Delivering against our plan to put food back at the heart of Sainsbury’s
Preliminary Results for the 52 weeks ended 6th March 2021
Delivering against our plan to put food back at the heart of Sainsbury’s
Financial highlights
- Strong operating performance, with grocery sales up 7.8%, general merchandise sales up 8.3% and digital sales up 102%, offset on a statutory basis by materially reduced fuel sales; changes we have made through the pandemic are creating good momentum as we move into the new financial year
- Underlying profit before tax down 39% to £356 million, with benefits from strong sales growth (excluding fuel) more than offset by £485 million of direct COVID-19 costs. Statutory loss before tax of £261 million predominantly reflects one-off costs and impairments associated with strategic changes announced in November
- Strong Retail free cash flow of £784 million, with significant working capital inflow more than offsetting lower profits
- Upgrading four-year net debt reduction target from £750 million to at least £950 million despite short term expectation of some working capital reversal. Expect to generate average Retail cash flow of at least £500 million per year over the three years to March 2025
- Proposed final dividend of 7.4 pence, full year dividend 10.61 pence, reflecting strong cash generation and consistent with our commitment to protect shareholder income from the full impact of COVID-19 on profits
- Continue to expect underlying profit before tax in the financial year to March 2022 to exceed March 2020 level (£586 million); comfortable with consensus forecasts of around £620 million2
Strategic highlights
We have made good early progress with the plan we announced in November to put food back at the heart of Sainsbury’s. We are changing at pace, making bold decisions and investing in the areas that matter to customers, underpinned by an accelerated cost saving programme. Throughout the pandemic we have remained focused on delivering against this plan and have built good momentum:
- Adapted at pace to COVID-19, prioritising customer and colleague safety, supporting communities and helping to feed the nation. Record customer satisfaction scores for friendliness and speed of checkout and rated best for customer safety throughout the pandemic3
- Improved the value of our food ranges, lowering the prices of the products that matter most to customers and extending our Price Lock price commitment. Also launched Sainsbury’s Quality, Aldi Price Match and customers are responding by spending more with us, more often
- Changing our ways of working and our supplier relationships; will triple our levels of new product innovation to 1,900 products in the year ahead
- Profitably grown Groceries Online from eight per cent of grocery sales in 2019/20 to 17 per cent in 2020/21 and gained more market share than key competitors4. Argos digital sales increased by 68 per cent, while also improving profitability
- 7.4 million digital Nectar users, up from 4.5 million last year
- Financial Services returned to profit in H2; remain committed to doubling profit contribution and returns by March 20245
- Building on our existing Net Zero by 2040 commitment, announced new target to reduce our absolute greenhouse gas emissions by 30 per cent by 2030, signing up to Science Based Targets. Principal Partner of COP26, the UN Climate Change Conference taking place in November this year
- Made a strong start to the transformation of Argos, which will improve product availability and deliver a lower cost to serve
- Transformed the reach of Habitat, making it our leading furniture and home brand
Simon Roberts, Chief Executive of J Sainsbury plc, said:
“Above all else, I want to recognise the extraordinary job that my colleagues have done over the last 12 months. Their efforts have been nothing short of heroic as our entire team went above and beyond every day for our customers and communities. I am enormously grateful to the whole team for the way they have risen to the huge challenges this year and so selflessly looked after our customers and each other.
“We have put our colleagues and customers first every step of the way and, as a result, delivered industry-leading safety in our stores and record levels of customer satisfaction. In a year like no other, our industry has stepped up and worked tirelessly across food supply chains to feed the nation and we are very proud of the part Sainsbury’s has played. I also want to especially recognise our suppliers for all their support and partnership throughout this year in keeping goods flowing for our customers. They have done a fantastic job.
“This year’s financial results have been heavily influenced by the pandemic. Food and Argos sales are significantly higher, but the cost of keeping colleagues and customers safe during the pandemic has been high. Our full-year direct COVID-19 costs were £485 million, leading to a 39 per cent decrease in full-year underlying profit. We are pleased to propose a full-year dividend which is in line with last year, protecting shareholder income from the full impact of COVID-19 on profits.
“We have a bold three-year plan to put food back at the heart of Sainsbury’s and drive improved performance. We are transforming the way we work and I am encouraged by how all of our teams have responded and the early momentum and performance towards our plan.
