Preliminary Results for the 52 weeks to 11 March 2017

Preliminary Results for the 52 weeks to 11 March 2017

03 May 2017

A pivotal year for the Sainsbury’s Group; clear growth strategy

Highlights

Delivering our differentiated strategy of creating a leading multi-channel Food, General Merchandise, Clothing and Financial Services retailer

  • Food performance resilient; ongoing investment in quality, price and innovation
  • Total transactions have increased by nearly three per cent to 26 million per week
  • Investing in channels of future growth: Groceries Online grew by over eight per cent and Convenience grew by over six per cent
  • Outperformance of the market in Sainsbury’s and Argos’s General Merchandise and Clothing
  • Will deliver £160 million EBITDA synergy target from Argos acquisition six months early; accelerating plan to open 250 Argos Digital stores in Sainsbury’s supermarkets
  • Successfully implemented new savings and ATM banking platform at Sainsbury’s Bank and launched mortgages. The Bank is well set to deliver strong profit growth
  • On track to deliver three-year £500 million cost saving programme by the end of 2017/18, with further £500 million cost savings target over three years from 2018/19
  • Strong balance sheet with net debt reduced by £349 million to £1,477 million

Business Performance

2016/17 2015/16 % Total Change
Group sales (inc VAT) £29,112m £25,829m 12.7%
Sainsbury's like-for-like sales (inc VAT, ex fuel) (0.6)% (0.9)%
Underlying profit before tax £581m £587m (1.0)%
Underlying basic earnings per share
21.8p 24.2p (9.9)%
Proposed final dividend 6.6p 8.1p (18.5)%
Proposed full year dividend 10.2p 12.1p (15.7)%
Net debt £1,477m £1,826 £349m
Return on capital employed
8.8% 8.8% (4)bps

Statutory Reporting

2016/17 2015/16 % Total Change
Group sales (ex VAT, inc fuel) £26,224m £23,506m 11.6%
Items excluded from underlying results £(78)m £(39)m £(39)m
Profit before tax £503m £548m (8.2)%
Basic earnings/(loss) per share 17.5p 23.9p (26.8)%
  • Group sales (inc VAT) up 12.7 per cent mainly as a result of the Argos contribution
  • Underlying profit before tax of £581 million reflects investment in the customer offer and cost inflation, offset by cost savings of £130 million and a contribution from Argos of £77 million
  • Underlying basic earnings per share of 21.8 pence and full year dividend per share of 10.2 pence, reflecting dilution due to new shares issued to Home Retail Group plc shareholders

Mike Coupe, Group Chief Executive of J Sainsbury plc, said: “This has been a pivotal year and we have made significant progress delivering and accelerating our strategy. Sainsbury’s Group offers customers market-leading product choice, value and convenience, whenever and wherever they shop with us.

“Food is the core of our business and we are committed to helping customers live well for less. Our food business remains resilient in a challenging market and we continue to innovate in quality and to invest in price. We are also investing in growth areas of the business to meet the changing ways that customers shop. Sainsbury’s design-led General Merchandise and Clothing both outperformed the market and we saw strong growth in Sainsbury’s Groceries Online and Convenience channels.

“We are pleased with the progress made since we acquired Argos. We have opened 59 Argos Digital stores in Sainsbury’s supermarkets and they are performing well. We are therefore accelerating our plan to open a total of 250 Argos Digital stores in Sainsbury’s supermarkets and will deliver our £160 million EBITDA synergy target by March 2019, six months ahead of schedule.

“Sainsbury’s Bank has achieved an important milestone with the migration of savings customers and ATMs onto our new banking platform. We are confident in the growth opportunities at Sainsbury’s Bank and are well set to deliver strong profit growth.

“We continue to find ways to simplify our business and reduce costs. We are on track to deliver our three-year £500 million cost saving programme by the end of 2017/18 and we will deliver a further £500 million of cost savings over three years from 2018/19. We benefit from a strong balance sheet and have reduced our net debt by £349 million to £1,477 million.

“The quality and range of our products, combined with our market-leading service, availability and channels set us apart from our competitors. Our values support our growth and our vision to be the most trusted retailer where people love to work and shop. I would like to thank our 195,000 colleagues across the Group for the difference they make to our customers every day.”

Dividend

Our final dividend is 6.6 pence per share, bringing our full year dividend to 10.2 pence per share, reflecting our affordable dividend policy of 2.0x cover. In the last five years, we have returned £1.4 billion in cash dividends to shareholders, equivalent to 69.5 pence per share.

Outlook

The market remains competitive and the impact of cost price pressures remains uncertain. However, we are well placed to navigate the external environment and we remain focused on delivering our strategy.

