J Sainsbury PLC

160 Pages·2016·6.53 MB·English

Annual Report
and Financial
Statements 2016
Our values
make us
different
There for
our customers
Colleagues
making the difference
Great
products
and services
J Sainsbury plc
Annual Report
at fair prices
and Financial
Statements
2015
We know
our customers
better than
anyone else
Our vision
To be the most trusted retailer
where people love to work and shop.

Our goal
To make all our customers’ lives easier
every day by offering great quality and
service at fair prices.

How we do it
Our strategy is designed to address
a changing marketplace and the
continuing shifts in customer
shopping patterns.
It is based on five key pillars:
— We know our customers better than
anyone else
— G reat products and services at fair prices
— T here for our customers
— Colleagues making the difference
— Our values make us different

Read more in our Strategic Report.
Strategic Report
Contents Financial
highlights
Strategic Report
1 Financial highlights
2 Business model
4 Chairman’s letter
6 Chief Executive’s letter
9 Our Business Strategy
10 Financial KPIs
12 Market context
14 W e know our customers better than
anyone else
£587m
16 Great products and services at fair prices
16.5%
20 There for our customers
24 Colleagues making the difference
26 Our values make us different Market share Underlying profit
30 KPIs: Our values make us different maintained before tax
36 Our principal risks and uncertainties
Down 13.8%
40 Financial Review
Governance Report
48 Board of Directors £548m
50 Operating Board
52 Corporate Governance
56 Nomination Committee +0.4%
58 C orporate Responsibility and Statutory profit
Sustainability Committee before tax
61 Audit Committee
66 Directors’ Remuneration Report
Total retail sales
80 Other disclosures
82 Statement of Directors’ responsibilities (including VAT, excluding fuel)
Financial Statements
-0.9%
83 I ndependent auditors’ report to the
members of J Sainsbury plc
88 Group income statement
Like-for-like
89 G roup statement of 23.9p
retail sales
comprehensive income (including VAT, excluding fuel)
90 Balance sheets 12.1p
91 Cash flow statements Basic earnings
92 G roup statement of changes in equity per share
94 C ompany statement of changes in equity Full-year dividend
95 Notes to the financial statements per share
151 Five year financial record Down 8.3%
152 Additional shareholder information
155 Glossary
8.8%
24.2p
Return on capital
employed
Down 88 bps Underlying basic
earnings per share
Down 8.3%
Find out more at
j-sainsbury.co.uk/ar16
1
Strategic Report
Business model
How we are organised
to grow value for our
shareholders
Colleagues 27,805
making the colleagues
with over
difference
15 years’
service
Suppliers Logistics Great products
and sourcing and services
at fair prices
Around 2,000 Over 15,000
food suppliers 23 depots own-brand
and 1,000 products
non-food
suppliers
There for our
1.2 million
store customers
deliveries
this year
773
Convenience
stores
5
International
sourcing
offices
Our values make 1 2 3
us different
Living Sourcing with Respect for our
healthier integrity environment
lives
2 3
Strategic Report
Name Badge
27,805 We know our
colleagues
customers
with over
15 years’ better than
8 162,715
service training colleges colleagues anyone else
for our colleagues
207
Travel Money
1,646 bureaux
ATMs
439 stores 25.5 million
sell clothing transactions
and general per week
merchandise
Around 4,000
people contacted
601 online each
Supermarkets week through
‘Trolley Talk’
Over 247,000
online orders
on average
per week Nectar
4 5 Over 15 million
Nectar card
Making a positive A great place customers
difference to our to work
community
2 3
SSttrraatteeggiicc RReeppoorrtt
Delivery
against
Strategy
OUR VISION
We know our customers better than
anyone else. We will be there whenever
and wherever they need us, offering
great products and services at fair prices.
Our colleagues make the difference, our
Our strategy is built
values make us different.
on the fundamental
strengths of our
business of great
heritage, quality food
at fair prices and Maintained
strong values market share at
DAVID TYLER 16.5%
SAINSBURY’S CHAIRMAN
12.1p
£681m
Proposed full-year
dividend, down 8.3% Adapting
Underlying
profit before tax
to a changing
marketplace
4
Strategic Report
Chairman’s
Letter
Your Board remains focused on building shareholder
value and we are confident that by following our
strategy, driving efficiencies and managing costs
carefully, we will achieve this.
Our strategy is built on the fundamental Accelerating our strategy also apply to around 40,000 colleagues under
strengths of our business: our great the age of 25. In addition, nearly 126,000
The most significant event this year has been
heritage, quality food at fair prices and colleagues and management will share a
your Board’s proposal to acquire Home Retail
strong values. It recognises that customers bonus of around £100 million in recognition
Group plc, owners of the Argos retail chain.
will increasingly shop through multiple of their hard work during the year.
The combination of Argos with Sainsbury’s
channels and according to their varying
will create a leading food and non-food At our AGM on 6 July 2016, John McAdam,
needs. Our business will continue to adapt
retailer. It provides us with an opportunity to Senior Independent Director, will step down
to changing shopping needs, ensuring that
accelerate our strategy, delivering compelling after ten years as a Non-Executive Director.
we exceed customer expectations in a fast-
revenue and cost synergies. We will create a I would like to thank John for his very valuable
paced, digital world.
multi-product, multi-channel proposition contribution to Sainsbury’s, in particular for
