J Sainsbury : Annual Report and Financial Statements 2023

Annual Report and

Financial Statements 2023

Helping everyone eat better

John James and Mary Ann Sainsbury set up Sainsbury's in 1869 with a desire to bring good food at affordable prices to everyone, and this is as important today as it was all those years ago.

So driven by our passion for food,

we will serve and help every customer, giving them delicious, great quality food at great prices all year round.

Our focus on great value food and convenient shopping, whether in-store or online is supported by our brands - Argos, Habitat, Tu, Nectar and Sainsbury's Bank.

Sainsbury's has around 600 supermarkets and over 800 convenience stores. Argos is a leading digital retailer and last year was the third most visited retail website in the UK, with over 70 per cent of its sales starting online. Argos products are conveniently available for customers to collect from hundreds of Sainsbury's stores. Our digital and technology capabilities enable us to adapt as customers shop differently and our profitable, fast-growing online channels offer quick and convenient delivery and collection.

Our colleagues are at the heart of serving and helping our customers every day and are vital to our success, now and in the future.

Strategic Report

J Sainsbury plc Annual Report 2023

01

Strategic Report

01	Contents and Performance highlights
02	Chair's letter
04	Chief Executive's letter
07	Business model
09	Our strategy
10	Our priorities
13	Plan for Better
18	Task Force on Climate-related Financial
	Disclosures (TCFD)
29	Engaging with our stakeholders and

Performance highlights

5.2%	£690m
Retail sales growth (inc. fuel) versus	Underlying profit before tax, down 5%
the 2021/22 financial year. Excluding	versus the 2021/22 financial year and
fuel sales increased 2.0%	up 18% versus the 2019/20 financial year

Strategic Report

	our Section 172 statement
36	New KPIs
37	Legacy KPIs
38	Financial Review
44 Principal Risks and Uncertainties
60	Non-financial information statement

Governance Report

£327m

Statutory profit before tax versus £854 million in the 2021/22 financial year and versus £278 million in the 2019/20 financial year

£926m

Retail operating profit, down 7% versus the 2021/22 financial year and down 1% versus the 2019/20 financial year

Governance

62	Board of Directors
66	Operating Board
69	Board leadership and Company
	purpose
75	Composition, succession and
	evaluation
78	Division of responsibilities
79	Nomination and Governance
	Committee Report
82	Corporate Responsibility and

23.0p

Underlying basic earnings per share, up 16% versus 19.8p in the 2019/20 financial year, but down 9% versus 25.4p in 2021/22. Basic earnings per share 9.0p

7.6%

Return on capital employed, down 80bps versus the 2021/22 financial year and up 20bps versus the 2019/20 financial year

Report

	Sustainability Committee Report
84	Audit Committee Report
90	Annual Statement from the
	Remuneration Committee Chair
96	Annual Report on Remuneration
108	Remuneration Policy
114	Additional statutory information

Financial Statements

1. Statement of Directors' responsibilities
2. Independent auditor's report to the members of J Sainsbury plc

1. Consolidated financial statements

1. Notes to the consolidated financial statements

1. Income statement notes

1. Financial position notes

1. Cash flows notes

1. Employee remuneration notes

1. Additional disclosures

1. Company financial statements

1. Notes to the Company financial statements

1. Additional shareholder information

1. Alternative performance measures

1. Glossary

£34.5m

Raised for good causes

51.4%

Reduction in absolute greenhouse gas emissions within our own operations, from our 2018/19 baseline

10m+

Meals donated through Neighbourly

Read more about our KPIs on page 36.

£560m

Invested over two years in value

£225m

Investment decisions in colleague pay and benefits over the past year

Financial Statements

Find out more at

www.about.sainsburys.co.uk/ar2023

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Strategic Report

J Sainsbury plc Annual Report 2023

Chair's letter

Chair Martin Scicluna reviews the business activity in the year.

A year of progress

Two years into our plan to put food back at the heart of Sainsbury's, I remain hugely impressed by the passion of our colleagues and the quality of our team under Simon's leadership as we deliver on our priorities and make bold decisions to develop and grow the business.

Just as we began to experience a more normal operating environment in the aftermath of COVID-19, we encountered the most challenging economic conditions seen for a very long time. The ongoing war in Ukraine is disrupting global supply chains and impacting the prices of essential commodities such as food and fuel, leading to rapid inflation. The cost of living crisis continues to have a huge impact and rising interest rates mean it is a really tough economic environment for customers, colleagues and suppliers alike.

In November 2020 our Chief Executive Simon Roberts and the Operating Board set out an ambitious three-year plan to put food back at the heart of our business. They have done an excellent job at continuing to deliver against the key metrics we set out over two years ago. Grocery is a fiercely competitive market and it takes time to build a value proposition - actions we took when we launched our plan are why we are able to deliver genuine value for our customers now, when it really matters. As a result of our bold and deliberate price investments, we have grown our volume market share and customers are benefitting from our much improved position on price.

