Annual Financial Report

RNS Number : 2348N

Sainsbury(J) PLC

08 June 2010

 



 

 

8 June 2010

Annual financial report announcement for the 52 weeks to 20 March 2010

In accordance with Listing Rule 9.6.1, J Sainsbury plc has submitted to the Financial Services Authority two copies of its Annual Report and Financial Statements 2010 which will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility which is situated at: The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.

From 8 June 2010 our Annual Report and Financial Statements will be available on our website at www.j-sainsbury.co.uk/report2010.  In addition an illustrated review of Sainsbury's during the 2009/10 financial year is also available online at our corporate website or through the direct website address www.j-sainsbury.co.uk/illustratedreview.

A condensed set of Sainsbury's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements were included in J Sainsbury plc's preliminary announcement on 13 May 2010.  That information together with the information set out below which is extracted from the Annual Report and Financial Statements 2010 constitute the material required by Disclosure and Transparency Rule 6.3.5 which is required to be communicated to the media in full unedited text through a Regulatory Information Service.  This announcement is not a substitute for reading the full Annual Report and Financial Statements 2010.  Page and note references in the text below refer to page numbers in the Annual Report and Financial Statements 2010. To view the preliminary announcement, slides of the results presentation, the transcript of the presentation and the webcast: please visit www.j-sainsbury.co.uk.

Enquiries:
Investor Relations	Media
Anna Tee	Ben Crowther
[phone]	[phone]

Principal Risks and Uncertainties

The risk management process is closely aligned to accelerating our growth plan which focuses on growing the business through the addition of new range, space, channels to market and property management. Risk is an inherent part of doing business. The system of risk management used to identify the principal risks the Group faces and to develop and closely monitor key controls, is described on page 32 of the Annual Report and Financial Statements 2010. The management of the risks is based on a balance of risk and reward determined through careful assessment of both the potential likelihood and impact.  Consideration is given to both reputational as well as financial impact, recognising the significant commercial value attributable to the Sainsbury's brand. The principal risks identified by the Board and the corresponding mitigating controls are set out below in no order of priority.

Business continuity and acts of terrorism

A major incident or act of terrorism could impact on the Group's ability to trade.

In the event of a potentially disruptive incident, detailed plans are in place to maintain Business Continuity. These plans are regularly updated and tested.

Business strategy

If the Board adopts the wrong business strategy or does not implement its strategies effectively, the business may be negatively impacted. Strategic risk needs to be properly understood and managed to deliver long-term growth for the benefit of all stakeholders.

A clear strategy remains in place with five key areas of focus:

·      Great food at fair prices;

·      Accelerating the growth of complementary non-food ranges and services;

·      Reaching more customers through additional channels;

·      Growing supermarket space; and

·      Active property management.

Progress against these areas of focus and any risks to delivery are regularly reviewed by the Board and the overall strategy is reviewed at the two-day Strategy Conference. The Operating Board also hold regular sessions to discuss strategy. This activity is supported by a dedicated Strategy team. To ensure the strategy is communicated and understood, the Group engages with a wide range of stakeholders including shareholders, colleagues, customers and suppliers on a continual basis.

Colleague engagement, retention and capability

The Group employs around 150,000 colleagues who are critical to the success of our business. Maintaining good relations with colleagues and investing in their training and development is essential to the efficiency and sustainability of the Group's operations. 

The Group's employment policies and remuneration and benefits packages are regularly reviewed and are designed to be competitive with other companies, as well as providing colleagues with fulfilling career opportunities. Colleague surveys, performance reviews, communications with trade unions and regular communication of business activities are some of the methods the Group uses to understand and respond to colleagues' needs. Processes are also in place to identify talent and actively manage succession planning throughout the business.

Economic and market risks

The impact of the economic downturn continues to drive demand for value from customers. Challenges to household disposable income, competitor pricing positions and product costs can affect the performance of the Group in terms of both sales and costs.

Focus continues on delivering quality products with 'universal appeal', at a range of price points ensuring value for all our customers. This is achieved through the continuous review of our key customer metrics, active management of price positions, development of sales propositions and increased promotion and marketing activity. While external cost pressures including oil-related costs, commodity pricing and business rates affect our business, the Group continues to work hard to mitigate the impact of these cost pressures on customers and on our overall profitability through the delivery of cost savings.

Environment and sustainability

The key risk facing the Group in this area relates to reducing the environmental impact of the business with a focus on reducing packaging and new ways of reducing waste and energy usage across stores, depots and offices.

