J Sainsbury Plc · LSE:SBRY
J Sainsbury — H1 2020/21 Earnings Presentation
76 slides from J Sainsbury's earnings presentation, November 2020
Slide 1: Interim Results and Strategy Update 2020/21
Interim Results and Strategy Update 2020/21
Slide 2: Kevin O'Byrne, Chief Financial Officer
Kevin O’Byrne Chief Financial Officer
Slide 3: Agenda
Agenda 1 2 H1 financial highlights Strategy update and operational performance 3 J Sainsbury plc Interim Results 2020/21
Slide 4: Group performance overview
Financials Group performance overview Retail Retail Financial Services Underlying profit sales 1 operating profit 2 operating profit 2 before tax 7.1% 27% 26% 20 14,836 555 H1 301 13,856 19/20 437 238 H1 20/21 H1 H1 H1 H1 H1 H1 19/20 20/21 19/20 20/21 (55) 19/20 20/21 All figures £m 1 Exc. Fuel. (Re
Slide 5: Group performance overview
Financials Group performance overview Statutory profit/loss Free cash Net debt Dividend before tax flow (excluding leases) per share 1 35% £912m 9 7.3p 943 H1 H1 19/20 H1 20/21 H1 FY 19/20 19/20 20/21 698 (267) 3.3p 3.2p (137) H1 H1 (1,008) Interim Interim 19/20 20/21 19/20 Special 20/21 (1,179) All
Slide 6: Retail sales growth by category
Financials Retail sales growth by category Grocery Clothing General Merchandise Total Retail sales sales sales sales growth 1 10.5% Argos 8.5% 10.7% 10.9% 7.2% 7.6% 5.1% 5.2% Q1 Q2 (26.7)% (7.5)% Q1 Q2 Q1 Q2 Q1 Q2 Q1 Q2 Total GM (6.9)% (9.3)% Sainsbury’s GM 1 Exc. fuel 6 J Sainsbury plc Interim Resu
Slide 7: Sales performance versus market
Financials Sales performance versus market Grocery H1 20/21 volume growth 1 10% Lidl Morrisons 8% Total grocers Sainsbury’s Tesco 6% Aldi Asda 4% 2% 0% 1 Nielsen Panel volume growth YoY. Total FMCG (excluding Kiosk & Tobacco), H1 20/21. Market Universe: Total Outlets. 7 J Sainsbury plc Interim Resul
Slide 8: GM&C performance versus market
Financials GM&C performance versus market Argos Tu Clothing H1 20/21 sales growth vs market 1 Market share2 Argos Market Toys 6.5% Furniture 6.0% Garden & DIY 5.5% Electronics 5.0% Domestic appliances Office 4.5% Gaming 4.0% Mar Sep 0 10 20 30 40 50 60 2019 2020 1 GfK market ex. Argos sales value gr
Slide 9: Underlying profit before tax
Financials Underlying profit before tax Retail COVID costs H1 FY UPBT YoY movement £m 2020/21 2020/21F £m Colleague costs 1 (179) (290)+ 2 Operating costs (84) (120)+ Other (28) (50)+ (75) +118 Total Retail COVID costs (291) (460)+ +20 301 Business rates relief 230 453 Financial Interest Services 23
Slide 10: Financial Services: UPBT bridge
Financials Financial Services: UPBT bridge UPBT waterfall £m ATM & Travel Money 20 Reduced H1 19/20 balances Additional UPBT COVID credit (55) provisions Management action H1 20/21 UPBT 10 J Sainsbury plc Interim Results 2020/21
Slide 11: Financial Services: management action
Financials Financial Services: management action Costs 1 Colleague costs Savings blended rate £m £m % 13% 17% 70bps 156 52 1.3 145 1.2 135 47 43 0.6 H1 H2 H1 H1 H2 H1 Aug Feb Aug 19/20 19/20 20/21 19/20 19/20 20/21 19 20 20 1 Group contribution basis 11 J Sainsbury plc Interim Results 2020/21
Slide 12: Financial Services: quality of book
Financials Financial Services: quality of book 90+ days past due at 18 months 1, 2 Payment holidays 3 Credit Provisions % Aug Aug Total Lending Book 19 20 6% Secured lending (gross) 4 £1.9bn £1.6bn 94% no PH 0.9 Cards PH Expected Credit Losses 5 (£m) 1 3 Coverage Ratio 0.0% 0.2% 2.1 Loans % of known
Slide 13: Financial Services: balance sheet
Financials Financial Services: balance sheet Customer assets 1 Capital ratios Liquidity coverage ratio £bn % 12 mth avg,% 16% Protection during stress 7.4 7.4 2.9 2.7 6.2 1.3% 2.0% 3.7% Surplus 173 % 2.2 Personal 3.5% 3.5% 2.5% Regulatory 142 % 145 % loans buffers 1.9 2.0 1.6 Credit cards Minimum 1.