“We have accelerated our digital transformation this year as we focus on serving customers however they want to shop with us. We have more than doubled our online grocery sales and have done this while improving profitability. Argos digital sales grew almost 70 per cent and our Argos transformation plan is on track to improve customer availability while reducing our costs.
“Like our customers, we are all looking forward to things feeling more normal over the coming months and getting excited about a summer of celebration, but we are also cautious about the economic outlook. While there is much that we cannot predict in the year ahead, we are absolutely focused on delivering for our customers and shareholders.”
Our response to COVID-19
Throughout the pandemic, we prioritised: keeping our colleagues and customers safe, supporting our communities, particularly the most vulnerable and helping to feed the nation. We have:
- Invested £485 million, particularly to help keep our colleagues and customers safe and we have outperformed our main competitors in customer satisfaction for supermarket shopping overall7
- Delivered over 12 million online orders for elderly and vulnerable customers, prioritising them from day one
- Paid all colleagues that were required to shield in full for each shielding period and supported colleagues who needed to self-isolate
- Increased the hourly rate of pay for Sainsbury’s and Argos store colleagues to £9.50 and awarded three special recognition payments for their extraordinary efforts, a total investment of more than £100 million in our frontline colleagues
- Raised £35 million for good causes, including donations to Comic Relief and FareShare and the creation of an additional £1 million local community fund for stores in January this year
- Supported suppliers in distress with vital cash flow and started paying nearly 1,500 small businesses earlier
- Forgone business rates relief on all Sainsbury’s stores
Outlook
We have carried good underlying trading momentum into the new financial year and started the year strongly. However, we have tough comparables ahead as customer behaviour normalises and we are prudent about prospects for the year. We continue to expect underlying profit before tax (UPBT) in the financial year to March 2022 to exceed that reported in the year to March 2020 (£586 million) and we are comfortable with consensus forecasts of around £620 million8. Within this we expect Financial Services to return to a full year profit.
Reflecting a strong cash performance in the year and our strengthening confidence in underlying cash generation, we now expect to reduce net debt by at least £950 million over the four years to March 2023, against previous guidance of £750 million. We expect to generate average Retail cash flow of at least £500 million per year over the three years to March 2025.
Dividend
The Board has proposed a final dividend of 7.4 pence per share. This brings the full year dividend to 10.6 pence per share, which is in line with last year (when treating the Special dividend announced in November 2020 of 7.3 pence as part of 2019/20), despite lower underlying profits. This diverges from our policy of a dividend covered 1.9x by underlying earnings, reflecting strong underlying cash generation and consistent with the commitment the Board made in November to protect shareholder income from the full impact of COVID-19 on profits.
Notes
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 webcast presentation will be available to view on our website at 07:30 (BST). The webcast can be accessed at the following link: https://webcasts.sainsburys.co.uk/sainsbury161
Following the release of the webcast, a Q&A conference call will be held at 09:30 (BST). This will be available to listen to on our website at the following link: https://webcasts.sainsburys.co.uk/sainsbury160
A recorded copy of the webcast and Q&A call, alongside slides and a transcript of the presentation will be available at www.about.sainsburys.co.uk/investors/results-reports-and-presentations following the event
Sainsbury’s will issue its 2021/22 First Quarter Trading Statement at 07:00 (BST) on 6 July 2021.
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Strategy Review: Driven by our passion for food, together we serve and help every customer
In November we set out a plan to transform our business over the next three years. We are clear on our priorities. We are putting food back at the heart of Sainsbury’s, building on the changes we have made as we have adapted our business during the pandemic. We are raising our ambitions and speeding up the pace of change, simplifying our operations and accelerating our cost savings programmes so we can invest more in food quality, choice, innovation and consistently lower prices for our customers. Our portfolio brands are supporting our core food business, delivering for customers and shareholders in their own right. As we look forward, we will pursue partnerships or outsource where faster and where they will make a positive impact for our customers.
We are reducing complexity, aiming to reduce our retail operating costs to sales ratio by at least 200 basis points and are focused on robust profit delivery and consistent dependable cash flow. By delivering for our customers we will drive stronger financial outcomes.
