J Sainsbury Plc · LSE:SBRY
J Sainsbury — H1 2019/20 Earnings Presentation
68 slides from J Sainsbury's earnings presentation, November 2019
Slide 1: Interim Results 2019/20
Interim Results 2019/20
Slide 2: Kevin O'Byrne, Chief Financial Officer
Kevin O’Byrne Chief Financial Officer
Slide 3: Financial overview
Financial overview • First period reporting on an inc. IFRS 16 basis - Material impacts on depreciation, finance costs and net debt • UPBT £238m (H1 2018/19 £279m) - Phasing of cost savings, weather, higher marketing costs - Delivering on our cost ambitions • Financial services profits up £4m. Modes
Slide 4: Group performance overview
Group performance overview H1 H1 £m 2019/20 2018/19 1 Change Underlying results Group sales (inc VAT) 16,856 16,884 0.2% Retail operating profit 437 487 10% Financial Services operating profit 20 16 25% Underlying interest costs (219) (228) 4% Underlying profit before tax 238 279 15% Underlying basi
Slide 5: Retail sales
Retail sales Grocery General Clothing Merchandise 2019/20 FY Guidance (1.0)% (0.6)% Expect to open 2 new LFL sales growth1 3.3% (0.5)% 0.6% Q1 Q2 Q1 Sainsbury's supermarkets and Total 0.4% sales growth1 Q1 Q2 (2.0)% Q2 up to 15 convenience stores New space1,3 Expect to open around 25 Argos (3.1)
Slide 6: Sales performance versus market
Sales performance versus market GROCERY: Volume growth1 ARGOS: Sales growth v BRC2 1% Argos YoY Sainsbury’s Morrisons 0% Total Q2 grocers 19/20 Tesco -1% BRC YoY (excluding Argos) -2% Q1 Asda FY H1 19/20 2018/19 2019/20 -3% CLOTHING: Value Growth (%YOY)3 -4% Sainsbury’s 1 Kantar unit growth. Q1: 11
Slide 7: Financial services
Financial services Transfer pricing benefit, FY guidance unchanged H1 H1 Customer assets (£bn) £m 2019/20 2018/19 Change Total income1 227 226 0% 7.4 7.0 2.9 Underlying operating profit 20 16 25% 3.0 Personal loans Customer lending2 £7.4bn £6.2bn 19% Credit cards 1.9 Customer deposits £6.6bn £5.6bn
Slide 8: Financial services
Financial services Metrics inc. AFS1 H1 H1 £m 2019/20 2018/19 Change Total Financial Services UPBT 30 31 3% Cost/income ratio 67% 66% 100 bps ROCE2 5.9% 6.3% 40 bps 1 H1 2018/19 restated for IFRS 16 2 Calculated on a post-tax basis. Comparative reflects the 52 weeks to 9th March 2019, as the 52 week
Slide 9: Items excluded from underlying results
Items excluded from underlying results H1 H1 2019/20 FY Guidance £m 2019/20 2018/19 In 2019/20 cash outflows as a Property strategy programme (203) - result of items excluded from underlying results should not Retail restructuring programme (25) (69) exceed £100m Financial Services transition and
Slide 10: Retail capital expenditure
Retail capital expenditure H1 H1 2019/20 FY Guidance £m 2019/20 2018/19 Retail capital expenditure to Core retail capital expenditure 248 243 be around £550m Argos integration capex - 31 Retail capital expenditure is expected to be around £550m- Retail capital expenditure 248 274 £600m per annum
Slide 11: Pensions
Pensions Agreed long term sustainable and flexible funding plan Outcome Annual cash contribution reduces by c.£50m • 2018 triennial valuation deficit down to £538m, from £1,055m in 2015 124 • Greater asset-backed security for the Scheme • Immediate cash payments reduced 98 • Reduced risk of over fun
Slide 12: Retail free cash flow
Retail free cash flow H1 H1 2018/19 £m – Restated for IFRS 16 2019/20 Restated 2019/20 FY Guidance 1 Adjusted operating cash flow before changes in working capital 1,034 1,029 Capital injections into the Bank are Decrease in working capital 289 296 expected to be £35m Pension contribution, net int
Slide 13: Balance sheet targets
Balance sheet targets • Net debt reduction of at least £750m Net debt exc. Lease liabilities1 (£m) H1 FY over the next three years £m 2019/20 2018/19 • Medium leverage reduction targets Net Debt (6,778) (7,346) 2,125 Of which lease liabilities (5,770) (5,824) - Net debt/EBITDAR2 less than 3x Net Deb
Slide 14: Summary and Outlook
