J Sainsbury : Preliminary Results 2019/20 Presentation

Preliminary Results

2019/20

Kevin O'Byrne

Chief Financial Officer

Agenda

01		02		03
Financial highlights	19/20 performance	COVID-19 update

3Preliminary Results 2019/20 - April 2020

Group performance overview

£m	2019/20	2018/19	Change
Underlying results1
Group sales (inc VAT)	32,394	32,412	0%
Retail operating profit	938	981	4%
Financial Services operating profit	48	31	55%
Underlying profit before tax	586	601	2%
Underlying basic EPS	19.8p	20.7p	4%
Retail free cash flow	611	456	34%
Net debt2	(6,947)	(7,346)	5%
Non-lease net debt2	(1,179)	(1,522)	23%
Statutory results
Items excluded from underlying results	(331)	(399)	17%
Profit for the financial period before tax	255	202	26%
Basic EPS	5.8p	7.6p	24%	1Full breakdown of definitions available in the
				Alternative Performance Measures
				2Including perpetual securities

4Preliminary Results 2019/20 - April 2020

Retail sales

(0.6)%(0.4)%

LFL sales growth1	Total sales growth1
0.2%		Categories	Channels
Sales from		0.4%	(0.1)%
net new space	1
	Grocery	Supermarkets2
		(2.9)%	1.3%
		General	Convenience
		Merchandise	7.6%
		1.2%
		Groceries
		Clothing	Online

1. Sales including VAT, excluding fuel
2. Supermarket sales include Argos stores in Sainsbury's sales
3. Guidance on openings and closures is subject to potential disruption fromCOVID-19

2020/21 FY Guidance3

• Expect to open around 2 new Sainsbury's supermarkets and around 15 convenience stores
• Expect to close around
  8 supermarkets and around
  14 convenience stores, as part of announced property closure programme
• Expect to open35-40 Argos in Sainsbury's and close around 50 Argos standalone stores

5Preliminary Results 2019/20 - April 2020

Sales Momentum

Grocery:Total sales growth

2.0%

Q1	0.6%	0.4%
-0.5%	Q2	Q3	Q4

General Merchandise: Total sales growth

Q1 Q2 Q3 Q4

0%

	Total GM	Argos
-5%	(inc. Habitat)

JS GM

-10%

Clothing:Total sales growth

3.3%	4.4%
	2.5%
Q1
Q2	Q3	Q4

-4.5%

6Preliminary Results 2019/20 - April 2020

Sales performance versus market

Grocery:Volume growth1

Argos:Value growth v BRC2

4%		Q4
				Argos YoY
		19/20
		Q2		0%
0%		19/20			BRC YoY
Total	Q3			(excluding Argos)
	grocers	19/20			FY 2019/20
		Q1	Tesco	Asda	Clothing:Value Growth (%YOY)3
		19/20
		Sainsbury's			Sainsbury's
-5%				Morrisons
			0%	Total market

1Kantar unit growth YoY. Q1: 11 Mar - 30 Jun 2019, Q2: 1 Jul - 22 Sep, Q3: 23 Sep - 5 Jan, Q4: 6 Jan - 8 Mar 2020

2	Argos vs BRC non-foodnon-clothing market, 52 weeks to 7 March 2020
3	Kantar world panel 52 weeks to 8 March 2020	8 Mar 19		9 Mar 20
7	Preliminary Results 2019/20 - April 2020

Underlying profit before tax

	UPBT Waterfall (£m)									H1/ H2 UPBT
																							+8%
																							348
		601
							19		(8)
																			322
				(43)					JVs		586
														-15%
						17	Interest							279
				RetailFinancial										238
					Services
													18/19	19/20	18/19	19/20
18/19 UBPT					19/20 UBPT	H1				H2

8Preliminary Results 2019/20 - April 2020

Items excluded from underlying results

£m	2019/20	2018/19
Retail restructuring programme	(32)	(81)
Financial Services transition and other	(29)	(70)
Argos integration costs	-	(40)
Asda transaction costs	-	(46)
Defined benefit pension expenses	19	(118)
Other	7	(44)
Total ex. Property strategy	(35)	(399)
Property strategy programme	(296)	-
Total	(331)	(399)

