balance of the hedged item is amortised over the remaining life of the hedged item and to the income statement.
Micro fair value hedging – IFRS 9
The Group has purchased a number of fixed rate debt investment securities and has issued fixed rate subordinated debt within Sainsbury’s Bank. These
instruments are hedged via plain vanilla interest rate swaps, with the critical economic terms of both the hedging instrument and hedged item matching.
The notional amount, fixed interest legs and maturity dates are economically matched.
Portfolio fair value hedging – IAS 39
The Group uses portfolio fair value hedging as a risk management tool for hedging interest rate risk on the Personal Loans and Mortgage portfolios.
Portfolio fair value hedging allows the designation of the whole or part of a portfolio of assets or liabilities with similar risk exposures. The hedged item
can be designated based on expected maturities to match the hedging derivative maturity. Hedge effectiveness is considered to have been met where
the change in fair value of the hedged item offsets the change in fair value of hedging instruments, within the 80 to 125% ratio corridor.
IBOR reform
With regards to fair value hedges, during the year to 7 March 2020, the Group has initiated its London Interbank Offered Rate (LIBOR) transition plan and,
from August 2019, hedged balance sheet interest rate exposures within the Financial Services business using swaps referencing the Sterling Overnight Index
Average (SONIA) index, being a risk-free rate. At 7 March 2020, the Group (within Financial Services) had remaining exposures to LIBOR impacted by the
reform with a notional amount of £4,009 million, of which £4,000 million were designated in fair value hedge accounting relationships and £9 million not
in a hedge relationship. Of these, £2,700 million are due to mature by December 2021. The Group expects to transition the remaining £1,309 million to SONIA
in the next financial year. Further clarifications on hedge accounting implications for the financial statements are expected to be provided by IASB following
completion of Phase 2 of the IASB IBOR Reform project.
The Group’s cash flow hedge interest rate swaps, that are in a hedging relationship, mature prior to the transition, therefore the Group continues to apply
hedge accounting for these.
The effects of hedge accounting on the Group’s financial position and performance
The fair value of derivative financial instruments has been disclosed in the balance sheet as follows:
Non-current
Current
Total
2020
Asset
£m
6
12
18
2020
Liability
£m
(36)
(53)
(89)
2019
Asset
£m
9
21
30
2019
Liability
£m
(17)
(17)
(34)
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
170170
30 Financial instruments continued
At 7 March 2020
Fair value hedges
Interest rate swaps
Cash flow hedges
Interest rate swaps
Inflation rate swaps
Foreign exchange forward contracts
Commodity contracts
Derivatives not in a formal hedging
relationship
Interest rate swaps
Cross currency swaps
Commodity contracts
Total
2020
Asset
Notional
£m
Fair value
£m
Fair value
£m
Liability
Notional
£m
Fair value
£m
2019
Asset
Notional
£m
Fair value
£m
Liability
Notional
£m
5
–
–
13
–
–
–
–
18
282
–
–
729
–
–
127
–
(35)
4,230
–
(15)
(26)
(8)
–
(1)
(4)
200
490
1,000
56
259
66
13
1,138
(89)
6,314
10
–
–
18
1
–
–
1
30
2,183
–
–
634
15
53
–
13
(11)
(1)
(7)
(15)
–
–
–
–
2,552
100
540
(708)
–
119
–
–
2,898
(34)
2,603
At 7 March 2020 the maturity profile and average price/rate of the hedging instruments used in the Group’s non-dynamic hedging strategies were as follows:
At 7 March 2020
Fair value hedges
Interest rate risk
Interest rate swaps
Notional amount
Average net interest (pay)/receive
Cash flow hedges
Interest rate risk
Notional amount
Average net interest (pay)/receive
At 9 March 2019
Fair value hedges
Interest rate risk
Interest rate swaps
Notional amount
Average net interest (pay)/receive
Cash flow hedges
Interest rate risk
Notional amount
Average net interest (pay)/receive
Maturity
Less than
1 month
1 to 3 months
3 months to
1 year
One to
five years
More than
five years
–
–
–
–
270
(0.31)%
1,402
(0.32)%
2,831
(0.19)%
9
0.05%
–
–
–
–
690
(0.79)%
–
–
28
(0.49)%
141
0.11%
962
(0.36)%
3,575
(0.25)%
29
(0.43)%
50
(0.45)%
–
–
100
(2.86)%
490
(1.09)%
–
–
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 171
171
30 Financial instruments continued
Hedge ineffectiveness
Fair value hedges
Within the Financial Services business, interest rate swaps are executed to hedge interest rate risk arising from fixed rate exposures in its retail personal
loan and retail mortgage books, and certain fixed rate treasury investment securities, which are predominantly funded by variable rate linked liabilities.
The Group has also executed an interest rate swap to hedge interest rate risk arising from its fixed Tier 2 notes issued. This is achieved by hedging specific
balance sheet exposures.
The cash flows under the hedging instruments (interest rate swap derivatives) substantially match the cash flow profile of the hedged items (personal loans,
mortgages, treasury investment securities and borrowings). The changes in fair value of the derivatives offset changes in the fair value of the hedged items
through the income statement, with any ineffective portion also being recognised in the income statement.
The main source of ineffectiveness within the micro hedge relationships relates to the floating leg valuation changes inherent within the hedging instrument
that do not exist within the hedged item.
Ineffectiveness on portfolio hedges can arise as a result of several factors, including floating leg valuation changes inherent within the hedging instrument
that do not exist within the hedged item, mismatch in cash flow maturities between the hedged item and hedging instrument and basis risk between cash
flows discounted using different benchmark rates e.g. LIBOR v OIS.
The impact of the hedged items on Group’s financial statements is as follows:
Carrying amount
of the hedged item
Assets
£m
Liabilities
£m
4,536
156
–
4,692
–
–
(180)
(180)
Carrying amount
of the hedged item
Assets
£m
Liabilities
£m
4,487
98
–
4,585
–
–
(176)
(176)
At 7 March 2020
Fair value hedges
Interest rate swaps
Interest rate swaps
Interest rate swaps
At 9 March 2019
Fair value hedges
Interest rate swaps
Interest rate swaps
Interest rate swaps
Change in fair value used for
measuring ineffectiveness
for the period
Accumulated amount of fair
value hedge adjustments
included in the carrying
amount of the hedged item
£m
28
(1)
(2)
25
Assets
£m
Liabilities
£m
Line item in financial statements
27
(1)
–
26
– Amounts due from Financial Services customers
Financial assets at FVOCI
–
Borrowings
(4)
(4)
Change in fair value used for
measuring ineffectiveness
for the period
Accumulated amount of fair
value hedge adjustments
included in the carrying amount
of the hedged item
£m
11
–
(2)
9
Assets
£m
Liabilities
£m
Line item in financial statements
(1)
–
–
(1)
–
–
(2)
(2)
Amounts due from Financial Services customers
Financial assets at FVOCI
Borrowings
The impact of the hedging instruments on the financial statements is as follows:
At 7 March 2020
Fair value hedges
Interest rate swaps (loans and mortgages)
Interest rate swaps (Tier 2 capital)
Interest rate swaps (investment securities)
Notional
amount
£m
Carrying amount
Asset
£m
Liability
£m
Change in fair value used for
measuring ineffectiveness
for the period
£m
Line item in financial statements
4,183
175
154
4,512
–
5
–
5
(33)
–
(2)
(35)
Derivative financial liabilities
Derivative financial assets
Derivative financial liabilities
(32)
3
1
(28)
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
172172
30 Financial instruments continued
At 9 March 2019
Fair value hedges
Interest rate swaps (loans and mortgages)
Interest rate swaps (Tier 2 capital)
Interest rate swaps (investment securities)
Notional
amount
£m
Carrying amount
Asset
£m
Liability
£m
Change in fair value used for
measuring ineffectiveness
for the period
£m
Line item in financial statements
4,465
175
95
4,735
8
2
–
10
(8)
–
(3)
(11)
Derivative financial assets/(liabilities)
Derivative financial assets
Derivative financial liabilities
(13)
2
1
(10)
The above hedging relationships impacted profit or loss as follows:
Fair value hedges
Interest rate swaps
Hedge ineffectiveness
recognised in profit or loss
2020
£m
(3)
2019
£m
(1)
Line item in income statement
Cost of sales
Cash flow hedges
There is an economic relationship between the hedged items and the hedging instruments as the terms of the interest rate swaps, foreign exchange and
commodity forward contracts match the terms of the expected highly probable forecast transactions (i.e. notional amount and expected payment date).
The Group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risks of the foreign exchange and commodity forward contracts
are identical to the hedged risk components. To test the hedge effectiveness, the Group uses the hypothetical derivative method and compares the changes
in the fair value of the hedging instruments against the changes in fair value of the hedged items attributable to the hedged risks.
Hedge ineffectiveness can arise from:
— Differences in the timing of the cash flows of the hedged items and the hedging instruments
— Different indexes (and accordingly different curves) linked to the hedged risk of the hedged items and hedging instruments
— The counterparties’ credit risk differently impacting the fair value movements of the hedging instrument compared to the hedged items
— Changes to the forecasted amount of cash flows of hedged items
The impact of the hedged items on the Group’s financial statements is as follows:
At 7 March 2020
Cash flow hedges
Interest rate swaps
Inflation rate swaps
Foreign exchange forward contracts
Commodity contracts
At 9 March 2019
Cash flow hedges
Interest rate swaps
Inflation rate swaps
Foreign exchange forward contracts
Commodity contracts
Change in value of hedged
item for calculating hedge
ineffectiveness
£m
Change in value of hedging
instrument for calculating
hedge ineffectiveness
£m
Cumulative impact on
cash flow hedge reserve
£m
–
10
(18)
9
–
10
18
(9)
1
(13)
(31)
(8)
Change in value of hedged
item for calculating hedge
ineffectiveness
£m
Change in value of hedging
instrument for calculating
hedge ineffectiveness
£m
Cumulative impact on
cash flow hedge reserve
£m
–
3
(70)
(4)
–
3
(70)
(4)
(1)
(8)
(25)
1
There are no amounts remaining in the hedging reserves for which hedge accounting is no longer applied.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued The following table presents a reconciliation by risk category of the cash flow hedge reserve and analysis of other comprehensive income in relation
to hedge accounting:
173
7 March 2020
Interest rate swaps
Inflation rate swaps
Foreign exchange forward contracts
Commodity contracts
Tax
9 March 2019
Interest rate swaps
Inflation rate swaps
Foreign exchange forward contracts
Commodity contracts
Tax
Opening
£m
Fair value movements
recognised in other
comprehensive income
£m
Amounts
reclassified
£m
Closing
£m
Reclassification
recognised in
(1)
(8)
(25)
1
3
(30)
–
(10)
18
(9)
4
3
–
5
(24)
–
–
(19)
(1)
(13)
(31)
(8)
7
(46)
Finance costs
Finance costs
Inventory
Cost of sales
Opening
£m
Fair value movements
recognised in other
comprehensive income
£m
Amounts
reclassified
£m
Closing
£m
Reclassification
recognised in
(2)
(7)
(51)
1
7
(52)
–
(3)
70
4
(4)
67
1
2
(44)
(4)
(45)
(1)
(8)
(25)
1
3
(30)
Finance costs
Finance costs
Inventory
Cost of sales
Derivatives not in a hedge relationship
Some of the Group’s derivative contracts do not qualify for hedge accounting and are therefore not designated in a hedging relationship. In addition,
where gains or losses on a derivative contract economically offset the losses or gains on an underlying transaction, the derivative is not designated as being
in a hedging relationship.
Sainsbury’s Bank and its subsidiaries hold a £9 million portfolio of interest rate swaps hedging mortgage pipeline offers that do not qualify for hedge
accounting (2019: £172 million) with fair value movements accounted for in full through the P&L, with no effective offset. The fair value movement crediting
the income statement for interest rate swaps economically hedging mortgage pipeline interest rate risk but not qualifying for hedge accounting was
a cost of £2 million (2019: a credit of £2 million).
The Group holds £250 million (2019: £nil) of interest rate swaps hedging the interest rate risk of the £250 million bilateral loan. Under the terms of the swaps
the Group receives floating rate interest and pays fixed rate interest. The fair value movement debiting the income statement was less than £1 million
(2019: £nil).
Commodity forward contracts at fair value through profit and loss relate to the Group’s long-term fixed price power purchase agreements with
independent producers.
31 Cash and cash equivalents
Accounting policies
Cash and cash equivalents
Cash and bank balances comprise cash in hand and at bank, deposits at central banks, 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.
For the purposes of the cash flow statement, cash and cash equivalents comprise the following:
Cash in hand and bank balances
Money market funds and deposits
Deposits at central banks
Cash and bank balances
Bank overdrafts
Net cash and cash equivalents
Of the above balance, £21 million (2019: £49 million) was restricted as at year-end.
2020
£m
519
202
273
994
–
994
2019
£m
609
204
308
1,121
(1)
1,120
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
174174
32 Analysis of net debt
The Group’s definition of net debt includes the capital injections to Sainsbury’s Bank, but excludes the net debt of Sainsbury’s Bank and its subsidiaries.
