Sainsbury(J) PLC Annual Report and Notice of AGM 2017 (0282H)

TIDMSBRY

RNS Number : 0282H

Sainsbury(J) PLC

02 June 2017

2 June 2017

LEI: 213800VGZAAJIKJ9Y484

J Sainsbury plc (the "Company")

Annual Report and Financial Statements 2017

The following documents have today been posted or otherwise made available to shareholders:

   --     Annual Report and Financial Statements 2017 
   --     Notice of Annual General Meeting 
   --     Form of Proxy 

In accordance with Listing Rule 9.6.1R, a copy of each of these documents will be uploaded to the National Storage Mechanism and will be available for viewing shortly at www.morningstar.co.uk/uk/NSM

The above documents may be viewed online at www.about.sainsburys.co.uk/investors/annual-report-2017 and www.about.sainsburys.co.uk/investors/shareholder-information/agm 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 3 May 2017. That information together with the information set out below which is extracted from the Annual Report and Financial Statements 2017 (the "Annual Report 2017") constitute the material required by Disclosure Guidance 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 2017. Page and note references in the text below refer to page numbers in the Annual Report 2017. To view the preliminary announcement, slides of the results presentation, the transcript of the presentation and the webcast please visit www.about.sainsburys.co.uk/investors/results-reports-and-presentations.

Enquiries

 
 Investor Relations   Media 
 James Collins        Louise Evans / 
                       Rebecca Reilly 
 [phone]      [phone] 
  0080                 7295 
 

Our Principal Risks and Uncertainties

The risk management process is 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. As outlined on page 11, the current business strategy and objectives are categorised into the following areas:

   --     Colleagues making the difference; 
   --     Great products and services at fair prices; and 
   --     There for our customers. 

The Sainsbury's Operating Board formally reviews the corporate risk map twice a year, which captures the principal risks to achieving Sainsbury's business objectives. 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 the residual risk after mitigations. The risk appetite for each key risk is also discussed and assessed with a target risk position agreed to reflect the level of risk that the business is willing to accept. The Sainsbury's Operating Board reviews risk dashboards during the year, comprised of key risk indicators, to ensure they identify any potential risk movement towards or away from their risk appetite. This enables the Operating Board to agree and monitor appropriate actions as required.

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 45), this has been indicated with the following symbol *

Key risk movements

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. A new principal risk was disclosed in 2016 regarding the political and regulatory environment. Following the UK's decision to leave the European Union (EU) in June 2016, Sainsbury's believe that this risk has increased due to the ongoing uncertainty which may adversely impact trading performance across the sector.

All principal risks were reviewed following the acquisition of Home Retail Group to ensure that they reflect the risk across the Sainsbury's Group, including the acquired Argos business. It is considered that all of the risks are incorporated within the principal risks and uncertainties disclosed below, with no material change required. It was considered however that Sainsbury's Group's risk exposure to political and regulatory risks and business continuity incidents may be greater due to the increased size and complexity of the business.

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 increased)

 
 Risk                         Mitigation 
---------------------------  ------------------------------------- 
 A major incident or          The Group has detailed plans 
  catastrophic event           in place, supported by senior 
  could impact on the          representatives who are trained 
  Group's ability to           in dealing with major incidents 
  trade. Following the         and have the authority levels 
  acquisition of Home          to make decisions in the event 
  Retail Group, Sainsbury's    of a potentially disruptive 
  exposure to business         incident. 
  continuity and major 
  incident risks may           The business continuity strategy, 
  be greater due to            including incident management, 
  the increased size           resilience exercises and testing, 
  and complexity of            has been aligned across the 
  the business.                Group. The Business Continuity 
                               Steering Group, which includes 
                               representatives from Sainsbury's 
                               Bank, Argos and Habitat, 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. 
 
                               Group wide business continuity 
                               resilience exercises are undertaken 
                               to imitate real life business 
                               continuity scenarios and test 
                               the Group's ability to respond 
                               effectively. 
 
                               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 business strategy is 
  the wrong business                 focused on the following: 
  strategy or does 
  not communicate or                  *    We know our customers better than anyone else; 
  implement its strategies 
  effectively, the 
  business may be negatively          *    We will be there wherever and whenever they need us; 
  impacted. Risks to 
  delivering the strategy, 
  change initiatives                  *    We will offer great products and services at fair 
  forming part of the                      prices; 
  strategy and other 
  significant supporting 
  change such as the                  *    Our colleagues make the difference; and 
  integration with 
  Argos need to be 
  properly understood                 *    Our values make us different. 
  and managed to deliver 
  long-term growth 
  for the benefit of 
  all stakeholders                   The progress against strategic 
  alongside management               programmes and any risks 
  of business as usual.              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 no change)