Property Strategy Programme

Impairment

126charges

Store closure	126
write-downs

8	36
		Other closure
Other closure
costs - non-cash
costs - cash

9Preliminary Results 2019/20 - April 2020

Financial services

	Financial Services UPBT (£m)	Customer Assets (£bn)	Deposits
	+10%		+6%		+5%
	68	75		7.0	7.4
	34		2.6			£6.3bn
	24	Bank	2.9	Personal
			£6.0bn
						loans
	7	14	AFS	1.7	2.0	Credit cards
	37
		(recognised in
		27	Financial Services)	1.4	1.9	Mortgages
		AFS
			(recognised in	0.8	0.9	Store cards
			Retail)
	2018/19	2019/20		Feb 19	Feb 20		2018/19	2019/20
10	Preliminary Results 2019/20 - April 2020

Financial Services Costs

Costs1(£m)

+5%

286	300
		Depreciation
			Colleague
			costs

Other expenses

2018/19 2019/20

Headcount
-12%
2,535
	2,226
Feb 19	Feb 20

No. of registered customers to AFS mobile App

+39%
	1.7m
1.2m
2018/19	2019/20

1Group contribution basis

11Preliminary Results 2019/20 - April 2020

Retail capital expenditure

Retail capital expenditure

£599m£544m

2019/202018/19

2020/21 FY Guidance

• Retail capital expenditure is expected to be around£550m-£600m per annum over the medium term
• Update on 2020/21 to be given at Interim Results in November

Maintenance

Growth

Efficiency

Argos integration

Core retail capital expenditure (£bn)

0.9

1.8

2.6	1.6
Supply chain and IT

0.7Extensions and refurbishments

0.5New store development

5 years	5 years
to 14/15	to 19/20

12Preliminary Results 2019/20 - April 2020

Net debt and retail free cash flow

£m - Restated for IFRS 16	2019/20	2018/19
Net cash from operating activities	1,453	1,437
Capital expenditure1	(599)	(508)
Disposal proceeds2	224	78
Bank capital injections	(35)	(110)
Lease repayments3	(432)	(441)
Retail free cash flow	611	456
Dividends paid on ordinary shares	(247)	(224)
Other	35	(3)
Movement in net debt	399	229
Opening net debt4	(7,346)	(7,575)
Closing net debt4	(6,947)	(7,346)
Of which:
Lease liabilities	(5,768)	(5,824)
Net debt excluding lease liabilities5	(1,179)	(1,522)		(343)

2020/21 FY Guidance

• No capital injections into the Bank are expected
• Expect underlying retail depreciation and amortisation of around £1.2bn, including c.£500m right of use asset depreciation
• Net finance costs of between£370m-£380m, including c.£310m lease interest in 2020/21, following the introduction of IFRS 16

1. Excludes Argos integration capital expenditure in 18/19
2. Includes dividends received from JVs, net of JV capital injections
3. Includes initial direct costs onright-of-use assets
4. Net debt definition excludes derivatives not linked to borrowings, and includes perpetual securities as debt
5. FY18/19 Net Debt exc. Leases of £1,522m compares to the previously reported Net Debt of £1,636m less £(122)m of finance leases, plus £8m other (predominantly derivatives no longer reported within net debt)

13Preliminary Results 2019/20 - April 2020

Balance sheet targets

• Non-leasenet debt reduction of at least £750m over the three years from 18/19 to 21/22
• Medium leverage reduction targets
• • Net debt/EBITDAR2less than 3x

Net debt exc. Lease liabilities1(£m)

2,125

(603)

1,5223(343)

1,1793(750)+

Target

£m	FY	FY
2019/20	2018/19
Net debt	(6,947)	(7,346)
Of which lease liabilities	(5,768)	(5,824)
Net debt exc. leases1	(1,179)	(1,522)3

FY	FY	FY		FY
15/16	18/19	19/20	21/22

1. Net debt definition now excludes derivatives not linked to borrowings, and includes perpetual securities as debt
2. Net debt (inc. perpetual securities) on apost-IFRS 16 basis divided by Group underlying EBITDAR. We previously disclosed adjusted Net debt/ EBITDAR, but net debt on a post-IFRS 16 basis now includes lease liabilities
3. FY18/19 Net Debt exc. Leases of £1,522m compares to the previously reported Net Debt of £1,636m less £(122)m of finance leases, plus £8m other (predominantly derivatives no longer reported within net debt)

14Preliminary Results 2019/20 - April 2020

Summary

• Strong customer response to changes in our Grocery business
• General Merchandise remained tough
• Good progress on Financial Services
• H2 profit growth
• Strong free cash flow, net debt reduction in line with guidance