Sainsbury’s Bank’s net debt balances are excluded because they are part of the daily operating cycle of the Bank rather than for financing purposes. The
Group’s definition of net debt has been updated and now includes lease liabilities as recognised under IFRS 16 and perpetual securities. In addition, net
debt now excludes derivatives that are not used to hedge borrowings. Refer to note 4 for further information. All comparative periods have been restated.
A reconciliation of opening to closing net debt is included below. Balances and movements for the total Group and Financial Services are shown in addition
to Retail to enable reconciliation between the Group balance sheet and Group cash flow statement. Liabilities arising from hire purchase arrangements are
included within lease liabilities on the balance sheet – further information on these is included within note 4.
Financial assets at fair value through other comprehensive income exclude equity related financial assets which predominantly relate to the Group’s
beneficial interest in a commercial property investment pool.
Derivatives exclude those not used to hedge borrowings, and borrowings exclude bank overdrafts as they are disclosed separately.
Cash movements
Non-cash movements
Cash flows
excluding
interest
£m
Net interest
(received)/
paid
£m
Accrued
interest
£m
Other
non-cash
movements
£m
Changes in
fair value
£m
7 March
2020
£m
Retail
Financial assets at fair value through other
comprehensive income
Net derivative financial instruments (restated)
Cash and cash equivalents
Bank overdrafts
Borrowings (excluding overdrafts and finance leases)
Lease liabilities and hire purchase arrangements (restated)
Retail net debt (excluding perpetual securities) (restated)
Financial Services
Financial assets at fair value through other
comprehensive income
Net derivative financial instruments (restated)
Cash and cash equivalents
Bank overdrafts
Borrowings (excluding overdrafts and finance leases)
Lease liabilities and hire purchase arrangements (restated)
Financial Services net debt (restated)
Group
Financial assets at fair value through other
comprehensive income
Net derivative financial instruments (restated)
Cash and cash equivalents
Bank overdrafts
Borrowings (excluding overdrafts and finance leases)
Lease liabilities and hire purchase arrangements (restated)
Group net debt (excluding perpetual securities)
9 March
2019
£m
1
(9)
466
(1)
(1,483)
(5,824)
(6,850)
–
–
(19)
1
369
429
780
622
177
–
655
–
(176)
(7)
1,094
–
(108)
–
–
1
70
623
177
(9)
1,121
(1)
(1,659)
(5,831)
–
(127)
1
369
430
–
4
(2)
–
48
332
382
–
–
–
–
–
–
–
–
4
(2)
–
48
332
–
–
(5)
2
–
(50)
(332)
(385)
5
–
–
-
(373)
(368)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5)
2
–
(50)
(332)
5
–
–
–
(373)
–
(10)
–
–
-
-
(10)
3
4
–
–
(4)
–
3
3
(6)
–
–
(4)
–
(7)
1
(15)
447
–
(1,116)
(5,768)
(6,451)
802
4
547
–
(180)
(6)
1,167
803
(11)
994
–
(1,296)
(5,774)
(5,284)
(restated)
(5,756)
850
382
(385)
(368)
Retail net debt (excluding perpetual securities)
(restated)
Perpetual capital securities
Perpetual convertible bonds
(6,850)
780
382
(385)
(368)
(10)
(6,451)
(248)
(248)
(248)
(248)
Retail net debt (including perpetual securities)
(7,346)
780
382
(385)
(368)
(10)
(6,947)
(restated)
Of which:
Leases
Net debt excluding lease liabilities
(5,824)
(1,522)
Other non-cash movements relate to interest accruals and new leases.
(5,768)
(1,179)
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
175
175
9 March
2019
£m
1
(9)
466
(1)
(1,483)
(5,824)
(6,850)
622
–
655
(176)
(7)
1,094
623
(9)
1,121
(1)
(1,659)
(5,831)
(5,756)
32 Analysis of net debt continued
Retail
Financial assets at fair value through other
comprehensive income
Net derivative financial instruments (restated)
Cash and cash equivalents
Bank overdrafts
Borrowings
Lease liabilities and hire purchase arrangements (restated)
Retail net debt (excluding perpetual securities) (restated)
Financial Services
Financial assets at fair value through other
comprehensive income
Net derivative financial instruments (restated)
Cash and cash equivalents
Borrowings
Lease liabilities and hire purchase arrangements (restated)
Financial Services net debt (restated)
Group
Financial assets at fair value through other
comprehensive income
Net derivative financial instruments (restated)
Cash and cash equivalents
Bank overdrafts
Borrowings
Lease liabilities and hire purchase arrangements (restated)
Group net debt (excluding perpetual securities)
11 March
2018
£m
40
(8)
725
(2)
(1,937)
(5,897)
(7,079)
526
(2)
1,005
(174)
(8)
1,347
566
(10)
1,730
(2)
(2,111)
(5,905)
Cash changes
Non-cash changes
Cash flows
excluding
interest
£m
Net interest
(received)/
paid
£m
Accrued
interest
£m
Other
non–cash
movements
£m
Changes
in fair
value
£m
(39)
–
(259)
1
458
456
617
97
–
(350)
–
1
(252)
58
–
(609)
1
458
457
–
(1)
–
–
60
341
400
–
–
–
–
–
–
–
(1)
–
–
60
341
–
1
–
–
(64)
(342)
(405)
–
–
–
–
–
–
–
1
–
–
(64)
(342)
(405)
–
–
–
–
–
(382)
(382)
–
–
–
–
–
–
–
–
–
–
–
(382)
(382)
–
(1)
–
–
–
–
(1)
(1)
2
–
(2)
–
(1)
(1)
1
–
–
(2)
–
(2)
(restated)
(5,732)
365
400
Retail net debt (excluding perpetual securities)
(restated)
Perpetual capital securities
Perpetual convertible bonds
Retail net debt (including perpetual securities)
(restated)
Of which:
Leases
Net debt excluding lease liabilities
(7,079)
(248)
(248)
(7,575)
(5,897)
(1,678)
617
400
(405)
(382)
(1)
(6,850)
(248)
(248)
617
400
(405)
(382)
(1)
(7,346)
(5,824)
(1,522)
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
176176
32 Analysis of net debt continued
Reconciliation of net cash flow to movement in net debt
Net decrease in cash and cash equivalents
Elimination of Financial Services movement in cash and cash equivalents
Retail cash movement in net debt items:
Decrease in financial assets at fair value through other comprehensive income
Decrease in borrowings
Decrease in lease obligations and hire purchase leases
Net interest paid on components of net debt
Changes in net debt resulting from cash flow
Retail net interest charge on components of net debt
Retail fair value and other non-cash movements
Decrease in net debt
Opening net debt
Closing net debt
Perpetual capital securities
Perpetual convertible bonds
52 weeks to
7 March
2020
£m
52 weeks to
9 March
2019
(restated)
£m
(126)
108
–
369
429
382
1,162
(385)
(378)
399
(6,850)
(6,451)
(248)
(248)
(609)
350
(39)
459
456
400
1,017
(405)
(383)
229
(7,079)
(6,850)
(248)
(248)
Closing net debt (including perpetual securities)
(6,947)
(7,346)
33 Borrowings
Loan due 2031
Short-term borrowings
Bank overdrafts
Bank loans due 2019
Bank loans due 2021
Bank loans due 2024
Convertible bond due 2019
Sainsbury's Bank Tier 2 Capital due 2023
Total borrowings (restated)
2020
2019
Current
£m
Non-current
£m
45
–
–
–
–
–
3
48
622
–
–
–
199
250
–
177
Total
£m
667
–
–
–
199
250
–
180
Current
£m
Non-current
£m
36
135
1
199
–
–
445
–
816
668
–
–
–
–
–
–
176
844
Total
£m
704
135
1
199
–
–
445
176
1,660
1,248
1,296
a) Loan due 2031
The secured loan is secured on 48 (2019: 48) supermarket properties (note 14) and consists of a loan from a finance company, Longstone Finance plc. This is
an inflation linked amortising loan from Longstone Finance plc with an outstanding principal value of £653 million (2019: £687 million) at a fixed real rate of
2.36 per cent where principal and interest rate are uplifted annually by RPI subject to a cap at five per cent and a floor at nil per cent with a carrying amount
of £667 million (2019: £704 million) with a final repayment date of April 2031.
The Group has entered into inflation swaps to convert £490 million (2019: £540 million) of the £653 million (2019: £687 million) loan due 2031 from RPI linked
interest to fixed rate interest until April 2023. These transactions have been designated as cash flow hedges (note 30).
The principal activity of Longstone Finance plc is the issuing of commercial mortgage backed securities and applying the proceeds towards the secured loans
due 2031 with the Group as summarised above.
Intertrust Corporate Services Limited holds all the issued share capital of Longstone Finance Holdings Limited on trust for charitable purposes. Longstone
Finance Holdings Limited beneficially owns all the issued share capital of Longstone Finance plc. As the Group has no interest, power or bears any risk over
these entities they are not included in the Group consolidation.
b) Bank overdrafts
Bank overdrafts are repayable on demand and bear interest at a spread above Bank of England base rate.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
177
177
33 Borrowings continued
c) Short-term borrowings
In September 2019 the maturity of part of the £1,450 million Revolving Credit Facility was extended by one year. The Revolving Credit Facility is split into two
Facilities, a £300 million Facility (A) and a £1,150 million Facility (B). Facility A has a final maturity of April 2025 and Facility B has a final maturity of October
2024. As at 7 March 2020, the Revolving Credit Facility was undrawn (2019: £35 million).
The Revolving Credit Facility incurs commitment fees at market rates and drawdowns bear interest at a margin above LIBOR.
The Group maintains uncommitted facilities to provide additional capacity to fund short-term working capital requirements. Drawdowns on these
uncommitted facilities bear interest at a margin over LIBOR. The uncommitted facilities were undrawn at 7 March 2020 (2019: £100 million).
d) Bank loan due 2019 extended to 2021
In May 2019, the Group extended the £200 million secured bank loan by two years from August 2019 to August 2021. The bank loan is held at a floating rate
of interest.
In February 2020, the Group entered into £200 million of interest rate swaps to convert from a floating rate of interest to fixed rate interest until August 2021
(2019: £100 million interest rate swap due August 2019). These transactions have been designated as cash flow hedges (note 30).
e) Bank loan due 2024
In July 2019, the Group entered into a new £250 million Bilateral Loan Facility due July 2024 to part refinance the £450 million convertible bond that matured
in November 2019. The bank loan is held at a floating rate of interest. The Bilateral Loan Facility was fully drawn at 7 March 2020.
In November 2019, the Group entered into £250 million of interest rate swaps to convert from a floating rate of interest to fixed rate interest until July 2020.
f) Convertible bond due 2019
In November 2014, the Group issued £450 million of unsecured convertible bonds due November 2019. The Convertible bond has now matured and was
redeemed in full.
Liability component brought forward
Interest expense
Interest paid
Repayment
Fees
Liability component as at the end of the year
2020
£m
445
10
(6)
(450)
1
–
2019
£m
436
14
(6)
–
1
445
g) Sainsbury’s Bank Tier 2 capital due 2027
The Bank issued £175 million of fixed rate reset callable subordinated Tier 2 notes on 23 November 2017. The notes pay interest on the principal amount at a
rate of six per cent per annum, payable in equal instalments semi-annually in arrears, until 23 November 2022 at which time the interest rate will reset. The
Bank has the option to redeem these notes on 23 November 2022.
34 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
Share-based payments expense
The average number of employees, including Directors, during the year was:
Full-time
Part-time
Full-time equivalent
Details of key management compensation can be found in note 40 and within the Directors’ Remuneration Report on pages 72 to 95.
2020
£m
2,846
187
157
37
3,227
2020
Number
000s
25.9
145.5
171.4
111.9
2019
£m
2,822
189
120
39
3,170
2019
Number
000s
38.9
141.0
179.9
116.4
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
178178
35 Retirement benefit obligations
Accounting policies
In respect of defined benefit pension schemes, the 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.
Actuarial gains and losses are reported in the statement of other comprehensive income as incurred, and comprise both the effects of changes in actuarial
assumptions and experience adjustments arising because of differences between the previous actuarial assumptions and what has actually occurred.
The income statement charge consists of a financing charge, which is the net of interest cost on pension scheme liabilities and interest income on plan assets
and defined benefit pension scheme expenses.
The financing charge is determined by applying the discount rate used to measure the defined benefit obligation to the pension scheme liabilities and plan
assets at the beginning of the financial year.
The Group contributions to defined contribution pension schemes are charged to the income statement as incurred. 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.
Background
All retirement benefit obligations related to the Sainsbury’s Pension Scheme plus two unfunded pension liabilities relating to former senior employees of
Sainsbury’s and Home Retail Group.
On 20 March 2018, the Home Retail Group Pension Scheme was merged into the Sainsbury’s Pension Scheme. The Sainsbury’s Pension Scheme has two
sections, the Sainsbury’s section which holds all the Scheme assets and liabilities relating to members who were in the original Sainsbury’s Pension Scheme,
and the Argos section which holds all the assets and liabilities relating to former members of the Home Retail Group Pension Scheme. Each section’s assets
are segregated by deed and ring fenced for the benefit of the members of that section. The Scheme has nine Trustee directors.