Summary and Outlook • Grocery sales improving relative to the market • General Merchandise and Clothing outperforming a difficult market • H1 profits down - Phasing of cost savings, weather, higher marketing costs • H2 profits will benefit from - Annualisation of colleague wage increases - Normalisa
Slide 15: Mike Coupe, Chief Executive Officer
Mike Coupe Chief Executive Officer
Slide 16: Key industry challenges
Key industry challenges Low to no Growth of the Digitisation market growth discounters £ 16 Interim Results 2019/20 - November 2019
Slide 17: We will help our customers live well for less
We will help our customers live well for less Confident in the core Integrated customer offer One multi brand, multi channel business Sustainable cost reduction, covering cost inflation and funding investment in our competitive offer Strong cash generation supporting investment, dividend and allowin
Slide 18: Our strategy
Our strategy Purpose To help our customers live well for less Priorities 1 2 3 4 5 6 Be Offer Make Drive Grow Provide a competitive distinctive shopping efficiency connected seamless on price products convenient, to invest in services customer and new supported by the customer experience categories
Slide 19: Be competitive on price
1 Be competitive on price 19 Interim Results 2019/20 - November 2019
Slide 20: Value brand investment
1 Value brand investment Be competitive on price 120+ EPP SKUs launched in H1, 200 by end 2019/20 Bread: Investing across Own Label Tiers New Sainsbury’s Meat, Fish & Poultry Value Own Label1 Repackaged and NPD within Premium New Gains +2% NPD within Core+. Sales Responding in Growth Areas Losses +4
Slide 21: Lower prices on key volume lines
1 Lower prices on key volume lines Be competitive on price In-Store Volume Returns Examples Change in volumes (%) was £2.10 16% £1.70 Chicken Wings 1kg 12% +12% Volume 8% 4% Chestnut Only £0.80 Mushrooms 250g +45% Volume 0% -4% Pre1 Post2 Only -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 £0.50 White Pittas x6 1
Slide 22: We continue to be less dependent on promotions
1 We continue to be less dependent on promotions Be competitive on price Sainsbury’s Promotional Participation Spend on Deal1 40 40% H1 19/20 AVERAGE Morrisons 23.0% 34% 22.8% 31% 30 30% Tesco 20.7% 20.9% Asda 22% 20 20% 21% Sainsbury’s H1 19/20 10% 10 18/19 19/20 18/19 19/20 Sep Oct Nov Dec Jan Feb
Slide 23: Improved grocery value
1 Improved grocery value Be competitive on price Commodity VI 2 Grocery inflation (Kantar) 1 3% Morrisons 2% Sainsbury’s -960bps 1% Asda Aug 17 Jan 18 Jun 18 Nov 18 Apr 19 Oct 19 Total Market Base Price Index 2 0% Tesco -1% Mar Apr May Jun Jul Aug Sep Oct 2019 -550bps 1 Kantar City Reads to Oct 2019
Slide 24: Offer distinctive products and new categories
2 Offer distinctive products and new categories 24 Interim Results 2019/20 - November 2019
Slide 25: Category tier performance
2 Category tier performance Offer distinctive products and new categories YoY value share change by tier 52 weeks to March 2019 12 weeks to September 2019 Premium Premium 0.1% 0.0% Own Brand Own Brand Standard Standard -0.3% Own Brand -0.4% Own Brand Economy Economy -1.8% -0.8% Own Brand Own Brand B
Slide 26: Premium private label
2 Premium private label Offer distinctive products and new categories Taste the Difference re-launch • Over 350 products new, repackaged or reformulated • Premium ready meals growth now outperforming the market Premium Own Label volume share 4.1% 2.5% 2.4% 1.9% Sainsbury's Morrisons Tesco Asda Sourc
Slide 27: Distinctive brands
2 Distinctive brands Offer distinctive products and new categories • 57% of customers have bought Distinctive Brands since launch • On track for £100m incremental sales • 37 new brands in H1 across Fresh and Grocery • ‘Taste of the Future’ bays launched in 70 stores - 67% incremental sales Leon • 3
Slide 28: Beauty Rollout
2 Beauty Rollout Offer distinctive products and new categories • Now rolled out to over 60 stores - Sales up over 40% • Customer numbers up 7% • Spend per customer up 25% • Beauty range doubled, 1,200 additional lines • Double digit growth differential against the market 28 Interim Results 2019/20 -