Food First
Our clear priority is to build on our strong brand heritage and reputation for quality, range and innovation while lowering prices and offering more consistent value. We will offer high quality, great value food wherever and however customers want to shop with us. This is what putting food back at the heart of Sainsbury’s means. Collaborating and simplifying how we work with suppliers will create buying benefits, drive innovation and lower our cost to serve.
We are making good early progress against our plan, building on a year in which grocery sales grew 7.8 per cent and we grew our volume market share9.
We are investing in value and have improved our price position relative to competitors on the products that matter most to customers. We are seeing a good customer response and price perception has improved. Where we have invested in price across key meat, fish and poultry products, volumes have grown by 15 per cent10. To help customers feel confident they are getting good value, we launched our bold Sainsbury’s Quality, Aldi Price Match campaign on around 250 great quality, entry level and everyday products. The campaign complements our biggest ever Price Lock commitment on largely branded products. We increased the number of products on Price Lock in January to over 2,500 everyday items and held these prices for over eight weeks.
We have been selective in introducing new entry price point products under our owned brands, including Stamford Street ready meals and Mary Ann’s yoghurts, bringing customers a greater choice of products and price points. We also launched our Imperfectly Tasty range, offering more choice and reducing food waste.
We have put foundations in place to deliver a faster and stronger pipeline of innovative product development. We have committed to tripling the number of new products and increasing their speed to market by at least 30 per cent. Working closely with our suppliers, we plan to launch 1,900 new products and improve almost 2,000 more in the next 12 months.
With customers making the most of being at home, we had our biggest ever Valentine’s Day, Shrove Tuesday, Mother’s Day and Easter. Customers treated themselves and our Taste the Difference sales grew 12.8 per cent as a result, while SO Organic grew 11.1 per cent. Innovative seasonal products that performed particularly well included oysters for Valentine’s Day, Taste the Difference Chateaubriand and whole salmon at Easter, which we sold in the aisle for the first time following the closure of our meat, fish and deli counters.
We have invested in Groceries Online this year to support its outstanding growth through unprecedented customer demand for home delivery and Click & Collect. We have grown sales by 120 per cent and we are now able to fulfil more than 850,000 online orders a week. We have gained significant market share in the year to become the UK’s second largest online grocery retailer. 17 per cent of our grocery sales are now online, compared with eight per cent in 2019/20. Our Groceries Online business is increasingly profitable, with profit contribution four times higher than last year and we doubled the online profit contribution margin versus last year. In-store pick rates are now back to pre-pandemic levels and new Saver Slots are enabling delivery efficiencies. We have rapidly rolled out super-fast grocery deliveries. We have rolled out Chop Chop to 17 cities and towns and extended our partnerships with Uber Eats and Deliveroo to over 200 stores. We have rolled out SmartShop self-scan to over 1,200 stores and it now accounts for 30 per cent of sales in stores with handsets, helping to increase customer satisfaction scores for ease and speed of checkout by nearly 13 per cent year-on-year.
We have a strong and well-located store portfolio. We have opened one new supermarket and invested in 273 supermarkets across the year with new initiatives such as fresh fruit and vegetable ‘Food Markets’ and improved general merchandise and clothing sections. Our Beauty Transformation programme is performing well and we are outperforming the Beauty market11. We offer customers an expanded range of beauty products in 236 supermarkets. Sushi remains popular with customers and we now have Sushi Gourmet counters in 145 stores. We will open between 25-30 convenience stores per year over the next three years, including 18 ‘Neighbourhood Hub’ convenience stores. These are larger format convenience stores that offer a broader range of locally tailored products and services across food, beauty, clothing, seasonal and general merchandise. We now have five of these stores open and trading. They are very popular with customers and are delivering high returns. Reflecting our strategy to flex the size and format of our stores to suit local needs, we also opened one new ‘On the Go’ store in Leicester Square in London this year.
Brands that Deliver
We are refocusing the role of our portfolio brands to ensure that they contribute positively in their own right. Argos, Habitat, Tu, Nectar and Sainsbury’s Bank are all delivering for their customers and we are on track to drive strong, sustainable profitable growth to support our core food business.
Nectar supports our plan by rewarding customers for their loyalty. It is performing ahead of target with 7.4 million downloads of the app to date. Over 150,000 customers signed up to our new partnership with British Airways in the first seven weeks. We also continue to make good progress with Nectar360, our marketing services business. We launched a retail media platform that helps brands and advertising agencies reach and engage shoppers more effectively on our Groceries Online website, delivering a more personalised experience for customers and stronger returns for brands.