A number of initiatives are in place, which are being led by the Environmental Action team and the Corporate Responsibility Steering Group to reduce our environmental impact and to meet our customers' requirements in this area. Further details are included in the Corporate Responsibility review on pages 11 to 15 of the Annual Report and Financial Statements 2010.

Financial strategy and treasury risk

The main financial risks are the availability of short and long term funding to meet business needs and fluctuations in interest and foreign currency rates, which continue to be impacted by the turbulence in the financial markets.

The central treasury function is responsible for managing the Group's liquid resources, funding requirements, and interest rate and currency exposures and the associated risks as set out in note 28 of the Annual Report and Financial Statements 2010. Additional funding was secured through a capital raise in the summer of 2009 to support the business' space expansion plans. The treasury function has clear policies and operating procedures which are regularly reviewed and audited.

Fraud

The Group has a strong control framework in respect of potential fraud or other dishonest behaviour, which is regularly reviewed by internal audit. A set of policies are in place to provide colleagues with clear guidance on behaviour. In addition, there are 'whistle blowing' procedures in place to enable colleagues and suppliers to raise concerns about possible improprieties on a confidential basis. Internal audit undertakes detailed investigations and highlights its findings to the Audit Committee.

Health and safety

Prevention of injury or loss of life for both colleagues and customers is of utmost importance.

Clear policies and procedures are in place, which are aligned to all relevant regulations and industry standards and adherence to them is regularly monitored and audited.

IT systems and infrastructure

The Group is reliant on its IT systems and operational infrastructure in order to trade efficiently.  A failure in these systems could have a significant impact on our business.  

The Group has extensive controls in place to maintain the integrity and efficiency of its systems including detailed recovery plans in the event of a significant failure. New innovations and upgrades to systems are ongoing to improve both the customer experience and colleague efficiency. Prior to introducing system changes rigorous testing is completed.

Pension risk

The Group operates a number of pension arrangements which includes two defined benefit schemes. These schemes are subject to risks in relation to their liabilities as a result of changes in life expectancy, inflation and future salary increases, and to risks regarding the value of investments and the returns derived from such investments.

An investment strategy is in place which has been developed by the pension trustees, in consultation with the Company, to mitigate the volatility of liabilities, to diversify investment risk, and to manage cash. 

Product safety

The quality and safety of our products is of the highest importance and any failure in standards would significantly affect the confidence of our customers. 

There are stringent controls in place to ensure product safety and integrity. Food hygiene practices are taken very seriously and are monitored regularly to ensure compliance with standards. All aspects of product safety are governed through a Product Safety Committee. All suppliers are expected to conform to the Group's code of conduct for Socially Responsible Sourcing which launched in 1998 and covers fair terms of trading, protection of children, worker health and safety, equal opportunities, freedom of association, freedom of employment, hours of work and wages.

Regulatory environment          

The Group's operations are subject to a broad spectrum of regulatory requirements particularly in relation to planning, competition and environmental issues, employment, pensions and tax laws and regulations over the Group's products and services.

There is an established governance process in place to monitor regulatory developments and to ensure that all existing regulations are complied with. Regular reviews are completed across the estate to ensure compliance and that training needs are addressed as required.

Related party transactions

Group

a)   Key management personnel

The key management personnel of the Group comprises members of the J Sainsbury plc Board of Directors and the Operating Board.

The key management personnel compensation is as follows:

	2010	2009
	£m	£m
Short-term employee benefits	17	11
Post-employment employee benefits	1	1
Share-based payments	8	10
	26	22

Details of transactions, in the normal course of business, with the key management personnel are provided below. The transactions occurred with Sainsbury's Bank plc. For this purpose, key management personnel include Group key management personnel and members of their close family.

	Credit card balances	Credit card balances			Saving deposit accounts	Saving deposit accounts
	Number of key management personnel		£m		Number of key management personnel	£m
At 22 March 2009	5		-		7	(1)
Amounts advanced/(received)1	6		-		3	(1)
Interest earned	1		-		9	-
Amounts withdrawn	6		-		5	1
At 20 March 2010	5		-		6	(1)
At 23 March 2008	4		-		2	(1)
Amounts advanced/(received)1	6		-		5	(1)
Interest earned	2		-		7	-
Amounts withdrawn	6		-		3	1
At 21 March 2009	5		-		7	(1)

1      Includes existing balances of new appointments.

b)   Joint ventures

Transactions with joint ventures

For the 52 weeks to 20 March 2010, the Group entered into various transactions with joint ventures as set out below.

