J Sainsbury plc · LSE:SBRY
J Sainsbury — FY2017/18 Earnings Presentation
39 slides from J Sainsbury's earnings presentation, May 2018
Slide 1: Full Year Unaudited Results 2017/18 and Combination of J Sainsbury plc and Asda
Slide 2: David Tyler, Chairman
Slide 3: Kevin O'Byrne, Chief Financial Officer
Slide 4: Financial highlights
Financial highlights * UPBT £589m — a return to growth - H2 UPBT up 11%, with improved food margin trend * Cost savings and Argos acquisition synergies ahead of plan * Sainsbury’s Bank profits up 11% * Strong cash generation - Free cash flow £432m, up £113m year on year * Lease adjusted net debt to
Slide 5: Group performance overview
Group performance overview £m 2017/18 2016/17 Change Underlying results' Group sales (inc VAT) 31,735 29,112 © 9% Retail operating profit 625 626 O 0% Financial Services operating profit 69 62 ©11% Underlying interest costs 119 9 © 0% Profit before tax 589 581 © 1% Underlying basic EPS 20.4p 21.8p O
Slide 6: Retail sales
Retail sales Growth across all channels 0 1.3% 00 1.6% LFL sales growth’ Total sales growth’? - Categories o 0.3% : Grocery Sales from © 2.3% net new space” : General : Merchandise © (0.8)% Clothing © 3.8% 1 Including Argos in the base 2. Sales including VAT, excluding fuel 3 Sainsbury's Total Retai
Slide 7: Grocery
Grocery Strong performance * Improved food margin trend, transaction growth * Re-launched 128 food ranges * March 2018 £150m price investment * Grocer Gold Best for Service and Best for Availability for 5" year * Proposed changes to the in store operating model Total Grocery YOY Transactions Growth
Slide 8: General Merchandise and Clothing
General Merchandise and Clothing Continued market outperformance'’ Clothing * Clothing sales growth of nearly 4% - Online growth of 45% General Merchandise * Growing ahead of the market* * Strong Argos performance in key categories - Audio (+39%), Mobiles (+28%), Video Games (+15%) * Fast Track deli
Slide 9: Synergies
Synergies Synergies ahead of accelerated plan Expected EBITDA synergies phasing across financial years (£m) : 2018/19 FY Guidance 180 £87m EBITDA’ (£82m EBIT) for FY 2017/18 : : | UPBT impacts 150 * Ahead of expectations . ¢ Incremental EBITDA synergies - Argos stores in Sainsbury’s : of £73m (EBIT
Slide 10: Sainsbury's Bank
Sainsbury’s Bank Profit increase primarily driven by consolidation of Argos Financial Services 1 12months to 28 February 2018 £m 2017/18" 2016/17 Change Total income” 451 347 ©30% Underlying operating profit 69 62 © 11% Cost/income ratio 70% 72% © 200bps Active customers - Bank 1.92m 177m © 8% Activ
Slide 11: Sainsbury's Bank 2018/19 FY Guidance
Sainsbury’s Bank 2018/19 FY Guidance We expect underlying profit to fall to around £30m, driven by: a 2018/19 FY Guidance ¢ Expect underlying profit of around £30m in 2018/19 © Capital injections into the Bank are expected to be £110m in 2018/19. This is to cover card and loan platforms, regulatory
Slide 12: Balance sheet
Balance sheet Cash flow stronger, net debt and leverage lower * FCF more than £100m higher year on year at £432m : 2018/19 FY Guidance * Net debt down £113m to £1,364m' with adjusted net debt/EBITDAR’ Eo NERGRe ena ionaiinee down to 3.2x © tobyc.£100m © Net debt reduction over the * RCF refinanced a
Slide 13: Financial outlook
Financial outlook * Cost inflation around 3% * Cost savings of around £200m in FY 18/19 * Incremental EBITDA synergies of £73m (EBIT £60m) * Sainsbury’s Bank guiding to reduction in profits next year to around £30m * Comfortable with FY 18/19 UPBT consensus’ despite lower bank profits * Expect net d
Slide 14: Mike Coupe
Mike Coupe ASDA 3\< Sainsbury's
Slide 15: The combination: dual brand grocery strategy