 
 Risk                             Mitigation 
-------------------------------  ------------------------------------ 
 The Group employs                The Group's employment policies 
  195,000 colleagues               and remuneration and benefits 
  who are critical to              packages are regularly reviewed 
  the success of our               and are designed to be competitive 
  business. Attracting             with other companies, as well 
  and maintaining good             as providing colleagues with 
  relations with talented          fulfilling career opportunities. 
  colleagues and investing         In addition to strong leadership 
  in their training                and nurturing of talent by 
  and development are              line managers, processes are 
  essential to the efficiency      also in place to identify 
  and sustainability               talent and actively manage 
  of the Group's operations.       succession planning throughout 
  Delivery of the strategic        the business. Ongoing reviews 
  objectives, including            are performed to understand 
  integration with Argos           the nature of capability and 
  and progress on multi-channel    specific skill sets required 
  and digital, increases           to deliver objectives. This 
  the risk impact of               is supported by embracing 
  an inability to attract,         new ways of attracting talent 
  motivate and retain              and our corporate value 'Great 
  talent, specific skill           Place to Work' reinforces 
  sets and capability.             our commitment to giving people 
  In addition, the challenging     the opportunity to be the 
  trading environment              best they can be. 
  requires a focus on 
  efficient operations             Colleague surveys, performance 
  which may include                reviews, listening groups, 
  change initiatives               communications with trade 
  impacting colleagues,            unions, regular communication 
  therefore presenting             of business activities and 
  a risk of loss of                colleague networking forums 
  colleague trust or               such as Yammer, the updated 
  engagement.                      colleague portal (Our Sainsbury's) 
                                   and colleague learning portal 
                                   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 no change) *

 
  Risk                          Mitigation 
-----------------------------  ----------------------------------- 
 It is essential that           A Data Governance Committee 
  the security of customer,      is established and is supported 
  colleague and company          by focused working groups 
  confidential data              looking at the management 
  is maintained. A               of colleague data, customer 
  major breach of information    data, information security, 
  security could have            commercial data and awareness 
  a major negative               and training. Senior appointments 
  financial and reputational     have been made into roles 
  impact on the business.        specifically focused on data 
  The risk landscape             governance and information 
  is increasingly challenging    security. The Chief Information 
  with deliberate acts           Security Officer continues 
  of cybercrime                  to develop the Information 
  on the rise, targeting         Security Strategy and build 
  all markets and heightening    the necessary capability 
  the risk exposure.             to deliver against that strategy. 
                                 The Head of Data Governance 
                                 focuses 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. A review of key 
                                 third parties who hold sensitive 
                                 customer or colleague data 
                                 continues to take place, 
                                 and progress is monitored 
                                 by the Data Governance Committee. 
                                 A risk based security testing 
                                 approach across Group IT 
                                 infrastructure and applications 
                                 is in place to identify ongoing 
                                 vulnerabilities. 
-----------------------------  ----------------------------------- 
 

Environment and sustainability (gross risk exposure no change)

 
  Risk                            Mitigation 
-------------------------------  ------------------------------------------------ 
 Environment and sustainability   A number of initiatives are in place, which 
  are core to Sainsbury's          are being led by the Environmental Action 
  values. The key risk             Team and the Corporate Responsibility Steering 
  facing the Group                 Group, to reduce our environmental impact 
  in this area relates             and to meet our customers' expectations 
  to reducing the environmental    in this area. 
  impact of the business 
  with a focus on reducing         Further details are included in the Our 
  packaging and new                values make us different section on pages 
  ways of reducing                 24 to 39. 
  waste and energy 
  usage across stores, 
  depots and offices. 
-------------------------------  ------------------------------------------------ 
 

Financial and treasury risk (gross risk exposure no change) *

 
  Risk                         Mitigation 
----------------------------  ------------------------------------------------ 
 The main financial            The Group Treasury function is responsible 
  risks are the availability    for managing the Group's liquid resources, 
  of short and long-term        funding requirements, interest rate and 
  funding to meet business      currency exposures and the associated risks 
  needs and fluctuations        as set out in note 23 on page 139. The Group 
  in interest, commodity        Treasury function has clear policies and 
  and foreign currency          operating procedures which are regularly 
  rates. The business           reviewed and audited. 
  has acquired full 
  ownership of Sainsbury's      Sainsbury's Bank operates an enterprise 
  Bank which presents           wide risk management framework. The principal 
  a risk that the Group's       financial risks relating to the Bank and 
  financial performance         associated mitigations are set out in note 
  and position may              23 to the financial statements on page 139. 
  be negatively impacted 
  if the Bank transition        With regard to pensions, investment strategies 
  and performance are           are in place which have been developed by 
  not delivered as              the pension trustees, in consultation with 
  planned. In addition,         the Company, to manage the volatility risk 
  there remains a risk          of liabilities, to diversify investment 
  around pensions as            risk and to manage cash. Both Group defined 
  the Group operates            benefit schemes are closed to future accrual. 
  two defined benefit 
  pension arrangements 
  that are subject 
  to risks in relation 
  to liabilities as 
  a result of changes 
  in interest rates, 
  life expectancy and 
  inflation and their 
  alignment to the 
  value of investments 
  and the returns derived 
  from such investments. 
----------------------------  ------------------------------------------------ 
 

