Live Well For Less Annual Report and Financial Statements 2017 Performance highlights £29,112m Group sales (inc. VAT) up 12.7% 3,000 Food will always be at the heart of our business and we have completed our programme to improve the quality of 3,000 Sainsbury’s branded products. We £581m have a strong and differentiated offer that gives our customers market leading choice, quality and value. Underlying profit before tax down 1% Read more about our food business on page 15 -0.6% Sainsbury’s like-for-like sales (inc. VAT, ex fuel) £6bn We are one of the largest general merchandise and clothing retailers in the UK, offering customers a wide range of products across Sainsbury’s, 10.2p Argos and Habitat. Full-year dividend Read more about our General Merchandise and Clothing business on page 18 21.8p Underlying basic earnings per share 1.8m 17.5p Financial Services are an important part of our Basic earnings per share business. Sainsbury’s Bank played a key part in our acquisition of Argos and Habitat, enabling us to finance the deal in an efficient way. Sainsbury’s Bank and Argos Financial Services each have 1.8m £503m active customers. Statutory profit before tax Read more about Sainsbury’s Bank and Argos Financial Services on page 21 8.8% Return on capital employed down 4 bps £500m Read more about our financial KPIs onpage 40 We are on track to reach our £500 million cost savings target by 2017/18 and benefit from astrong balance sheet. We plan to reduce costs by a further £500m over three years from 2018/19. Read more about our approach to managing costs and maintaining balance sheet strength on page 22 Strategic Report 01 Strategic Report Helping customers 01 Contents page 02 Sainsbury’s Group at a glance 04 Our business model live well for less 06 Market context 08 Chairman’s Letter 10 Chief Executive’s Letter 15 Priority #1: Further enhance our has been at the differentiated food proposition 18 Priority #2: Grow General Merchandise & Clothing and deliver synergies heart of what we 20 Priority #3: Diversify and grow Sainsbury’s Bank 22 Priority #4: Continue cost savings and do since 1869. maintain balance sheet strength 24 Our values make us different 40 Financial KPIs We offer our customers great quality, choice 42 Our principal risks and uncertainties and value and continue to make their lives 46 Financial review better and easier every day. We sell over 90,000 Governance Report products and employ around 195,000 colleagues 54 Board of Directors 56 Operating Board across the UK and Ireland. 58 Corporate Governance 64 Nomination Committee 66 Corporate Responsibility and Sustainability Committee 68 Audit Committee 74 Annual Statement from the Remuneration Committee Chairman 78 Annual Report on Remuneration 88 Directors’ Remuneration Policy 95 Additional statutory information Financial Statements 100 Statement of Directors’ Responsibilities 101 Independent Auditor’s Report to the Members of J Sainsbury plc 106 Consolidated Financial Statements 111 Notes to the Consolidated Financial Statements 115 Income Statement 127 Financial Position 156 Cash Flows 159 Employee Remuneration 168 Additional Disclosures 179 Company Financial Statements 181 Notes to the Company Financial Statements 186 Additional shareholder information 190 Alternative performance measures 192 Glossary Find out more at www.j-sainsbury.co.uk/ar17 02 Strategic Report Sainsbury’s Group at a glance Our vision is to be the most We offer customers choice across our wide range of food, general merchandise, clothing and financial services. On 2 September 2016 trusted retailer where people we acquired Home Retail Group plc, the owner of Argos and Habitat, love to work and shop creating one of the UK’s leading food, general merchandise and clothing retailers – a multi-product, multi-channel business with Our goal is to make our customers’ lives fast delivery networks. easier by offering great quality products and Sainsbury’s Bank offers accessible financial services products such service at fair prices. as credit cards, insurance, travel money and personal loans that reward customer loyalty. Our 195,000 colleagues, strong culture and values are integral to achieving our vision and driving our success – now and in the future. The new Sainsbury’s Group Food General Financial Services Sainsbury’s has sold great quality food at Merchandise Sainsbury’s Bank has 1.8m active fair prices since 1869. We have a strong customers. We offer accessible heritage of innovation and were the & Clothing financial services products such as first retailer of organic produce Our General Merchandise and Clothing credit cards, insurance, travel in the UK. We continue to build our business is one of the biggest in the money and personal loans that strength in food innovation, targeting UK and offers customers a wide range reward loyalty. This year Argos growing food markets where we can of products across home, clothing, Financial Services became part increase our market share, such as technology and leisure. We have of our financial services offer and Food to Go and FreeFrom, where we a market-leading position in key also has approximately 1.8m active can be a market leader. product categories such as toys and customers. electricals and our Tu clothing brand offers customers high street style at 125 supermarket prices. 