Annual Report and Financial Statements 2021 Driven by our passion for food, together we serve and help every customer Offering delicious, great quality food at competitive prices has been at the heart of what we do since John James and Mary Ann Sainsbury opened our first store in 1869. Today, inspiring and delighting our customers with tasty food remains our priority. Our purpose is that driven by our passion for food, together we serve and help every customer. 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 over 600 supermarkets and over 800 convenience stores. Argos is a leading digital retailer and is the third most visited retail website in the UK, with over 90 per cent of its sales starting online. Argos is conveniently available for customers to collect from hundreds of Sainsbury’s stores. Digital and technology enables us to adapt as customers shop differently and our profitable, fast-growing online channels offer customers quick and convenient delivery and collection capability. Our 189,000 colleagues are integral to our success, now and in the future. Strategic Report J Sainsbury plc Annual Report 2021 01 Strategic Report Performance highlights Strategic Report 01 Contents and Performance highlights 02 Chairman’s letter 04 Chief Executive Officer’s Q&A 07 Business model 09 Our strategy 10 Our priorities £356m £(261)m 14 Net Zero 17 Our people Underlying profit before tax, Statutory loss before tax, versus 19 Engaging with our stakeholders and down 39 per cent statutory profit before tax of £255m our Section 172 statement in 2019/20 23 Non-financial information statement 24 Our KPIs 26 Financial Review 32 Our principal risks and uncertainties Governance Report Governance Report 7.3% 11.7p 46 Board of Directors Retail sales growth (inc. VAT, excl fuel) Underlying basic earnings per share, 50 Operating Board down 41 per cent 53 Board leadership and Company purpose 56 Division of responsibilities 57 Composition, succession and evaluation 62 Corporate Responsibility and Sustainability Committee Report (13.0)p 5.5% 64 Audit, risk and internal control 70 Annual Statement from the Remuneration Basic loss per share, versus 5.8p Return on capital employed, Committee Chair basic earnings per share in 2019/20 down 190 bps 76 Annual Report on Remuneration 88 Additional statutory information Financial Statements Financial Statements 92 Statement of Directors’ Responsibilities £35m 14% 93 Independent auditor’s report to the members of J Sainsbury plc Raised for good causes reduction in absolute greenhouse gas 100 Consolidated Financial Statements emissions within our own operations, 105 Notes to the Consolidated Financial against our 2018/19 baseline Statements 108 Income Statement Notes 122 Financial Position Notes 163 Cash Flows Notes 169 Employee Remuneration Notes 81% 7% 178 Additional Disclosures 184 Company Financial Statements Percentage of colleagues Increase in colleague 186 Notes to the Company Financial Statements that are highly engaged friendliness score 191 Additional shareholder information 194 Alternative performance measures 199 Glossary Read more about our KPIs on page 24. Find out more at www.about.sainsburys.co.uk/ar2021 02 Strategic Report J Sainsbury plc Annual Report 2021 Chairman’s letter Chairman Martin Scicluna reviews the business activity in the year. 2020/21 highlights This has been an exceptional year and I am so proud of how our business “I am so pleased with how has adapted to help and support our Sainsbury’s has stepped up. customers, colleagues and communities throughout the COVID-19 pandemic. Our colleagues have been on £356m Safety has been our highest priority the frontline of our national over the past 12 months and, by acting Underlying profit before tax, response and we are so down 39 per cent quickly and decisively, we have helped keep our colleagues and customers grateful to them for pulling safe. Our colleagues have worked together to protect our relentlessly to keep shelves full and, customers and each other.” by working closely with suppliers, £(261)m we have maintained good product Statutory loss before tax, versus availability. Financial review statutory profit before tax of £255m We delivered a strong operating performance, in 2019/20 We have prioritised elderly and vulnerable with grocery sales up 7.8 per cent, general customers for home deliveries, supported merchandise sales up 8.3 per cent and digital food banks and donated millions of pounds sales up 102 per cent. Underlying profit to charity. I am pleased with how Sainsbury’s before tax was £356 million, a decrease of has stepped up. Our colleagues have been 39 per cent, impacted by £485 million of direct 11.7p on the frontline of our national response and COVID-19 costs incurred while protecting our we are grateful to them for pulling together customers and