J Sainsbury plc · LSE:SBRY
J Sainsbury — H1 2020/21 Earnings Presentation
55 slides from J Sainsbury's earnings presentation, Nov 5, 2020
Slide 1: Interim Results and Strategy Update 2020/21
Slide 2: Kevin O'Byrne, Chief Financial Officer
Slide 3: Agenda
Agenda 1 2 H1 financial highlights Strategy update and operational performance 3. JSainsbury pl Interim Res: 2020,
Slide 4: Group performance overview
Le Financials Group performance overview Retail sales! A 71% 14,836 13,856 19/20 @ 20/21 All figures £m 1 Exc. Fuel. (Retail sales inc. Fuel (1.4)%) 2 Underlying 4 JSainsbury ple Interim Results 2020/21 Retail Financial Services operating profit? operating profit” A 27% 555 19/20 (20/21 (55) Underly
Slide 5: Group performance overview
Le Financials Group performance overview Statutory profit/loss Free cash before tax flow A 35% 9 943 H1 19/20 (137) 19/20 § 20/21 All figures £m Net debt (excluding leases) v £912m (1,179) Dividend per share? 73p Interim Interim 20/21 1 Special dividend of 7.3p to be paid in lieu of final dividend f
Slide 6: Retail sales growth by category
Le Financials Retail sales growth by category Grocery Clothing General Merchandise Total Retail sales sales sales sales growth? 10.5% Argos 8.5% » OE (26.7)% (7.5) % Total GM Sainsbury’s GM 1 Exc. fuel 6 Sainsbury ple Interim Results 2020/21
Slide 7: Sales performance versus market
Le Financials Sales performance versus market Grocery H1 20/21 volume growth’ 10% Lidl 8 Total Morrisons % Total ; F grocers S8!MSBUTY'S Tasco 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 JSainsbury ple I
Slide 8: GM&C performance versus market
GM&C performance versus market Argos H1 20/21 sales growth vs market* — Argos @ Market Toys Furniture fF cide ky Electronics =—" Domestic appliances Ss _—$——$<—=_—_ _———————— Gaming 1 GfK market ex. Argc les value grow 2 Kantar 24 week volume market share di 8 JSainsbury ple Interim Results 9 Sept 2
Slide 9: Underlying profit before tax
9 Le Financials Underlying profit before tax UPBT YoY movement £m (75) +118 — +20 301 Financial Interest Services Retail H119/20 UPBT H1 20/21 UPBT 1 Higher absence costs, pay for vulnerable colleagues, front line 2 Customer and colleague protection measures, distribution costs, 1S ental income J Sa
Slide 10: Financial Services: UPBT bridge
Le Financials Financial Services: UPBT bridge UPBT waterfall £m ATIM& Travel Money | 20 | Reduced H1 19/20 balances _ Additional UPBT COVID credit (55) provisions Management action H1 20/21 UPBT 10 J Sainsbury ple Interim Results 2020/21
Slide 11: Financial Services: management action
Le Financials Financial Services: management action Costs’ Colleague costs Savings blended rate £m £m % v 13% V 17% Vv 70bps 156 145 52 13 ag: 135 1 Group contribution basis 11. J Sainsbury ple Interim Results 2020/21
Slide 12: Financial Services: quality of book
Financial Services: quality of book 90+ days past due at 18 months‘? Payment holidays? Credit Provisions % — ———— a Aug Aug Total Lending Book 19 20 94% no PH Secured lending (gross)* £19bn = £1L.6bn Cards Expected Credit Losses® (£m) 1 3 Coverage Ratio 0.0% 0.2% Loans % of known outcomes of EPFs ma
Slide 13: Financial Services: balance sheet
Le Financials Financial Services: balance sheet Customer assets’ Capital ratios £bn % v 16% 74 4 Protection during stress — Surplus — Personal — Regulatory loans buffers — Credit cards — Minimum — Mortgages Capital tequirements — Store cards Aug Aug 19 20 20 1 Amounts due from customers net of provi
Slide 14: Items excluded from underlying results
Le 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 Restructuring programmes* [259)] (131) * Restructuring, impairment 5 h 23 and integration one-off cost Impair
Slide 15: Net debt and retail free cash flow
Le Financials Net debt and retail free cash flow Structural changes made to improve cash flow: > aa > i Capital —» Financial Interest Services costs > ~~ Dividend Net debt reduction 1 Includes dividends received from JVs, net of JV capital injections 2 Includes initial direct costs on right-of-use a
Slide 16: Balance sheet targets
Le Financials Balance sheet targets * Net debt reduction of £750m+ by 21/22 * Medium leverage reduction target: Net debt/EBITDAR’ less than 3x Net debt exc. Lease liabilities’ £m 2,125 1,522° 43) Be 750) 1,179° | Target FY FY FY FY 15/16 18/19 19/20 2u22 1 Net debt definition now excludes derivative
Slide 17: Summary and Outlook
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 dividend and s
Slide 18: 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 ple Interim Results 2020/21
Slide 20: COVID-19: Sainsbury's timeline
COVID-19 Sainsbury’s Timeline Priority shopping Strict social 800,000 Increased Increased for elderly, distancing vulnerable custorners online delivery online delivery Product vulnerable, measures contacted slots to slots to purchasing NHS &social for stores, including and prioritised for 650,000 70
Slide 21: Reflections / COVID: H1 digital sales