Slide 14: Items excluded from underlying results
Financials Items excluded from underlying results Impairment charges and H1 H1 closure provisions relating to: £m 2020/21 2019/20 • Argos store closures Guidance • Logistics integration 1 Restructuring programmes (259) (131) Restructuring, impairment and integration one-off costs Impairment charge
Slide 15: Net debt and retail free cash flow
Financials Net debt and retail free cash flow H1 H1 Structural changes made to improve cash flow: £m – IFRS 16 basis 2020/21 2019/20 Sales Margin Net cash from operating activities 1,418 1,041 of which working capital movements 571 251 Profit Capital expenditure (290) (248) Disposal proceeds 1 41 17
Slide 16: Balance sheet targets
Financials Balance sheet targets • Net debt reduction of £750m+ by 21/22 Net debt exc. Lease liabilities 1 • Medium leverage reduction target: £m Net debt/EBITDAR 2 less than 3x 2,125 (603) 1,522 3 (343) (750)+ 1,179 3 Target FY FY FY FY 15/16 18/19 19/20 21/22 1 Net debt definition now excludes der
Slide 17: Summary and Outlook
Financials Summary and Outlook Strong first half • Excellent execution • Strong, profitable digital sales growth and a particularly good contribution from Argos • One-off costs reflecting accelerated ambition and change within strategy update • Good underlying free cash flow generation • Interim div
Slide 18: Simon Roberts, Chief Executive Officer
Simon Roberts Chief Executive Officer
Slide 19: Agenda
Agenda H1 reflections and the impact of COVID Our business Our purpose Our priorities What we will deliver 19 J Sainsbury plc Interim Results 2020/21
Slide 20: COVID-19
Reflections / COVID COVID-19 Sainsbury’s Timeline Priority shopping Strict social Increased Increased for elderly, 800,000 online delivery online delivery distancing vulnerable customers Product vulnerable, measures contacted slots to slots to purchasing NHS & social for stores, including and priori
Slide 21: H1 digital sales £5.8bn
Reflections / COVID H1 digital sales £5.8bn Rapid change in how customers want and need to shop Total digital Groceries online SmartShop sales 117% sales 102% Sales participation 39% 31% C&C 3% Transaction Delivery 12% participation 0.3% 0.3% 19 % 19% 0.2% 0.2% 16% 17% 16% 8% 12% 8% 7% 7% 7% FY FY F
Slide 22: 90% of Argos sales are now online
Reflections / COVID 90% of Argos sales are now online Argos digital Clothing online sales 78% sales 75% 90% 18% 59% 61% 61% 55% 8% 6% 4% 3% FY FY FY H1 H1 FY FY FY H1 H1 16/17 17/18 18/19 19/20 20/21 16/17 17/18 18/19 19/20 20/21 Digital participation Digital participation 22 J Sainsbury plc Interim
Slide 23: Customers are positive about how we are handling the crisis
Reflections / COVID Customers are positive about how we are handling the crisis Higher customer satisfaction Supermarkets Online Customer satisfaction index Customer satisfaction index SAINSBURY’S SAINSBURY’S Tesco Tesco Morrisons Morrisons Asda Asda 19/20 Q4 20/21 Q1 20/21 Q2 19/20 Q3 19/20 Q4 20/2
Slide 24: Dynamic market conditions
Our business Dynamic market conditions % No let up in Accelerated Continued Discounters Disruption for competitive shift online growth of – ongoing sub scale intensity Amazon capacity grocers and in GM increase food service operators 24 J Sainsbury plc Interim Results 2020/21
Slide 25: Key consumer trends and priorities
Our business Key consumer trends and priorities Flight to Shift to Customer Priorities 1 value digital £ 33% 28% 26% 26% 26% Ultra Source local, 19% 19% convenience buy local 17% 15% 15% 3% Health and sustainability Convenience Value Safety One-stop-shop Range Other Price Quality Fast Promotions Loc
Slide 26: Building on our brand and strong assets
Our business Building on our brand and strong assets Sainsbury’s brand Scale Strong Attractive and own brand heritage number 2 position in food operating cash flow customer base Our stores Reputation for Online scale Nectar, investment Good catchments, service and capability in digital & innovation
Slide 27: Listening to our stakeholders