The retirement benefit obligations at the year-end have been calculated by Isio, the actuarial advisers to the Group, using the projected unit credit method
and based on adjusting the position at the date of the previous triennial valuations (see below) for known events and changes in market conditions as
allowed under IAS 19 ‘Employee Benefits’. Assets are valued at bid price and are held separately from the Group’s assets.
Sainsbury’s section
The Sainsbury’s section of the Scheme has three different benefit categories: final salary, career average and cash balance. For final salary and career
average members, benefits at retirement are determined by length of service and salary. For cash balance members, benefits are determined by the
accrued retirement account credits.
The section was closed to new employees on 31 January 2002 and closed to future accrual on 28 September 2013. The Scheme is also used to pay life
assurance benefits to current (including new) colleagues.
Argos section
The section holds the assets and liabilities of the former Home Retail Group Pension Scheme, which was closed to new employees in 2009 and to future
accrual in January 2013. Pension benefits at retirement are based on service and final salary.
Triennial valuation
In these financial statements the Group accounts for pension costs in accordance with IAS 19 ‘Employee Benefits’. Under this standard, the difference
between the fair values of scheme assets and the present value of scheme liabilities is reported as a surplus or deficit in the balance sheet. The accounting
value is different from the result obtained using the triennial funding basis.
The accounts show a surplus compared to the deficit in the triennial funding valuation. The main reason for this is the different assumptions used to value
the liabilities in the accounting and triennial funding valuations. The triennial funding valuation assumptions are used to determine the contributions that
the Group is required to pay into the Scheme to ensure that the Scheme has sufficient assets to pay all the benefits due in future. Regulations require that
the triennial funding assumptions are set conservatively. These assumptions therefore place a relatively high value on the Scheme’s liabilities. By contrast,
the IAS 19 accounting standard requires all companies to value their pension scheme liabilities on ‘best estimate’ assumptions. This approach places a lower
value on pension scheme liabilities and results in a more favourable financial position.
The Scheme was subject to a triennial actuarial valuation, carried out by Willis Towers Watson for the Trustee, as at 30 September 2018 on the projected
unit basis and a recovery plan was agreed. On the basis of the assumptions agreed, the actuarial deficit as at 30 September 2018 was £538 million.
Under the revised funding plan, Sainsbury’s established a new Scottish Limited partnership – Sainsbury’s Thistle Scottish Limited Partnership
(“the Partnership”) with the Scheme on 17 July 2019. This replaced the existing property partnership (Sainsbury’s Property Scottish Partnership).
In respect of the establishment of the Partnership, properties with a valuation of £1,350 million were transferred into a newly formed property holding
company – Sainsbury’s Property Holdings Ltd (“Propco”) from the Sainsbury’s Property Scottish Partnership and other Sainsbury’s Group Companies.
The Propco is a wholly owned subsidiary of the Group and leases the transferred properties to other Group companies. Rental receipts facilitate payments
of interest and capital on loan notes issued to the Partnership, in which the Scheme holds an interest.
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 Propco 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 Propco.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 179
179
35 Retirement benefit obligations continued
The Scheme’s interest in the Partnership entitles it to annual distributions over up to 20 years. The distributions will be made through three payment streams:
1) Payments to the Sainsbury’s section (approximately £15 million per year)
2) Payments to the Argos section (approximately £20 million per year)
3)
Switching payment stream, paid to either the Sainsbury’s section or Argos section (initially approximately £23 million per year, increasing to £33 million
by 2038)
In addition to the above, further cash contributions of £40 million have been agreed in FY2021 and £10 million in FY2022. No additional cash contributions
have been agreed for subsequent years.
The payments to the Sainsbury’s and Argos sections (streams 1 and 2) stop in 2030, or when the relevant section reaches its funding target, if earlier.
The switching stream is initially paid to the Sainsbury’s section. Once that funding target is achieved, payments switch to the Argos section. Payments
continue until 2038 or until both sections have reached their funding targets, if earlier.
The level of property in the Propco reduces as the Scheme reaches the funding targets.
IFRIC 14
IFRIC 14 is the interpretation that details when a company can recognise any pension surplus that exists. If the company has a funding commitment in
excess of the IAS 19 deficit, then IFRIC 14 requires recognition of this excess in those circumstances when the surplus that would result on fulfilling that
commitment cannot be recognised. A surplus may be recognised either because of an unconditional right to a refund to the company, or on grounds of
a future contribution reduction where schemes are still open to future accrual.
For the Sainsbury’s section, management is of the view that it has an unconditional right to a refund of surplus under IFRIC 14. As such no adjustment has
been made for potential additional liabilities.
As part of the 2018 triennial valuation agreement, the Argos section rules were amended. As a result of the amendments, management is of the view that
it has an unconditional right to a refund of surplus under IFRIC 14. As such, no adjustment has been made for potential additional liabilities. In the prior year,
additional balance sheet liabilities in respect of a ‘minimum funding requirement’ of £134 million as at 9 March 2019 were recognised. The resulting
movement in the liability is included within remeasurement gains in other comprehensive income.
Unfunded pension liabilities
The unfunded pension liabilities are 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.
a) Income statement
The amounts recognised in the income statement are as follows:
Excluded from underlying profit before tax:
Interest cost on pension liabilities1
Interest income on plan assets
Total included in finance income/(costs) (note 10)
Defined benefit pension scheme expenses
Past service cost
Total excluded from underlying profit before tax
Total income statement credit/(expense)
1
Includes interest of £1 million for the unfunded pension scheme (2019: £1 million) and £4 million in relation to interest on the minimum funding requirement (2019: £2 million).
2020
£m
(248)
276
28
(9)
–
19
19
2019
£m
(279)
271
(8)
(10)
(98)
(116)
(116)
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
180180
35 Retirement benefit obligations continued
Past service amounts
On 26 October 2018, the High Court ruled in the landmark Lloyds Banking Group case on Guaranteed Minimum Pensions (GMPs). The judgement requires
equalisation between men and women for the effect of unequal GMPs. The Group worked with the Trustee of the Scheme and independent actuaries and
estimated the cost of equalising benefits at £98 million for the Sainsbury’s section and £3 million for the Argos section.
This cost for the Sainsbury’s section was recognised in the prior year in the consolidated income statement as a non-underlying item for the 52 weeks ended
9 March 2019 (2018: £nil). The cost for the Argos section was recognised as an experience loss in other comprehensive income due to GMP equalisation in 1997.
b) Other comprehensive income
Re-measurement of the retirement benefit obligations have been recognised as follows:
Return on plan assets, excluding amounts included in interest
Actuarial (losses)/gains arising from changes in:
Finance assumptions1
Demographic assumptions2
Experience3
Total actuarial (losses)/gains
Additional liability due to minimum funding requirements (IFRIC 14)
Total remeasurements
1
2
3
Includes £5 million loss for the unfunded pension scheme (2019: £nil million gain). Includes £138 million gain on the minimum funding requirement (2019: £nil million gain).
Includes £nil million gain for the unfunded pension scheme (2019: £1 million gain).
Includes £3 million gain for the unfunded pension scheme (2019: £nil million gain).
c) Balance sheet
The amounts recognised in the balance sheet are as follows:
Present value of funded obligations
Fair value of plan assets
Additional liability due to minimum funding requirements (IFRIC 14)
Retirement benefit surplus/(deficit)
Present value of unfunded obligations
Retirement benefit surplus/(deficit)
Sainsbury’s
2020
£m
(8,914)
10,025
1,111
–
1,111
(21)
1,090
Argos
2020
£m
(1,421)
1,466
45
–
45
(16)
29
Group
2020
£m
Sainsbury’s
2019
£m
(10,335)
11,491
1,156
–
1,156
(37)
1,119
(7,654)
8,759
1,105
–
1,105
(20)
1,085
2020
£m
1,512
(1,507)
(29)
113
(1,423)
–
89
Argos
2019
£m
(1,202)
1,224
22
(134)
(112)
(14)
(126)
2019
£m
212
(80)
547
644
1,111
(54)
1,269
Group
2019
£m
(8,856)
9,983
1,127
(134)
993
(34)
959
The retirement benefit obligation and the associated deferred income tax balance are shown within different line items on the face of the balance sheet.
The movements in the Group’s net defined benefit obligation are as follows:
As at the beginning of the year
Interest cost
Remeasurement gains
Pension scheme expenses
Contributions by employer
Past service (charge)/credit
As at the end of the year
2020
£m
959
28
89
(9)
52
–
1,119
2019
£m
(257)
(8)
1,269
(10)
63
(98)
959
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued
35 Retirement benefit obligations continued
The movements in the retirement benefit obligations (including unfunded obligations) are as follows:
As at the beginning of the year
Interest cost
Remeasurement (losses)/ gains
Additional liability due to minimum funding requirement (IFRIC 14)
Benefits paid
Past service charge
Liabilities extinguished on settlement
As at the end of the year
Analysed as:
Retirement benefit obligations
Unfunded obligations
Additional liability due to minimum funding requirements (IFRIC 14)
The movements in the fair value of plan assets are as follows:
As at the beginning of the year
Interest income on plan assets
Pension scheme expenses
Remeasurement gains
Contributions by employer
Benefits paid
Assets distributed on settlement
As at the end of the year
181
181
2019
£m
(10,141)
(279)
1,111
(54)
430
(98)
7
(9,024)
(8,856)
(34)
(134)
2019
£m
9,884
271
(10)
212
63
(430)
(7)
9,983
2020
£m
(9,024)
(248)
(1,423)
–
323
–
–
(10,372)
(10,335)
(37)
–
2020
£m
9,983
276
(9)
1,512
52
(323)
–
11,491
Risks associated with the Group’s defined benefit pension scheme
The Trustee considers that its primary responsibility in respect of investments is to ensure, for the duration of the Scheme, that funds will be available to
meet the benefit payment obligations as they fall due. Based on this responsibility and its obligation to manage the investments, its investment objectives
are as follows:
In respect of the Sainsbury’s section:
1. Target a 50 per cent or better chance of being fully funded on a gilts + 0.5 per cent p.a. funding level basis by March 2022; and
2. To limit the downside risk associated with the investment policy, wherever possible.
In respect of the Argos section:
1. Target a 50 per cent or better chance of being fully funded on a gilts + 0.5 per cent funding level basis by September 2022; and
2. To limit the downside risk associated with the investment policy, wherever possible.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
182182
35 Retirement benefit obligations continued
The risks associated with achieving the above strategy are as follows:
Risk
Description
Mitigation
Asset volatility
Returns on assets that vary from the discount rate create
funding level volatility. Both sections of the Scheme hold
growth assets such as equities and real estate. Whilst growth
assets are expected to outperform corporate bond yields over
the long term this might not always occur in the short term.
Currency
The Scheme’s liabilities are sterling based whereas the majority
of investments are denominated in foreign currencies.
Changes in
bond yields
A decrease in bond yields, which in turn drive the discount rate,
will increase the present value of the Scheme’s liabilities for
accounting purposes.
Inflation
The majority of the Scheme’s liabilities are linked to UK price
inflation indices.
Diversification of non-matching assets (equities, real estate
and emerging market debt) reduces volatility and is expected
to outperform the discount rate in the long term.
The equity portfolios are invested passively and diversified
between UK and overseas markets, including both emerging
markets and smaller companies in order to track global
economic growth by replicating global equity capitalisation.
Asset volatility is therefore mitigated by investing in as many
companies as possible. The Scheme has for some time been
reducing equity.
All other assets are invested actively and are widely diversified
to reduce returns risk and enhance returns.
Currency risk is hedged by investing in currency hedging
programmes which hold currency derivatives to help dampen
returns volatility caused by the fluctuation of sterling against
other leading currencies.
A significant proportion of assets are held in corporate bonds
that provide a hedge against falling bond yields. Furthermore
significant levels of interest rate hedging within the Scheme’s
liability hedging portfolios through interest rate derivatives
serve to protect against falling bond yields. Over the last twelve
months, the Scheme has increased the interest rate and
inflation hedging to 90% of liabilities and will extend the
interest rate hedge to cover the front 25 years of all cash flows
in the target hedge.
The investment strategy includes investing in liability-driven
investments. These portfolios hedge significant proportions of
inflation liabilities by holding index linked bonds and inflation
rate derivatives. The Scheme’s equity portfolio provides a
natural hedge against inflation. In August 2019, the Scheme
surrendered two insurance policies covering some of the Argos
section pensioner liabilities in exchange for inflation linked
investments such as gilts and corporate bonds.
The decision to surrender the buy-in policies for the Argos
section reflected the premium payable over fair value. This
included an amount to cover the fair value of the longevity
insurance that it provided and was then taken back into the
Scheme. Rather than removing the longevity risk in one area
of the Scheme, the Trustee will instead consider longevity risk
across the Scheme in the near future.
Longevity
Operational
Beneficiaries living longer than expected could increase the
Scheme’s liabilities.
The Trustee and the Company have agreed a joint review of the
Scheme’s longevity risk.
Poor administration of benefits may result in an increased
defined benefit obligation in future years.
