Annual Financial Report

RNS Number : 4119P

Sainsbury(J) PLC

05 June 2015

 



5 June 2015

J Sainsbury plc (the "Company")

Annual Report and Financial Statements 2015

In accordance with Listing Rule 9.6.1, copies of the following documents have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism, which can be accessed at www.hemscott.com/nsm.do:

·     Annual Report and Financial Statements 2015

·     Notice of Annual General Meeting 2015

The above documents may be viewed online at www.j-sainsbury.co.uk/ar15 and www.j-sainsbury.co.uk/notice15 respectively. 

A condensed set of the Company's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements were included in J Sainsbury plc's Preliminary Results Announcement on 6 May 2015.  That information together with the information set out below which is extracted from the Annual Report and Financial Statements 2015 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 2015.  Page and note references in the text below refer to page numbers in the Annual Report and Financial Statements 2015.  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
Duncan Cooper	Rebecca Reilly
[phone]	[phone]

Our Principal Risks and Uncertainties

The risk management process is closely aligned to our strategy. Risk is an inherent part of doing business. The management of these risks is based on a balance of risk and reward determined through careful assessment of both the potential likelihood and impact as well as risk appetite. Consideration is given to both reputational as well as financial impact, recognising the significant commercial value attributable to the Sainsbury's brand. Each principal risk and uncertainty is considered in the context of how it relates to the achievement of the Group's strategic objectives.

The current business strategy and objectives are categorised into the following areas of focus:

·     We know our customers better than anyone else;

·     There for our customers;

·     Great products and services at fair prices;

·     Colleagues making the difference; and

·     Our values make us different.

The risk discussion includes assessment of both gross and net risk, where gross risk reflects the risk exposure and risk landscape before considering the mitigations in place and net risk being the residual risk after mitigations. The risk appetite for each key risk is also discussed and assessed. The gross risk movement from prior year for each principal risk and uncertainty has been assessed and is presented as follows:

Mitigations in place supporting the management of the risk to a net risk position are also described for each principal risk and uncertainty.

Key Risk Movements

The key risks are discussed and monitored throughout the year to identify changes to the risk landscape. Over the last year, as part of the strategic review process the principal risks were reviewed and updated in line with the Company's strategic objectives. This has resulted in a more streamlined set of principal risks from the prior year with a number of key business as usual risks being returned to the divisional level for ongoing management and monitoring. In addition, the business strategy risk has been updated to provide focus on the risk associated with change initiatives forming part of the business strategy. In addition, risks associated with the competitive landscape are given greater focus as part of the trading environment and competitive landscape principal risk. Finally, the previously separate disclosure of pensions risk is now reflected as part of the 'Finance and treasury' risk where the mitigating actions sit.

The most significant principal risks identified by the Board and the corresponding mitigating controls are set out below in no order of priority.

Business continuity and major incidents response (gross risk exposure no change)

Risk

Mitigation

A major incident or catastrophic event could impact on the Group's ability to trade.

Sainsbury's has detailed plans in place, supported by senior representatives who are trained in dealing with major incidents and have the authority levels to make decisions in the event of a potentially disruptive incident. The Business Continuity Steering Group meets quarterly to ensure that the business continuity ('BC') policy and strategy is fit for purpose. In addition, it oversees the mitigation of all risks associated with BC and IT disaster recovery. In the event of any unplanned or unforeseen events the Business Continuity Management Team is convened at short notice to manage the response and any associated risk to the business. All key strategic locations have secondary backup sites which would be made available within pre-defined timescales and are regularly tested.

Business strategy and change (gross risk exposure no change)

Risk

Mitigation

If the Board adopts the wrong business strategy or does not communicate or implement its strategies effectively, the business may be negatively impacted. Risks to delivering the strategy, change initiatives forming part of the strategy and other significant supporting change, such as the internal transformation of the Digital and Technology function, need to be properly understood and managed to deliver long-term growth for the benefit of all stakeholders alongside management of business as usual.

The strategic review was completed in November 2014 resulting in an update strategy focused on the following ·     We know our customers better than anyone else; ·     There for our customers; ·     Great products and services at fair prices; ·     Colleagues making the difference; and ·     Our values make us different. Progress against these areas of focus and any risks to delivery, such as the ability to implement and deliver change and new business initiatives, are regularly reviewed by the Board and the overall strategy is reviewed at the annual two-day Strategy Conference. The Operating Board also holds regular sessions to discuss strategy. This activity is supported by a dedicated strategy team. To ensure 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. In addition, management performs ongoing monitoring of business as usual performance to determine indicators of potential negative performance as a result of change initiatives.

