Evolving to win
- Underlying Group sales(1) (inc VAT) down 0.3 per cent to £13,916 million (2013/14: £13,953 million)
- Retail sales (inc VAT, ex fuel) flat year-on-year
- Like-for-like sales (inc VAT, ex fuel) down 2.1 per cent
- Underlying profit before tax(2) down 6.3 per cent to £375 million (2013/14: £400 million)
- Underlying basic earnings per share(3) down 12.7 per cent to 14.5 pence (2013/14: 16.6 pence)
- Return on capital employed(4) of 11.1 per cent (2013/14: 11.4 per cent)
- Return on capital employed excluding pension fund deficit of 10.3 per cent (2013/14: 10.5 per cent)
- Group sales (ex VAT, inc fuel) down 0.1 per cent to £12,667 million (2013/14: £12,684 million)
- Items excluded from underlying results total a charge of £665 million (2013/14: £33 million profit), including an impairment and onerous contract charge of £628 million (2013/14: £92 million)
- Loss before tax of £290 million (2013/14: £433 million profit)
- Basic loss per share 18.0 pence (2013/14: 17.9 pence per share earnings)
- Interim dividend 5.0 pence per share (2013/14: 5.0 pence per share)
Highlights from our Strategic Review
Evolving to win
- The grocery sector is undergoing structural change as customers shop more frequently, using online, convenience and discount channels more. We expect supermarket like-for-like sales in the sector to be negative for the next few years, but we have robust plans to address this challenge
- In challenging market conditions, Sainsbury’s has delivered relative outperformance in sales and profit for the past five years
- We have listened to our customers and are evolving our strategy from a position of strength to meet their changing needs. We will build on our strong values, differentiated offer of quality products and services, competitive value proposition, advantaged store portfolio, established convenience and online businesses, great colleague service and our unique understanding of our customers
Great products and services at fair prices
- We will improve the quality of 3,000 own-brand products, focusing on the categories which matter to our customers
- We will invest an additional £150 million in price, of which approximately half will fall in the second half of 2014/15 and the remainder in the first half of 2015/16, focused in areas where our customers tell us price matters most
- We will always be competitive on price versus our main supermarket peers. We will work in close partnership with suppliers to deliver value chain efficiencies which can be reinvested in price
- We will continue to grow our non-food business with a focus on design-led clothing, cookware, homeware and seasonal products – increasing our non-food space in supermarkets and rolling out clothing online in 2015
- We are on track to deliver sales and profit growth at Sainsbury’s Bank and have opportunities to expand the Bank’s product portfolio
There for our customers
- We will open 500,000 sq ft of space in each of the next two years, followed by 350,000 sq ft in 2017/18. This will include eight new supermarkets over that period. It also includes four replacement stores, three of which are mixed-use developments, unlocking significant property profits. Over half of our new space will be convenience stores as we continue to target opening 100 convenience stores per year
- A review of our supermarket estate has concluded that:
- Around 75 per cent of our stores are in the right locations and are of the right size for our food and non-food offer and we will pilot new formats focused on optimising range, layout and ease of shop to meet changing customer shopping patterns
- Over the next five years, around 25 per cent of our store portfolio will have some under-utilised space which can be used to expand our non-food offer or for other purposes such as carefully selected concession partnerships
- We will continue to invest in groceries online to further improve our website and the customer experience, trialling new ways for customers to order and acquire their groceries, including click and collect
Colleagues making the difference
- We will improve our customer experience through continued investment in colleague training and new user-friendly technologies, for example through the roll-out of ‘CAM’, an automated availability tracking tool which reduces cost and improves on-shelf availability throughout the day
We know our customers better than anyone else
- We will invest in the systems infrastructure to create a single view of our customers, helping us to become increasingly effective in our customer interactions
Our values make us different
- Our values remain a key component of our differentiated offer and we will continue to invest in areas that matter to our customers
Maintaining balance sheet strength
- We will deliver total operating cost savings of £500 million over the next three years. This represents annual operating cost savings in the range of £150 million to £175 million, a step up from recent levels
- We will reduce capital expenditure to between £500 million and £550 million per annum over the next three years, approximately two per cent of sales
- We maintain our interim dividend at 5.0 pence per share for 2014/15 and will fix dividend cover at 2.0 times our underlying earnings for 2014/15 and over the next three years
- Given the price investment announced today, combined with the outperformance of both the Bank and cost savings in the first half that we do not expect to be repeated in the second half, Sainsbury’s expects profitability to be lower in the second half than the first half
David Tyler, Chairman said: "The UK grocery sector has become increasingly challenging in recent months. As a result, we have evolved our strategy and believe this will allow us to build on our heritage and past success, especially as it will be delivered by the most experienced management team in the industry.