The Scheme’s benefits administrators have agreed service level
agreements and controls are carefully monitored.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 35 Retirement benefit obligations continued
The major categories of plan assets are as follows:
Equity
Public2
Private
Bonds3
Government Bonds
Corporate Bonds
Emerging Market Bonds
Derivatives4
Alternatives
Real Estate
Private Debt3
Diversified Growth
Insurance Policies5
Cash and Cash equivalents
183
183
Quoted
2020
£m
Unquoted1
2020
£m
Quoted
2019
£m
Unquoted
2019
£m
922
–
1,639
4,878
523
–
316
–
91
1
972
–
1,620
3,950
462
–
322
–
(51)
(6)
802
567
278
743
64
–
–
–
211
619
595
279
–
(16)
67
–
–
–
252
591
479
–
306
(2)
9,039
2,452
7,601
2,382
Notes
1 Certain unquoted fixed interest securities, private equity and debt investments and property investments are stated at fair value. These fair values may differ from their realisable values due to the absence
of liquid markets in these investments.
2 Quoted equities – circa 70 per cent of the Scheme’s equities are invested in publically quoted, highly liquid securities across developed markets. The remainder are invested in smaller companies and
Emerging Markets.
3 Bonds – circa 89 per cent of the Scheme’s bonds are invested in investment grade credit. The remainder are below investment grade.
4 Swap contract derivatives outstanding at the year-end are stated at the net present value of future discounted cash flows of each leg of the swap.
5
Insurance policies of £nil million (2019: £306 million) refers to refers to buy in policies that were held by the Argos section of the Scheme and were surrendered during the year. In 2019, the fair value of the
insurance policies was calculated to be the present value of the related obligations.
Of the above assets, £4,850 million are denominated in sterling and £6,641 million are denominated in overseas currencies.
d) Assumptions
The principal actuarial assumptions used at the balance sheet date are as follows:
Discount rate
Inflation rate – RPI
Inflation rate – CPI
Future pension increases
2020
%
2019
%
1.6
2.7
1.7
1.65 – 2.70
2.8
3.2
2.2
2.00 – 3.05
The base mortality assumptions are based on the SAPS S2 tables, with adjustments to reflect the Scheme’s population. Future mortality improvements are
CMI 2018 projections with a long-term rate of improvement of 1.25 per cent per annum.
The life expectancy for members aged 65 years at the balance sheet date is as follows:
Male pensioner
Female pensioner
Sainsbury’s
section
Main Scheme
2020
Years
20.0
23.7
Sainsbury’s
section
Executive
Scheme
2020
Years
24.1
25.2
Argos
section
2020
Years
21.6
24.0
Sainsbury’s
section
Main Scheme
2019
Years
19.8
23.5
The life expectancy at age 65 for members aged 45 years at the balance sheet date is as follows:
Male pensioner
Female pensioner
Sainsbury’s
section
Main Scheme
2020
Years
21.3
25.2
Sainsbury’s
section
Executive
Scheme
2020
Years
25.4
26.7
Argos
section
2020
Years
23.0
25.5
Sainsbury’s
section
Main Scheme
2019
Years
21.1
25.0
Sainsbury’s
section
Executive
Scheme
2019
Years
24.0
25.1
Sainsbury’s
section
Executive
Scheme
2019
Years
25.3
26.5
Argos
section
2019
Years
21.5
23.9
Argos
section
2019
Years
22.9
25.4
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
184184
35 Retirement benefit obligations continued
e) Sensitivities
The following sensitivities are based on management’s best estimate of a reasonably anticipated change. The sensitivities are calculated using the same
methodology used to calculate the retirement benefit obligation, by considering the change in the retirement benefit obligation for a given change in assumption.
The net retirement benefit obligation is the difference between the retirement benefit obligation and the fair value of plan assets. Changes in the assumptions
may occur at the same time as changes in the fair value of plan assets. There has been no change in the calculation methodology since the prior period.
An increase of 0.5% in the discount rate would decrease the present value of funded obligations by
A decrease of 0.5% in the discount rate would increase the present value of funded obligations by
An increase of 0.5% in the inflation rate would increase the present value of funded obligations by
A decrease of 0.5% in the inflation rate would decrease the present value of funded obligations by
An increase of one year to the life expectancy would increase the present value of funded obligations by
Sainsbury’s
£m
829
954
633
570
394
Argos
£m
143
166
148
140
49
Total
£m
972
1,120
781
710
443
f) Future benefit payments
Details of future committed payments are included in the Background section at the beginning of this note. Expected cash contributions in FY2021 are
approximately £98 million.
The duration of the plan liabilities is around 21 years for the Sainsbury’s section and 22 years for the Argos section. The following table provides information
on the timing of benefit payments (amounts undiscounted):
Within the next 12 months (next annual reporting period)
Between 2 and 5 years
Between 6 and 15 years
Between 16 and 25 years
Beyond 25 years
Total expected payments
2020
£m
192
892
3,545
4,391
6,997
16,017
36 Share-based payments
Accounting policies
The Group provides benefits to employees (including Directors) of the Group in the form of equity-settled and cash-settled share-based payment
transactions, whereby employees render services in exchange for shares, rights over shares or the value of those shares in cash terms.
For equity-settled share-based payments, the fair value of the employee services rendered is determined by reference to the fair value of the shares awarded
or options granted, excluding the impact of any non-market vesting conditions. All share options are valued using an option-pricing model (Black-Scholes
or Monte Carlo). This fair value is charged to the income statement over the vesting period of the share-based payment scheme with a corresponding
increase in equity.
For cash-settled share-based payments, the fair value of the employee services rendered is determined at each balance sheet date and the charge
recognised through the income statement over the vesting period of the share-based payment scheme, with a 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.
The Group recognised £37 million (2019: £39 million) of employee costs (note 34) related to share-based payment transactions made during the financial year.
Of these, £nil million (2019: £1 million) were cash-settled.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 185
185
36 Share-based payments continued
The Group operates a number of share-based payment schemes as set out below:
a) Savings-Related Share Option Scheme (Sharesave)
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 Sharesave, 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.
A reconciliation of Sharesave option movements is shown below:
Outstanding at the beginning of the year
Granted
Forfeited
Exercised
Outstanding at the end of the year
Exercisable at the end of the year
Exercisable price range
2020
Number of
options
million
2020
Weighted
average
exercise price
pence
2019
Number of
options
million
2019
Weighted
average
exercise price
pence
61.4
23.7
(17.1)
(7.2)
60.8
6.3
211
161
224
188
190
193
68.5
17.2
(13.6)
(10.7)
61.4
5.6
196
260
205
205
211
224
185 to 332
184 to 332
The weighted average share price for options exercised over the year was 211 pence (2019: 272 pence). The weighted average remaining contractual life of
options outstanding at 7 March 2020 was 2.2 years (2019: 2.1 years).
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
Expected dividends (expressed as dividend yield %)
Risk-free interest rate
Fair value per option
– 3 year period (%)
– 5 year period (%)
– 3 year period (years)
– 5 year period (years)
– 3 year period (%)
– 5 year period (%)
– 3 year period (pence)
– 5 year period (pence)
2020
220
161
26.1
27.8
3.2
5.2
2.9
0.6
0.7
59
62
2019
300
260
24.5
26.9
3.2
5.2
3.5
0.9
1.3
53
62
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.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
186186
36 Share-based payments continued
b) Long-Term Incentive Plan
Under the Long-Term Incentive Plan, shares are conditionally awarded to the senior managers in the Company. The core awards are calculated as a
percentage of the participants’ salaries and scaled according to grades.
Performance is measured at the end of the three-year performance period. If the required performance conditions have been met, 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 five years from the grant date.
For Executive Directors, awards will normally be subject to a two-year retention period following the end of the three-year performance period. Options
granted to acquire the award of shares will expire six years from the date of grant.
Dividend equivalents will accrue on the shares that vest in the form of additional shares.
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.
Awards are structured as nil-cost options.
A reconciliation of the number of shares conditionally allocated is shown below:
Outstanding at the beginning of the year
Conditionally allocated
Forfeited
Released to participants
Outstanding at the end of the year
The weighted average remaining contractual life of share options outstanding at 7 March 2020 was 1.5 years (2019: 1.4 years).
Details of shares conditionally allocated at 7 March 2020 are set out below:
Date of conditional award
15 May 2014 (2014 Future Builder)
14 May 2015 (2015 Future Builder)
12 May 2016 (2016 Future Builder)
11 May 2017 (2017 Future Builder)
11 May 2018 (2018 Future Builder)
9 May 2019 (2018 Future Builder)
2020
million
2019
million
8.9
7.2
(1.8)
(4.1)
10.2
7.2
4.2
(0.4)
(2.1)
8.9
2020
million
2019
million
–
0.1
2.0
2.2
2.2
3.7
10.2
0.2
1.6
2.0
2.5
2.6
–
8.9
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)
Option life (years)
Fair value per option (pence)
2020
219
3 or 4
219
2019
301
3 or 4
301
During the year, a total number of 4.1 million shares were exercised (2019: 2.1 million shares). The weighted average share price during the year for options
exercised was 213 pence (2019: 303 pence).
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 187
187
36 Share-based payments continued
c) Deferred Share Award
The Deferred Share Award targets a diverse range of financial and strategic scorecard measures. These are intended to reward the Directors 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.
Awards are structured as nil-cost options.
Share-based awards are made to participants subject to performance against a basket of measures. At least 50 per cent of the awards are based on the
delivery of financial performance and returns to shareholders. The balance is 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. 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. Dividend equivalents
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 the beginning of the year
Granted
Forfeited
Exercised
Outstanding at the end of the year
The number of shares allocated at the end of the year is set out below:
12 May 2017
11 May 2018
9 May 2019
2020
million
2019
million
3.5
2.6
(1.6)
(0.7)
3.8
3.4
2.2
(2.0)
(0.1)
3.5
2020
million
2019
million
–
1.7
2.1
3.8
1.5
2.0
–
3.5
The weighted average remaining contractual life of share options outstanding at 7 March 2020 was 0.6 years (2019: 0.6 years). The weighted average share
price during the year for options exercised was 215 pence (2019: 301 pence).
d) 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 where 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 awarded in shares. Shares are subject to forfeiture if the participant resigns or is dismissed.
Dividend equivalents accrue on these shares which are released at the end of the three-year retention period.
A reconciliation of the number of shares granted over the year is shown below:
Outstanding at the beginning of the year
Granted
Exercised
Forfeited
Outstanding at the end of the year
The number of shares allocated at the end of the year is set out below:
13 May 2016
12 May 2017
11 May 2018
09 May 2019
2020
million
2019
million
11.4
8.5
(5.4)
(1.8)
12.7
10.2
5.1
(3.0)
(0.9)
11.4
2020
million
2019
million
–
2.2
3.6
6.9
12.7
4.4
2.7
4.3
–
11.4
The weighted average remaining contractual life of share options outstanding at 7 March 2020 was 1.4 years (2019: 1.0 years). The weighted average share
price during the year for options exercised was 225 pence (2019: 246 pence).
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
188188
37 Capital commitments
At 7 March 2020, capital commitments contracted, but not provided for by the Group, amounted to £112 million (9 March 2019: £90 million) and £nil for
the property joint ventures (9 March 2019: £7 million).
In addition, the group is committed to payments totalling £38 million (2019: £96 million) in relation to leases that have been signed but have not yet commenced.
38 Financial commitments
Sainsbury’s Bank has off-balance sheet commitments to extend credit to customers of £80 million (2019: £323 million).
At the year-end, £20 million of expected credit loss provisions are recognised in respect of off-balance sheet loan commitments in line with IFRS 9
(2019: £18 million).
39 Contingent liabilities
The Group has a number of contingent liabilities in respect of historic lease guarantees, particularly in relation to the disposal of assets, which if the current
tenant and their ultimate parents become insolvent, may expose the Group to a material liability. This is not expected to materialise.
Along with other retailers, the Group is currently subject to claims from approximately 5,500 current and ex-employees in the Employment Tribunal for equal
pay under the Equality Act 2010 and/or the Equal Pay Act 1970. Typically, claims of this nature can take many years to be determined. Given that the claims
against the Group are still at a relatively early stage and the outcome of such claims is highly uncertain at this stage, the Group considers the likelihood of
a material pay-out to be remote.
40 Related party transactions
a) Key management personnel
The key management personnel of the Group comprise members of the J Sainsbury plc Board of Directors and the Operating Board. The key management
personnel compensation is as follows:
Short-term employee benefits
Post-employment employee benefits
Share-based payments
2020
£m
12
1
6
19
Two key management personnel had credit card balances with Financial Services (2019: five). These arose in the normal course of business and were
immaterial to the Group and the individuals. One key management personnel held saving deposit accounts with Financial Services (2019: three). These
balances arose in the normal course of business and were immaterial to the Group and the individuals.
b) Joint ventures and associates
Transactions with joint ventures and associates
For the 52 weeks to 7 March 2020, the Group entered into various transactions with joint ventures and associates as set out below:
Dividends and distributions received
Repayment of loans from joint venture
Disposals of joint ventures
Rental expenses paid
Year-end balances arising from transactions with joint ventures and associates
Payables
Other payables
2020
£m
141
–
(21)
(14)
2020
£m
18
2019
£m
11
1
10
22
2019
£m
18
(5)
–
(38)
2019
£m
(5)
c) Retirement benefit obligations
As discussed in note 35, 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 35 to these financial statements.