Ll Reflections / COVID H1 digital sales £5.8bn Rapid change in how customers want and need to shop Total digital sales A 117% 39% Digital participation* 1 Of total Retail sales exc. Fuel. Includes SmartShop sales 21. J Sainsbury ple Interim Results 2020/21 Groceries online sales A102% C&C Delivery B
Slide 22: 90% of Argos sales are now online
Ll Reflections / COVID 90% of Argos sales are now online Argos digital sales A 78% H 90% Digital participation 22. JSainsbury ple Interim Results 2020/21 Clothing online “sales A75% 18% Digital participation
Slide 23: Customers are positive about how we are handling the crisis
La Reflections / COVID Customers are positive about how we are handling the crisis Higher customer satisfaction Supermarkets Customer satisfaction index SAINSBURY’S Tesco Morrisons _— Asda 19/20 94 20/21 Q1 20/21 Q2 Supermarket and Online customer satisfaction %. Source: Competitor benchmarking surv
Slide 24: No let up in competitive intensity
o No let up in competitive intensity Accelerated shift online Continued growth of Amazon in GM Discounters — ongoing capacity increase
Slide 25: Key consumer trends and priorities
Le Our business Key consumer trends and priorities Flight to Shift to Customer Priorities’ value digital & 9 33% 26% 26% Ultra Source local, convenience buy local 15% 15% Ti LOCAL 3% Health and aox< | Ef sustainability Convenience f Value Safety f One-stop-shop? Range f Other Price out Fast Promotio
Slide 26: Building on our brand and strong assets
Building on our brand and strong assets f ® Sainsbury’ ake alnsDurys ee | e eae Sainsbury’s brand Scale Strong and own brand heritage number 2 position in food operating cash flow 4 — — Salsbury 4 = e <{— Our stores Reputation for Online scale Good catchments, service and capability strength in conv
Slide 27: Listening to our stakeholders
Le Our business Listening to our stakeholders Value perception ranking! rs Colleague engagement’ Aldi Lidl 80% Tesco 77% Asda Morrisons Sainsbury's Underlying EPS Waitrose 24 M&S 22 “~o__ 8 Pa 20 > 2017 2018 2019 2020 1 8 2015-16 _> 2019-20 1 Savanta Brand Tracking P7 2020 ‘Genuine value for money p
Slide 28: Our purpose
Le! Our purpose Interim Results 2020/21
Slide 29: In the next years we will transform our business
Le! Our priorities In the next 3 years we will transform our business We are clear on our priorities Food CA First L} yO Brands that tas Deliver * Better value and innovation * Customer and profit focus * Supporting the core food business * Underpinned by buying benefits and lower cost to serve Conn
Slide 30: What will be different?
Le! Our priorities What will be different? From ==> To Food as part of a portfolio of brands >> Food back at the heart of Sainsbury’ Ss Portfolio brands supporting food, delivering for Multi-brand, multi-channel ‘ecosystem’ >> customers and shareholders in their own right Cost savings offset by incr
Slide 31: Key metrics
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 retail operating
Slide 32: Food First: priorities
Le! Our priorities es that &S to First Invest * Better value and innovation * Underpinned by buying benefits and lower cost to serve 32 JSainsbury ple Interim Results 2020/21 Improve real and perceived value for money Increase innovation pace Grow Online capacity and extend routes to market Expand p
Slide 33: Delivering better value to customers
Le! Our priorities Fo First Delivering better value to customers Price investment Price Lock: ; Price Drop: * Focus on Over 300 prices dropped in october consistent value Volume uplift’ Meat, fish and poultry * Addressing price perception gap Pre-investment * Stronger communication * Focus on fresh
Slide 34: We will reignite food innovation
Le! Our priorities We will reignite food innovation Perception of Quality’ Perception of Innovation’ Ranking Ranking — #1 ——_ #1 M&S M&S Waitrose Waitrose Sainsbury’s Tesco Morrisons Aldi Tesco Lidl Aldi Sainsbury’s Lidl Asda Asda Morrisons #8 #8 1 Source: YouGov. Total Population. Net score for que
Slide 35: We will reignite food innovation
Le! Our priorities We will reignite food innovation 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 ple Interim Results 2020/21
Slide 36: Our Net Zero sustainability plan
Our Net Zero sustainability plan Four focus areas over the next 3 years Reduce carbon emissions within own operations to Net Zero Healthy & sustainable diets for all Net Zero 2040 Reduce food waste by 50% by 2030 Reduce plastic packaging by 50% by 2025 Carbon emissions down 14% YOY LED programme on
Slide 37: Groceries Online: growing volume, improving profitability
Le! Our priorities Groceries Online: growing volume, improving profitability Orders more than doubled’ Incremental growth 850,000 a More than half of GOL spend growth is FY20/21 ambition from customers new to Sainsburu’s? 750,000 760k orders ee? 100% a *— Split spend 650,000 20% customers ® Switchin
Slide 38: Groceries Online: driving productivity