Throughout these challenging times, our colleagues have continued to deliver for our customers and I would like to thank them all for their exceptional service and commitment. They are at the core of everything we do at Sainsbury's and their dedication is critical to the long-term success of our business.

We are committed to doing all we can to support them, particularly in the current environment. This is why we have made pay and benefit investment decisions totalling £225 million over the last year. We led the industry on colleague pay and were the first major supermarket to pay colleagues above the Living Wage nationally and at the Living Wage in London. As a result of the scale of our overall investment, pay for frontline retail colleagues has increased 44 per cent over seven years. Simon and our leadership team are especially passionate about this topic and it has been a big focus for the business this year.

The industry is facing unprecedented pressures and we are working closely with all our suppliers so that we can better understand the challenges they are facing. I firmly believe that prioritising financial support to our farmers is the right thing to do to ensure that they have the confidence and resources to be able to invest in supplying our customers, both now and in the future. Over the last 12 months we have done a huge amount to support our suppliers with rising costs and also to help secure supply, heavily investing in the British suppliers who produce our beef, poultry, pork and dairy to make sure our customers can still find great products on our shelves.

In such extraordinary times, it is only right that we balance the needs of all our stakeholders and we are extremely mindful of the importance of shareholders as well as customers, colleagues and suppliers. Our strong balance sheet enables us to reinvest in the business, positioning Sainsbury's for long-term resilience and continuing to deliver value for shareholders.

As we look ahead to the coming year, we are hoping for a period of greater stability. In February, we welcomed the positive news on The Windsor Framework, which hopefully will help to simplify processes and reduce friction when we move products between Great Britain and Northern Ireland. We are working hard to ensure that as a result of the Framework, the customers in our 12 Northern Ireland stores are able to access the full range of products, at the same great prices, as customers in Great Britain.

However, all retailers, both big and small, are facing soaring costs and supply chain pressures and we have consistently said that we need an urgent and fundamental reform of business rates. While the freeze to the business rates multiplier for this year and the reform of Transitional Relief are steps in the right direction, we firmly believe that much more still needs to be done. Business Rates reform would not only prevent store closures and protect much-needed jobs, but for Sainsbury's and many other food retailers, a reduction in rates would also enable greater investment into keeping food prices low for customers at this critical time.

Strategic update

Today, we are two years into our three-year plan to transform Sainsbury's and put food back at the heart of the business and Simon and his team are making impressive progress. They are delivering on our priorities and continue to make bold decisions to speed up the pace of change and development across the business. They have simplified operations and ensured our cost savings programme remains on track, so that we can invest at scale where it matters most; our people, driving service for customers and supporting our suppliers.

We are building brands that deliver and support investments in our wider customer offer. Argos, Habitat, Tu, Nectar and Sainsbury's Bank are all contributing positively in their own right, supporting our ambition in food. Our brands have always had a great reputation for value and as our customers continue to watch their spending, we're focused on making sure our price points are more competitive than ever.

In order to further simplify the business and reduce costs, there have unfortunately been difficult decisions to make. In January, we announced plans to close the Argos business in the Republic of Ireland, as trading and performance had become increasingly challenged and operating costs continued to rise. These decisions are not made lightly, but it is important to be able to save money and reinvest where it can make the biggest difference for the future.

You can read more about our progress to put food back at the heart of Sainsbury's on page 10.

Building a Business for the Future

In June 2021, we launched our sustainability strategy, Plan for Better, a core part of our broader strategy to put food back at the heart of Sainsbury's. Our Plan for Better commitment is a key driver in the development of our business as the environmental and social challenges that are facing the world have never been greater. The food we eat and how that food is produced, sourced, packaged and disposed of has major consequences. By Helping everyone eat better we are committing to playing a leading role in offering delicious, affordable food that supports healthy and sustainable diets and helps customers reduce their impact on the planet one plate at a time.

Strategic Report

J Sainsbury plc Annual Report 2023

03

At COP26 in November 2021, where we were the Principal Supermarket Partner, we signed up to WWF's Retailers' Commitment for Nature, a joint commitment to halve the environmental impact of UK shopping baskets by 2030. Building on that commitment, this year we have updated our targets to align to a 1.5-degree climate commitment across all scopes and timeframes and announced a new shared Climate Action Programme to drive progress in our collective supply chains. Our Food Commercial division has also set out individual category level targets across our priority areas, including plastic, health, food waste and carbon Scope 3, to ensure full accountability for delivery of our commitments and enable accelerated action.

We're continuing to work towards our goal to become Net Zero across our operations by 2035 and have made bold steps over the past year towards this. In July 2022, we introduced the Sainsbury's Innovation Investments initiative to support start-up businesses commercialising sustainable technologies and this year, for the ninth consecutive year, we were pleased to be awarded an A rating for our Climate Change CDP submission and were the only UK food retailer to have achieved this.

