Interim Results for the 28 weeks ended 18 September 2021

04 November 2021

Strong performance with market share gains as we put food back at the heart of Sainsbury's

Interim Results for the 28 weeks ended 18 September 2021

Strong performance with market share gains as we put food back at the heart of Sainsbury's

Financial Highlights

• Grocery sales grew by 0.8 per cent versus H1 20/21 and 9.1 per cent versus H1 19/20 and we gained market share, driven by improved value, innovation and service, supported by customers continuing to eat at home more
• General Merchandise sales reduced by 5.8 per cent versus H1 20/21, as expected against strong lockdown and seasonal sales comparatives, but grew 1.1 per cent versus H1 19/20
• Strong digital sales of £5.8 billion, consistent with H1 20/21 at 39 per cent of retail sales
• Statutory Group sales (excluding VAT) up 5.3 per cent, with fuel sales up 62.7 per cent
• Underlying profit before tax of £371 million, up 23 per cent versus H1 20/21¹. Up 56 per cent versus H1 19/20, reflecting higher grocery sales and effective cost reduction programmes, particularly at Argos
• Statutory profit before tax of £541 million reflects significantly lower restructuring and impairment costs versus H1 20/21 and £181 million of exceptional income from settling legal disputes
• Strong retail free cash flow of £554 million¹. On track to meet free cash flow and net debt reduction targets
• Interim dividend of 3.2 pence
• We continue to expect to report underlying profit before tax of at least £660 million in the financial year to March 2022

Strategic highlights

• Food First: Good progress against the plan we set out last November to put food back at the heart of Sainsbury's
  - Value: Significantly improved versus competitors, driving sales, market share and switching gains
  - Innovation: On track to triple the number of new products this year; new lines very popular with customers
  - Customer Service: Maintained strong customer satisfaction scores with supermarket scores ahead of key competitors². Investing to improve our Groceries Online customer offer and improve productivity, attracting more customers and gaining market share; sales are up 13 per cent this year and 128 per cent over the past two years
• Brands that Deliver: Nectar, Argos, Habitat, Tu and Sainsbury's Bank are clearly focused on supporting the core food business and delivering for customers and shareholders
  - Continuing to transform Argos, significantly reducing the cost base and improving the customer offer
  - Relaunched the iconic Habitat brand and introduced Habitat Kids
  - Tu clothing sales grew strongly, helped by increased full price sales. Clothing online sales remain strong
  Grown digital Nectar to over 8 million customers and launched My Nectar Prices, currently offering customers approximately 95 million personalised discounts and promotions every week
  - Financial Services returned to profit; strong capital position
• Save to invest: Three-year structural cost reduction programme on track to reduce retail operating costs to sales ratio of at least 200 basis points
• Plan for Better: Ahead of our trajectory to become net zero in our own operations no later than 2040 and accelerated this commitment to 2035 ahead of the COP26 summit in Glasgow, where we are a Principal Partner

H1 Financial summary	2021/22	2020/21	2019/20	% change v 20/21	% change v 19/20
Statutory performance
Group revenue (excl. VAT, inc. fuel)	£15,724m	£14,934m	£15,097m	5.3%	4.2%
Profit / (Loss) before tax	£541m	£(137)m	£9m	N/A	N/A
Profit / (Loss) after tax	£389m	£(179)m	£(38)m	N/A	N/A
Basic earnings / (loss) per share	17.3p	(8.3)p	(2.2)p	N/A	N/A
Business performance1
Group sales (inc. VAT)	£17,528m	£16,557m	£16,856m	5.9%	4.0%
Retail sales (inc. VAT, excl. fuel)	£14,871m	£14,836m	£13,857m	0.2%	7.3%
Digital sales	£5.8bn	£5.8bn	£2.7bn	0%	108%
Underlying profit before tax	£371m	£301m	£238m	23%	56%
Underlying basic earnings per share	12.2p	10.1p	7.9p	21%	54%
Interim dividend per share	3.2p	3.2p	3.3p	0%	(3.0)%
Net debt (including lease liabilities)	£(6,345)m	£(6,168)m	£(6,778)m	Up £177m	Down £433m
Non-lease net debt	£(27)m	£(267)m	£(1,008)m	Down £240m	Down £981m
Return on capital employed	6.3%	7.9%	7.1%	(160)bps	(80)bps

Simon Roberts, Chief Executive of J Sainsbury plc, said:

"We are making good progress delivering our plan to put food back at the heart of Sainsbury's. We have grown market share through improving value for customers, tripling our rate of food innovation and delivering customer satisfaction ahead of our key competitors.