Financial StatementsJ Sainsbury plc Annual Report 2020 Notes to the consolidated financial statements continued 189
189
41 Post balance sheet events
Impact of coronavirus (COVID-19)
The COVID-19 pandemic has developed rapidly in 2020, with a significant number of infections across many countries. The Group’s operational priorities are
set out on pages 6 to 9. As detailed in note 4 it has been concluded that none of the conditions at the balance sheet date indicated that any adjustments
would be required to the Group’s financial statements. However, given the significance of these events, further disclosure is provided below indicating where
there may be material changes in the Group’s judgements and estimates impacting the balance sheet as at 7 March 2020.
Impairment of non-current assets
Details of the Group’s impairment methodology and assumptions, impairment charges, net carrying value of non-current assets and sensitivity analysis are
included in note 17.
Subsequent to the balance sheet date, the Group closed Argos standalone stores – the effect of this is to decrease cash flows attributable to Argos clusters
and therefore the recoverable amount used for impairment testing purposes.
In addition, operating expenses will be materially higher than forecast, particularly in the areas of retail labour and absence costs and instore costs where we
assume disruption will continue for most of the first half of our financial year. There will however be some offset from approximately £450 million of business
rates relief on shops in England, Scotland and Northern Ireland.
The Group has carried out sensitivity analyses, including on forecast cash flows, for its portfolio of store and store cluster CGUs as part of the impairment
review conducted during the year – these are detailed in note 17. Sensitivities covering the Group’s goodwill impairment testing are also included in note 16.
As the pandemic continues to progress and evolve, it is challenging at this time to predict the full extent and duration of its business and economic impact.
For Argos clusters, a decrease in cash flows has been modelled in line with the assumptions included within the Group’s viability statement with no additional
impairments noted. For Sainsbury’s stores, it is likely that the additional instore costs and reduction in general merchandise and clothing sales will be mostly
offset by the grocery sales growth and business rates relief. It is therefore not anticipated that the resulting cash flow impacts will cause material impairment
charges on the Group’s non-current assets.
Financial Services expected credit loss implications
Refer to note 29 for details of the Group’s expected credit loss calculations. As at the balance sheet date, a multi-scenario economic model is used which
includes an assessment of downside risk reflective of future economic uncertainty that existed at that time.
Subsequent to the balance sheet date, there has been a deterioration in the economic outlook in the UK as a consequence of the COVID-19 pandemic and
measures taken by the government to control the spread of the virus. A significant reduction in UK economic output is now expected over an uncertain
period, with increases in unemployment resulting in increased expected credit losses. These losses will be mitigated, to some degree, by UK government
actions such as subsidies to businesses for furloughed employees and the self-employed. In order to estimate the increased credit losses resulting from
this deterioration in outlook, the Group has developed three unemployment scenarios which have been risk-weighted to determine an overlay rate applied
to the existing IFRS 9 models. In line with guidance from the Bank of England, these scenarios assume that there will be significant economic disruption
while social distancing measures are in place, followed by an expected recovery when these are lifted. The three scenarios assume peak unemployment
over the next 12 months of 6 per cent, 8 per cent and 10 per cent respectively, with the weighted average resulting in an ECL uplift of approximately
£30 million.
Pension surplus
The defined benefit pension scheme (the Scheme) has been affected by the impact of COVID-19 on financial markets and the global economy.
An approximate reassessment of the IAS 19 retirement benefit surplus as at 31 March 2020 has been performed, resulting in an estimated revised surplus
of £1,340 million (excluding the unfunded obligations), an increase of 16 per cent compared to 7 March 2020. A valuation date of 31 March has been selected
as it aligns with the Scheme’s quarter-end date and captures movements following the COVID-19 lockdown.
When considering the ongoing funding of the Scheme, the exposure to falling asset values has been reduced as a result of the continued reduction in equities
held in recent years. Although there was an absolute reduction in the value of the Scheme’s assets (some of which have been estimated) over this period,
when valuing the Scheme on an IAS 19 basis, this reduction was more than offset by the increase in yields on AA corporate bonds (mainly due to a widening
of credit spreads) over the same period and a reduction in inflation expectations over the long-term. Additional mitigations of risks associated with the
Group’s defined pension scheme are included within note 35 and remain valid in the current economic environment.
Although there has been no formal update to the official mortality tables since the 31st March, it is expected that any decline in longevity, due to the Coronavirus,
will be minimal. Equity prices have recovered some of the losses experienced in March, with bond prices also higher, albeit only slightly. There is also a slight
decrease to the discount rate applied to the expected liability cash flows, suggesting that whilst the overall pension surplus will have decreased since the
31st March, we do not believe the movement to be significant relative to the size of the assets, liabilities or surplus.
Note 35 includes detail of the Group contributions which are set by the Trustee’s triennial valuation and will not be impacted by COVID-19. The Group
contributions framework allows for short-term changes in volatility, so the Scheme can continue its longer-term journey to being funded on a low
dependency basis, giving members a greater level of security.
Inventory
The inventory provisions in our General Merchandise and Clothing areas have been reviewed for post year-end changes in expected net realisable value,
driven by changes in customer buying behaviour as a result of COVID-19. All inventory provisioning requires judgement, and is based on a number of factors
including current and expected sales performance, stock cover, current trends and changes in technology. Following the review it is not anticipated that
further material provisioning is required against the inventory held at the balance sheet date of 7 March 2020.
Financial risk management
As documented in note 29, financial risk management, the Group has prepared additional cash flow forecasts in connection to COVID-19, to identify
associated liquidity requirements and ensure these are closely managed. The counterparty credit, foreign currency, interest rate, inflation and commodity
risks detailed in note 29 have been considered in light of the current economic environment and the sensitivities detailed within the note remain reasonable.
The Group’s policies on foreign currency, interest rate, commodity and counterparty credit risk management are unchanged.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
190
42 Details of related undertakings
All companies listed below are owned by the Group and all interests are in the ordinary share capital, except where otherwise indicated. All subsidiaries
have been consolidated.
a) Subsidiary undertakings
The Group holds a majority of the voting rights of the following undertakings:
Entity
ARG Personal Loans Limited
ARG Services Limited
Argos Best Sellers Limited
Argos Business Solutions Limited
Argos Card Transactions Limited
Argos Direct Limited
Argos Distributors (Ireland) Limited
Argos Extra Limited
Argos Holdings Limited
Argos Limited
Argos Retail Group Limited
Argos Superstores Limited
Argos Surbs Investments Limited
Barleygold Limited
Bed Store & More Limited
Bells Stores Limited
BLSSP (PHC 7) Limited
Braemar Castle Limited
Brand-Leader's Limited
Chad Valley Limited
Clearance Bargains Limited
Cliffrange Limited
Coolidge Investments Limited
Financial Recovery Services Limited
First Stop Stores Limited
Flint Castle Limited
Global (Guernsey) Limited
Habitat Retail Limited
Holborn UK Investments Limited
Home Retail Group Limited
Home Retail Group (Cyprus) Limited
Home Retail Group (Finance) LLP
Home Retail Group (Guernsey) LP
Home Retail Group (Jersey) Limited
Home Retail Group (UK) Limited
Home Retail Group Card Services Limited
Home Retail Group Holdings (Overseas) Limited
Home Retail Group Insurance Services Limited
Home Retail Group Nominees Limited
Home Retail Group Pension Scheme Nominees Limited
Home Retail Group UK Service Company Limited
Home Store & More Limited
J Sainsbury Limited
J Sainsbury Common Investment Fund Limited
J Sainsbury Distribution Limited
J Sainsbury Pension Scheme Trustees Limited
J Sainsbury Trustees Limited
Jacksons Stores Limited
Jacksons Stores 2002 Limited
JS Information Systems Limited
JS Insurance Limited
JSD (London) Limited
*See full addresses on page 193.
Country of
incorporation
Interest
Holding
Address*
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
Ireland
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
Guernsey
100%
UK
100%
UK
100%
UK
100%
Cyprus
100%
UK
100%
Guernsey
100%
Jersey
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
Ireland
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
UK
100%
Isle of Man 100%
100%
UK
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Direct
Direct
Indirect
Direct
Indirect
Direct
Direct
Indirect
Avebury
33 Holborn
33 Holborn
Avebury
33 Holborn
33 Holborn
Unit 7, Ashbourne Retail Park
33 Holborn
Avebury
Avebury
33 Holborn
33 Holborn
Avebury
50 Bedford Street
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
Avebury
33 Holborn
33 Holborn
PO BOX 33 Dorey Court
Avebury
33 Holborn
Avebury
5 Anastasios Leventis Street
Avebury
PO Box 33 Dorey Court
44 Esplanade
Avebury
Avebury
33 Holborn
Avebury
33 Holborn
Avebury
33 Holborn
33 Holborn
6th Floor, South Bank House
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
Third Floor, St George's Court
33 Holborn
Financial StatementsNotes to the consolidated financial statements continuedJ Sainsbury plc Annual Report 2020 191
42 Details of related undertakings continued
Entity
Jungle Online
Jungle.com Limited
Jungle.com Holdings Limited
Nash Court (Kenton) Limited
Nectar 360 Limited (formerly Nectar Loyalty Limited)
Nectar 360 Services LLP (formerly Insight 2 Communication LLP)
Nectar EMEA Limited
Nectar Loyalty Holding Limited
Premier Incentives Limited
Ramheath Properties Limited
Sainsbury Bridgeco Holdco Limited
Sainsbury Holdco A Limited
Sainsbury Holdco B Limited
Sainsbury Propco A Limited
Sainsbury Propco B Limited
Sainsbury Propco C Limited
Sainsbury Propco D Limited
Sainsbury Property Investments Limited
Sainsbury's Argos Asia Limited
Sainsbury’s Argos Asia Commercial Limited
Sainsbury’s Argos Asia Sourcing Limited
Sainsbury's Argos Asia Technical Limited
Sainsbury’s Argos Commercial Consulting (Shanghai) Limited
Sainsbury's Bank plc
Sainsbury's Convenience Stores Limited
Sainsburys Corporate Director Limited
Sainsbury’s Group Holdings Limited
Sainsbury's Heather GP Limited
Sainsbury's Intermediate Holdings Limited
Sainsbury's Limited
Sainsbury's Limited
Sainsbury's Manor GP Limited
Sainsbury's Manor II Property Limited
Sainsbury's Manor Property Limited
Sainsbury's Planet Limited
Sainsbury’s Property Scottish Partnership
Sainsbury's Rose LP Limited
Sainsbury's Supermarkets Limited
Sainsbury’s Thistle Scottish Limited Partnership
Sainsbury’s Tyne Property Holdings Limited
(formerly Sainsbury’s Property Holdings Limited)
Software Warehouse Holdings Limited
Stamford House Investments Limited
Stamford Properties One Limited
Stamford Properties Three Limited
Stamford Properties Two Limited
Stanhope Finance Limited
Tintagel Castle Limited
Town Centre Retail (Bicester) Limited
*See full addresses on page 193.
Country of
incorporation
Interest
Holding
Address*
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
UK
100%
Hong Kong 100%
Hong Kong 100%
Hong Kong 100%
Hong Kong 100%
100%
China
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
Ireland
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
UK
UK
UK
UK
UK
UK
UK
UK
100%
100%
100%
100%
100%
100%
100%
100%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Direct
Direct
Direct
Direct
Indirect
Indirect
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Direct
Direct
Direct
Indirect
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Direct
Direct
Direct
Direct
Indirect
Direct
Indirect
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
7/F, 348 Kwun Tong Road
7/F, 348 Kwun Tong Road
7/F, 348 Kwun Tong Road
7/F, 348 Kwun Tong Road
26/F, Tower 1
33 Holborn
33 Holborn
33 Holborn
33 Holborn
3 Lochside Avenue
33 Holborn
6th Floor, South Bank House
3 Lochside Avenue
3 Lochside Avenue
3 Lochside Avenue
3 Lochside Avenue
33 Holborn
3 Lochside Avenue
33 Holborn
33 Holborn
3 Lochside Avenue
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
33 Holborn
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
192
42 Details of related undertakings continued
b) Associated undertakings
The Group has a participating interest in the following undertakings:
Entity
3BW Limited
BL Sainsbury Superstores Limited
Harvest 2 GP Limited
Harvest 2 Limited Partnership
Harvest Development Management Limited
Harvest GP Limited
Hedge End Park Limited
Country of
incorporation
Interest
Holding
Address*
UK
UK
UK
UK
UK
UK
UK
50%
50%
50%
50%
50%
50%
50%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
33 Holborn
York House
100 Victoria Street
100 Victoria Street
100 Victoria Street
100 Victoria Street
33 Holborn
c) Undertakings other than subsidiaries and associated undertakings
The direct or indirect holder of 100 per cent of the voting interests in the following undertakings is an associate of the Group:
Entity
BL Superstores (Funding) Limited
BL Superstores Finance PLC
BLSSP (Cash Management) Limited
BLSSP (Lending) Limited
BLSSP (PHC 1 2010) Limited
BLSSP (PHC 1 2012) Limited
BLSSP (PHC 12) Limited
BLSSP (PHC 2 2010) Limited
BLSSP (PHC 20) Limited
BLSSP (PHC 25) Limited
BLSSP Property Holdings Limited
British Land Superstores (Non-Securitised)
Harvest 2 Selly Oak Limited
Harvest Nominee No. 1 Limited
Harvest Nominee No. 2 Limited
Pencilscreen Limited
d) Overseas branches
The Group has the following branches overseas:
Country of
incorporation
Interest
Holding
Address*
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
York House
York House
York House
York House
York House
York House
York House
York House
York House
York House
York House
York House
100 Victoria Street
100 Victoria Street
100 Victoria Street
York House
Entity
Country
Holding
Address*
Sainsbury’s Argos Asia Limited – Bangladesh Liaison Office
Sainsbury’s Argos Asia Limited – India Branch Office
India
India
Indirect
Indirect
Level 10, Simpletree Anarkali
Unit No. 1, 1st Floor, Ambience Corporate Tower II
e) Companies in liquidation
Entity
Portfolio Investments Ltd
Netto Limited
*See full addresses on page 193.