Strategic report

The strategy we set out in November 2014 is designed to address the changing nature of retail and the way people shop. It is based on five pillars: knowing our customers better than anyone else; great products and services at fair prices; being there for our customers whenever and wherever; colleagues making the difference and our values making us different. To deliver this strategy we have prioritised four key areas of our business where we can differentiate ourselves, grow and create value:

Four key priorities

  1. Further enhance our differentiated food proposition
    • Sainsbury’s own-brand food accounts for around half of our food sales and our customers rank us ahead of our supermarket competitors on quality perception. Our core by Sainsbury’s range has grown volumes by two per cent as a result of our quality and price investments
    • We have invested to increase sales and market share in new and growing categories such as our On the Go and Deliciously FreeFrom ranges
    • We continue to invest in price and customers are responding to our lower regular prices. Total transactions have increased by nearly three per cent to 26 million per week
    • We have removed multi-buy promotions, which gives customers more choice and helps to reduce waste at home and across our business. Promotional participation has decreased by almost six per cent to 25 per cent
    • We opened six supermarkets and 41 convenience stores in the year, bringing the totals to 605 and 806 respectively
    • Supermarket sales declined by nearly two per cent and Convenience grew by over six per cent
    • Groceries Online grew by over eight per cent. Our Groceries App launched almost 12 months ago and already accounts for over ten per cent of orders to our Groceries Online channel, demonstrating changing customer shopping behaviour
    • Our colleagues continue to deliver market-leading customer service and availability. We have won the Grocer Gold Awards for Service and Availability for the past four years
  2. Grow General Merchandise and Clothing and deliver synergies
    • Sainsbury’s General Merchandise grew sales by over two per cent and Clothing by over four per cent, outperforming the market
    • Argos grew sales 4.1 per cent
    • We now have 59 Argos stores in Sainsbury’s supermarkets and 207 digital collection points. Like-for-like sales at Argos stores in Sainsbury’s supermarkets that have been open for more than one year are up between 20 and 30 per cent
    • We continue to benefit from a one to two per cent uplift in supermarket sales where there is an Argos Digital store
      • We expect to deliver our £160 million EBITDA synergy target six months early and we are accelerating our plans to open 250 Argos Digital stores in Sainsbury’s supermarkets
      • Digital sales continue to grow with 53 per cent of sales now made online. Mobile participation also grew 60 per cent this year
      • Argos is the UK’s number one retailer for toys and second in the market for homeware and electrical products
      • Argos Fast Track delivery and collection is a key point of difference and we are able to leverage our unique Hub and Spoke model to deliver customer orders quickly and conveniently
      • We expect to transform 60 Argos high street stores in 2017/18 to the new digital format so that over one third of the Argos store estate will be digital in a year’s time
  3. Diversify and grow Sainsbury’s Bank
    • Sainsbury’s Bank (including Argos Financial Services) delivered £62 million profit. This was down nearly five per cent due to the impact of reduced interchange fees and investment required to enter the mortgage market
    • We launched a new mortgage offer in April 2017 and have successfully transferred all our savings customers and ATM estate on to the Bank’s new banking platforms
    • Sainsbury’s Bank has 1.8 million active customers, up nearly four per cent. Additionally, Argos Financial Services has 1.8 million customers
    • Our ATM estate grew by five per cent to 1,728 and ATM transactions grew by almost one per cent year-on-year to nearly 240 million. This represents a significant UK market share with £1 of every £11 dispensed from a LINK ATM transaction coming from Sainsbury’s Bank
    • Credit cards performed strongly with 70 per cent growth year-on-year of new card accounts. Personal loans grew ten per cent
    • The integration of Argos Financial Services presents operational synergies and growth opportunities. We will move credit cards and other financial services products on to a shared platform during Summer 2018
    • We are confident in the growth strategy for Sainsbury’s Bank and are well set to deliver strong profit growth
  4. Continue cost savings and maintain balance sheet strength
    • We continue to find ways to simplify our business and reduce costs. We have achieved £130 million of cost savings this year, £355 million in the last two years and are on track to deliver our three-year target of £500 million cost savings by 2017/18
    • We are committed to a further £500 million of cost savings over the next three years, starting in 2018/19
    • Core retail capital expenditure, including Argos, was £547 million (2015/16: £542 million), a significant reduction from the average of £931 million per year in the previous five years
    • We have a strong balance sheet. Net debt reduced by £349 million to £1,477 million (2015/16: £1,826 million)
    • The Group has financing facilities of £3.9 billion, of which only £2.7 billion was drawn at year end

Our values

Our values make us different; they strengthen our relationships with customers, suppliers and colleagues and make strong commercial sense:

  • Living healthier lives: We reformulated our products to reduce salt, sugar, fat and saturated fats, including reduction of sugar across our own-brand cereal range by an average of 13 per cent, exceeding the government’s 2017 targets of a five per cent reduction
  • Sourcing with integrity: We were named the World’s Best Sustainable Seafood Supermarket by the Marine Stewardship Council (MSC)
  • Respect for our environment: We use 11.6 per cent less electricity than we did in 2005 despite growing our store space by 54.2 per cent
  • Making a positive difference in the community: We supported over 3,400 charity partnerships, including Comic Relief, The Royal British Legion and Oxfam
  • Great place to work: Colleagues across the Group will share a bonus of £78 million this year

Notes

  1. Defined in Alternative Performance Measures on page 48
  2. HPI Brand & Communications Tracker – National sample data of Sainsbury’s customers between 2014 and 2016
  3. The number of convenience stores stated includes our partnership with Euro Garages’ petrol stations
  4. Kantar Worldpanel 2016
  5. For the second half of the financial year

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.

Sainsbury’s will report its 2017/18 First Quarter Trading Statement at 07:00 (BST) on 4 July 2017.

A results presentation for analysts and investors will be held at 09:30 on 3 May 2017

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.j-sainsbury.co.uk 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 678 1161 (or +44 (0)1296 311 600 if you are unable to use the primary number). The pass code for the event is 435 188. A transcript of the presentation and an archive recording of this event will be available later in the day at www.j-sainsbury.co.uk.