colleagues. We gave full pay Underlying basic earnings to protect our customers and each other. to all colleagues who were required to shield per share, down 41 per cent for each shielding period and supported Throughout the year we have had three colleagues who needed to self-isolate. key priorities: keeping our customers and We invested more than £100 million in our colleagues safe, helping to feed the nation frontline colleagues through increasing the and supporting our communities and those hourly rate of pay for Sainsbury’s and Argos (13.0)p most vulnerable in society. store colleagues and awarding three special Basic loss per share, versus 5.8p Led first by Mike Coupe and then by Simon recognition payments. We did not take up basic earnings per share in 2019/20 Roberts, we have been guided by a clear the government’s offer of furlough payments, sense of purpose. We have tried to do the we repaid business rates relief on all right thing throughout the pandemic and the Sainsbury’s stores and did not defer VAT Board has been fully behind the Executive payments. This year we made a loss before Team as they have worked tirelessly on tax of £261 million; this reflects one-off costs 7.4p and impairments mainly associated with the behalf of our customers. Proposed final dividend per share bold decisions and choices we are making to Simon became Chief Executive on 1 June set our business up for the future. Underlying 2020. In his first year Simon has led basic earnings per share was 11.7 pence Sainsbury’s brilliantly and his unwavering and basic loss per share was 13.0 pence. commitment to always put the welfare of We generated retail free cash flow of £784 10.6p our customers and colleagues first is million to reinvest in the customer offer and shareholder returns and we are upgrading Proposed full-year dividend per share testimony to his strong character and values. His energy and passion have been instrumental our four-year net debt reduction target to at in helping us respond quickly and his strategic least £950 million from £750 million by 2022/23. vision for Sainsbury’s is clear. Simon leads a highly capable Operating Board, who deserve More information on our financial to be recognised for everything they have performance can be found in the Financial achieved this year. I am looking forward to Review on pages 26-31. continuing to work closely with them as we drive value for all our stakeholders. Strategic Report J Sainsbury plc Annual Report 2021 03 Remuneration a significant challenge. We continue to urge our business throughout and was instrumental Strategic Report As noted at our interim results in November, the government to find solutions that in shaping our response to the start of the given the unexpected pressures our simplify border requirements, particularly pandemic. I would like to thank him again business has had to manage this year in Northern Ireland where the added for his tremendous efforts. and the challenges facing our colleagues, complexity risks impacting choice and Simon informed the Board that if a bonus availability for customers longer term. In July we appointed Keith Weed as a was payable, he would waive his bonus member of the Audit Committee, the entitlement for this financial year. Simon’s Our plan to put food back at the heart Corporate Responsibility and Sustainability decision is a personal one and another of Sainsbury’s Committee and the Nomination Committee. example of his integrity as a leader. We are clear on our purpose: driven by our Keith is an exceptionally capable marketing passion for food, together we serve and help and digital leader who has championed For more information on this year’s every customer. Everything we do is rooted new ways of integrating sustainability into remuneration awards please see in doing a better job for customers. As well businesses and building brands with purpose. pages 70 to 87. as adapting to respond to the pandemic, The Board was also pleased to appoint Governance Report Simon has been transforming the way we Tanuj Kapilashrami to the Nomination and Dividend work so we can put food back at the heart Remuneration Committees in July. Tanuj is The Board has proposed a final dividend of of our business. 7.4 pence per share, bringing the full-year a thoughtful and energetic HR leader who dividend to 10.6 pence per share, which is Building on everything we have learnt over has significant international insights. She will in line with last year (when treating the the last 12 months, we are raising our be an excellent addition to the Board as we Special dividend announced in November ambitions and speeding up the pace of continue to adapt our business and support our 2020 of 7.3p as part of 2019/20), despite change across our business, simplifying our colleagues in a rapidly changing marketplace.