J Sainsbury Positive momentum across the business

J Sainsbury (LON:SBRY) has announced its interim Results for the 28 weeks to 21 September 2019

Operational Highlights

·    Positive momentum in Grocery market share¹ and sales performance, driven by a strong customer response to lower prices and our new value brands. We launched 123 new value brand products, with 200 due by the end of the financial year

·    We continue to improve Sainsbury’s service and availability and customer satisfaction scores increased by more than three percentage points year on year². We are investing in technology to make shopping easier and SmartShop handheld self-scanning technology is now in over 350 supermarkets

·    We are investing in our store estate and have improved 172 supermarkets and 158 convenience stores this half. We will improve 450 supermarkets and 200 convenience stores this financial year

·    Clothing and General Merchandise performance improved quarter on quarter as comparatives normalised.  We are bringing Sainsbury’s and Argos closer together to give customers easier access to all our products and services

·    Argos sales grew ahead of the market³ and Fast Track delivery and collection continue to grow

·    We have converted 176 Argos stores to our digital format this half and we will convert the majority of the remaining stores by the end of the year. Pay@Browse is now available in 362 Argos stores

·    Following a strategic review of Financial Services, we no longer sell mortgages, are reducing costs and are focusing on digitally-led products and services for Sainsbury’s and Argos customers

·    We successfully launched digital Nectar nationwide, creating a platform for greater personalisation and reward. 2.1 million customers are now using the Nectar app

·    We became the first retailer to remove single use plastic produce and bakery bags and have committed to reducing our plastic packaging by 50% by 2025

·    Over 30,000 colleagues pledged to volunteer locally as part of our 150th birthday celebrations

Financial Highlights

·    Group sales of £16,856 million, down 0.2 per cent

·    Retail sales (excluding fuel) down 0.6 per cent

·    Like-for-like sales (excluding fuel) down 1.0 per cent

·    In line with guidance, underlying profit reduced by £41 million to £238 million due to the combined impact of the phasing of cost savings, higher marketing costs and tough weather comparatives

·    As set out at the Capital Markets Day, we have reviewed our store estate, leading to £203 million of largely non cash one-off costs recognised in this half. Total one-off costs in the first half are £229 million, resulting in statutory profit before tax of £9 million. We continue to expect the total cost of the property strategy programme to be in the range of £230 million to £270 million

·    Underlying earnings per share down 16 per cent to 7.9 pence

·    Retail free cash flow of £698 million, up £81 million year-on-year, reflecting continued strong cash generation plus distributions from the British Land joint venture

·    Net debt reduced by £568 million to £6,778 million, reflecting the above cash generation. As in previous years, net debt at half year benefited from working capital phasing which will reverse in the second half. We have committed to reduce non-lease net debt by at least £750 million in the next three years from £1,522 million⁴  and expect a reduction of at least £300 million in 2019/20

·    New longer-term asset-backed pension plan agreed, providing greater security to the Scheme. 2018 triennial valuation deficit is down to £538 million, from £1,055 million in 2015 resulting in cash contributions reducing immediately by approximately £50 million per annum on average

·    Unique opportunity to structurally reduce costs by c.£500 million over five years as we integrate Sainsbury’s and Argos, in addition to ongoing cost savings to cover the impact of cost inflation

·    Interim dividend of 3.3 pence per share, up 6 per cent, in line with our policy of paying 30 per cent of prior full year dividend. Full year dividend policy will change to 1.9x cover by underlying earnings (versus 2.0x previously) to offset the dilutive non cash impact of IFRS 16 on underlying earnings

1      Kantar World Panel 12 w/e 06 October 2019

2      Supermarket customer satisfaction 4 weeks to 21 September 2019 vs 4 weeks to 20 Oct 2018

3      Argos v BRC non-food non-clothing market, 28 weeks to 21 September 2019

4      FY 2018/19 net debt including perpetual securities £1,636 million as previously announced, less £122 million finance leases (including hire purchase arrangements), plus £8 million other (predominantly derivatives no longer reported within net debt). See notes 2.3 and 16 to the interim financial statements for additional detail

Outlook

Retail markets remain highly competitive and the consumer outlook remains uncertain. However, as guided in September, we expect profits in the second half to benefit from the annualisation of last year’s colleague wage increase and a normalisation of marketing costs and weather comparatives.

Dividend

Interim dividend of 3.3 pence per share, up 6 per cent, in line with our policy of paying 30 per cent of prior full year dividend. This will be paid on 20 December 2019 to shareholders on the Register of Members at the close of business on 15 November 2019. Full year dividend policy will change to 1.9x cover by underlying earnings (versus 2.0x previously) to offset the dilutive non cash impact of IFRS 16 on underlying earnings.

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 results presentation for analysts and investors will be held at 09:30 on 7 November 2019.

To view the slides of the results presentation and the webcast: We recommend that you register for this event in advance. To do so, visit www.about.sainsburys.co.uk/investors/results-reports-and-presentations and follow the on-screen instructions. To participate in the live event, please go to the website from 09:00 on the day of the announcement, where there will be further instructions. An archive of the webcast will be available later in the day.

To listen to the results presentation: To listen to the live results presentation by telephone, please dial 0800 783 0906 (or +44 (0)1296 480 100) if you are unable to use the primary number). The pass code for the event is 674 848. A transcript of the presentation and an archive recording of this event will be available later in the day at: www.about.sainsburys.co.uk/investors/results-reports-and-presentations 

Commenting on the Interim Results 2019, Mike Coupe, J Sainsbury Chief Executive, said: 

“We have created positive momentum across the business through strategic investments in our customer offer. We have lowered prices on every day food and groceries, launched a range of value brands and are more competitive on price than we have ever been. We are investing in hundreds of Sainsbury’s and Argos stores, introducing new products and services and continually improving service and availability. As a result, customer satisfaction has increased significantly year on year.

“We have set out our plan to create one multi brand, multi-channel business. This will make the combined Sainsbury’s and Argos offer much more accessible for customers and gives us the opportunity to make our business more efficient. We offer great quality at affordable prices with convenient ways to shop. I would like to thank colleagues for all their hard work at this busy time of year. We are very much looking forward to delighting our customers throughout the upcoming festive period.”