	2010	2009
	£m	£m
Sales of inventories	3	3
Management services provided	14	17
Interest income received in respect of interest bearing loans	1	3
Dividend income received	2	-
Sale of assets	-	34
Management services received	-	(1)
Rental expenses paid	(72)	(67)

Year-end balances arising from transactions with joint ventures

	2010	2009
	£m	£m
Receivables
Other receivables	2	2
Loans due from joint ventures
Floating rate subordinated undated loan capital1	25	25
Floating rate subordinated dated loan capital2	30	30
Other	1	-
Payables
Loans due to joint ventures	(48)	(48)

1      The undated subordinated loan capital shall be repaid on such date as the Financial Services Authority shall agree in writing for such repayment and in any event not less than five years and one day from the dates of draw down.  In the event of a winding-up of Sainsbury's Bank plc, the loan is subordinated to ordinary unsecured liabilities.  Interest is payable three months in arrears at LIBOR plus a margin of 1.0 per cent per annum for the duration of the loan.

2      No repayment of dated subordinated debt prior to its stated maturity may be made without the consent of the Financial Services Authority.  In the event of a winding-up of Sainsbury's Bank plc, the loan is subordinated to ordinary unsecured liabilities.  Interest is payable three months in arrears at LIBOR plus a margin of 0.6 per cent per annum for the duration of the loan.

Company

a)   Key management personnel

The key management personnel of the Company comprise members of the J Sainsbury plc Board of Directors.  The Directors do not receive any remuneration from the Company (2009: £nil) as their emoluments are borne by subsidiaries.  The Company did not have any transactions with the Directors during the financial year (2009: £nil).

b)   Subsidiaries

The Company enters into loans with its subsidiaries at both fixed and floating rates of interest on a commercial basis.  Hence, the Company incurs interest expense and earns interest income on these loans and advances.  The Company also received dividend income from its subsidiaries during the financial year.

Transactions with subsidiaries

	2010	2009
	£m	£m
Loans and advances given to, and dividend income received from subsidiaries
Loans and advances given	310	402
Loans and advances repaid by subsidiaries	(103)	(423)
Interest income received in respect of interest bearing loans and advances	126	119
Dividend income received	268	250
Loans and advances received from subsidiaries
Loans and advances received	(350)	(944)
Loans and advances repaid	377	689
Interest expense paid in respect of interest bearing loans and advances	(69)	(201)

Year-end balances arising from transactions with subsidiaries

	2010	2009
	£m	£m
Receivable
Loans and advances due from subsidiaries	1,625	1,374
Payables
Loans and advances due to subsidiaries	(5,267)	(5,516)

 

c)   Joint ventures

Transactions with joint ventures

For the 52 weeks to 20 March 2010, the Company entered into transactions with joint ventures as set out below. 

		2010		2009
		£m		£m
Services and loans provided to joint ventures
Management services received		-		(1)
Interest income received in respect of interest bearing loans		1		3
Dividend income received		2		-

Year-end balances arising from transactions with joint ventures

	2010	2009
	£m	£m
Receivables
Loans due from joint ventures
Floating rate subordinated undated loan capital1	25	25
Floating rate subordinated dated loan capital2	30	30
Payables
Loans due to joint ventures	(5)	(5)
		-

1      The undated subordinated loan capital shall be repaid on such date as the Financial Services Authority shall agree in writing for such repayment and in any event not less than five years and one day from the dates of draw down.  In the event of a winding up of Sainsbury's Bank plc, the loan is subordinated to ordinary unsecured liabilities.  Interest is payable three months in arrears at LIBOR plus a margin of 1.0 per cent per annum for the duration of the loan.

2      No repayment of dated subordinated debt prior to its stated maturity may be made without the consent of the Financial Services Authority.  In the event of a winding up of Sainsbury's Bank plc, the loan is subordinated to ordinary unsecured liabilities.  Interest is payable three months in arrears at LIBOR plus a margin of 0.6 per cent per annum for the duration of the loan.

Statement of Directors' Responsibilities

As set out above, this statement is repeated here solely for the purposes of complying with Disclosure and Transparency Rule 6.3.5.  The statement relates to and is extracted from the Annual Report and Financial Statements 2010.  It is not connected to the extracted information presented in this announcement or the preliminary results announcement released on 13 May 2010. 

"The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed on pages 24 and 25 confirm 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 Directors' report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces."

 

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