The combination 1 Dual brand grocery strategy, sharpening distinctive customer propositions 2 Asda consolidated on a debt-free, cash-free and pension-free’ basis - Walmart receives 42% equity stake in the Combined business and £2.975bn cash - Walmart will hold 29.9% of the combined voting shares 3 W
Slide 16: The market is more competitive than ever before
The market is more competitive than ever before amazon eee) S WHOLE @ {leQloFRESH JUST EAT i) a deliveroo UBER EATS bmn az Big Brands Big Savings WEEE SoH PRIMARK The electronics speciali Toys$jus mdplin 16 Combination of J Sainsbury plc and Asda Group Limited ASDA Walmart oi Sainsbury's
Slide 17: A great deal for everyone
A great deal for everyone More dynamic, more adaptable, more resilient CUSTOMERS COLLEAGUES SHAREHOLDERS Y Lower prices || ¥ Stronger business. Y Greater efficiency Y Creating value | Y Better quality || -¥ More opportunities Y Differentiated ranges Y Strong balance sheet Y Differentiated ranges Y G
Slide 18: Creating a dynamic new player in UK retail
Creating a dynamic new player in UK retail Materially enhanced scale. Strong, differentiated brands serving the widest possible market Strong grocery market position’ Supermarket grocery value 44 market share 49 (52 week grocery till roll, percent 5.0 of sales value) 61 Asda 9.6 Sainsbury's | 33.6 |
Slide 19: Highly complementary store portfolios
Highly complementary store portfolios Proportion of grocery stores Sainsbury's’ (number) + n Store size Mj 100% — sqft >60k 80% — Scotland _ . Northern 7 60% ~ Ireland * 40% — 20% — 0% — ~ | Sain sbury's Asda London >580 Total # of grocery stores >600 (ex Sainsbury's Local) 36k sq ft 35k sq ft Avera
Slide 20: Roger Burnley: A great deal for everyone
SUPPLIERS SHAREHOLDERS A great deal for everyone Roger Burnley ASDA Walmart>\< Sainsbury's
Slide 21: Overview of Asda
Overview of Asda A leading multi-format, omni-channel business with a strong value heritage Rolled Back The prices of some of your favourite brands are now staying beck, Large scale Multi-format, EDLP’ heritage national business omni-channel offering Strength in Food sourcing Walmart support Talente
Slide 22: Asda financial overview
Asda financial overview Asda has a healthy, strong financial position Delivering ... with healthy ...and cash flow ...with strong growth... profit margins... generation... asset backing it) 4. 3.5%+ £4bn 75% Consecutive Operating profit Operating cash Freehold property quarters of positive margir’ f
Slide 23: Delivering momentum at Asda
Delivering momentum at Asda Consistent LFL sales growth driven by volume growth in key categories patios Seka & staying Bac! 4 ‘The prices of same wore of your favourite 2 fensere nent IG staying back Se Care 1 1 Every Day Low Price Walmart Sainsbury's 23 Combination of J Sainsbury plc and Asda Grou
Slide 24: Mike Coupe: A great deal for everyone
SUPPLIERS SHAREHOLDERS A great deal for everyone Mike Coupe ASDA Walmart>\< Sainsbury's
Slide 25: A great deal for everyone
A great deal for everyone More dynamic, more adaptable, more resilient Great for CUSTOMERS Lower prices, better quality, differentiated ranges, more flexible ways to shop Great for COLLEAGUES Stronger business, more opportunities, greater security for pension holders Great for SUPPLIERS Greater effi
Slide 26: Customers: dual brand strategy
(> CUSTOMERS Dual brand strategy, sharpen distinctive propositions Enhanced ability to invest in the areas that matter most to customers Investing a substantial . D proportion of the gross synergy Sainsburys ASDA benefits, across the group, in: Customer perceptions: Customer perceptions: 4 o “fain n
Slide 27: More flexible ways to shop