Our business Listening to our stakeholders Customers Colleagues Suppliers Value perception ranking 1 Colleague engagement 2 #1 Aldi Lidl 80% 81% Tesco 77% 75% Asda Shareholders Morrisons Sainsbury’s #6 Underlying EPS 26 Waitrose 24 M&S 22 H1 20/21 #8 20 2017 2018 2019 2020 18 2015-16 2019-20 1 Savan
Slide 28: Driven by our passion for food
Our purpose Driven by our passion for food Together we serve and help every customer 28 J Sainsbury plc Interim Results 2020/21
Slide 29: In the next 3 years we will transform our business
Our priorities In the next 3 years we will transform our business We are clear on our priorities • Better value and innovation • Customer and profit focus • Structurally lower operating • Supporting the core food costs to fuel investment in • Underpinned by buying business the core benefits and lowe
Slide 30: What will be different?
Our priorities What will be different? From To Food as part of a portfolio of brands Food back at the heart of Sainsbury’s Portfolio brands supporting food, delivering for Multi-brand, multi-channel ‘ecosystem’ customers and shareholders in their own right Cost savings offset by increases Structural
Slide 31: 7 key metrics
Our priorities 7 key metrics Delivering for customers and driving stronger financial outcomes Operational Financial • Strong customer satisfaction scores • UPBT growth • Maintain strong colleague engagement • Grocery market share performance • Deliver our Net Zero commitment • 200bp+ reduction in re
Slide 32: Better value and innovation priorities
Our priorities • Improve real and perceived value for money • Increase innovation pace • Grow Online capacity and extend routes to market • Expand physical points of distribution, focusing on Convenience • Better value and innovation • Deliver Net Zero commitment • Underpinned by buying • Tailor pri
Slide 33: Delivering better value to customers
Our priorities Delivering better value to customers Price investment Price Lock: Price Drop: • Focus on Over 300 prices dropped in October consistent value Volume uplift 1 • Addressing price Meat, fish and poultry perception gap Pre-investment • Stronger communication Post-investment 11% • Focus on
Slide 34: We will reignite food innovation
Our priorities We will reignite food innovation Perception of Quality 1 Perception of Innovation 2 Ranking Ranking #1 #1 M&S M&S Waitrose Waitrose Sainsbury’s #3 Tesco Morrisons Aldi Tesco Lidl Aldi Sainsbury’s #6 Lidl Asda Asda Morrisons #8 #8 1 Source: YouGov. Total Population. Net score for quest
Slide 35: We will reignite food innovation
Our priorities We will reignite food innovation We will: Triple the number of new product launches Expand our in-house innovation team Speed up the product development process by 1/3 Focus on Taste the Difference, organic and healthier products 35 J Sainsbury plc Interim Results 2020/21
Slide 36: Our Net Zero sustainability plan
Our priorities Our Net Zero sustainability plan Four focus areas over the next 3 years Reduce Healthy & Reduce carbon emissions Reduce food waste sustainable diets plastic packaging within own operations by 50% by 2030 for all by 50% by 2025 to Net Zero Carbon emissions down Expansion of meat- Food
Slide 37: Groceries Online: growing volume, improving profitability
Our priorities Groceries Online: growing volume, improving profitability Orders more than doubled 1 Incremental growth 850,000 More than half of GOL spend growth is FY20/21 ambition from customers new to Sainsbury’s 2 750,000 760k orders 100% Split spend 650,000 customers 80% Switching 550,000 60% f
Slide 38: Groceries Online: driving productivity
Our priorities Groceries Online: driving productivity Rapid profitable expansion leveraging technology investments Orders per van Average basket size Items picked per hour +35%1 +17% +14% +13% +10% Click and Collect participation from 3% to 20% 2 Further productivity opportunities FY FY FY FY H1 16/
Slide 39: Convenience: accelerating our ambition
Our priorities Convenience: accelerating our ambition Strong local performance Acceleration of ambition New formats H1 YoY Growth Food on Sales the move +15% 50% Less urban 10-15 25-30 15% in local 12 % 47 % ‘less urban’ stores Sales participation new convenience stores and neighbourhood hubs per ye
Slide 40: Customer and profit focus: reduce cost to serve