Slide 29: Our values make us different
2 Our values make us different Offer distinctive products UK’s first major retailer to make significant commitment to reduce plastic and new categories • Committed to reduce plastic packaging by 50% by 2025 • First retailer to remove single use plastic produce and bakery bags from our stores - Launc
Slide 30: Argos category and range focus
2 Argos category and range focus Offer distinctive products and new categories • Availability improvement - Argos master range reduced by c.30% over 3 years - Eliminating duplication, removing low value items - Better availability of key lines in store • Rebalancing into higher margin categories - G
Slide 31: Clothing
2 Clothing Offer distinctive products and new categories • Strong market share gains • Tu online - Sales +52% - 800,000+ new customers, +31% YoY • Margin rate improvement - Better buying and markdown management • ‘Work It’ campaign - New seasonal, high quality value-led work wear ranges 31 Interim R
Slide 32: Make shopping convenient, supported by great service
3 Make shopping convenient, supported by great service 32 Interim Results 2019/20 - November 2019
Slide 33: Channels: Supermarkets
3 Channels: Supermarkets Make shopping convenient, supported by great service Investing in stores Supermarkets Trading intensity1 • Over 870,000 sq ft space repurposed since FY 2014/15 • Tailored, targeted investment • Significant step-up in 2019/20 - Investing in 450+ supermarkets - 172 delivered i
Slide 34: Store investments driving customer satisfaction
3 Store investments driving customer satisfaction Make shopping convenient, supported by great service Smartshop: Self checkouts: Ease of Checkout Checkout Speed of Checkout experience • 200+ handset stores • 2,600+ upgrades 4.8% - average sales participation c.15% • 10% improvement in speed 6.1% -
Slide 35: Channels: Convenience
3 Channels: Convenience Make shopping convenient, supported by great service • 2 year capital light programme resetting range, Improved perceptions vs competitors space and pricing - 158 stores reset in H1 - On track to deliver 200 in FY19/20 2nd Value for 2nd Variety Money Spent1 of Items1 - Around
Slide 36: Channels: Groceries Online
3 Channels: Groceries Online Make shopping convenient, supported by great service • Sales growth 7% Sales and YOY growth rates £m 900 • Same day delivery now covers nearly 7.0% 60% of UK households 6.9% 800 • Groceries Online app accounts for over 20% of orders 7.2% 8.0% • Extended delivery slots 70
Slide 37: Channels: Argos
3 Channels: Argos Make shopping convenient, supported by great service Digital store investments Strong Fast Track growth • 176 Digital conversions and 15 full store refreshes in H1 • Fast Track collection growth 14% YoY • Majority of remaining stores to be converted to digital • Fast Track delivery
Slide 38: Drive efficiency to invest in the customer offer
4 Drive efficiency to invest in the customer offer 38 Interim Results 2019/20 - November 2019
Slide 39: Product Quality Framework helps us fund investment
4 Product Quality Framework helps us fund investment Drive efficiency to invest in the customer offer Reduced SKU count operational efficiencies PQF activity to Increased sales/volume intensity date covers operational efficiencies 49% Improved Value Index more competitive of food volume More distinc
Slide 40: PQF cereals case study
4 PQF cereals case study Drive efficiency to invest in the customer offer Reduced SKU count: -20% operational efficiencies More distinctive range more reason to shop at Sainsbury’s Improved Value Index: >100bps more competitive Volumes: +8% operational efficiencies Higher cash gross profit: +2% YOY
Slide 41: BAU savings to offset cost inflation
4 BAU savings to offset cost inflation Drive efficiency to invest in the customer offer BAU savings Manages inflationary H1 2019/20 pressures Retail Retail Procurement Technology Shrink Reduction Retail HR management GNFR Efficiencies structures 41 Interim Results 2019/20 - November 2019