"Whilst customers are returning to many pre-pandemic shopping habits, online sales have remained very strong and we continue to grow market share. At the same time, our plan to transform Argos is on track, delivering significantly improved profitability.

"I'm really proud of my colleagues for the outstanding job they continue to do for our customers in such exceptional circumstances. Our teams have worked tirelessly over the past eighteen months and to say thank you we are closing all Sainsbury's and Argos stores on Boxing Day this year to give colleagues an extra day to spend with friends and family.

"We are proud to be the Principal Supermarket Partner of COP26 and are accelerating our carbon reduction ambitions and will now reach net zero in our own operations by 2035.

"Our industry faces labour and supply chain challenges. However our scale, advanced cost saving programme, logistics operations and strong supplier relationships put us in a good position as we head into Christmas. I would like to thank all my colleagues and all our suppliers for their hard work, commitment and dedication in the weeks ahead to ensure we deliver the best possible Christmas for our customers."

Outlook

The business performed well through the first half, benefiting from higher in-home grocery consumption and outperforming grocery competitors, while general merchandise sales declined, as expected, against an exceptionally strong period last year. Against further strong comparatives in the second half of the year we continue to expect customer behaviour to normalise and grocery growth to moderate and we will continue to invest to further improve our value position. We are well placed to deal with a backdrop of global supply challenges and a tight labour market, with scale, strong supplier relationships and a well-developed and accelerating cost saving programme. We continue to expect to report underlying profit before tax of at least £660 million in the financial year to March 2022 and reduce non-lease net debt by at least £950 million³ by March 2023, generating average retail free cash flow of at least £500 million per year over the three years to March 2025.

Like-for-like sales performance¹

2020/21	2021/22
Q1	Q2	Q3	Q4	Q1	Q2	H1
Like-for-like sales (exc. fuel)	8.2%	5.1%	8.6%	11.3%	1.6%	(1.4)%	0.3%
Like-for-like sales (inc. fuel)	(2.3)%	(0.5)%	3.2%	3.2%	8.4%	3.0%	6.1%

Total sales performance

2020/21	2021/22 YoY	2021/22 Yo2Y
Q1	Q2	Q3	Q4	Q1	Q2	H1	Q1	Q2	H1
Grocery	10.5%	5.1%	7.4%	7.1%	0.8%	0.8%	0.8%	11.3%	6.0%	9.1%
General Merchandise	7.2%	7.6%	6.0%	17.6%	(1.4)%	(11.4)%	(5.8)%	5.6%	(4.7)%	1.1%
GM (Argos)	10.7%	10.9%	8.4%	18.1%	(3.7)%	(12.0)%	(7.3)%	6.7%	(2.4)%	2.7%
GM (Sainsbury's Supermarkets)	(9.3)%	(6.9)%	(5.4)%	14.8%	11.2%	(8.0)%	2.4%	0.9%	(14.4)%	(5.9)%
Clothing	(26.7)%	(7.5)%	0.4%	4.2%	57.6%	9.2%	33.6%	15.5%	1.0%	9.1%
Total Retail (excl. fuel)	8.5%	5.2%	6.8%	9.2%	1.6%	(1.7)%	0.2%	10.3%	3.4%	7.2%
Fuel	(56.1)%	(29.3)%	(29.0)%	(38.5)%	95.1%	36.1%	62.7%	(14.4)%	(3.8)%	(9.9)%
Total Retail (inc. fuel)	(2.1)%	(0.4)%	1.7%	1.6%	8.5%	2.7%	6.0%	6.2%	2.2%	4.5%

Notes

Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

A webcast presentation will be available to view on our website at 7:30 (GMT). The webcast can be accessed at the following link: https://webcasts.sainsburys.co.uk/sainsbury165

Following the release of the webcast, a Q&A conference call will be held at 9:30 (GMT). This will be available to listen to on our website at the following link: https://webcasts.sainsburys.co.uk/sainsbury164

A recorded copy of the webcast and Q&A call, alongside slides and a transcript of the presentation will be available at www.about.sainsburys.co.uk/investors/results-reports-and-presentations following the event

Sainsbury's will issue its 2021/22 Third Quarter Trading Statement at 07:00 (GMT) on 12 January 2022.