Our priorities • Customer and profit focus • Supporting the core food business Reduce cost to serve Focus on food, coalition Deliver 5 year plan Improve profit delivery and data monetisation 40 J Sainsbury plc Interim Results 2020/21
Slide 41: Argos: accelerating store rationalisation
Our priorities Argos: accelerating store rationalisation Customers have changed the way they shop Our store rationalisation plan 100% Home delivery 101 Standalone stores 80% 518 450- 60% Collection point 500 in Sainsbury’s Click and Collect 40% (paid online) 308 430- 20% Check & reserve 460 Store in
Slide 42: Argos: lower cost to serve, improved customer offer
Our priorities Argos: lower cost to serve, improved customer offer Argos Lower cost to serve £105m1 profit improvement • Stock reduction: working capital benefit • Improved availability • Lower prices • Catalogue 1 by March 2024 42 J Sainsbury plc Interim Results 2020/21
Slide 43: Expanding the reach of the Habitat brand
Our priorities Expanding the reach of the Habitat brand Habitat • Bringing Habitat together with Sainsbury’s and Argos • Will become lead Home and Furniture own brand in Sainsbury’s and Argos • Integrating systems, fulfilment and commercial operations • Rationalising Habitat store network • £12m ann
Slide 44: Nectar: supporting Food First, accelerating media revenue plans
Our priorities Nectar: supporting Food First, accelerating media revenue plans Enhanced focus Digital Nectar Personalised value Nectar 360 • Leveraging data to support ‘Food First’ 10m+ • Faster profit growth ambition from digital media business 5.6m+ digital collectors Oct Sep 2019 2020 44 J Sainsb
Slide 45: Nectar: supporting the portfolio, growing the coalition
Our priorities Nectar: supporting the portfolio, growing the coalition Additional Integration of Argos Role of coalition priorities Argos Nectar spend participation • Support the portfolio ahead of plan • Grow coalition Spend penetration Actual Forecast 1 2 3 4 5 Week numbers (since Argos Nectar lau
Slide 46: Financial Services
Our priorities Financial Services Material short term COVID-19 impact but on track for longer term commitments 1 Stop putting cash into Financial Services No capital input from the group 1 2 Improve returns Double UPBT; double digit ROCE within 5 years 3 Financial services cash generative Upstream c
Slide 47: Structural change to accelerate cost reduction
Our priorities Structural change to accelerate cost reduction • Reduce operating costs to fuel investment in the core • Transform our approach to costs and radically simplify our organisation • Structurally lower operating costs to fuel investment in • Reduce retail operating costs to sales by more
Slide 48: Strategic cost reduction: £600m additional headroom
Our priorities Strategic cost reduction: £600m additional headroom Reduce retail operating costs/ sales % by 200 bp+ Accelerated cost saving plans £m • Addressing inflationary cost pressures and Retail op. costs/ sales % volume related increases • Meeting increased groceries online demand • Creating
Slide 49: Key cost reduction imperatives
Our priorities Key cost reduction imperatives • Significant increase in ambition and pace of cost reduction • Simplification, prioritisation and structural reduction – Cross-functional opportunities and reduction in-function Key examples1 £150m £105m Supply chain Argos store transformation and logis
Slide 50: Technology investment supporting performance and efficiency
Our priorities Technology investment supporting performance and efficiency Focus on simplification, back end integration, cost reduction through innovation Customer Colleague Structural agility Strategic experience experience and efficiency growth 50 J Sainsbury plc Interim Results 2020/21
Slide 51: Creating the team to deliver
Our priorities Creating the team to deliver Know our customers Buy, range and innovate Serve our customers Mark Given Rhian Bartlett Mike Luck Clo Moriarty Chief Marketing Officer Food Commercial GM&C Commercial Retail and Digital Director Director Director • Understand customer needs • Design and b
Slide 52: What will be different?
