Preliminary Results 2019/20 Kevin OByrne Chief Financial Officer - PowerPoint PPT Presentation

Preliminary Results 2019/20

Kevin O’Byrne Chief Financial Officer

Agenda 01 02 03 Financial highlights 19/20 performance COVID-19 update 3 Preliminary Results 2019/20 - April 2020

Group performance overview £m 2019/20 2018/19 Change 1 Underlying results 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% 2 Net debt (6,947) (7,346) 5% 2 Non-lease net debt (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% 1 Full breakdown of definitions available in the Alternative Performance Measures 2 Including perpetual securities 4 Preliminary Results 2019/20 - April 2020

Retail sales 2020/21 FY Guidance 3 (0.6) % (0.4) %  Expect to open around 2 new Sainsbury's supermarkets 1 1 LFL sales growth Total sales growth and around 15 convenience stores  Expect to close around 0.2 % Categories Channels 8 supermarkets and around 14 convenience stores, as Sales from 0.4 % (0.1) % part of announced property net new space 1 closure programme Grocery Supermarkets 2  Expect to open 35-40 Argos in (2.9) % 1.3 % Sainsbury’s and close around 50 Argos standalone stores 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 from COVID-19 5 Preliminary Results 2019/20 - April 2020

Sales Momentum General Merchandise: Total sales growth Grocery: Total sales growth Q1 Q2 Q3 Q4 0% 2.0% Argos Total GM (inc. Habitat) -5% JS GM -10% 0.6% 0.4% Q1 Clothing: Total sales growth Q2 Q3 Q4 -0.5% 4.4% 3.3% 2.5% Q1 Q2 Q3 Q4 -4.5% 6 Preliminary Results 2019/20 - April 2020

Sales performance versus market 2 1 Argos: Value growth v BRC Grocery: Volume growth 4% Q4 19/20 Argos YoY 0% Q2 19/20 BRC YoY 0% (excluding Argos) Total Q3 19/20 grocers FY 2019/20 3 Clothing: Value Growth (%YOY) Tesco Q1 Asda 19/20 Sainsbury’s Sainsbury’s Morrisons -5% 0% Total market 1 Kantar 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-food non-clothing market, 52 weeks to 7 March 2020 8 Mar 19 9 Mar 20 3 Kantar world panel 52 weeks to 8 March 2020 7 Preliminary Results 2019/20 - April 2020

Underlying profit before tax UPBT Waterfall (£m) H1/ H2 UPBT +8% 348 601 (8) 19 322 JVs (43) 586 -15% Interest 17 279 Retail Financial 238 Services 18/19 19/20 18/19 19/20 H1 H2 18/19 UBPT 19/20 UBPT 8 Preliminary Results 2019/20 - April 2020

Items excluded from underlying results Property Strategy Programme £m 2019/20 2018/19 Retail restructuring programme (32) (81) Impairment Financial Services transition and other (29) (70) charges 126 Argos integration costs - (40) Asda transaction costs - (46) Defined benefit pension expenses 19 (118) Store closure 126 write-downs Other 7 (44) Total ex. Property strategy (35) (399) Property strategy programme (296) - 8 36 Total (331) (399) Other closure Other closure costs – non-cash costs – cash 9 Preliminary Results 2019/20 - April 2020

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

Financial Services Costs No. of registered customers 1 (£m) to AFS mobile App Costs Headcount +5% -12% +39% 300 286 Depreciation 1.7m 2,535 Colleague 2,226 costs 1.2m Other expenses 2018/19 2019/20 Feb 19 Feb 20 2018/19 2019/20 1 Group contribution basis 11 Preliminary Results 2019/20 - April 2020

Retail capital expenditure Retail capital expenditure Core retail capital expenditure (£bn) 0.9 Maintenance £599 m £544 m Growth 1.8 2019/20 2018/19 Efficiency Argos integration 1.6 2.6 Supply chain and IT Extensions and refurbishments 0.7 New store development 0.5 2020/21 FY Guidance 5 years 5 years to 14/15 to 19/20  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 12 Preliminary Results 2019/20 - April 2020

Net debt and retail free cash flow £m – Restated for IFRS 16 2019/20 2018/19 2020/21 FY Guidance Net cash from operating activities 1,453 1,437  No capital injections into the Bank are expected 1 Capital expenditure (599) (508)  Expect underlying retail depreciation and 2 Disposal proceeds 224 78 amortisation of around £1.2bn, including c.£500m right of use asset depreciation Bank capital injections (35) (110)  Net finance costs of between £370m-£380m, 3 Lease repayments (432) (441) including c.£310m lease interest in 2020/21, following the introduction of IFRS 16 Retail free cash flow 611 456 Dividends paid on ordinary shares (247) (224) Other 35 (3) Movement in net debt 399 229 4 Opening net debt (7,346) (7,575) 4 Closing net debt (6,947) (7,346) 1 Excludes Argos integration capital expenditure in 18/19 2 Includes dividends received from JVs, net of JV capital injections Of which: 3 Includes initial direct costs on right-of-use assets 4 Net debt definition excludes derivatives not linked to borrowings, Lease liabilities (5,768) (5,824) and includes perpetual securities as debt 5 5 FY18/19 Net Debt exc. Leases of £1,522m compares to the previously Net debt excluding lease liabilities (1,179) (1,522) (343) reported Net Debt of £1,636m less £(122)m of finance leases, plus £8m other (predominantly derivatives no longer reported within net debt) 13 Preliminary Results 2019/20 - April 2020

Balance sheet targets • Non-lease net debt reduction 1 (£m) FY FY Net debt exc. Lease liabilities £m of at least £750m over the 2019/20 2018/19 three years from 18/19 to 21/22 Net debt (6,947) (7,346) 2,125 • Medium leverage reduction Of which lease liabilities (5,768) (5,824) targets (603) 1 Net debt exc. leases (1,179) (1,522) 3 2 less - Net debt/EBITDAR (343) than 3x 1,522 3 1,179 3 (750)+ 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) 14 Preliminary 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 15 Preliminary 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 efficiency where we all by 2040 on price products and and seamless and convenient categories physical and to reinvest love to work digital 18 Preliminary Results 2019/20 - April 2020

1 Improved grocery value Be competitive on price 1 1 Commodity Value Index Base Price Index -60bps -390bps -30bps Cheapest Supermarket for Branded Groceries 18/19 19/20 14/15 18/19 19/20 in 2019 Which? Awards 2019 1 Sainsbury’s value index, based on Edge by Ascential SKU matching data, to March 2020 19 Preliminary Results 2019/20 - April 2020

4 Major growth initiatives delivered in FY19/20 Fast, friendly and convenient More than 1,000 major store projects 12,500 investments Invested in Invested in Invested in £164m 451 398 362 Invested in 19/20 supermarkets Argos stores convenience 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 20 Preliminary Results 2019/20 - April 2020

4 Improving customer satisfaction ranking Fast, friendly and convenient All supermarket measures improved year on year 1 CSAT scores % 19/20 + 20/21 to date 18/19 Feb Mar Apr Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2019 2020 1 Lettuce Know in-store programme, combined Food Business 21 Preliminary Results 2019/20 - April 2020

4 Channels: Convenience Fast, friendly and convenient On the Go Neighbourhood hub Mansion House Woodhall Spa 22 Preliminary Results 2019/20 - April 2020