Slide 42: Strategic cost transformation: 5 year plan
4 Strategic cost transformation: 5 year plan Drive efficiency to invest in £5bn addressable cost base the customer offer Tackle End to end Converge reviews fixed cost Technology, Digital and Corporate Services Retail Operations, Marketing and Commercial Operations Other central support £250-£350m Lo
Slide 43: Grow connected services
5 Grow connected services 43 Interim Results 2019/20 - November 2019
Slide 44: Financial Services: Priorities
5 Financial Services: Priorities Grow connected services To be the provider of financial services for Vision loyal Sainsbury’s and Argos customers An agile, capital and cost efficient provider of Objective simple, mobile-led financial services Priorities Reshape Simplify Strengthen 44 Interim Result
Slide 45: Financial Services: reshaping the portfolio
5 Financial Services: reshaping the portfolio Grow connected services Current Customer Credit Balance Sheet Earnings Customer Base Risk Argos Storecards 2.2m Prime/ Near Prime Credit Cards 0.9m Prime Personal Loans 0.5m Prime Mortgages 9K Exit Total Lending Deposits 0.3m I
Slide 46: Financial Services: key targets
5 Financial Services: key targets Grow connected services 1 Stop putting cash in to Financial Services No capital input from the Group from now 1 2 Improve returns Double UPBT; double digit ROCE within 5 years 3 Financial services cash generative Upstream cash within 5 years2 4 Transform the cost ba
Slide 47: Nectar
5 Nectar Grow connected services • Biggest loyalty programme in the UK • Over 18 million collectors • Most recognised loyalty brand in the UK • Launch of Nectar digital - 2.1 million app users - Increase in overall Nectar participation - Increased levels of personalisation - 138,000 new Nectar custo
Slide 48: Provide a seamless customer experience
6 Provide a seamless customer experience 48 Interim Results 2019/20 - November 2019
Slide 49: Digital
6 Digital Provide a seamless customer experience • Groceries Online sales penetration of 8% - App accounts for over 20% of orders Groceries online • 2.1 million digital Nectar app users • 1.4 million Argos Financial Services app Seamless Universal financial discovery downloads services • Smartshop r
Slide 50: We will help our customers live well for less
We will help our customers live well for less Confident in the core Integrated customer offer One multi brand, multi channel business Sustainable cost reduction, covering cost inflation and funding investment in our competitive offer Strong cash generation supporting investment, dividend and allowin
Slide 51: Q&A
Q&A
Slide 52: Appendices
Appendices APPENDIX Interim Results 2019/20 - November 2019
Slide 53: Guidance for 2019/20
Guidance for 2019/20 Space Finance costs • Expect to open 2 new Sainsbury’s supermarkets and up to 15 convenience stores • Net finance costs of around £405m, including £320m lease interest in • Expect to open around 25 Argos stores in Sainsbury’s (of which 11 are 2019/20, following the introduction
Slide 54: Retail sales
Retail sales (1.0)% (0.6)% LFL sales growth 1 Total sales growth 1 Channels 0.4% Supermarkets2 (0.7)% Sales from net new space 1 £13.9bn Convenience 2.0% Groceries Online £10.3bn £3.0bn £488m 7.0% Grocery General Clothing (0.1)% Merchandise (1.2)% (2.5)% 1 Sales including VAT, excluding fuel 2 Super
Slide 55: Sainsbury's sales area and store numbers
Sainsbury’s sales area and store numbers As at 21 September 2019 Supermarkets Convenience Total Area Area Area (‘000 sq ft) Number (‘000 sq ft) Number (‘000 sq ft) Number Opening figures 2019/20 21,210 608 Opening figures 2019/20 1,934 820 Opening figures 2019/20 23,144 1,428 New stores - - New stor
Slide 56: Sainsbury's store estate
Sainsbury’s store estate As at 21 September 2019 Number of stores Argos and Habitat store numbers Sq ft Under 10,000 to 20,001 to 40,001 to Over As at New Disposals/ As at sales area 10,000 20,000 40,000 60,000 60,000 Total 9 March 2019 stores closures 21 Sept 2019 Convenience 824 0 0 0 0 824 Argos