Our priorities What will be different? From To Food as part of a portfolio of brands Food back at the heart of Sainsbury’s Portfolio brands supporting food, delivering for Multi-brand, multi-channel ‘ecosystem’ customers and shareholders in their own right Cost savings offset by increases Structural
Slide 53: Delivering for shareholders
What we will deliver Delivering for shareholders Profit inflection • Cost transformation: 200bp reduction in cost to sales • Working with suppliers to unlock value Sales Margin • Funding stronger food performance • 2021/22 UPBT higher than 2019/201 Profit High returning capital projects • Reducing c
Slide 54: In the next 3 years we will transform our business
Our priorities In the next 3 years we will transform our business We are clear on our priorities • Better value and innovation • Customer and profit focus • Structurally lower operating • Supporting the core food costs to fuel investment in • Underpinned by buying business the core benefits and lowe
Slide 55: Q&A
Q&A
Slide 56: Appendices
Appendices
Slide 57: Guidance for 2020/21
Appendix Guidance for 2020/21 Profit One-off items • FY 20/21 Group UPBT expected to be at least 5% higher than 19/20 • Restructuring, impairment and integration one-off costs of £900m-£1bn by FY23/24 (c. £300m cash) • Group UPBT in FY21/22 expected to exceed level reported in FY19/20 • c.£625m tota
Slide 58: Retail sales
Appendix Retail sales Total sales performance by category 28 weeks to 28 weeks to 19 September 21 September H1 £bn, inc. VAT 2020 2019 sales growth Grocery 11.2 10.3 8.2% General Merchandise 3.2 3.0 7.4% Clothing 0.4 0.5 18.3% Retail (exc. fuel) 14.8 13.9 7.1% Fuel sales 1.5 2.7 44.6% Retail (inc fu
Slide 59: Grocery sales growth by channel
Appendix Grocery sales growth by channel SUPERMARKET CONVENIENCE GROCERIES ONLINE sales 1 sales sales 102.2% H1 3.2% H1 H1 (8.0)% 1 inc. Argos stores in Sainsbury’s 59 J Sainsbury plc Interim Results 2020/21
Slide 60: Financial Services
Appendix Financial Services Financial Services UPBT £m H1 H1 30 Group contribution basis 2020/21 2019/20 Change 13 Total income 1 £170m £233m 27% Underlying operating profit £(58)m £30m 293% 7 (58) AFS (recognised by Bank) Customer lending 2, 3 £6.2bn £7.4bn £1.2bn 10 7 -3 AFS Customer deposits3 £5.
Slide 61: Key cost reduction programmes
Our priorities Key cost reduction programmes Retail and Digital CFO & Group HR Operations Director CFO L&SC Director CIO CMO Kevin O’Byrne Clo Moriarty Kevin O’Byrne Sandy Parsonage Phil Jordan Mark Given & Angie Risley Property and Logistics and Store Operations Technology Central Facilities Supply
Slide 62: Sainsbury's sales area and store numbers
Appendix Sainsbury’s sales area and store numbers As at 19 September 2020 Supermarkets Convenience Total Area Area Area (‘000 sq ft) Number (‘000 sq ft) Number (‘000 sq ft) Number Opening figures 2020/21 21,167 608 Opening figures 2020/21 1,898 807 Opening figures 2020/21 23,065 1,415 New stores - -
Slide 63: Sainsbury's store estate
Appendix Sainsbury’s store estate As at 19 September 2020 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 7 March 2020 stores closures 19 Sept 2020 Convenience 810 0 0 0 0 8
Slide 64: Sainsbury's investment programme
Appendix Sainsbury’s investment programme H1 2020/21 Convenience New stores Milton Wootton, Folkes Road Q2 Greenwich, Banning Street Q2 Leicester Square Q2 Swindon, Tadpole Garden Village Q2 Camden, Abbey Road Q2 Closures Garforth Q2 Liverpool, Bold Street Q2 64 J Sainsbury plc Interim Results 2020/
Slide 65: Retail margin
Appendix Retail margin As of 21 September 2020 H1 H1 £m 2020/21 2019/20 Change Retail sales (inc VAT, inc fuel) 16,338 16,567 1.4% Retail sales (ex VAT, inc fuel) 14,715 14,808 0.6% Retail underlying EBITDAR 1 1,194 1,067 11.9% 2 Retail underlying EBITDAR margin % 8.11 7.20 91bps at constant fuel pr