The UK retail sector is evolving rapidly in line with fast delivery networks which will be very his counsel in his role as Senior Independent
with changing consumer behaviour. People attractive to customers. We are pleased that Director. Susan Rice, who has been a valued
are shopping more often and are buying the Board of Home Retail Group plc has member of the Board since 2013, will succeed
fewer items on a typical trip. Furthermore, recommended our offer to its shareholders, John as Senior Independent Director.
customers are seeking greater choice, speed and our focus is now to obtain the necessary
Brian Cassin, CEO of global information services
and convenience, as well as high levels regulatory clearances and prepare for the
company Experian plc, joined the Board as a
of service, however they choose to shop. future integration of our two businesses.
Non-Executive Director on 1 April 2016 and
The grocery market continues to experience
Dividend will be a member of the Audit Committee
price competition and food price deflation,
and the Nomination Committee. Brian brings
and the growth of discount retailers and Your Board remains focused on building
to us his experience of running a FTSE 40
new online entrants to the market have shareholder value and we are confident that
company and of big data and analytics –
changed the competitive landscape. by following our strategy, driving efficiencies
topics of key importance to Sainsbury’s.
In these conditions, it is clear that grocery and managing costs carefully, we will achieve
retailers must adapt to stay ahead. this. We are committed to paying an affordable Outlook
dividend to our shareholders and have fixed
Like-for-like sales have declined this year as The UK grocery market will remain
dividend cover at 2.0 times. We are therefore
a result of pricing pressures and food price competitive. The growth of the discount
recommending a final dividend of 8.1 pence
deflation. Underlying profit before tax was retailers, food price deflation, ongoing
per share this year, making the proposed
down nearly 14 per cent to £587 million, price competition and the continuing
full-year dividend 12.1 pence per share.
underlying basic earnings per share was pressure on consumer expenditure look
down just over eight per cent to 24.2 pence Management and colleagues set to continue throughout 2016. However,
and return on capital employed declined 88 we have a business that is well-placed to
Mike Coupe leads a highly talented and
basis points year-on-year to 8.8 per cent. navigate this tough trading climate and we
experienced management team and we have
However, the strategy we outlined 18 months have significant opportunities to grow our
over 162,000 colleagues. The commitment,
ago is working and we are currently the business and accelerate our strategy.
skills and customer service standards our
best-performing of our main supermarket
colleagues deliver make the difference.
peers, growing volumes and maintaining
market share. In August, we announced a four per cent
pay increase for 137,000 colleagues who
work in our stores across the country. Our David Tyler
new standard hourly rate is well above the Chairman
Government’s National Living Wage and will
5
Strategic Report
Our values
underpin all
that we do
We have won a
significant number
of customer service
awards this year,
testament to the
fact that our
colleagues really
do make a
difference
MIKE COUPE
SAINSBURY’S CEO
Our vision
To be the most
trusted retailer
where people
love to work
and shop
£587m
Underlying
profit before tax
Down 13.8%
Volume
and transaction
growth
6
Strategic Report
Chief
Executive’s
Letter
We have made good progress this year,
demonstrating that the strategy we outlined to you
18 months ago is delivering results. We outperformed
our main supermarket peers and maintained our
market share in a competitive environment.
Our vision is to be the most trusted retailer Strategic progress This year we have simplified many of our
where people love to work and shop and it is ranges, to focus on selling the products we
Our vision and the five pillars of our
our goal to make our customers’ lives easier. know are loved most by customers. We will
strategy are designed to address a changing
We have made good progress this year, continue to make targeted investment to
marketplace and the continuing shifts in the
demonstrating that the strategy we outlined remain competitive on price. The quality and
way people shop. They are embedded across
to you 18 months ago is delivering results. variety of the products we offer is a point
the business and delivering tangible results.
We outperformed our main supermarket of difference for us and we will continue to
peers and maintained our market share in a make sure customers have choice across all
We know our customers better
competitive environment. price tiers. Our clothing, general merchandise
than anyone else
and financial services businesses are now
Our continued focus on making Sainsbury’s a Customers are at the heart of our business firmly established and performing well,
place where customers love to shop is making and our success and future growth is based and have significant opportunities for
a difference. Investment in lower regular on being able to anticipate and then deliver further growth.
prices and a commitment to delivering great to their needs. Customer insight informs the
quality products and services are driving decisions we make; for example, customers There for our customers
an increase in customer transactions at told us they wanted pricing to be simpler
We are making our customers’ lives easier