15Preliminary Results 2019/20 - April 2020

Mike Coupe

Chief Executive Officer

Performance

Our purpose - To help our customers live well for less

Our priorities

Be competitive

Distinctive

Personalised

Fast, friendly

Drive

Be a place

Net Zero

on price

products and

and seamless

and convenient

efficiency

where we all

by 2040

categories

physical and

to reinvest

love to work

digital

18Preliminary Results 2019/20 - April 2020

Improved grocery value

Commodity Value Index1		Base Price Index1
					-60bps
	-390bps
							-30bps		Cheapest Supermarket for
									Branded Groceries
18/19	19/20		14/15	18/19	19/20	in 2019
									Which? Awards 2019

1

Be

competitive

on price

1Sainsbury's value index, based on Edge by Ascential SKU matching data, to March 2020

19Preliminary Results 2019/20 - April 2020

Major growth initiatives delivered in FY19/20

12,500			More than 1,000 major store projects
investments
£164m	Invested in	Invested in	Invested in
Invested in 19/20	451	362	398
	supermarkets	convenience	Argos stores

4

Fast, friendly

and

convenient

Beauty 124	Food to go 210	Digital 256
Rapid Exit & SmartShop 118	Ambient 250	Argos in Sainsbury's 25
Tu features 110
Food Partners & Concessions 93
Wellness 42
GM rebalance 40

20Preliminary Results 2019/20 - April 2020

Improving customer satisfaction ranking

All supermarket measures improved year on year

CSAT scores %1

19/20 + 20/21 to date

18/19

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

2019

2020

1Lettuce Know in-store programme, combined Food Business

4

Fast, friendly

and

convenient

21Preliminary Results 2019/20 - April 2020

Channels:Convenience

On the Go

Neighbourhood hub

4

Fast, friendly

and

convenient

Mansion House

Woodhall Spa

22Preliminary Results 2019/20 - April 2020

Channels:Groceries Online

4

Fast, friendly

and

convenient

Items picked per hour improvement

Sales (£bn)and YOY growth rates

1.8

	+14%		+7.6%
		1.6
		+6.9%
+13%		1.4	+6.8%
		+8.2%
+10%		1.2

1.0

0.8

FY17/18

FY18/19

FY19/20

15/16

16/17

17/18

18/19

19/20

23Preliminary Results 2019/20 - April 2020

Financial Services Priorities

3

Personalised and seamless physical and digital

Reshape

the balance sheet

• Stop mortgage origination
• Develop AFS proposition
• Improve margins
• Improve card and insurance momentum

Simplify

the organisation

• Right size the cost base
• Rationalise product offering
• Review vendor/supplier arrangements
• Optimisecross-business synergies

Strengthen

the business

• Focus on:
• • Operational resilience
  • Conduct
  • Capital efficiency
• Build core competency in:
• • Customer experience
  • Digital
  • Data and analytics
  • Credit/ operational risk
  • Partnerships

24Preliminary Results 2019/20 - April 2020

Nectar

Digital Nectar		Coalition strengthened		Nectar 360

4.5m+

digital collectors

Oct Nov Dec Jan Feb Mar

20192020

3

Personalised and seamless physical and digital

25Preliminary Results 2019/20 - April 2020

Digital

Digital Sales

SmartShop

Single Search

3

Personalised and seamless physical and digital

	£6.3bn	•Rolled out to all
		supermarkets
		•Sales participation in	Seamless	Universal
		handset stores: 18%	financial	discovery
			services
£1.1bn				Single
				basket
14/15	19/20

26Preliminary Results 2019/20 - April 2020

Strategic cost transformation: 5 year plan

All programmes largely in execution

	Converge				Tackle		End to end
				fixed cost		reviews
	Technology, Digital and Corporate		Services
	Retail Operations, Marketing and Commercial Operations
								£250-£350m
			Other central support
					Logistics and Supply Chain
	Shared Services/ Business Process Optimisation
	Capital prioritisation							Project A
	GNFR procurement							Project B		£150-£250m
		Property strategy		Project C
									Project D
					£400-£600m
	Well progressed	Execution underway	In planning

5

Drive

efficiency to

reinvest

27Preliminary Results 2019/20 - April 2020

Seven key areas of focus

We will invest £1bn over the next 20 years

7

Net Zero by

2040

Reduce

Minimise

Healthy

Reduce

Reduce

Increase

Net positive

carbon

use of

sustainable

use of

food

recycling

for

emissions

water

diets

plastic

waste

biodiversity

packaging

We will use science based targets and report progress

against these every six months

28Preliminary Results 2019/20 - April 2020

COVID-19

COVID-19:Sainsbury's Timeline

Feeding the nation

Keeping our customers and colleagues safe

Supporting our communities

12 weeks full pay

Contacted

for extremely

Strict social

450,000 vulnerable

14 days full pay for

vulnerable

Closed

distancing measures

customers

c.50% increase

self-isolating

colleagues /

standalone

for stores, including

and prioritised

colleagues

shielding

Argos stores

safety screens

for online

in online slots

March 15

17

19

20

22

23

23

24

25

April 3

8

10

27

Product

Closed

Priority shopping

Thank you

Immediate

Donated £3m Donated over £4m

purchasing

cafes; meat,

for elderly,

payment

payment terms

to Fareshare

to Comic Relief's

limits

fish and pizza

vulnerable,

for store, DC

for at least 1,500

'Big Night In'