Slide 66: Group retail
Appendix Group retail H1 H1 2020/21 2019/20 Return on capital employed 1 7.9% 7.1% Net debt to EBITDAR 2 2.7x 3.1x Fixed charge cover3 2.8x 2.6x Underlying tax rate 27.6% 26.5% Core retail capex / sales 4 1.9x 1.8x 1 ROCE: Return is defined as a 52 week rolling underlying profit before interest and
Slide 67: Plc Board
Appendix Plc Board Martin Scicluna Simon Roberts Kevin O’Byrne Brian Cassin Jo Harlow Chairman Chief Executive Chief Financial Non-Executive Director Non-Executive Director Officer Tanuj Kapilashrami David Keens Dame Susan Rice Keith Weed Non-Executive Director Non-Executive Director Senior Non-Exec
Slide 68: Plc Board
Appendix Plc Board Martin Scicluna Simon Roberts Chairman Chief Executive Officer Appointment to the Board: 1 November 2018 Appointment to the Board: 1 June 2020 Martin joined the Board as Chairman Designate and Non-Executive Director on 1 November 2018. He was appointed Chairman of the Board on 10
Slide 69: Plc Board
Appendix Plc Board Kevin O’Byrne Brian Cassin Chief Financial Officer Non-Executive Director Appointment to the Board: 9 January 2017 Appointment to the Board: 1 April 2016 Skills and experience Committee membership: Kevin brings a wealth of retail and finance experience to the Board from Audit Comm
Slide 70: Plc Board
Appendix Plc Board Jo Harlow Tanuj Kapilashrami David Keens Non-Executive Director Non-Executive Director Non-Executive Director Appointment to the Board: 11 September 2017 Appointment to the Board: 1 July 2020 Appointment to the Board: 29 April 2015 Committee membership Committee membership Committ
Slide 71: Plc Board
Appendix Plc Board Dame Susan Rice Keith Weed Retirements in 2020/21 Senior Independent Director Non-Executive Director Mike Coupe retired from the Board Appointment to the Board: 1 June 2013 Appointment to the Board: 1 July 2020 on 1 June 2020. Committee membership Committee membership Matt Brittin
Slide 72: Operating Board
Appendix Operating Board Simon Roberts Kevin O’Byrne Jim Brown Tim Fallowfield OBE Chief Executive Officer Chief Financial Officer Chief Executive Officer, Company Secretary and Sainsbury’s Bank Corporate Services Director Mark Given Phil Jordan Paul Mills-Hicks Clo Moriarty Angie Risley Chief Marke
Slide 73: Operating Board
Appendix Operating Board Simon Roberts Jim Brown Tim Fallowfield MBE Chief Executive Officer Chief Executive Officer, Sainsbury’s Bank Company Secretary and Corporate Services Director See Appendix page 68 Date of appointment: June 2019 Date of appointment: September 2004 Skills and experience Skill
Slide 74: Operating Board
Appendix Operating Board Mark Given Phil Jordan Paul Mills-Hicks Chief Marketing Officer Chief Information Officer Commercial Director Date of appointment: June 2020 Date of appointment: January 2018 Date of appointment: May 2014 Skills and experience Skills and experience Skills and experience Mark
Slide 75: Operating Board
Appendix Operating Board Clodagh Moriarty Angie Risley Chief Digital Officer Group HR Director Date of appointment: June 2018 Date of appointment: January 2013 Skills and experience Skills and experience Clodagh was appointed Retail and Digital Angie was appointed Group HR Director and Director in J
Slide 76: Supplementary financial details
Appendix Supplementary financial details 1. Weighted average number of shares 2. Dividend 3. Financial calendar HY 2020/21: 2,221.7m (2,317.1m diluted) 2020/21 Q3 trading statement 13 January 2021 2019/20 HY 2019/120: 2,207.4m (2,461.3m diluted) (15 weeks to 2 January 2021) Interim 3.2p 3.3p Prelimi