Le! Our priorities Groceries Online: driving productivity Rapid profitable expansion leveraging technology investments Orders per van Average basket size Items picked per hour +35%' +17% 14% +13% 7 . +10% . veeeee Click and Collect ‘eet participation from 3% to 20%’ Further productivity opportunitie
Slide 39: Convenience: accelerating our ambition
Le! Our priorities Convenience: accelerating our ambition Strong local performance Acceleration of ambition H1 YoY Growth Food on Sales the move +15% v50% Less urban » in local A1S ‘less urban’ stores Sales participation new convenience stores and neighbourhood hubs per year More urban Woodhall Spa
Slide 40: Food Brands that Deliver
Le! Our priorities 7 Food Brands that Save to First Deliver Invest ‘Connected to Net Zero Customers 2040 OD Brands that \ Deliver * Customer and profit focus * Supporting the core food business 40 J Sainsbury ple Interim Results 2020/21 Tu habitat® Reduce cost to serve Improve profit delivery Focus
Slide 41: Argos: accelerating store rationalisation
Le! Our priorities Be Brands that Deliver Argos: accelerating store rationalisation Customers have changed the way they shop Our store rationalisation plan 100% *— Home delivery 80% 60% © Click and Collect 40% (paid online) 20% *— Check & reserve - 4 0% Walk-in FY16/17 Q2 20/21 H120/21* March 24 *—
Slide 42: Argos: lower cost to serve, improved customer offer
Le! Our priorities Be Brands that Deliver Argos: lower cost to serve, improved customer offer Lower cost to serve £105m! profit improvement * Stock reduction: working capital benefit * Improved availability * Lower prices * Catalogue 1 by March 2024 42 J Sainsbury ple Interim Results 2020/21
Slide 43: Expanding the reach of the Habitat brand
Le! Our priorities Expanding the reach of the Habitat brand * 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 annual
Slide 44: Nectar: supporting Food First, accelerating media revenue plans
Le! Our priorities 388 Brands that Deliver Nectar: supporting Food First, accelerating media revenue plans * Leveraging data to Enhanced focus Digital Nectar Personalised value Nectar 360 a or support ‘Food First’ a 2 Stroallt . m+ as Nectarversary! * Faster profit growth ambition ae from digital me
Slide 45: Nectar: supporting the portfolio, growing the coalition
Le! Our priorities Nectar: supporting the portfolio, growing the coalition Additional priorities * Support the portfolio * Grow coalition 45 J Sainsbury plc Interim Results 2020/21 Integration of Argos Argos Nectar spend participation ahead of plan Spend penetration pa Actual > ia 1 2 3 4 a Week num
Slide 46: Financial Services
Le! Our priorities Financial Services Material short term COVID-19 impact but on track for longer term commitments » No capital input from the group’ ) Double UPBT; double digit ROCE within 5 years » Upstream cash within 5 years? > Cost to Income c.50%? within 5 years » Mortgage acquisition ceased;
Slide 47: Save to Invest: structural change to accelerate cost reduction
Le! Our priorities a Save to Structural change to accelerate cost reduction Invest * 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 the core * Work with supplie
Slide 48: Strategic cost reduction: £600m additional headroom
Le! Our priorities Strategic cost reduction: £600m additional headroom Reduce retail operating costs/ sales % by 200 bp+ £m Retail op. costs/ sales % fee, Sees, Accelerated cost saving plans + Addressing inflationary cost pressures and volume related increases + Meeting increased groceries online de
Slide 49: Key cost reduction imperatives
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 1 by March 2024 49 J Sainsbury plc Key examples? £150m Supply chain and logistics £60m Cou
Slide 50: Technology investment supporting performance and efficiency
Le! 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 —— growth wiz Oo > Mm o7n 50 J Sainsbury plc Interim Results 2020/
Slide 51: Creating the team to deliver
Le! Our priorities Creating the team to deliver Know our customers Buy, range and innovate Serve our customers Mark Given Chief Marketing Officer * Understand customer needs * How we connect with our customers * Unlock power of Nectar Rhian Bartlett Mike Luck Food Commercial GM&C Commercial Director
Slide 52: What will be different?
Le! Our priorities What will be different? From ==> To Food as part of a portfolio of brands >> Food back at the heart of Sainsbury’ Ss Portfolio brands supporting food, delivering for Multi-brand, multi-channel ‘ecosystem’ >> customers and shareholders in their own right Cost savings offset by incr
Slide 53: What we will deliver
Le 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 WV WwW * 2021/22 UPBT higher than 2019/20! High returning capital projects *
Slide 54: In the next years we will transform our business
Le! Our priorities In the next 3 years we will transform our business We are clear on our priorities Food CA First L} yO Brands that tas Deliver * Better value and innovation * Customer and profit focus * Supporting the core food business * Underpinned by buying benefits and lower cost to serve Conn
Slide 55: Q&A