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

 
 Risk                          Mitigation 
----------------------------  ------------------------------------- 
 Prevention of injury          Clear policies and procedures 
  or loss of life for           are in place detailing the 
  both colleagues and           controls required to manage 
  customers is of utmost        health and safety and product 
  importance. In addition,      safety risks across the business 
  it is paramount to            and comply with all applicable 
  maintaining the confidence    regulations. These cover the 
  our customers have            end-to-end operation, from 
  in our business.              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. 
----------------------------  ------------------------------------- 
 

Political and regulatory environment (gross risk exposure increased) *

 
 Risk                          Mitigation 
----------------------------  ----------------------------------- 
 There remain heightened       We continue to engage actively 
  levels of political           with governments, administrations 
  and regulatory uncertainty    and regulatory bodies. 
  in the UK following           We publically communicate 
  the referendum vote           matters where we believe 
  to leave the EU in            industry change is required 
  June 2016, the triggering     with a view to enabling 
  of Article 50 in March        fair competition that is 
  2017, and the general         beneficial to our customers. 
  election in June 2017.        We communicate 
  This uncertainty is           our views, and those of 
  expected to continue          our customers and colleagues, 
  for the foreseeable           regarding geopolitical 
  future until EU exit          issues with the aim of 
  negotiations have been        informing the debate and 
  completed and alternative     ensuring our opinions are 
  trade deals have been         represented in the policy 
  put in place. This            and decision making processes. 
  situation may adversely 
  impact trading performance 
  across the sector. 
  An increasing focus 
  on localism to drive 
  and deliver policy 
  and current legislative 
  requirements including 
  Business Rates, Workplace 
  Pensions, 
  the National Living 
  Wage and Apprenticeship 
  Levy place a cumulative 
  burden on Sainsbury's. 
----------------------------  ----------------------------------- 
 

Trading environment and competitive landscape (gross risk exposure no change) *

 
 Risk                             Mitigation 
-------------------------------  ---------------------------------- 
 Effective management             We adopt a differentiated 
  of the trading account           strategy with a continued 
  is key to the achievement        focus on delivering quality 
  of performance targets.          products and services with 
  The sector outlook               'universal appeal', at 
  has been and is set              fair prices, helping our 
  to remain challenging.           customers Live Well for 
  The challenging trading          Less. This is achieved 
  environment, driven              through the continuous 
  by ongoing competitive           review of our product quality, 
  retail pricing combined          key customer metrics, monitoring 
  with growing inflationary        of current market trends 
  cost pressures, may              and price points across 
  adversely impact performance.    competitors, active management 
  There is also an ongoing         of price positions, development 
  risk of supplier failure,        of sales propositions and 
  with possible operational        increased promotion and 
  or financial consequences        marketing activity. We 
  for the Group.                   continue with our commitment 
                                   to provide 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 therefore identified 
                                   a series of measures to 
                                   conserve cash in the business. 
                                   Through these measures 
                                   we will deliver sustainable 
                                   operating cost savings. 
                                   With regards to supplier 
                                   continuity, Sainsbury's 
                                   maintains regular, open 
                                   dialogue with key suppliers 
                                   concerning their ability 
                                   to trade. 
-------------------------------  ---------------------------------- 
 

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:

 
                                    2017  2016 
                                    GBPm  GBPm 
----------------------------------  ----  ---- 
Short-term employee benefits          10     7 
Post-employment employee benefits      1     1 
Share-based payments                   6     4 
----------------------------------  ----  ---- 
                                      17    12 
----------------------------------  ----  ---- 
 

Nine key management personnel had credit card balances with Sainsbury's Bank (2016: ten). These arose in the normal course of business and were immaterial to the Group and the individuals. Five key management personnel held saving deposit accounts with Sainsbury's Bank (2016: five). 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 11 March 2017, the Group entered into various transactions with joint ventures and associates as set out below.

 
                                                   2017  2016 
                                                   GBPm  GBPm 
-------------------------------------------------  ----  ---- 
Management services received                          -   (1) 
Management services provided                          8     4 
        Income share received from joint ventures    29    33 
              Dividend and distributions received    65    46 
Proceeds from repayment of loan to joint venture      2     - 
Investment in joint ventures and associates        (18)  (18) 
Rental expenses paid                               (57)  (65) 
 
 

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

 
                                2017  2016 
                                GBPm  GBPm 
------------------------------  ----  ---- 
Receivables 
Other receivables                 12    28 
Loans due from joint ventures      3     3 
 
Payables 
Other payables                     -   (1) 
Loans due to joint ventures      (5)   (5) 
 
 

Loans with joint ventures are non-interest bearing and repayable on demand.

c) Retirement benefit obligations

As discussed in note 29, 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 29 to these financial statements.

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 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 54 to 55, 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 principal risks and uncertainties that it faces.

By order of the Board

Tim Fallowfield

Company Secretary and Corporate Services Director

2 May 2017

This information is provided by RNS

The company news service from the London Stock Exchange

END

ACSOKBDDBBKDQAK

(END) Dow Jones Newswires

June 02, 2017 08:25 ET (12:25 GMT)