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Food First

We are putting food back at the heart of Sainsbury's. We have accelerated our cost saving programme and simplified our operations to invest in lowering prices, speeding up innovation and improving service. This is delivering results - customers are buying more with us more often, switching to us from our competitors and we are increasing sales and market share, enabling us to invest further in our food offer.

Market share gains and improving customer satisfaction

• We grew grocery sales by 0.8 per cent and increased volume market share⁴
• We maintained strong customer satisfaction scores despite supply chain challenges and our supermarket customer service scores are ahead of our key competitors²
• We were named the safest retailer during the pandemic by the UK's leading consumer champion

Improving real and perceived value for money

• We are matching Sainsbury's quality with Aldi prices on nearly 300 of our most popular products and this is driving a halo benefit, with customers doing more of their shopping at Sainsbury's
• We have invested most in key fresh food areas such as meat, fish, poultry, fruit and vegetables, focusing on the products customers buy most often and delivering market outperformance⁵
• Our value index versus Aldi has improved by 400 basis points⁶
• The growth in the number of secondary customers choosing to shop at Sainsbury's is ahead of our key competitors⁷
• Our core Price Lock commitment continues to deliver great value and our Autumn campaign is one of our biggest ever, with over 2,500 products held in price for at least eight weeks

Increasing the speed of innovation

• We launched almost 650 new products this half and are on track to triple the number of new food products by the end of the year
• To help make Christmas special for our customers, this year we will launch around 300 innovative new Christmas products including Taste the Difference Maple & Marmalade Gammon and by Sainsbury's Pigs in Snowy Blanket Dragon Sushi Rolls
• Our Summer Editions range, including new barbecue and salad ranges, proved to be particularly popular. Building on this success, we are offering customers almost 50 new products in our first ever Autumn Editions range, featuring on-trend flavours such as truffle and pumpkin
• To Help Everyone Eat Better we are launching a number of delicious, healthy and sustainable ranges as well as introducing new lines in our own-brand Plant Pioneers range including innovative plant-based alternatives to fish and our first SO Organic British veg box
• We are working with new partners such as Carluccio's and Coco di Mama to offer customers a wider range of food to go products and we will continue to explore new partnerships that bring new products and services to our customers

Growing Groceries Online capacity and extending routes to market

• With more customers returning to shopping in our stores, online grocery demand has reduced from peak levels. However, demand remains around double pre-pandemic levels and we are the biggest online market share winner, becoming the second largest online grocery retailer⁸
• Investment in online has driven a strong performance relative to our competitors. Sales are up 13 per cent year-on-year and 128 per cent on a two-year basis. Groceries Online accounted for 17 per cent of grocery sales this half versus 15 per cent this time a year ago and 8 per cent two years ago
• We are improving online fulfilment productivity, with picking rates and basket size higher than two years ago
• We successfully relaunched same day Click & Collect and home delivery, giving customers more options and greater convenience for shopping online
• We are growing our On Demand grocery offer, delivering over 70,000 average weekly orders from around 440 stores in as little as 30 minutes through Chop Chop, Deliveroo and Uber Eats

Expanding physical points of distribution and adapting supermarket formats

• Our Convenience business grew 4.9 per cent with a strong recovery of our most urban stores although sales remain below pre-pandemic levels
• This year we aim to open around 25 convenience stores
• We plan to open four supermarkets in this financial year and are adapting our existing estate by offering new food services in our food counter spaces. Introducing self-serve patisserie has increased sales and reduced costs
  
  

Brands that Deliver

Nectar, Argos, Habitat, Tu and Sainsbury's Bank support our core food business, delivering for our customers and contributing strong, sustainable and profitable growth.