Slide 57: Sainsbury's investment programme
Sainsbury’s investment programme 2019/20 Supermarkets Convenience Closure New stores Bitterne West Q1 Milton Keynes, Brooklands District Cent Q1 Bromley High St Q1 Leeds, Wike Ridge Lane Q1 Salford, Harbour City Q2 Canterbury High St Q2 Replacement Mayfair, Stratton St Q2 Closures Mayfair Q1 Warren
Slide 58: Retail margin
Retail margin £m H1 H1 Change 2019/20 2018/19 Retail sales (inc VAT, inc fuel) 16,567 16,612 0.3% (exc VAT, inc fuel) 14,808 14,856 0.3% Retail underlying EBITDAR1 1,067 1,114 4.2% 2 Retail underlying EBITDAR margin % 7.2 7.5 30 bps at constant fuel prices 7.2 7.5 28 bps Retail underlying operating
Slide 59: Group retail
Group retail £m H1 H1 2019/20 2018/19 Return on capital employed %1 7.1 7.44 Net debt to EBITDAR (times)2,3 3.1 3.3 2 Fixed charge cover (times) 2.6 2.64 Underlying tax rate % 26.5 25.7 5 Core retail capex / sales 1.5 1.5 1 ROCE: Return is defined as a 52 week rolling underlying profit before intere
Slide 60: Plc Board
Plc Board Martin Scicluna Mike Coupe Kevin O’Byrne Dame Susan Rice Jean Tomlin Chairman Group Chief Executive Chief Financial Senior Non-Executive Director Officer Independent Director David Keens Matt Brittin Brian Cassin Jo Harlow Non-Executive Director Non-Executive Director Non-Executive Directo
Slide 61: Plc Board
Plc Board Martin Scicluna Mike Coupe Kevin O’Byrne Dame Susan Rice Chairman Group Chief Executive Officer Chief Financial Officer Senior Independent Director Date of appointment: 1 June 2013 Date of appointment: 1 November 2018. Date of appointment: 1 August 2007 Date of appointment: 9 January 2017
Slide 62: Plc Board
Plc Board Jean Tomlin David Keens Matt Brittin Brian Cassin Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Date of appointment: 1 January 2013 Date of appointment: 29 April 2015 Date of appointment: 27 January 2011 Date of appointment: 1 April 2016 Commit
Slide 63: Plc Board
Plc Board Jo Harlow Life President Non-Executive Director Lord Sainsbury of Date of appointment: 11 September 2017 Preston Candover KG Committee membership Chair of the Corporate Responsibility and Sustainability Committee and member of the Nomination Committee and Remuneration Committee. Skills and
Slide 64: Operating Board
Operating Board Mike Coupe Kevin O’Byrne Tim Fallowfield Jim Brown Paul Mills-Hicks Group Chief Executive Chief Financial Officer Company Secretary & Chief Executive Officer of Food Commercial Director Corporate Services Director Sainsbury’s Bank Angie Risley Phil Jordan Simon Roberts Clo Moriarty G
Slide 65: Operating Board
Operating Board Mike Coupe Tim Fallowfield Jim Brown Paul Mills-Hicks Group Chief Executive Company Secretary & Corporate CEO of Sainsbury’s Bank Food Commercial Director See Appendix page 9 Services Director Date of appointment: September 2004 Date of appointment: August 2019 Date of appointment: M
Slide 66: Operating Board
Operating Board Angie Risley Phil Jordan Simon Roberts Clodagh Moriarty Group HR Director Group Chief Information Officer Retail and Operations Director Group Chief Digital Officer Date of appointment: January 2013 Date of appointment: January 2018 Date of appointment: July 2017 Date of appointment:
Slide 67: Supplementary financial details
Supplementary financial details 1. Weighted average number of shares 2. Dividend 3. Financial calendar H1 2019/20: 2,207.4m (2,461.3m diluted) Q3 trading statement 8 January 2020 2019/20 2018/19 H1 2018/19: 2,195.9m (2,464.6m diluted) (15 weeks to 4 January 2020) Interim 3.3p 3.1p Preliminary result
Slide 68: Contacts
Contacts James Collins Susie Lynskey Head of Investor Relations Investor Relations Manager Tel: + 44 (0) 20 7695 7112 Tel: + 44 (0) 20 7695 0889 James.Collins@sainsburys.co.uk Susie.Lynskey@sainsburys.co.uk Irene Galvan Glyn Davies Investor Relations Analyst Investor Relations Assistant Tel: + 44 (0