Sainsbury’s, with people buying more of our and clearer, so we have replaced many of our
by offering them choice and convenience.
products this year. Our core food offering has promotions, multi-buys and Brand Match
Our multi-channel strategy means that
performed well and non-food is showing real with lower regular prices on the products
customers can shop with us whenever and
strength, with clothing, general merchandise that really matter to them. This has been
wherever they want. For example, people
and financial services delivering significant well received and has helped drive significant
often choose to go to our convenience
growth over the past 12 months. In addition, increases in the number of transactions
stores to top up on a few items and then
the investment we have made in our through our tills and the volume of products
order their bulk shopping online for later
shopping channels means that people have we sell.
delivery. Groceries Online continues to be
even more choice now about where and
a growing channel, with sales this year up
when they choose to shop with us. Great products and services at
nearly nine per cent and orders up nearly 15
fair prices per cent. Click & Collect is also popular with
We have a robust balance sheet and we
Our commitment to deliver great quality customers, and we will expand the service
continue to manage carefully our costs and
products and services at fair prices for to double our 101 current locations next
capital expenditure. After making operating
our customers across food, non-food and year. Convenience now generates sales of
cost savings of £225 million this year, we are
financial services is a business priority. We over £2.3 billion. We opened 69 convenience
on track to deliver £500 million over three
are continuing at pace with our programme stores during the year and delivered over
years by the end of 2017/18. Ongoing pricing
to improve the quality of 3,000 of our most nine per cent convenience sales growth.
pressures and food price deflation continue to
popular own-brand food lines and we are
impact our sales and our operating margins.
a market leader in delivering nutritious,
As a result, underlying profit and earnings per
healthy food for our customers.
share are down this year versus last year.
7
Strategic Report
Colleagues making the difference
Service & Availability leader
We want Sainsbury’s to be a place where Grocer 33 Service & Availability wins
colleagues love to work. We have always put
Sainsbury’s 19
our colleagues at the centre of our business and
we have built a culture of inspiring leadership Morrisons 8
The staff at Sainsbury’s
and committed colleagues. I am proud of
Waitrose 6
the strong loyalty within our workforce, with are great, our local store
Tesco 5
nearly 28,000 colleagues having worked at has brilliant colleagues,
Sainsbury’s for 15 years or more. Asda 4 you can always rely on
Aldi 1 them for help
We have won a significant number of awards
this year, including the industry-leading
Source: The Grocer 33 Service & SAINSBURY’S CUSTOMER
Grocer Gold Customer Service and Availability wins year-to-date 2015/16
EAST MIDLANDS
Availability Awards for the third year
running. We were named Grocer 33 Store
of the Week 19 times in the year, the Our values make us different
highest of any grocer. Our values are our guiding principles, from
where we source our products and how we
In August, we announced a four per cent work in our local communities to reducing
pay increase for 137,000 colleagues who our carbon footprint across our estate. This
work in our stores across the country. Our year we have evolved our Sustainability
new standard hourly rate is well above the Plan to focus on the most material issues.
Government’s National Living Wage and For example, waste, and in particular food
will also apply to around 40,000 colleagues waste, is one of the most important issues
under the age of 25. facing us all today. We are committed to
Outlook
helping our customers with this issue and
to making a radical difference across UK The market is competitive and it will remain
households. This year we launched our so for the foreseeable future. We believe
ambitious Waste less, Save more initiative, we are following the right strategy and are
to invest £10 million over the next five years taking the right decisions to achieve our
to help households reduce their food waste. vision to be the most trusted retailer where
people love to work and shop. Customers
Accelerating our strategy enjoy shopping at Sainsbury’s for our great
quality products, service and our fair prices.
As shopping patterns continue to change,
Our general merchandise and clothing
and consumers increasingly expect more
businesses offer growth opportunities and
from retailers, we are committed to building
Sainsbury’s Bank offers innovative, good
on our strengths and have an opportunity to
value products and services from a brand
Groceries accelerate our strategy.
they trust.
Our proposal to acquire Home Retail Group
Online plc, owners of the Argos retail chain, will
enable us to accelerate our strategy.
The acquisition presents an opportunity
is growing and to bring together two of the UK’s leading
sales increased retail businesses, with complementary
Mike Coupe
product offers, focused on delivering quality
nearly 9% CEO
products and services at fair prices. It also
allows us to create a multi-product, multi-
channel proposition with fast delivery
networks and will additionally deliver
compelling revenue and cost synergies.
We believe that the combination of Home
Retail Group and Sainsbury’s is a powerful
one that will create long-term value for the
shareholders of both companies.
8 9