Nectar

• 8.2 million customers are now registered with the Nectar digital app and we are on track to reach 10 million next year
• We launched My Nectar Prices, becoming the first UK grocer to offer customers personalised digital rewards
• We continue to grow our Nectar360 business and invested to strengthen the platform. 170 of our Nectar360 customers have signed up to our insights platform to understand shoppers better
• We expect Nectar group profit contribution to increase by £60-70 million by FY 25/26, driven by growth in digital media

Argos

• Argos sales were down 7.3 per cent year-on-year but were up 2.7 per cent on two years. In line with the market, recent performance has been impacted by supply challenges, unseasonal weather and lower demand for home office equipment and technology in the second quarter. Our consumer electronics and home and furniture categories performed well
• 83 per cent of sales are generated online, up from 61 per cent two years ago
• We opened 37 Argos stores within Sainsbury's and more than half of Argos stores are in Sainsbury's supermarkets, making it easier for customers to shop for general merchandise

Habitat

• Habitat is now our main home and furniture brand and is available in 610 Sainsbury's stores and online via the Argos and Habitat websites. This has helped us grow our overall furniture market share over the past two years⁹
• We launched a new Habitat brand commitment - 'make your home a happy habitat' to help reposition the brand as affordable and accessible for all. In September we launched Habitat's first furniture range for kids

Tu

• Our clothing business remains strong, with sales up year-on-year and year-on-two years, despite competitors reopening. We have reduced promotions and grown full-price sales
• Online sales are up 70 per cent on a two-year basis
• With COVID-19 restrictions lifting, customers have been updating their wardrobes, with Womenswear and Seasonal performing particularly strongly

Financial Services

• We continue to make progress strengthening and simplifying our Financial Services business in line with our strategy and we remain comfortable with consensus profit forecasts for the division¹⁰
• Sainsbury's Bank offers rewards to loyal Sainsbury's and Argos customers and over 77 per cent of Bank customers have a Nectar card
• We are focused on offering digital-led services. 66 per cent of Car and Home insurance customers now use our online servicing capability and 96 per cent of Argos Storecard sales are through digital channels
• Following the re-launch of our Credit Card app in 2020, the number of active customers using it has increased by 39 per cent to 64 per cent, with the app becoming our primary credit card payment channel

Save to Invest

• We have made good progress on the cost saving programme we outlined last November and remain on track to deliver a reduction in our retail operating costs to sales ratio of at least 200 basis points
• Savings during the half were predominantly driven by key structural changes to the in-store operating model, online operating model and supporting customers to shop digitally in store
• We are making significant progress with our Argos Transformation Programme and are on track to lower our costs by £105 million. We closed 36 standalone Argos stores during the half and opened 37 Argos stores in Sainsbury's
• We opened our second Argos Local Fulfilment Centre in Leeds which will help give customers quicker access to more products
• Integrating Argos and Habitat logistics and supply chains with Sainsbury's will reduce costs by £250-300 million and improve overall efficiency. We closed one distribution centre in the half and will close another by the Spring of 2022
• We are making progress with the rollout of our new Integrated Transport Planning System which is designed to maximise vehicle usage, reduce CO2 emissions and ensure our drivers work as safely and efficiently as possible
• We are rationalising our property estate and closed one underperforming supermarket and 10 convenience stores
• Closing our food counters is generating cost savings and reducing food waste. A good proportion of counter sales have transferred to the aisles and we have converted the space in 312 of 477 stores to offer customers products tailored to their local area
  
  

Plan for Better

Better for You

Healthy and sustainable diets

• We announced a new brand commitment, Helping Everyone Eat Better, to raise awareness and drive behaviour change
• Over 97,000 colleagues engaged in the launch and took part in a campaign to cook a healthy, sustainable meal
• We aim to achieve 83 per cent of Healthy and Better for You sales by tonnage by 2025. We continue to reformulate our own-brand products to reduce sugar and salt, as well as increasing the number of healthier and plant-based choices
• Over 500,000 customers took part in Nectar's 'The Great Big Fruit And Veg Challenge'. The challenge incentivises shoppers to increase the amount of fruit and vegetables they eat, one plate at a time
  
  