1.9m reviews underway covering around 60% visits to Sainsbury’s Bank website of our food ranges £6bn every month of sales generated by Sainsbury’s 26m+ General Merchandise and Clothing 1,728 weekly customer transactions business, including Argos. ATMs in our estate See more on page 15 See more on page 18 See more on page 21 Strategic Report 03 Our supermarkets offer customers a comprehensive mix of food, general merchandise and clothing. Our smaller convenience stores are located where our customers live and work, with a product mix designed for regular top-up shopping and to meet their day-to- day needs. We have a well-established and growing online offer that allows customers to shop from the comfort of their home, or on the go via The world is changing faster a mobile phone or tablet, opting for either convenient delivery to than at any time their home or to Click & Collect from our stores. Convenience, speed and flexibility are key Our acquisition of Home Retail Group plc has accelerated our in today’s retail environment. Our strategy strategy. Customers now have access to Argos products, market- leading Argos digital channels and delivery systems. Argos’s is to sell products whenever and wherever unique Hub and Spoke supply chain network and Fast Track customers want. delivery and collection service are points of competitive advantage. Read more about our market context on page 6 Whenever and wherever 605 151 809 Sainsbury’s Groceries Online Click Convenience supermarkets & Collect points stores 59 Argos Digital stores in Sainsbury’s 207 supermarkets Digital Collection points for Tu clothing, eBay, DPD and, in 90 stores, Argos 11 Habitat stores, including four standalone and 276,000 seven Mini Habitats in Average number of Sainsbury’s customer orders made through Groceries Online channel per week 26m+ 10% weekly customer of Groceries Online transactions orders made through new app * All numbers are correct at the time of signing the Annual Report and Acounts. 04 Strategic Report How we create value and build customer loyalty We achieve this by listening to our customers and anticipating their Our business needs. We deliver quality products and great value through multiple channels and are there for our customers whenever and wherever model they want to shop. Our values make us different and underpin everything we do, from sourcing with integrity to helping our customers lead healthier lives and providing a great place to work. Our colleagues make the Our business model is designed to create difference, anchoring us in our communities and connecting us to value for our shareholders, customers and the lives of our customers, day in, day out. colleagues, both now and in the future. Power of the Sainsbury’s Group We are one of the largest retailers of quality food, general merchandise, clothing and financial services in the UK and we believe people trust the Sainsbury’s brand. Customers can shop with us whenever and wherever they want and we have a logistics network that gives us market-leading product availability in-store and online. Our values key A great place to work Respect for our environment Sourcing with integrity Living healthier lives Making a positive difference to our community What makes us different Supply chain Our business is built on excellent, often long-standing relationships with our We are a multi-product, multi-channel suppliers. We source Sainsbury’s branded products from the UK and over 70 business with a strong, differentiated other countries, according to the ability of suppliers to meet our regularly audited food proposition and respected brands quality, safety and ethical standards. The investment we make in our farmer and grower Development Groups, R&D programme and Apprenticeship Scheme in Sainsbury’s, Sainsbury’s Bank, Argos supports the British agricultural sector and encourages young talent into British and Habitat. farming. We are also the world’s largest retailer of fairly traded products. We benefit from a structurally Logistics We have invested in our logistics capability and capacity to ensure we can meet advantaged store estate, world-class our customers’ requirements for flexible, convenient shopping now and in the property assets, an efficient supply future. Across Sainsbury’s and Argos we operate 34 distribution centres. They chain and a market-leading digital cover our store and online businesses, across food, general merchandise and clothing, making home and store deliveries seven days per week.