Colleague engagement, retention and capability (gross risk exposure increased)

Risk

Mitigation

The Group employs over 150,000 colleagues who are critical to the success of our business. Attracting and maintaining good relations with talented colleagues and investing in their training and development is essential to the efficiency and sustainability of the Group's operations. Delivery of the strategic objectives, including development of new businesses and progress on multi-channel, increases the risk of ability to attract, motivate and retain talent, specific skill sets and capability. In addition, the challenging trading environment requires a focus on efficient operations which may include change initiatives impacting colleagues, therefore presenting a risk of loss of colleague trust or engagement.

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. In addition to strong leadership and nurturing of talent by line managers, processes are also in place to identify talent and actively manage succession planning throughout the business. Ongoing reviews are performed to understand the capability and specific skill sets required to deliver objectives. This is supported by embracing new ways of attracting talent and our corporate value 'Great Place 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 and My Sainsbury's are some of the methods the Group 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.

Data security (gross risk exposure increased)

Risk

Mitigation

It is essential that the security of customer, colleague and Company confidential data is maintained. A major breach of information security could have a major negative financial and reputational impact on the business. The risk landscape is increasingly challenging with deliberate acts of cyber-crime on the rise targeting all markets and heightening the risk exposure.

A 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. In July 2014, a Data Governance Programme Manager was appointed to oversee the activities of the working groups and ensure activities are co-ordinated and risk based. Various information security policies and standards are in place which focus on encryption, network security, access controls, system security, data protection and information handling. A review of key third parties who hold sensitive customer or colleague data continues to take place, and progress is monitored by the Information Security team. A risk based security testing approach across Sainsbury's IT infrastructure and applications is in place to identify and remediate ongoing vulnerabilities.

Environment and sustainability (gross risk exposure no change)

Risk	Mitigation
Environment and sustainability are core to Sainsbury's values. The key risk facing the Group in this area relates to reducing the environmental impact of the business with a focus on reducing packaging and new ways of reducing waste and energy usage across stores, depots and offices.	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' expectations in this area. Further details are included in the Corporate Responsibility review on pages 51 to 52

Financial and treasury risk (gross risk exposure increased) 

Risk

Mitigation

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. The business has now acquired full ownership of Sainsbury's Bank which presents a risk that the Group's financial performance and position may be negatively impacted if the Bank transition and performance is not delivered as planned. The transitional risk may have an adverse impact on people, processes, regulatory compliance and technical infrastructure and failure to manage the transition successfully may have an adverse impact on the Sainsbury's brand. In addition, there remains a risk around pensions as the Group operates a number of pension arrangements that are subject to risks in relation to liabilities as a result of changes in life expectancy and inflation and to risks regarding the value of investments and the returns derived from such investments.

The Group Treasury function is responsible for managing the Group's liquid resources, funding requirements, interest rate and currency exposures and the associated risks, as set out in note 28 on pages 117 to 123. The Group Treasury function has clear policies and operating procedures which are regularly reviewed and audited. Executive sponsorship and a change governance structure are in place to manage and oversee the Bank transition which includes the Bank Transition Committee. Regular updates of transition progress to plan are provided to the Bank Board and to the Sainsbury plc Board. In addition, Sainsbury's Bank operates an enterprise wide risk management framework and risk management processes include early identification of key transitional risks along with mitigation plans. Tracking of risk mitigation effectiveness will be ongoing throughout the transitional period. The principal treasury risks relating to the Bank and associated mitigations are set out in note 28 to the financial statements on pages 117 to 123. With regard to pensions, an investment strategy is in place which has been developed by the pension trustee, in consultation with the Company, to mitigate the volatility of liabilities, to diversify investment risk and to manage cash. In September 2013, the Sainsbury's Defined Benefit Pension Scheme was closed to future contributions which will help us to manage the escalating costs of pensions and protect the pensions that colleagues have already built up in the Scheme.

Health and safety - people and product (gross risk exposure no change)

Risk

Mitigation

Prevention of injury or loss of life for both colleagues and customers is of utmost importance. In addition, it is paramount to maintaining the confidence our customers have in our business.

Clear policies and procedures are in place detailing the controls required to manage health and safety and product safety risks across the business and comply with all applicable regulations. These cover the end-to-end operation, from the auditing and vetting of construction contractors, to the health and safety processes in place in our depots, stores and offices, to the controls in place to ensure people and product safety and integrity. In addition, established product testing programmes are also in place to support rigorous monitoring of product traceability and provide assurance over product safety and integrity. Supplier terms and conditions and product specifications set clear standards for product/ raw material safety and quality which suppliers are expected to comply with. Process compliance is supported by external accreditation and internal training programmes, which are aligned to both health and safety laws and Sainsbury's internal policies. In addition, resource is dedicated to manage the risk effectively, in the form of the Group Safety Committee and specialist safety teams.

Trading environment and competitive landscape (gross risk exposure increased)

Risk

Mitigation

Effective management of the trading account is key to the achievement of performance targets. The sector outlook has been and is set to remain challenging. The challenging trading environment, food price deflation and the price reduction and price matching activity across the sector may adversely impact performance.