Country of
incorporation
UK
UK
Interest
Holding
Address*
100%
50%
Indirect
Direct
Hill House
33 Holborn
Financial StatementsNotes to the consolidated financial statements continuedJ Sainsbury plc Annual Report 2020 42 Details of related undertakings continued
Address
Full address
193
3 Lochside Avenue
5 Anastasios Leventis Street
6th Floor, South Bank House
7/F, 348 Kwun Tong Road
26/F, Tower 1
33 Holborn
44 Esplanade
50 Bedford Street
100 Victoria Street
Avebury
Hill House
Level 10, Simpletree Anarkali
3 Lochside Avenue, Edinburgh, EH12 9DJ, United Kingdom
5 Anastasios Leventis Street, Leventis Gallery Tower, 8th Floor, 1097 Nicosia, Cyprus
6th Floor, South Bank House, Barrow Street, Dublin 4
7/F, 348 Kwun Tong Road, Kowloon, Hong Kong
26/F, Tower 1, Kerry Everbright City Phase III-Enterprise Centre, No.128, West Tian Mu Road
Shanghai 200070, People’s Republic of China
33 Holborn, London, EC1N 2HT, United Kingdom
44 Esplanade, St Helier, Jersey, JE4 9WG, Channel Islands
50 Bedford Street, Belfast, BT2 7FN, United Kingdom
100 Victoria Street, London, SW1E 5JL, United Kingdom
Avebury, 489-499 Avebury Boulevard, Milton Keynes, MK9 2NW, United Kingdom
Hill House, 1 Little New Street, London, EC4A 3TR, United Kingdom
Level 10, Simpletree Anarkali, 89 Gulshan Avenue Plet 03, Block – CWS(A),
Dhaka – 1212 Bangladesh
Paradigm Wing A, 1st Floor, Mindspace, Malad (West), Mumbai, 400 064, India
PO Box 33, Dorey Court, Admiral Park, St Peter Port, Guernsey GY1 4AT
Third Floor, St George’s Court, Upper Church Street, Douglas, IM1 1EE, Isle of Man
Unit 7, Ashbourne Retail Park, Ballybin Road, Ashbourne, Republic of Ireland
Paradigm Wing A
PO Box 33, Dorey Court
Third Floor, St George’s Court
Unit 7, Ashbourne Retail Park
Unit No. 1, 1st Floor, Ambience Corporate Tower II Unit No. 1, 1st Floor, Ambience Corporate Tower II, Ambience Island, NH-8, Gurgaon – 122011
York House
Haryana, India
York House, 45 Seymour Street, London, W1H 7LX, United Kingdom
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
194
Company balance sheet
At 7 March 2020 and 9 March 2019
Non-current assets
Property, plant and equipment
Investments in subsidiaries, joint ventures and associates
Financial assets at fair value through other comprehensive income
Other receivables
Derivative financial assets
Current assets
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Taxes payable
Provisions
Net current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Provisions
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Merger reserve
Capital redemption reserve
Other reserves
Retained earnings
Total equity before perpetual securities
Perpetual capital securities
Perpetual convertible bonds
Total equity
Note
2
3, 4
5
6
6
7
8
9
8
9
11
11
11
11
11
12
2020
£m
2019
£m
–
7,750
1
175
14
7,940
1,784
1
156
1,941
9,881
(2,138)
–
(1)
(3)
(2)
(2,144)
(203)
(449)
(14)
–
(463)
(2,607)
7,274
634
1,159
568
680
3
3,734
6,778
248
248
7,274
220
6,162
1
189
8
6,580
2,343
–
60
2,403
8,983
(669)
(779)
(1)
(3)
(1)
(1,453)
950
–
(8)
(1)
(9)
(1,462)
7,521
630
1,147
568
680
8
3,992
7,025
248
248
7,521
The notes on pages 196 to 200 form an integral part of these financial statements.
The financial statements on pages 194 to 200 were approved by the Board of Directors on 29 April 2020, and are signed on its behalf by:
Mike Coupe
Chief Executive
Kevin O’Byrne
Chief Financial Officer
Financial StatementsJ Sainsbury plc Annual Report 2020
Company statement of changes in equity
for the 52 weeks to 7 March 2020
195
At 10 March 2019
(Loss)/profit for the year
Other comprehensive income
Total comprehensive (expense)/
income for the year ended
7 March 2020
Transactions with owners:
Dividends
Distribution to holders of perpetual
securities
Amortisation of convertible bond
equity component
Allotted in respect of share
option schemes
At 7 March 2020
Called up
share
capital
£m
Share
premium
account
£m
630
1,147
Merger
reserve
£m
568
Capital
redemption
and other
reserves
£m
Total equity
before
perpetual
securities
£m
Retained
earnings
£m
Perpetual
capital
securities
£m
Perpetual
convertible
bonds
£m
Total equity
£m
688
3,992
7,025
248
248
7,521
–
–
–
–
–
–
4
–
–
–
–
–
–
12
–
–
–
–
–
–
–
–
–
–
–
–
(5)
–
(53)
–
(53)
(247)
–
5
37
(53)
–
(53)
(247)
–
–
53
16
–
16
–
(16)
–
–
7
–
7
–
(7)
–
–
(30)
–
(30)
(247)
(23)
–
53
Note
12
11
12
11, 12
11, 12
634
1,159
568
683
3,734
6,778
248
248
7,274
At 11 March 2018
627
1,130
568
703
4,224
7,252
(Loss)/profit for the year
Other comprehensive (expense)/income
12
11
Total comprehensive (expense)/income
for the year ended 9 March 2019
Transactions with owners:
Dividends
Distribution to holders of perpetual
securities
12
11, 12
Amortisation of convertible bond
11, 12
equity component
Allotted in respect of share option
schemes
Tax on items charged to equity
At 9 March 2019
–
–
–
–
–
–
3
–
–
–
–
–
–
–
17
–
–
–
–
–
–
–
–
–
–
(7)
(7)
–
–
(8)
–
–
(54)
–
(54)
(54)
(7)
(61)
(224)
–
(224)
–
8
38
–
–
58
–
248
12
–
12
–
(16)
–
–
4
248
7,748
6
–
6
–
(7)
–
–
1
(36)
(7)
(43)
(224)
(23)
–
58
5
630
1,147
568
688
3,992
7,025
248
248
7,521
The notes on pages 196 to 200 form an integral part of these financial statements.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
196
Notes to the Company financial statements
1 Basis of preparation
The parent company’s financial statements are prepared in accordance with United Kingdom Accounting Standards, in particular Financial Reporting
Standard 101 Reduced Disclosure Framework (FRS 101) and the Companies Act 2006. FRS 101 sets out a reduced disclosure framework for a ‘qualifying entity’
as defined in the Standard, which addresses the financial reporting requirements and disclosure exemptions in the individual financial statements of
qualifying entities that otherwise apply the recognition measurement and disclosure requirements of International Financial Reporting Standards (IFRS) as
adopted by the European Union.
The Company’s transition date to FRS 101 was 13 March 2016. FRS 101 sets out amendments to IFRS as adopted by the European Union that are necessary to
achieve compliance with the Companies Act and related regulations.
The financial year represents the 52 weeks to 7 March 2020 (prior financial year 52 weeks to 9 March 2019).
The disclosure exemptions adopted by the Company in accordance with FRS 101 are as follows:
— The requirements of IAS 7 to present a cash flow statement.
— The requirements of paragraph 17 of IAS 24 ‘Related Party Transactions’, to disclose information related to key management personnel, and the
requirements of IAS 24 to disclose related party transactions between two or more members of a group for wholly owned subsidiaries.
— The requirements of paragraphs 30 and 31 of IAS 8 to disclose information assessing the possible impact of new standards issued but which are not
yet effective.
— The requirements of IFRS 7 and IFRS 13 for disclosure of financial instruments and fair values.
The financial statements are presented in sterling, rounded to the nearest £million unless otherwise stated. They have been prepared on the going concern
basis under the historical cost convention, except for derivative financial instruments and financial assets at fair value through other comprehensive income
that have been measured at fair value.
Amendments to published standards
Effective for the Company in these financial statements:
The Company considered the following amendments to published standards that are effective for the Company for the financial year beginning 10 March
2019 and concluded that they are either not relevant to the Company or they do not have a significant impact on the Company’s financial statements.
These standards and interpretations have been endorsed by the European Union.
— IFRS 16 ‘Leases’
— IFRIC Interpretation 23 ‘Uncertainty over Income Tax Treatments’
— Amendments to IFRS 9 ‘Financial Instruments’ on prepayment features with negative compensation
— Amendments to IAS 19 ‘Employee Benefits’ on plan amendments, curtailments or settlements
— Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’ on long-term interests in associates and joint ventures
— Annual Improvements Cycle 2015-2017 (issued in December 2017)
Standards and revisions effective for future periods:
The following standards and revisions will be effective for future periods:
The Company considered the following amendments to published standards that are effective for the Company for the financial year beginning 10 March
2019 and concluded that they are either not relevant to the Company or they do not have a significant impact on the Company’s financial statements other
than disclosures. These standards and interpretations have been endorsed by the European Union.
The following standards and revisions will be effective for future periods:
— Amendments to References to Conceptual Framework in IFRS Standards
— Amendments to IFRS 3 ‘Business Combinations’ on the definition of a business
— Amendments to IAS 1 ‘Presentation of Financial Statements’ and IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ on the
definition of material
— Amendments to IFRS 9 ‘Financial Instruments’, IAS 39 ‘Financial Instruments: Presentation and IFRS 7 ‘Financial Instruments: Disclosures’ on interest rate
benchmark reform
— IFRS 17 ‘Insurance Contracts’
The Directors have taken advantage of the exemption available under Section 408 of the Companies Act 2006 and not presented an income statement nor a
statement of comprehensive income for the Company alone.
The loss after tax for the Company for the year was £(30) million (2019: loss of £(36) million).
Financial StatementsJ Sainsbury plc Annual Report 2020 197
2 Property, plant and equipment
Accounting policies
a) Land and buildings
Land and buildings are held at historical cost less accumulated depreciation and any recognised provision for impairment. Capital work in progress is held
at cost less any recognised provision for impairment. Cost includes the original purchase price of the asset and the costs to bringing the asset to its working
condition for intended use. This includes capitalised borrowing costs.
b) 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.
c) Depreciation
Depreciation is calculated to write down the cost of the assets to their residual values, on a straight-line basis, using the following rates:
— Freehold buildings and leasehold properties – 50 years, or the lease term if shorter
— Fixtures, equipment and vehicles – three to 15 years
— Freehold land is not depreciated
Capital work in progress is not depreciated.
Gains and losses on disposal are determined by comparing proceeds less any associated costs of disposal 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.
Impairment of non-financial assets
At each reporting date, the Company reviews the carrying amounts of its property, plant and equipment 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, being the higher of its fair value less costs
to dispose 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 Company estimates the recoverable amount of the cash-
generating unit (CGU) to which the asset belongs. For Retail property, plant and equipment, the CGU is deemed to be each trading store or store pipeline
development site. Non-store assets, including depots and IT assets, are reviewed separately.
Any impairment loss is recognised in the income statement in the year in which it occurs. Where an impairment loss 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
notional accumulated depreciation if lower.
Cost
At 10 March 2019
Additions
Disposals
At 7 March 2020
Cost
At 11 March 2018
Additions
At 9 March 2019
3 Investments in subsidiaries
Accounting policies
Investments in subsidiaries are carried at cost less any impairment loss in the financial statements of the Company.
Shares in subsidiaries
At the beginning of the year
Additions
At the end of the year
Land and
buildings
£m
Fixtures and
equipment
£m
213
2
(215)
–
–
213
213
7
–
(7)
–
–
7
7
2020
£m
6,161
1,588
7,749
Total
£m
220
2
(222)
–
–
220
220
2019
£m
6,013
148
6,161
Additions in the current year predominantly relate to investments following implementation of the Group’s new asset-backed contribution arrangement
(refer note 35 of the Group accounts).
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
198
4 Investments in joint ventures and associates
Accounting policies
Investments in joint ventures and associates are carried at cost less any impairment loss in the financial statements of the Company.
