Annual Report and Financial Statements 2011 Values and highlights Sainsbury’s values underpin our goal to provide healthy, safe, fresh and tasty food at fair prices As a leading food retailer we focus on being Best for food and health 5,000 Over 5,000 of our own-brand products are labelled with front of pack Multi Traffic Light labelling ...that’s why we’re so committed to... Sourcing with integrity £280 million We are the world’s largest retailer of Fairtrade And because we source from around the world and sell in the UK we show Respect for our environment £5.7m Through our supermarket Energy Reset programme we saved £5.7 million, which has cut our energy bill and environmental footprint ...and play an active role in the communities in which we operate Making a positive difference to our £100 community million Active Kids: We have donated over £100 million worth of equipment and experiences to date All this is possible through the commitment of our colleagues so we make Sainsbury’s A great place to work Gold We were the first retailer to be awarded a gold accreditation from ‘Investors in People’ for our commitment to improving our business by investing in our colleagues Our business model About Sainsbury’s to business. Sainsbury’s stores have a particular emphasis J Sainsbury plc was founded in 1869 and today operates a on fresh food and we strive to innovate continuously and total of 934 stores comprising 557 supermarkets and 377 improve products in line with our customer needs. convenience stores. It jointly owns Sainsbury’s Bank with Lloyds Banking Group and has two property joint ventures We now have 21 million customer transactions a week and with Land Securities Group PLC and The British Land have a market share of over 16 per cent. Our large stores Company PLC. offer around 30,000 products and we offer complementary non-food products and services in many of our stores. The Sainsbury’s brand is built upon a heritage of providing An internet-based home delivery shopping service is also customers with healthy, safe, fresh and tasty food. Quality available to over 93 per cent of UK households. We employ and fair prices go hand-in-hand with a responsible approach around 150,000 colleagues. lues make us d r va iffer Ou ent Active property Great food at management fair prices Accelerating Growing the growth of supermarket complementary space non-food ranges and services Reaching more customers through additional channels O nce perational excelle Our business model continued Five areas of focus – progress highlights Great food at fair prices • 21 million customer transactions on average every week, a million more than last year • A 16.3 per cent market share in the UK, up by 0.2 per cent 21m on last year Customer transactions Over 5,000 new or improved own-brand products launched, • on average every including the major re-launch of Taste the Difference week, a million more Six food colleges opened as part of our Great Food than last year • programme. Up to 10,000 colleagues will receive training at them each year Meat and Fish Retailer of the Year and Drinks Retailer of • the Year Accelerating the growth of • Non-food sales grew more than three times faster than food sales, with many areas of general merchandise complementary non-food growing in excess of 20 per cent TU clothing is now the seventh largest clothing brand in ranges and services • the UK by volume We re-launched Sainsbury’s Energy in a new partnership • 3x with British Gas Complementary non-food Sainsbury’s Bank had a strong year, with pre-tax grew more than three times • operating profit up over 50 per cent faster than food sales Reaching more customers • Our convenience business now provides annual sales of through additional channels over £1 billion and we opened a further 47 stores this year We were awarded Convenience Retailer of the Year at • the annual Retail Industry Awards Our online groceries business continues to grow, with £1bn • Our convenience business annual sales up over 20 per cent and weekly orders now now provides annual sales over 130,000 of over £1 billion Click and Collect, allowing customers to order non-food • items online and collect in-store, has been rolled out to over 160 stores this year We exceeded our two-year space growth target of 15 Growing supermarket space • per cent, as we have grown gross space by 15.9 per cent since March 2009 15.9% This year we opened 21 new stores, 24 extensions and • of gross new space added 47 convenience stores since March 2009 We added a gross 1.5 million