Interim Results and Strategy Update 2020/21 Kevin O’Byrne Chief Financial Officer Agenda
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Interim Results and Strategy Update 2020/21 Kevin O’Byrne Chief Financial Officer Agenda 1 2 H1 financial highlights Strategy update and operational performance 3 J Sainsbury plc Interim Results 2020/21 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. (Retail sales inc. Fuel (1.4)%) 2 Underlying 4 J Sainsbury plc Interim Results 2020/21 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 20/21 H1 FY H1 19/20 19/20 20/21 698 (267) 3.3p 3.2p H1 H1 (1,008) Interim Interim (137) 19/20 20/21 (1,179) 19/20 Special 20/21 All figures £m 1 Special dividend of 7.3p to be paid in lieu of final dividend for the 2019/20 financial year, aligned to policy of 1.9x full year dividend cover by underlying earnings. Interim dividend of 3.2p, in line with policy of paying 30 per cent of prior full year dividend 5 J Sainsbury plc Interim Results 2020/21 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 Results 2020/21 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 Results 2020/21 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 growth, vs Argos sales growth. Toys market = NPD. Furniture = BRC. 28 weeks to 19 Sept 2020 2 Kantar 24 week volume market share data: Total Clothing, Footwear and Accessories 8 J Sainsbury plc Interim Results 2020/21 Financials Underlying profit before tax Retail COVID costs H1 FY UPBT YoY movement £m 2020/21 2020/21F £m Colleague costs 1 (179) (290)+ Operating costs 2 (84) (120)+ Other (28) (50)+ (75) +118 Total Retail COVID costs (291) (460)+ +20 301 Business rates relief 230 453 Financial Interest Services 238 Retail H1 19/20 UPBT H1 20/21 UPBT 1 Higher absence costs, pay for vulnerable colleagues, front line colleague bonus 2 Customer and colleague protection measures, distribution costs, reduced rental income 9 J Sainsbury plc Interim Results 2020/21 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 Financials Financial Services: management action Costs 1 Colleague costs Savings blended rate £m £m % 13% 17% 70bps 156 1.3 145 52 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 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 PH 94% no PH 0.9 Cards Expected Credit Losses 5 (£m) 1 3 Coverage Ratio 0.0% 0.2% 2.1 Loans % of known outcomes of EPFs Unsecured lending (gross) £5.8bn £4.9bn 84% 11% 5% Expected Credit Losses5 (£m) 292 325 Resumed payments Extend Arrears 7.4 AFS Coverage Ratio 5.0% 6.6% % of Total lending (gross) £7.7bn £6.5bn book Expected Credit Losses5 (£m) 293 328 <0.5% Coverage Ratio 3.8% 5.0% 1 By volume. 3-monthly average to Sept 2020 3 As % of balance sheet value. As at 18 Oct 2020 2 Cards and Loans comprise 83% of the Financial Services unsecured loan book, and AFS 4 Amounts due from customers excluding provisions comprises 17% of the unsecured loan book 5 Includes ECL provisions for on and off-balance sheet 12 J Sainsbury plc Interim Results 2020/21 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 1.9 1.9 1.6 Mortgages Capital requirements 0.8 0.9 0.8 Store cards 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 Amounts due from customers net of provisions 13 J Sainsbury plc Interim Results 2020/21 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 1 (259) (131) Restructuring, impairment 2,3 and integration one-off costs Impairment charges (214) (97) • Retail and Financial Services of £900m-£1bn by FY23/24 Financial Services transition and other (7) (15) (c. £300m cash) Restructuring, impairment and integration (480) (243) c.£625m of total one-off costs in FY20/21 (c. £100m cash) ATM business rates reimbursement 42 - IAS 19 pension income/(expenses) 8 11 Property, finance and acquisition adjustments (8) 3 Total items excluded from underlying results (438) (229) 1 PY restructuring includes Property Strategy Programme and Retail Restructuring 2 The effect of COVID-19 and accelerated structural integration programme are deemed an impairment indicator in line with IAS 36. A full review has therefore been performed covering Retail and Financial Services assets 3 PY impairment charges were reported within the Property Strategy Programme in the prior year 14 J Sainsbury plc Interim Results 2020/21 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) 1 Disposal proceeds 41 172 Capital Property Financial Interest expenditure Pensions Bank capital injections - (35) Services costs Lease repayments 2 (226) (232) Free cash flow Retail free cash flow 943 698 Dividends paid on ordinary shares - (174) Dividend Net debt reduction Other 3 (164) 44 Movement in net debt 779 568 4 Opening net debt (6,947) (7,346) 1 Includes dividends received from JVs, net of JV capital injections Closing net debt 4 (6,168) (6,778) 2 Includes initial direct costs on right-of-use assets 3 Includes the net movement to lease liabilities, reflecting non-cash additions in the period offset by payments made. Also includes cash Of which: FY impact of share purchases and share issuances. 4 Net debt definition excludes derivatives not linked to borrowings, and Lease liabilities (5,901) (5,770) 2019/20 includes perpetual securities as debt Net debt excluding lease liabilities4 (267) (1,008) (1,179) (912) 15 J Sainsbury plc Interim Results 2020/21 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) 1,5223 (343) (750)+ 1,1793 Target 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 a post-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) 16 J Sainsbury plc Interim Results 2020/21 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 dividend and special dividend Outlook – H2 • H2 Grocery and GM trading to date still strong • Well set to deliver for an uncertain Christmas • Investing in value Outlook – Full Year • Group UPBT up at least 5% year on year 17 J Sainsbury plc Interim Results 2020/21 Simon Roberts Chief Executive Officer 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 Reflections / COVID COVID-19 Sainsbury’s Timeline Priority shopping Strict social Increased Increased 800,000 online delivery online delivery for elderly, distancing vulnerable customers Product vulnerable, measures contacted slots to slots to purchasing NHS & social for stores, including and prioritised for 650,000 700,000 limits care workers safety screens online a week a week Mar Apr May Jun Aug Sept Closed Closed Roll out of Reopened Reopened cafes; meat, standalone Chop Chop 252 131 fish and pizza Argos stores to 15 UK cities Argos stores further counters Argos stores 20 J Sainsbury plc Interim Results 2020/21 Reflections / COVID H1 digital sales £5.8bn Rapid change in how customers want and need to shop Total digital Groceries online SmartShop sales % sales % 117 102 Sales participation 39% 31% C&C 3% Transaction Delivery 12% participation 0.3% 19% 0.2% 0.3% 19% % 0.2% 16% 17 16% % 12% 8% 8 7% 7% 7% FY FY FY H1 H1 FY FY FY H1 H1 H1 H1 16/17 17/18 18/19 19/20 20/21 16/17 17/18 18/19 19/20 20/21 19/20 20/21 Digital participation 1 Digital participation 2 Digital participation 3 1 Of total Retail sales exc.