Argos digital sales grew 68 per cent in the year, with 90 per cent of sales starting online. Argos’s strength in digital and our leading Fast Track delivery has helped us adapt quickly to the changes in the way people wanted to shop through the pandemic. While standalone Argos stores were closed for much of the year during lockdowns, home delivery sales increased significantly and collection from Sainsbury’s stores was popular. Over the year we welcomed over three million new customers to Argos and sales were boosted by particularly strong growth in home and office furniture, garden essentials and home entertainment, including games consoles such as the new PlayStation 5 and Xbox.
We are making good progress transforming Argos, focusing on improving customer availability while reducing our costs. We have closed 170 standalone Argos stores as well as the six Argos stores in Homebase stores, as part of our plan to reduce the number to around 100 over the next three years12, reducing our operating costs by £105 million by March 2024. We have opened 30 new Argos stores in Sainsbury’s stores, 35 collection points and one new standalone store. This is part of our plan to reach 430-460 Argos stores in Sainsbury’s and reach 450-500 collection points by March 2024. As at 6 March 2021, Argos had 737 stores, of which 336 are stores in Sainsbury’s. Customers can also pick up products from 306 collection points in Sainsbury’s stores. We have also started work on our first Local Fulfilment Centre (LFC) in Bristol, which will open in June. This is the first of 32 LFCs that will become our new distribution network, offering customers improved availability and quicker delivery and collection options.
We have made great progress integrating Habitat with Argos and Sainsbury’s. We launched Habitat as our main home and furniture brand and we have adapted our home and furniture ranges, increasing customer choice and making prices more accessible. We now have one global team that sources products for Sainsbury’s, Habitat and Argos, maximising our scale positions with suppliers and driving efficiencies within our own business. We are also using the same website infrastructure for Habitat and Argos, ensuring a consistent shopping experience for customers while reducing costs. Habitat had three stores which were closed for lockdown at year end but re-opened on 12 April.
While Tu clothing sales were down 18.3 per cent in the first half of the year, they recovered in the second half, increasing by 1.5 per cent and we continue to gain clothing market share. Tu online performed strongly throughout the year, with sales up 65 per cent and full price sales up 15 per cent as customers stocked up on pyjamas, loungewear and childrenswear.
We continue to make good progress reshaping, strengthening and simplifying our Financial Services business. This has helped us to mitigate the impact of COVID-19. In line with our guidance at Interims, the Bank returned to profit in the second half of the year with an underlying operating profit of £34 million, to deliver a Financial Services underlying operating loss of £21 million for the full year. The underlying loss reflects the changed economic environment driven by COVID-19 where we have seen significantly reduced demand across consumer credit, combined with increased bad debt provisions and less activity in our fee-based products, particularly Travel Money.
Over 90 per cent of product sales now start online and we continue to improve customers’ ability to self-serve online. We are making good strategic progress to be a simple, mobile-led Financial Services business for loyal Sainsbury’s and Argos customers. We remain committed to doubling profit contribution and returns in our Financial Services business in the next five years to March 202413. The Bank has a strong balance sheet and a significant surplus capital position.
Save to Invest
We will deliver a step change in efficiency by transforming our approach to costs, simplifying our organisation and delivering a structural reduction in our operating cost base. We are accelerating our cost saving plans to unlock new opportunities in order to fund the improvement of our food offer and to ensure we can meet the growth in customers shopping across a broad range of channels.
We are on track with our plan to reduce our retail operating costs to sales ratio by at least 200 basis points, delivering major structural cost savings to support investment in our core customer offer and deliver improved financial returns.
Transforming our approach to costs and radically simplifying our organisation is delivering results at pace. We have achieved this by reducing the number of Argos standalone stores, closing our meat, fish and deli counters, simplifying our store management structures, reducing 500 roles in our Store Support Centres and cutting office space. We are also consulting with colleagues on plans to close our Online Fulfilment Centre in Bromley-by-Bow to drive online efficiency and profitability.
In addition, we are accelerating the integration of the Sainsbury’s, Argos and Habitat supply chain and logistics networks and creating an operating model which will save £150 million over the next three years and deliver working capital benefits.