sq ft of space this year, • equivalent to 8.5 per cent, and we expect to maintain this momentum into next year We were awarded Community Retailer of the Year • at the annual Retail Industry Awards Estimated market value of freehold property increased Active property management • to £10.5 billion Increase of £0.7 billion on last year, including £0.5 billion • £10.5bn of property value created through our investment and Estimated market value of development activity freehold property Generated £275 million proceeds from sale and • leaseback of property with no further development potential, contributing to total property profits of £108 million Financial highlights Contents Annual Review Business review Sales Business review —— Financial highlights 1 —— Key financial performance indicators 2 +7.1% —— Our CR Commitments and Progress 3 Sales (including VAT, —— Chairman’s statement 4 including fuel) up 7.1% —— Operating review 5 —— Corporate responsibility review 14 —— Financial review 18 Underlying operating profit £738m Underlying operating profit up 10.0% Underlying profit before tax Governance Governance Board of Directors 24 Operating Board 26 Directors’ report 28 £665m Corporate governance statement 30 Underlying profit Remuneration report 38 before tax up 9.0% Statement of Directors’ responsibilities 48 Underlying basic earnings per share 26.5p Underlying basic earnings per share up 10.9% Financial Statements & Financial Statements & additional information additional information Financial summary 2010/11 2009/10 Change £m £m % Independent Auditors’ report to Sales (including VAT) 22,943 21,421 7.1 the members of J Sainsbury plc 49 Sales (excluding VAT) 21,102 19,964 5.7 Group income statement 50 Underlying operating profit 738 671 10.0 Statements of comprehensive income 5 1 Underlying profit before tax 665 610 9.0 Balance sheets 52 Profit before tax 827 733 12.8 Cash flow statements 53 Profit after tax 640 585 9.4 Statements of changes in equity 54 Underlying basic Notes to the financial statements 56 earnings per share 26.5p 23.9p 10.9 Five year financial record 103 Basic earnings per share 34.4p 32.1p 7.2 Additional shareholder information 104 Full year dividend per share 15.1p 14.2p 6.3 Financial calendar 106 Notes Glossary 107 Underlying operating profit: underlying profit before tax before underlying net finance costs and share of underlying post-tax results from joint ventures. Underlying profit before tax: profit before tax from continuing operations before any gain or loss on the disposal of properties, investment property fair value movements, impairment of goodwill, financing fair value movements, IAS 19 pension financing (credit)/charge and one-off items that are material and infrequent in nature. Underlying basic earnings per share: underlying profit, net of attributable taxation, divided by the weighted average number of ordinary shares in issue during the period, excluding those held by the ESOP trusts, which are treated as cancelled. J Sainsbury plc Annual Report and Financial Statements 2011 1 Key financial performance indicators Business review Like-for-like sales growth1 (%) Total sales growth1 (%) 25 50 20 40 15 30 10 20 5 10 2.3 6.7 11.5 15.8 22.7 4.9 11.9 17.2 23.9 33.4 0 0 1yr LfL 2yr LfL 3yr LfL4yr LfL5yr LfL 1yr2yr 3yr4yr 5yr 2010/11 2010/11 50 Trading intensity per sq ft2, 3 (£ per week) Underlying EBITDAR4 (%) 40 30 2006/07 £19.30 2006/07 7.23 20 10 2007/08 £19.69 25 2007/08 7.49 0 2008/09 £20.01 20 2008/09 7.62 2009/10 £20.42 15 10 2009/10 7.79 2010/11 £20.045 2010/11 7.81 0 Underlying operating margin5 (%) Underlying profit before tax6 (£m) 2006/07 2.54 2006/07 339 2007/08 3.00 2007/08 434 2008/09 3.26 2008/09 519 2009/10 3.36 2009/10 610 2010/11 3.50 2010/11 665 Underlying basic earnings per share7 Net capital expenditure (£m) 0 12345678 2006/07 13.0p 2006/07 631 2007/08 17.4p 2007/08 799 2008/09 21.2p 2008/09 862 2009/10 23.9p 2009/10 915 2010/11 26.5p 2010/11 880 Return on capital0.0 0.5 employed1.0 8 (%)1.5 2.0 2.5 3.03.5 Operating cash0 flow100 (£m)200 300 400 500 600 700 800 2006/07 7.7 2006/07 830 2007/08 8.8 2007/08 998 2008/09 10.1 2008/09 1,206 2009/10 11.0 2009/10 1,206 2010/11 11.1 2010/11 1,138 0 200 400 600 800 1000 Notes 1 Sales including VAT, excluding fuel. 2 Trading intensity per sq ft: sales per week (including VAT, excluding fuel) divided by sales area. 3 2008/09 and 2009/10 adjusted for comparative purposes to remove the dilutive effect of the temporary VAT reduction to 15 per cent between 1 December 2008 and 31 December 2009.