"In order to execute this strategy, it is essential that we maintain the strength of our balance sheet. We will therefore be cutting our capital expenditure and making significant cost savings, as well as ensuring we pay an affordable dividend. Our interim dividend is maintained at 5.0 pence per share and we will fix our dividend cover at 2.0 times our underlying earnings for 2014/15 and the next three years. Our dividend for the full year is likely to be lower than last year, given our expected profitability(5)."
Mike Coupe, Chief Executive said: "Our strategy is evolving to address the continuing shifts in customer shopping patterns which we believe will lead to a greater emphasis on product quality and ease of shopping, and an increase in multi-channel shopping.
"We have examined every aspect of our business and we have good foundations for future growth in our supermarket and convenience estates, our online and non-food businesses and in Sainsbury’s Bank. However, we need to make sure that we are investing in the right areas and by reducing our costs and capital expenditure we are ensuring that we have the resources to enable us to do so.
"We will continue to differentiate ourselves from a position of strength by offering great products and services at fair prices, investing in the quality of our food and investing in price in areas where our customers tell us it matters most. By knowing our customers better than anyone else we will continue to serve them through multiple channels and in ways that make their lives easier, regardless of changes in the market. Our colleagues will remain our greatest asset; we will invest in their training and development to ensure they can continue to deliver industry-leading service.
"Importantly, our values remain unchanged. They are what make us different and remain at the very core of our business. I am convinced customers will continue to recognise the value of our values as we evolve to win.
"Sainsbury’s is a great business. Our consistent outperformance of our main supermarket peers over the past five years is evidence of this. We are facing into a once-in-a-generation combination of cyclical and structural change in the industry, but I firmly believe that this strategy, building on our unique heritage and track record of success and delivered by the most experienced management team in retail, will focus and energise our business to the benefit of customers, colleagues and shareholders alike."
Notes to editors
- Underlying group sales excludes an £11 million adjustment for fair value unwind relating to the acquisition of Sainsbury’s Bank.
- Underlying profit before tax: Profit before tax before any profit or loss on the disposal of properties, investment property fair value movements, retail financing fair value movements, impairment of goodwill, IAS 19 Revised pension financing element, defined benefit pension scheme expenses, acquisition adjustments and one-off items that are material and infrequent in nature.
- Underlying basic earnings per share: Underlying profit, net of attributable taxation, divided by the weighted average number of ordinary shares in issue during the year, excluding those held by the Employee Share Ownership Plan ESOP trusts, which are treated as cancelled.
- Return on capital employed: Underlying profit before interest and tax, divided by the average of opening and closing capital employed (net assets before net debt).
- 2014/15 UPBT consensus estimate of £677 million as published at 17.00 on 11 November 2014 on www.j-sainsbury.co.uk/investor-centre/analyst-consensus.
- 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 2014/15 Third Quarter Trading Statement at 07:00 (GMT) on 7 January 2015.
A results presentation for analysts and investors will be held at 09:30am (GMT) on 12 November 2014.
To view the slides of the results presentation and the webcast: We recommend that you register for this event in advance.To participate in the live event, please go to the website from 09:30 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 0844 800 3850 (or +44 (0) 20 8996 3900 if you are unable to use the primary number). The pass code for the event is 845207. A transcript of the presentation and an archive recording of this event will be available later in the day.