We adopt a differentiated strategy with a continued focus on delivering quality products and services 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, active management of price positions, development of sales propositions and focused promotion and marketing activity. In November 2014 we announced our plan to continue to invest in the quality of products. We also announced additional investment in price which will be used to cut regular prices on some of the most popular items in customers' baskets. In delivering our strategic plan, including our price investment, we will maintain the strength of our balance sheet and have therefore identified a series of measures to conserve cash in the business and deliver sustainable operating cost savings.

Related party transactions

Group

In the prior year, the Group sold two properties with a fair value of £103 million to Manor Property Scottish Partnership, a Scottish partnership in which the Group has a 0.001 per cent interest and subsequently entered into a 25 year lease of these properties. The operations of the partnership are controlled by the J Sainsbury Pension Scheme and the Group has significant influence over the partnership by virtue of its contractual rights as General Partner to participate in the financial and operating policy decisions of the partnership. The partnership is therefore treated as an Investment in Associate in the Group's consolidated financial statements and accounted for using the equity method. The gain on the disposal of the properties recognised outside of underlying profit was £nil (2014: £10 million) and lease payments made to the partnership during the year were £6 million to Manor Property Scottish Partnership (2014: £3 million to Manor Property Scottish Partnership).

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:

	2015	2014
	£m	£m
Short-term employee benefits	10	11
Post-employment employee benefits	1	1
Share-based payments	9	10
	20	22

Nine key management personnel had credit card balances with Sainsbury's Bank (2014: nine). These arose in the normal course of business and were immaterial to the Group and the individuals. Three key management personnel held saving deposit accounts with Sainsbury's Bank (2014: nine). 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 14 March 2015, the Group entered into various transactions with joint ventures and associates as set out below.

	2015	2014
	£m	£m
Management services (received)/provided	(1)	16
Remeasurement of previously held equity interest in Sainsbury's Bank	-	15
Revenue share received from joint ventures	17	4
Interest income received in respect of interest bearing loans	-	1
Dividend and distributions received	70	1
Proceeds from repayment of loan to joint venture	17	4
Investment in joint ventures and associates	(12)	(13)
Increase in loans to joint ventures	-	(7)
Rental expenses paid	(65)	(72)
Purchase of assets	-	(24)

Year-end balances arising from transactions with joint ventures and associates

	2015	2014
	£m	£m
Receivables
Other receivables	37	21
Loans due from joint ventures	2	18
Payables
Loans due to joint ventures	(5)	(5)

c)  Retirement benefit obligations

As discussed in note 30, the Group has entered into an arrangement with the Pension Scheme Trustee as part of the funding plan for the actuarial deficit in the Scheme. Full details of this arrangement are set out in note 30 to these financial statements.

 

Company

a)   Subsidiaries

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

Transactions with subsidiaries

	2015	2014
	£m	£m
Acquisition of Sainsbury's Bank	-	(248)
Repayment of floating rate subordinated dated/undated loan capital from Sainsbury's Bank1	60	50
Investment in Sainsbury's Bank	(59)	(70)
Loans and advances given to, and dividend income received from subsidiaries
Loans and advances given	229	236
Loans and advances repaid by subsidiaries	(45)	(138)
Interest income received in respect of interest bearing loans and advances	201	183
Dividend income received	252	250
Loans and advances received from subsidiaries
Loans and advances received	(275)	(282)
Loans and advances repaid	21	218
Interest expense paid in respect of interest bearing loans and advances	(56)	(132)

1      The £60 million dated subordinated loan capital was repaid in December 2014 (2014: £50 million undated subordinated loan capital was repaid in February 2014 following agreement in writing from the Prudential Regulation Authority).

Year-end balances arising from transactions with subsidiaries

	2015	2014
	£m	£m
Receivables
Loans and advances due from subsidiaries	2,758	2,591
Floating rate subordinated dated loan capital	-	60
Payables
Loans and advances due to subsidiaries	(5,201)	(5,290)

b) Joint ventures and associates

Transactions with joint ventures and associates

For the 52 weeks to 14 March 2015, the Company entered into transactions with joint ventures and associates as set out below. 

	2015		2014
	£m		£m
Investment in joint ventures	(12)		-
Interest income received in respect of interest bearing loans	-		1

Year-end balances arising from transactions with joint ventures and associates

	2015	2014
	£m	£m
Receivables
Loans due from joint ventures	-	-
Payables
Loans due to joint ventures	(5)	(5)
		-

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. Under that law the Directors have prepared the Group and Company financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:

·     select suitable accounting policies and then apply them consistently;

·     make judgements and accounting estimates that are reasonable and prudent;

·     state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; 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 on pages 1 to 39, 50, 52 and 75 of this Annual Report provide the information necessary for shareholders to assess the Company'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 page 41, 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 loss of the Group; and

·      the Strategic Report and Directors' Report contained in the Annual Report and financial statements 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.

 

END

 

 

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