Our property rationalisation programme is progressing well and our Argos transformation programme, which includes the changes we are making to our Argos store estate, will reduce our cost to serve by £105 million.
We are proud of our strong relationships with suppliers and are working closely with them to drive value and simplify processes. This means we can buy better and lower our cost to serve.
Net Zero
We have committed to investing £1 billion over twenty years towards becoming a Net Zero business across our own operations by 2040, aligned to the highest ambitions of the Paris Climate Change Agreement. We are implementing a programme of change, focusing on reducing carbon emissions, food waste, plastic packaging and water usage and increasing recycling, biodiversity and healthy and sustainable eating.
This year we have taken our ambitious plan further with the addition of a Scope 3 target, which covers indirect emissions that occur throughout our value chain.
We worked with the Carbon Trust to define an ambitious Scope 3 target which requires the reduction of absolute greenhouse gas (GHG) emissions by 30 per cent by 2030, to align to a well below 2°C scenario. The baseline is 26,663,081 tC02e (2018/19). We have also committed to working closely with our supplier base to help them develop and then meet their own targets.
The impact of the pandemic on our emissions has been substantial. We have seen a reduction of energy usage due to the closure of cafes, counters and all of our office space. We have seen more fuel usage due to the rise of online shopping and an increase in the number of products going through our supply chain. Overall, we have reduced our absolute GHG emissions within our operations to 819,862 tCO2e, a reduction of three per cent year-on-year and 14 per cent from our 2018/19 baseline, keeping us on course for our headline target.
We committed to reduce our use of plastic packaging by 50 per cent by 2025. COVID-19 has had a significant impact on our usage this year due to an increase in sales volume which has led to an increase in plastic packaging used overall. To keep customers and colleagues safe we also re-introduced plastic bags for our Groceries Online orders during the height of the pandemic. Therefore progress made in plastic weight reductions this year has been outweighed by the challenges of the pandemic. Year-on-year the tonnage has increased by 3,496 tonnes to 117,959 tonnes, which puts us behind our target trajectory. Overall there has been a 1.7 per cent reduction in our food plastic packaging from our 2018 baseline. We have a strong plan for the year ahead.
We know that food that is better for us is also better for the planet. This is why we have committed to develop and deliver healthy, sustainable diets for all. In November 2020, we reported on the volume of ‘healthy’ sales relative to total sales. Moving forward, we believe reporting the tonnage of healthy sales relative to total sales is a more credible way to reflect the weight of plate from healthy choices, similar to the approach of the Eatwell Guide, and therefore this is how we will be defining a future target. Our current position is 55.3 per cent healthy sales tonnage, remaining the same year-on-year.
We continue to reformulate and innovate to launch healthier products. We have been trialling influencing customer behaviour by incentivising customers with better value fruit and vegetables and additional Nectar points, including our discounted 60 pence fruit and vegetable campaign and The Great Big Fruit & Veg Challenge.
We have committed to reducing food waste by 50 per cent across the whole value chain by 2030. This year we reduced the food waste we send to anaerobic digestion in our own operations by over 5,000 tonnes, a reduction of 16 per cent year-on-year, which puts us ahead of our target trajectory.
1 Excluding the Special dividend announced in November 2020 of 7.3 pence, as this relates to 2019/20. Analyst consensus published on our website as at 9 February 2021
2 Analyst consensus published on our website as at 9 February 2021
3 Sainsbury’s came first in a supermarket safety survey conducted by the UK’s leading consumer champion. This is corroborated by Sainsbury’s own internal data
4 Nielsen panel market share data, 4 weekly report, FY18/19 vs FY20/21
5 On a Group contribution basis by FY23/24
6 Special dividend in 2020/21 paid in lieu of final dividend for 2019/20 following the deferral of dividend decision. The total dividend paid in respect of each year is equal at 10.6p per share, with a final dividend of 7.4p paid in 20/21
7 Competitor Benchmark Survey 12-week trended data to 06/03/21
8 Analyst consensus published on our website as at 9 February 2021
9 Nielsen panel volume growth, total FMCG 52 weeks to 6 March 2021
10 LFL volume growth of Q3 invested SKUs, pre vs post-investment, 8 weeks of post-launch data
11 Nielsen IQ EPOS Data
12 Excluding Republic of Ireland