Better for the Planet

• We are proud to be the Principal Supermarket Partner of COP26, the United Nations Climate Change Conference, currently taking place in Glasgow

Carbon

• We are ahead of trajectory on our Net Zero target and have accelerated our target for Scopes 1 and 2 greenhouse gas emission reduction from 2040 to Net Zero by 2035
• We have committed to reducing our Scope 3 emissions by 30 per cent by 2030
• We are working with our suppliers to understand how they are delivering against their own Scope 1 and 2 targets. We expect them to set their own net zero ambitions and work towards science based targets. We asked 400 of our key suppliers, who are significant contributors to our highest emission hotspot areas, to disclose their carbon reduction targets through industry disclosures, CDP and Higg
• By the end of 2021 we will be sourcing 100 per cent electricity from renewable sources and all of our supermarkets will have 100 per cent LED lighting installed
  Plastic
• To encourage our customers to recycle, we have rolled out a flexible plastic recycling scheme to all supermarkets
• To support meeting our target to reduce plastic packaging by 50 per cent by 2025, we have: replaced plastic with pulp trays for all our own-brand eggs, removing 237 tonnes; removed 17 tonnes of plastic wrap from tea boxes and are continuing to reduce the weight of our own-brand water packaging
• Together with the support of Prevented Ocean Plastic, we are turning plastic collected from the coast into packaging for our strawberry and fresh fish range, preventing 297 tonnes of plastic from entering the ocean each year

Food waste

• We have partnered with Neighbourly to manage our back of store food donation programme. This will help to connect our stores with local partners who will redistribute food to those in need.
• This half we have seen a 157 per cent increase in the redistribution of food for human consumption
• We will complete the roll-out of Neighbourly into all supermarkets by the end of 2021, supporting our target to reduce food waste by 50 per cent by 2030 target
  
  

Better for Everyone

• We want to treat people fairly throughout our business and supply chains and we remain committed to championing human rights. This year we published our fifth Modern Slavery Statement, which can be found on our corporate website
• In September we launched our new £1 million Helping Everyone Eat Better Community Grant Scheme. Our colleagues will nominate partner organisations who are tackling food insecurity for grants of £500 - part of our commitment to leave a measurable positive impact on the communities we serve and source from
• 94 per cent of colleagues on an apprenticeship scheme successfully completed their programme over the past half year, ahead of the national rate
• We are committed to diverse representation in leadership positions, with stretching targets taking us to 2024
• We partnered with Show Racism the Red Card, supporting them through a donation which will provide new educational resources to every school in England, Scotland and Wales for the first time in its 25-year history
• We announced our enhanced Family Leave policy to support those taking maternity, paternity or adoption leave

^{1 The Group's alternative performance measures are defined and reconciled on pages 54-60. These APMs should be considered in addition to, and are not intended to be a substitute for, IFRS measurements. As they are not defined by International Financial Reporting Standards, they may not be directly comparable with other companies' APMs
2 Service Management Group Competitor Benchmark Survey, Q2 2021/22
3 Excluding the £242m beneficial impact to net debt of the July 2021 conversion of Perpetual Securities
4 NielsenIQ Panel YoY volume growth, 28 weeks to 18 September 2021.Total FMCG (excluding Kiosk & Tobacco), Market Universe: Total Outlets
5 NielsenIQ Panel volume growth Yo2Y. Meat, Fish and Poultry and Produce categories. 28 weeks to 18 September 2021 vs 28 weeks to 21 September 2019. Market Universe: Total Outlets
6 Value Reality. Mar-Sep 2021 vs Mar 2020-Mar 2021; Edge by Ascential; internal modelling. Price index data vs Aldi unavailable in weeks 4-26 of 20/21
7 Secondary Shoppers - Contribution to Volume Growth. Nielsen Panel, Total FMCG (excluding Kiosk & Tobacco), 12wks to September 2021. Market Universe: Total Outlets
8 Nielsen panel data, value share of top 5 competitors between FY 18/19 and H1 21/22
9 GfK Homewares Total Category Report
10 Current analyst consensus for Financial Services Underlying Operating Profit: FY21/22 £26m, FY22/23 £43m, FY23/24 £49m}