More flexible ways to shop Grocery General Merchandise & Clothing * Strong, fast-growing online businesses * Argos: A tech-led General Merchandise business - The UK’s 34 most visited retail website - 60% of sales online - >1,000 points of presence * Instore technology Convenience * Over 800 Sainsbur
Slide 28: A stronger business
A stronger business More opportunities within a larger group Two great teams ¢ Dual-brand grocery strategy ¢ Opportunities for colleagues at all levels ¢ Run by the best leaders from both businesses ¢ Asda run from Leeds with own CEO One set of shared values ¢ Built on similar values and heritage *
Slide 29: Suppliers
G)> SUPPLIERS Great opportunity for suppliers Platform for growth * Opportunity for suppliers to grow with us * More streamlined supply chains * Differentiated products * Protecting choice a 29 Combination of J Sainsbury plc and Asda Group Limited ASDA Walmart oi Sainsbury's
Slide 30: £500m net synergies post investment in the customer offer
£500m net synergies post investment in the customer offer y | e £350m OD £75m £75m Buying benefits Property’ Operational efficiencies Harmonised buying terms Argos in Asda stores Costs and GNFR savings Potential for further synergies - unquantified at this time * Cross-selling within the Combined bu
Slide 31: Shareholders: £500m of net synergies
(4> SHAREHOLDERS £500m of net synergies Sainsbury's and Walmart have proven track records of synergy delivery Overview of synergies Phasing of synergies’ * £500m EBITDA synergies in the second full financial year " post completion? * £150m opex implementation costs * £600m capex implementation costs
Slide 32: Delivering significant value creation for shareholders
Delivering significant value creation for shareholders... In the second full financial year post-completion: Reduced Value leverage’ creation Double digit Low double EPS accretion’ digit ROIC 1 EPS excluding the effects of implementation costs 2 ROIC calculated as acquired post-tax EBIT plus post-ta
Slide 33: Strengthened balance sheet and strong cash generation
(4> SHAREHOLDERS With a strengthened balance sheet and strong cash generation Investment grade credit profile on completion * Asda's structurally lower leverage Last reported annual net Freehold / - Predominantly freehold property mix operating lease charge (£m) Leasehold mix’ (%) - Debt-free, cash-
Slide 34: A great deal for everyone
A great deal for everyone More dynamic, more adaptable, more resilient CUSTOMERS COLLEAGUES SHAREHOLDERS Y Lower prices || ¥ Stronger business. Y Greater efficiency Y Creating value | Y Better quality || -¥ More opportunities Y Differentiated ranges Y Strong balance sheet Y Differentiated ranges Y G
Slide 35: Judith McKenna: A great deal for everyone
SUPPLIERS SHAREHOLDERS A great deal for everyone Judith McKenna ASDA Walmart>\< Sainsbury's
Slide 36: Walmart overview
Walmart overview $500 bittion revenues’ $258 billion market capitalisatior’ 28 countries @Rakuten 7 JDE% Google 65 banners C. 11,700 retail units C. 270m customers served every week 1 Per the annual financial statements of Walmart Inc. for the year ended 31 January 2018 2 As at 27 April 2018 36 Comb
Slide 37: Role of Asda/Sainsbury's in Walmart's International Portfolio
Role of Asda/Sainsbury's in Walmart’s International Portfolio Combination unlocks value for customers and shareholders Walmart International strategy Partnership objectives + Being deliberate and thoughtful about the portfolio * Shared values and cultures * Transforming the business and making bold
Slide 38: Q&A
QA ASDA Walmart
Slide 39: Disclaimer
Disclaimer NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION. This presentation has been prepared solely for information and for use in connection wit