Following the human rights saliency assessment we carried out last year, we have also strengthened our ambition on human rights and launched new commitments that address our most relevant human rights risks and emerging issues that affect people within our supply chain.

On a more local level, we launched our new community and partnerships programme, Nourish the Nation, in response to the rising cost of living, to help provide food and urgent support to those most in need. Working with longstanding charity partners Comic Relief, FareShare and other key redistribution partners, we are providing funding to initiatives designed to tackle food insecurity and ensure communities have access to balanced, nutritional and sustainable food sources, now and in the future.

Diversity, Equity & Inclusion has also been a longstanding priority for Sainsbury's and we make sure that inclusion is led from the very top and is recognised in everything we do. So that Sainsbury's remains a leading inclusive retailer, we have developed our Diversity and Inclusion strategy and set ambitious targets to increase representation of women to 50 per cent for senior leaders and

43 per cent for senior management positions by 2024. This is coupled with an Ethnically Diverse representation target of 12 per cent and

a Black representation target of 3 per cent for both senior leaders and senior management positions.

In the latest FTSE Women Leaders review we came third with

50.7 per cent senior women across our combined executive committee and direct reports. Only 23 FTSE 100 companies have met or exceeded the 40 per cent target. We were at 36.4 per cent in 2019 and ranked 56th, so I am really proud to see such good progress over the last few years, as we work towards our targets for gender balance across our senior leadership team.

We report on our Plan for Better progress every six months and you can read more about what we have delivered this year on pages 13 to 28.

Financial Review

We delivered a strong performance this year against a comparative which benefited last year from elevated COVID-19 sales. Underlying profit before tax was £690 million, down 5 per cent versus FY2021/22 and at the top end of our £630 million to £690 million guidance range. The strength of our ongoing cost savings programme, and lower finance charges, allowed us to mitigate the impact of rising operating cost inflation while also investing to help customers and colleagues.

Statutory revenue was up 5.3 per cent to £31,491 million. Statutory profit before tax was £327 million versus £854 million in FY2021/22. This 62 per cent decline reflects the impact of non-cash asset

impairments, driven by a material increase in discount rates, and exceptional income from legal settlements received in the prior year.

We achieved strong Retail Free Cash Flow of £645 million and average Free Cash Flow delivery in the three years to March 2023 of £644 million. Retail Free Cash Flow includes the £50 million dividend paid from Sainsbury's Bank to the Group in April 2022. We remain on track to deliver at least £500 million Retail Free Cash Flow per year.

We delivered non-lease Net Debt reduction of £285 million, closing the year in a Net Funds position of £144 million. Underlying basic earnings per share was 23.0p and basic earnings per share was 9.0p.

More information on our financial performance can be found in the Financial Review on pages 38 to 43.

Delivering for our shareholders

The Board proposes a final dividend of 9.2p per share, bringing the full-year dividend to 13.1p per share. Our policy to pay a dividend of around 60 per cent of underlying earnings has allowed us to maintain a full year dividend which is flat year-on-year, despite a decline in earnings, and reflects our commitment to deliver strong dividends for shareholders.

Remuneration

When determining incentive outcomes and total remuneration received by the Executive Directors, the Remuneration Committee considers a number of factors including executive pay in the context of the broader workforce, investments and the perspectives of our stakeholders. It also ensures that payments reflect the Company's underlying performance.

Simon's remuneration for the year reflects the strong performance of the business and the progress we have made against our strategy. Under Simon's leadership, Sainsbury's is a fundamentally stronger business. Our grocery market share has continued to increase and we have significantly improved our price position against all our competitors. Simon has demonstrated outstanding drive and determination to do the right thing for our customers, colleagues, communities and shareholders and on behalf of the Board I would like to thank him for his continued hard work and considerable achievements.

For more information on this year's remuneration awards, please see pages 90 to 113.

Board changes

After six years as Chief Financial Officer at Sainsbury's, Kevin O'Byrne confirmed his intention to retire in July last year. Following Kevin's retirement, Bláthnaid Bergin joined the Board in March 2023 as our new Chief Financial Officer, having joined Sainsbury's in 2019 as Group Director of Finance before moving to Commercial and Retail Finance Director in 2021.

I would like to thank Kevin for his major contribution to Sainsbury's since he joined the board in 2017. He has led a transformation in our financial performance and balance sheet such that we are now in a materially stronger position as we look to the future.

Conclusion

Finally, I would like to once again thank all of my colleagues, including our Operating Board and Simon, for their huge efforts and support over the past year. You are at the heart of everything we do at Sainsbury's and your dedication to serving and helping every customer is critical to the long-term success of our business.

Martin Scicluna

Chair

Strategic Report

Governance Report

Financial Statements