At the beginning of the year
Disposals
At the end of the year
Company
shares at cost
2020
£m
Company
shares at cost
2019
£m
1
–
1
6
(5)
1
5 Financial assets at fair value through other comprehensive income
Accounting policies
Financial assets that are held for both the purpose of collecting contractual cash flows and to sell are classified as fair value through other comprehensive
income (FVOCI). 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 at each period end with the movements
recognised in other comprehensive income until derecognition or impaired. On derecognition, the cumulative gain or loss previously recognised in other
comprehensive income reserves is recognised in the income statement for debt instruments. Gains and losses on equity instruments are never recycled
to the income statement. Dividends on FVOCI equity instruments are recognised in the income statement when the entity’s right to receive payment is
established. Interest on FVOCI debt instruments is recognised using the effective interest method.
Non-current
Interest bearing financial assets
2020
£m
1
1
2019
£m
1
1
6 Other receivables
Accounting policies
Receivables are recognised initially at fair value, and subsequently at amortised cost using the effective interest rate method, less provision for impairment.
Non-current
Amounts owed by Group companies
Current
Amounts owed by Group companies
Prepayments and accrued income
7 Trade and other payables
Accounting policies
Payables are recognised initially at fair value, and subsequently at amortised cost using the effective interest rate method.
Current
Amounts owed to Group entities
Other payables
8 Borrowings
Bank loan due 2021
Short term borrowings
Bank loans due 2024
Convertible bond due 2019
Total borrowings
2020
Current
£m
2020
Non-current
£m
–
–
–
–
–
199
–
250
–
449
2020
Total
£m
199
–
250
–
449
2019
Current
£m
2019
Non-current
£m
199
135
–
445
779
–
–
–
–
–
2020
£m
175
1,765
19
1,784
2020
£m
2,115
23
2,138
2019
£m
189
2,340
3
2,343
2019
£m
643
26
669
2019
Total
£m
199
135
–
445
779
Financial StatementsNotes to the Company financial statements continuedJ Sainsbury plc Annual Report 2020
9 Provisions
Accounting policies
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.
199
At 10 March 2019
Utilisation of provision
Amortisation of discount
At 7 March 2020 and 9 March 2019
Disclosed as:
Current
Non-current
Onerous
contracts
£m
Disposal
provision
£m
1
–
–
1
1
–
–
1
Total
£m
2
–
–
2
2020
£m
2019
£m
2
–
2
1
1
2
10 Taxation
Accounting policies
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.
Deferred tax is provided on temporary differences associated with investments in subsidiaries, branches and joint ventures except where the Company 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.
At 7 March 2020 and 9 March 2019
21
Total deferred income tax liabilities
Total deferred income tax assets
Net deferred income tax liability recognised in non-current liabilities
(21)
2020
£m
(21)
21
–
Capital
losses
£m
Rolled over
capital gains
£m
Total
£m
–
2019
£m
(21)
21
–
11 Share capital and reserves
Accounting policies
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.
Share capital, share premium and merger reserve
Called up share capital
Allotted and fully paid ordinary shares 284/7p
Share premium account
Share premium
2020
million
2019
million
2020
£m
2,217
2,206
634
2019
£m
630
–
–
1,159
1,147
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
200
11 Share capital and reserves continued
The movements in the called up share capital, share premium and merger reserve accounts are set out below:
At 10 March 2019
Allotted in respect of share option schemes
At 7 March 2020
At 11 March 2018
Allotted in respect of share option schemes
At 9 March 2019
Capital redemption and other reserves
At 10 March 2019
Amortisation of convertible bond – equity component
Tax on items charged to equity
At 7 March 2020
At 11 March 2018
Financial assets at fair value through other comprehensive income movements
Financial
assets at
fair value
through other
comprehensive
income
£m
3
–
–
3
11
2
Items reclassified from financial assets at fair value through other comprehensive income
(10)
reserve
Items reclassified from cash flow hedge reserve
Amortisation of convertible bond – equity component
Tax on items charged to equity
At 9 March 2019
–
–
–
3
Number of
ordinary
shares
million
Ordinary
shares
£m
2,206
11
2,217
2,194
12
2,206
630
4
634
627
3
630
Share
premium
account
£m
1,147
12
1,159
1,130
17
1,147
Merger
reserve
£m
568
–
568
568
–
568
Cash flow
hedge
£m
Convertible
bond
£m
Total other
reserves
£m
Capital
redemption
reserve
£m
–
–
–
–
(1)
–
–
1
–
–
–
5
(5)
–
–
13
–
–
–
(8)
–
5
8
(5)
–
3
23
2
(10)
1
(8)
–
8
680
–
–
680
680
–
–
–
–
–
680
The financial assets at fair value through other comprehensive income reserve represents the fair value gains and losses on the financial assets at fair value
through other comprehensive income held by the Company. The cash flow hedge reserve represents the cumulative effective fair value gains and losses on
cash flow hedges in the Company.
The convertible bond reserve represents the equity component of the £450 million convertible bond issued in November 2014. This matured in November 2019.
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.
12 Retained earnings
Beginning of the year
Loss for the year
Dividends paid
Allotted in respect of share option schemes
Amortisation of convertible bond – equity component
End of the year
2020
£m
3,992
(53)
(247)
37
5
3,734
2019
£m
4,224
(54)
(224)
38
8
3,992
13 Contingent liabilities
Through the normal course of business, the Company has issued guarantees covering various commitments of its subsidiaries. No liabilities have been
recognised in the Company’s accounts as it is considered remote that the guarantees will be called on.
Financial StatementsNotes to the Company financial statements continuedJ Sainsbury plc Annual Report 2020
Additional shareholder information
201
Financial calendar
Q1 Trading Statement
Annual General Meeting
Interim results announced
Q3 Trading Statement
Preliminary Results announced
Annual General Meeting
* provisional dates
The interim dividend was paid on 20 December 2019.
Shareholder profiles
End of year information as at 7 March 2020.
1 July 2020
2 July 2020
5 November 2020
13 January 2021
28 April 2021*
1 July 2021*
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
Individuals
Insurance Companies
Banks and Nominees
Investment Trusts
Pension Funds
Other Corporate Bodies
2020
113,914
2019
118,272
2,217,340,901
2,206,007,678
Shareholders %
Shares %
2019
68.80
10.98
18.37
1.36
0.34
0.15
100
2020
0.38
0.42
2.61
1.76
5.78
89.05
100
2019
0.40
0.44
2.70
1.81
6.41
88.24
100
Shareholders %
Shares %
2019
96.83
0.00
1.22
0.01
0.00
1.94
100
2020
4.20
0.00
84.90
0.00
0.00
10.90
100
2019
4.31
0.00
83.74
0.00
0.00
11.95
100
2020
68.87
10.95
18.31
1.39
0.32
0.16
100
2020
96.97
0.00
1.17
0.01
0.00
1.85
100
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
202
Annual General Meeting (AGM)
The AGM will be held at 11.00am on Thursday, 2 July 2020 at 33 Holborn, London EC1N 2HT. The Notice of the Meeting and the proxy card for the meeting are
enclosed with this report and further details will be available on our website www.about.sainsburys.co.uk.
Registrars
For information about the AGM, shareholdings, dividends and to report changes to personal details, shareholders should contact:
Equiniti Registrars
Aspect House
Spencer Road
Lancing
BN99 6DA
Telephone: 0333 207 6557*
*Lines are open 9am to 5pm (UK time), Monday to Friday (excluding public holidays in England and Wales).
Please remember to tell Equiniti if you move house or change bank details or if there is any other change to your account information.
You can view and manage your shareholding online at www.shareview.co.uk. You will require your 11-digit Shareholder Reference Number (SRN) to log in.
It can be found on share certificates and dividend confirmations.
Dividends
Having your dividends paid directly into your bank or building society account is a more secure way than receiving your dividend by cheque. If you would
prefer your dividends to be paid directly into your bank or building society account further information is available from Equiniti (address and telephone
number above). You will still receive an annual dividend confirmation detailing each dividend to enable you to complete your tax return to HMRC.
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 approximately 24,926 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 Shareview at
www.shareview.co.uk.
Shareholder communications website
J Sainsbury plc Interim and Annual Reports, and results announcements are available via the internet on our website at www.about.sainsburys.co.uk.
As well as providing share price data and financial history, the site also provides background information about the Company, regulatory and news releases,
and current issues.
Electronic shareholder communications
The Company encourages all shareholders to receive their shareholder communications electronically in order to reduce our impact on the environment
and 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 address for this service)
— Check the balance and current value of your shareholding and view your dividend history
— Submit your vote online prior to a general meeting
To register visit www.shareview.co.uk. You will need your 11-digit Shareholder Reference Number which can be found on your share certificate or recent
dividend confirmation.
Shareholder security
Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free company annual reports. If you receive
any unsolicited investment advice, whether over the telephone, through the post or by email. You should:
— make sure you get the name of the person and organisation
— check that they are properly authorised by the FCA before getting involved by visiting https://register.fca.org.uk/; and
— report the matter to the FCA either by calling 0800 111 6768 or by completing an online form at
www.fca.org.uk/consumers/report-scam-unauthorised-firm.
Details of any share dealing facilities that the Company endorses will be included in Company mailings.
More detailed information on this or similar activity can be found on the FCA website www.scamsmart.fca.org.uk.
Financial StatementsAdditional shareholder information continuedJ Sainsbury plc Annual Report 2020 203
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:
— Equiniti 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 0371 384 2030. The internet share dealing service
gives shareholders the option to submit instructions to trade online and more information can be found by visiting
http://www.shareview.co.uk/4/Info/Portfolio/Default/en/Home/products/pages/buyandsellshares.aspx.
— 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 email dealing@share.co.uk and quote Sainsbury’s
Further information and detailed terms and conditions are available on request by calling either provider.
American Depository Receipts (ADRs)
The Company has a sponsored Level I ADR programme for which The Bank of New York Mellon acts as depository. The ADRs are traded on the over-the-counter
(OTC) market in the US under the symbol JSAIY, where one ADR is equal to four ordinary shares. All enquiries relating to ADRs should be addressed to:
Bank of New York Mellon
Shareholder Correspondence
PO Box 505000
Louisville
KY 40233-5000
Toll Free Telephone number for US domestic callers: 1-888-269-2377
International callers can call: +1-201-680-6825
Website: www.mybnymdr.com
Email: shrrelations@bnymellon.com
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 Equiniti.
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.
ProSearch
Sainsbury’s has instructed ProSearch, a specialist tracing company, to identify and communicate with shareholders who may be owed dividends or shares in
Sainsbury’s. If you have received a communication from ProSearch and think you may be due some dividends or shares in Sainsbury’s and would like further
information, please contact ProSearch directly. You can call them on 0800 389 6479 or for more information visit www.prosearchassets.com.
Tax information – Capital Gains Tax (CGT)
For CGT purposes, the market value of J Sainsbury plc ordinary shares on 31 March 1982 adjusted for all capital adjustments was 91.99 pence and B shares
10.941 pence.
CGT information on historic Home Retail Group corporate actions can be found in the Investor Section on our website
www.about.sainsburys.co.uk/investors/shareholder-information/hrg-acquisition.
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 came 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
Historic share capital consolidation information relating to Home Retail Group can be found in the Investor Section on our website
www.about.sainsburys.co.uk/investors.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
204
Key contacts and advisers
General contact details
For any customer enquiries please visit our websites:
— Sainsbury’s https://help.sainsburys.co.uk/help/
— Argos www.argos.co.uk/help/contact-us/
— Habitat www.habitat.co.uk/contact-us
— Nectar www.nectar.com/help
— Sainsbury’s Bank www.sainsburysbank.co.uk/insuring/support/customer_support_zone
Registered office
J Sainsbury plc
33 Holborn
London EC1N 2HT
Registered number 185647
Investor relations
James Collins
Head of Investor Relations
J Sainsbury plc
33 Holborn
London EC1N 2HT
investor.relations2@sainsburys.co.uk
Registrar
Equiniti Registrars
Aspect House
Spencer Road
Lancing
BN99 6DA
www.shareview.co.uk
Auditors
Ernst & Young LLP
1 More London Place
London SE1 2AF
Solicitors
Linklaters LLP
One Silk Street
London EC2Y 8HQ
Stockbrokers
UBS
5 Broadgate
London
EC2M 2QS
Morgan Stanley
25 Cabot Square
Canary Wharf
London E14 4QA
Cautionary statement
Certain statements included in this Annual Report are forward-looking. Such statements are based on current expectations and are subject to a number
of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these
forward-looking statements. They appear in a number of places throughout this Annual Report and include statements regarding our intentions, beliefs or
current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition,
liquidity, prospects, growth, strategies and the business we operate. Unless otherwise required by applicable law, regulation or accounting standard, we do
not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
Financial StatementsAdditional shareholder information continuedJ Sainsbury plc Annual Report 2020 Alternative Performance Measures (APMs)
205
In the reporting of financial information, the Directors use various APMs which they believe provide additional useful information for understanding the
financial performance and financial health of the Group. These APMs should be considered in addition to, and are not intended to be a substitute for IFRS
measurements. As they are not defined by International Financial Reporting Standards, they may not be directly comparable with other companies who
use similar measures.
All of the following APMs relate the current period’s results and comparative periods where provided.