counters

NHS & social

and Careline

small suppliers

800,000 vulnerable

care workers

colleagues on

customers contacted

hours worked	and prioritised for
	online

30Preliminary Results 2019/20 - April 2020

Initial Impact: Sales Shape

Grocery

40%

20%

0%

(20)%

51

52

1

2

3

4

5

6

7

Week

Clothing

20%

0%

(20)%

(40)%

(60)%

(80)%

51

52

1

2

3

4

5

6

7

Week

Sales figures have been seasonally adjusted

Total General Merchandise

40%

20%

0%

(20)%

51

52

1

2

3

4

5

6

7

Week

Fuel

20%

0%

(20)%

(40)%

(60)%

(80)%

51

52

1

2

3

4

5

6

7

Week

31Preliminary Results 2019/20 - April 2020

Initial Impact: Groceries Online

Groceries Online Sales

Click & Collect

Home Delivery

51	52	1	2	3	4	5	6	7
Week

32Preliminary Results 2019/20 - April 2020

Initial Impact: SmartShop

Sales Participation1

35%
30%
25%
20%
15%	51	52	1	2	3	4	5	6	7

Week

1Average sales participation of handset stores

33Preliminary Results 2019/20 - April 2020

Initial Impact: Argos

Average weekly sales by fulfilment channel (£m)

100

80
	Walk
	+86%	Home Delivery
60		-in
40
		+32%	Click & Collect
20
0
	Q4 19/20	Since Argos store

closures

34Preliminary Results 2019/20 - April 2020

Sales Outlook

Base case

Key assumptions - sales

• Q1:Lockdown
• Q2:Continued disruption
• H2:Normalisation but a weaker economy

Net FY impact

• Grocery positive
• General merchandise, clothing and fuel volumes negative

Sales Growth Assumptions (%)

General	Clothing	Fuel
Merchandise
H1	H2	H1	H2	H1	H2

H1 H2

Grocery

35Preliminary Results 2019/20 - April 2020

Profit Outlook

Base case

Higher Retail Costs

• Materially higher operating expenses
• Stock clearance - clothing and seasonal
• Reduced tenant and concession income

Sales weakness		Financial Services
•General Merchandise		•Travel Money
•Clothing		•ATMs
•Fuel		•Reduced consumer spend
		•Impairments
		•Colleague absence
		•Costs

£500m+

profit impact

36Preliminary Results 2019/20 - April 2020

Profit Outlook

Base case

	Year on Year Profit Impact
£500m+			£500m+
•	Material COVID-19 related costs		•Grocery sales
•	GM, clothing and fuel sales
	•£450m business
•	Stock write-downs
	rates relief
•	Financial services

Net impact

unchanged

37Preliminary Results 2019/20 - April 2020

Liquidity

Significant financing headroom

Financial resilience stress testing

Significant headroom - cash and committed funding:

• £1.45bn RCF undrawn at March year end
• • £500m now drawn down for prudence
• Capex H2 weighted

Financial Services balance sheet is strong

• Regulatory capital surplus, significant excess liquidity
• Confident that business will not require capital from Group

38Preliminary Results 2019/20 - April 2020

Dividend

Dividend decision deferred

Prudent approach

• Wide range of potential outcomes
• Visibility on full impact ofCOVID-19 will be greater later in the year

39Preliminary Results 2019/20 - April 2020

Summary

Results

• Good momentum in our Grocery business
• Coming together as one multi brand, multi channel business
• Strong cash generation

COVID-19 Response

• Great response across the business toCOVID-19; supporting customers, colleagues, communities and suppliers
• Strength and flexibility of the multi brand multi channel platform
• Balance sheet strength helping support suppliers, tenants and concessions

Outlook

• Significant incremental costs associated withCOVID-19 response
• Business rates relief and uplifts in grocery sales likely to broadly offset incremental costs and weaker general merchandise, clothing and financial services contributions
• Balance sheet strong, liquidity good, prudent deferral of dividend decision

40Preliminary Results 2019/20 - April 2020

Q&A