APM
Income statement – Revenue
Underlying Group
sales
Closest equivalent
IFRS measure
Definition/Purpose
Reconciliation
Revenue
Total sales less acquisition fair value
unwinds on Argos Financial Services.
A reconciliation of the measure is provided in note 7 of the
financial statements.
This is the headline measure of revenue
for the Group. It shows the annual rate
of growth in the Group’s sales and is
considered a good indicator of how rapidly
the Group’s core business is growing.
Underlying Retail
sales
Revenue
Underlying Group sales as above, less
underlying Financial Services revenue.
A reconciliation of the measure is provided in note 7 of the
financial statements.
Like-for-like sales No direct
equivalent
Shows the annual rate of growth in the
Group’s Retail business sales.
Year-on-year growth in sales including VAT,
excluding fuel, excluding Financial Services,
for stores that have been open for more than
one year.
The relocation of Argos stores into
Sainsbury’s supermarkets are classified
as new space, while the host supermarket
is classified like-for-like.
Stores closed in the period are also excluded
from like-for-like at the point in which they
close with prior year comparatives then
removed from the calculation in the
equivalent closure weeks.
The measure is used widely in the retail
industry as an indicator of current trading
performance and is useful when comparing
growth between retailers that have different
profiles of expansion, disposals and closures.
The reported retail like-for-like sales (excluding fuel) decrease
of (0.6) per cent is based on a combination of Sainsbury’s
like-for-like sales and Argos like-for-like sales for the 52 weeks
to 7 March 2020. See movements below:
Underlying retail like-for-like (exc. fuel)
Underlying net new space impact
Underlying total retail sales growth
(exc. fuel)
Fuel impact
Underlying total retail sales growth
(inc. fuel)
52 weeks
to 7 March
2020
(0.6)
0.2
(0.4)
0.3
(0.1)
52 weeks
to 9 March
2019
(0.2)
0.6
0.4
1.7
2.1
Income statement – Profit
Retail
underlying
operating
profit
Profit
before tax
Underlying earnings before interest, tax,
Financial Services operating profit and
Sainsbury’s underlying share of post-tax
profit from joint ventures and associates.
A reconciliation of the measure is provided in note 7 of the
financial statements.
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
206
Alternative Performance Measures (APMs) continued
APM
Closest equivalent
IFRS measure
Definition/Purpose
Reconciliation
Underlying profit
before tax
Profit
before tax
Profit or loss before tax excluding items
which by virtue of their size or nature may
obscure understanding of the Group’s
underlying performance.
Underlying profit before tax is bridged to statutory profit before tax
in the income statement and note 6 of the financial statements.
The adjusted items are as follows:
— Financial Services transition – multi-year costs incurred in
transitioning to a new, more flexible banking platform as part
of the previously announced New Bank Programme. These
principally comprise contractor and service provider costs
relating to the migration of data and other services to the
Bank’s new infrastructure and operating model.
— Profit on disposal of properties – such disposals are not part
of the Group’s underlying business
— 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 and are held within the property JVs. The
valuations are impacted by external market factors and can
therefore vary significantly year-on-year.
— Perpetual securities coupons – these are accounted for as
equity in line with IAS 32 ‘Financial instruments: Presentation’,
however are accrued on a straight-line basis and included as
an expense within underlying profit as they are included by
management when assessing Group borrowing.
— Non-underlying finance movements – these include fair value
remeasurements on derivatives not in a hedging relationship.
The fair value measurements are impacted by external
market factors and can fluctuate significantly year-on-year.
Lease interest on impaired non-trading sites, including site
closures, is excluded from underlying profit as those sites do
not contribute to the underlying business.
— IAS 19 pension expenses include the financing element and
scheme expenses of the Group’s defined benefit scheme.
These are reported outside underlying profit as they no longer
relate to the Group’s ongoing activities following closure of the
scheme to future accrual.
— Acquisition adjustments – these reflect the adjustments
arising from acquisitions including the fair value unwind and
amortisation of acquired intangibles.
— Other – these are items which are material and infrequent
in nature and do not relate to the Group’s underlying
performance and in the current year include the property
strategy programme and retail restructuring programme.
Underlying basic
earnings
per share
Basic earnings
per share
Earnings per share using underlying profit
as described above.
A reconciliation of the measure is provided in note 12 of the
financial statements.
Retail underlying
EBITDAR
No direct
equivalent
Underlying net
finance costs
Finance
income less
finance costs
Retail underlying operating profit as above,
before rent, depreciation and amortisation.
Net finance costs before any non-underlying
items as defined above that are recognised
within finance income/expenses.
A reconciliation of the measure is provided on page 32 of the
Financial Review.
A reconciliation of this measure is included in note 10 of the
financial statements.
The adjusted items are as follows:
— Fair value remeasurements on derivatives not in a hedging
relationship. The fair value measurements are impacted by
external market factors and can fluctuate significantly
year-on-year.
— Lease interest on impaired non-trading sites, including site
closures, is excluded from underlying profit as those sites do
not contribute to the underlying business.
— The financing element of the Group’s defined benefit scheme.
This is reported outside underlying profit as it no longer relates
to the Group’s ongoing activities following closure of the
scheme to future accrual.
— Perpetual securities coupons – these are accounted for as
equity in line with IAS 32 ‘Financial instruments: Presentation’,
however are accrued on a straight-line basis and included as an
expense within underlying profit as they are included by
management when assessing Group borrowing.
Financial StatementsAlternative performance measures continuedJ Sainsbury plc Annual Report 2020 Alternative Performance Measures (APMs) continued
APM
Underlying
tax rate
Closest equivalent
IFRS measure
Effective
tax rate
Definition/Purpose
Reconciliation
Tax on underlying items, divided by
underlying profit before tax.
The tax on non-underlying items is included in note 6 of the
financial statements.
207
Cash flows and net debt
Retail cash flow
items in Financial
Review
No direct
equivalent
Retail free
cash flow
Net cash
generated
from operating
activities
Provides an indication of the tax rate across
the Group before the impact of non-
underlying items.
To help the reader understand cash flows of
the business a summarised cash flow
statement is included within the Financial
Review.
As part of this a number of line items have
been combined. The cash flow in note 7 of
the financial statements includes a reference
to show what has been combined in these
line items.
Net cash generated from retail operations,
after perpetual security coupons and cash
capital expenditure but before strategic
capital expenditure, and including payments
of lease obligations, cash flows from joint
ventures and associates and Sainsbury’s
Bank capital injections.
This measures cash generation, working
capital efficiency and capital expenditure of
the retail business.
Net cash
generated from
retail operations
(per Financial
Review)
Cash
generated
from
operations
This enables management to assess
the cash generated from its core retail
operations.
A reconciliation between this and cash
generated from operations per the
accounts is shown here:
Net interest paid
Strategic capital expenditure
Repayment of lease liabilities
(Repayment)/proceeds from borrowings
Other
Joint ventures
Ref
a
b
c
d
e
f
Reconciliation of retail free cash flow
Cash generated from retail operations
Net interest paid (ref (a) above)
Corporation tax
Retail purchase of property, plant and
equipment
Retail purchase of intangible assets
Retail proceeds from disposal of property,
plant and equipment
Initial direct costs on right-of-use assets
Repayments of obligations under leases1
Add back: Strategic capital expenditure
Dividends and distributions received
Investment in joint ventures and associates
Bank capital injections
Free cash flow
52 weeks
to 7 March
2020
£m
(405)
–
(419)
(379)
(3)
143
52 weeks
to 7 March
2020
£m
1,971
(405)
(113)
(517)
(82)
81
(13)
(419)
–
143
–
(35)
611
52 weeks
to 9 March
2019
(restated)
£m
(423)
(36)
(429)
(446)
(8)
13
52 weeks
to 9 March
2019
(restated)
£m
1,921
(423)
(61)
(466)
(78)
64
(11)
(429)
36
18
(5)
(110)
456
1
“Repayments of obligations under leases” excludes repayments of hire purchase
arrangements.
Retail cash generated from operating activities
1,474
52 weeks
to 7 March
2020
£m
52 weeks
to 9 March
2019
(restated)
£m
1,456
(per note 7)
Perpetual security coupons
Interest received
Net retail cash generated from
operations in Financial Review
(23)
2
(23)
4
1,453
1,437
52 weeks
to 7 March
2020
£m
(517)
(82)
(599)
52 weeks
to 9 March
2019
(restated)
£m
(430)
(78)
(508)
Core retail capital
expenditure
No direct
equivalent
Capital expenditure excludes Sainsbury’s
Bank, before proceeds on disposals and
before strategic capital expenditure.
This allows management to assess core retail
capital expenditure in the period in order to
review the strategic business performance.
Purchase of property, plant and equipment
Purchase of intangibles
The reconciliation from the cash flow
statement is included here.
Cash capital expenditure before
strategic capital expenditure (note 7)
Financial StatementsJ Sainsbury plc Annual Report 2020Governance ReportStrategic ReportFinancial Statements
208
Alternative Performance Measures (APMs) continued
APM
Net debt
Closest equivalent
IFRS measure
Borrowings,
cash,
derivatives,
financial
assets at
FVTOCI,
lease liabilities
Definition/Purpose
Reconciliation
Net debt includes the capital injections into
Sainsbury’s Bank, but excludes the net debt
of Sainsbury’s Bank and its subsidiaries.
It is calculated as: financial assets at fair
value through other comprehensive income
(excluding equity investments) + net
derivatives to hedge borrowings + net cash
and cash equivalents + loans + lease
obligations + perpetual securities.
This shows the overall strength of the
balance sheet alongside the liquidity and its
indebtedness and whether the Group can
cover its debt commitments.
A reconciliation of the measure is provided in note 31 of the
financial statements. In addition, to aid comparison to the
balance sheet, reconciliations between financial assets at
FVTOCI and derivatives per the balance sheet and Group net debt
(i.e. including Financial Services) is included below:
Financial instruments at FVTOCI per
balance sheet
Less equity-related securities
Financial instruments at FVTOCI included
in Group net debt
Net derivatives per balance sheet
Less derivatives not used to hedge borrowings
Derivatives included in Group net debt
7 March
2020
£m
1,054
9 March
2019
(restated)
£m
856
(251)
803
(71)
60
(11)
(233)
623
(4)
(5)
(9)
Net debt/
underlying
EBITDAR
Other
No direct
equivalent
Net debt divided by Group underlying
EBITDAR.
A reconciliation of this is provided in the Financial Review on
page 35.
This helps management measure the ratio of
the business’s debt to operational cash flow.
Return on capital
employed
No direct
equivalent
Return on capital employed is calculated as
return divided by average capital employed.
An explanation of the calculation is provided in the Financial
Review on page 35.
Fixed charge
cover
No direct
equivalent
Return is defined as 52 week rolling
underlying profit before interest and tax.
Capital employed is defined as Group net
assets excluding pension deficit/surplus,
less net debt (excluding perpetual securities).
The average is calculated on a 14 point basis.
This represents the total capital that the
Group has utilised in order to generate
profits. Management use this to assess
the performance of the business.
Group underlying EBITDAR divided by
rent (representing capital and interest
repayments on leases) and underlying net
finance costs, where interest on perpetual
securities is treated as an underlying finance
cost. All items are calculated on a 52 week
rolling basis.
This helps assess the Group’s ability
to satisfy fixed financing expenses from
performance of the business.
EBITDAR is reconciled in the Financial Review on page 35.
Underlying net finance costs as per note 10 of the financial
statements.
Financial StatementsAlternative performance measures continuedJ Sainsbury plc Annual Report 2020 Glossary
Annual General Meeting (AGM) – This year the AGM will be held
on Thursday 2 July 2020 at The Queen Elizabeth II Conference Centre,
Broad Sanctuary, Westminster, London SW1P 3EE at 11.00am.
Argos Financial Services (AFS) – ARG Personal Loans Limited;
Home Retail Group Card Services Limited; and Home Retail Group Insurance
Services Limited.
bps – Basis points.
by Sainsbury’s – Core own-label brand.
Click & Collect – Service which allows customers to place general
merchandise and grocery orders online for collection in-store.
Corporate Responsibility and Sustainability (CR&S) – The need
to act responsibly in managing our impact on a range of stakeholders:
customers, colleagues, shareholders, suppliers, the community and the
environment.
CPI – Consumer Price Index.
Dividend cover – Underlying profit after tax from continuing operations
attributable to ordinary shareholders divided by total value of dividends
declared during the year.
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.
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.
FVTPL – Fair value through profit or loss. Method of valuing a financial
instrument where changes in fair value are recognised directly in the
income statement.
Group – The Company and its subsidiaries.
IFRIC – International Financial Reporting Interpretations Committee.
IFRSs – International Financial Reporting Standard(s).
Joint venture (JV) – A business jointly owned by two or more parties.
Kantar Worldpanel (Kantar) – An independent third party providing
data on the UK Grocery Market.
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.
MSC – Marine Stewardship Council.
Nectar – One of the most popular loyalty schemes in the UK.
PRA – Prudential Regulation Authority.
RPI – Retail Price Index.
Taste the Difference – Sainsbury’s premium own-brand range
of products.
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.
Tu – Sainsbury’s own-label clothing range.
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Find out more at
www.about.sainsburys.co.uk/ar2020