Interim results for the 28 weeks to 24 September 2016

Crayfordbags

Delivering against strategy, with a strong platform for growth

  • Like-for-like transaction growth across all channels and total volume growth
  • Differentiated food proposition offering customers market-leading choice, quality and value
  • General Merchandise sales growth of nearly five per cent
  • Clothing sales growth of nearly one per cent in a challenging market
  • Acquisition of Home Retail Group plc (‘HRG’) accelerates our strategy:
    • c.250 Argos digital stores in supermarkets over the next three years
    • 30 Argos digital stores and 200 digital collection points in supermarkets by Christmas
    • Confident of delivering £160 million synergy target over three years
  • On track to deliver £500m cost savings target by 2017/18
  • New three-year £500m cost savings target from 2018/19
  • Net debt reduced by £485 million from March 2016 to £1.3 billion(1)
  • Interim dividend of 3.6 pence per share
  • New Sainsbury’s Group provides a strong platform for growth, with four key priorities:
    • Further enhance our differentiated food proposition
    • Grow Clothing and General Merchandise and deliver synergies by integrating Argos
    • Diversify and grow Sainsbury’s Bank
    • Continue cost savings and maintain balance sheet strength

Commenting on the Interim Results 2016, Mike Coupe, Group Chief Executive of J Sainsbury plc, said: “Two years ago we set out our strategy to make our customers’ lives easier, offering great quality and service at fair prices, serving our customers whenever and wherever they want.  We have made good progress delivering this in challenging market conditions. 

“We have invested in the quality of our products while reducing prices on everyday items, delivering volume growth and outperforming the market in customer service and availability. To meet growing demand for home delivery groceries in London, we opened a new online fulfilment centre. By Christmas we will open 30 Argos digital stores and create a further 30 Argos digital collection points in our supermarkets. These will form part of a rollout of 200 new digital collection points where customers can collect Tu clothing, eBay and DPD parcels.

“We achieved like-for-like transaction growth across all our channels and remain on track to deliver our three-year £500 million cost saving programme by the end of 2017/18. We will also deliver £500 million of cost savings over three years from 2018/19. We continue to benefit from a strong balance sheet, with net debt reduced by £485 million from March 2016 to £1.3 billion and we are committed to paying an affordable dividend, fixed at 2.0 times cover for the full year. Consistent with our policy to pay an interim dividend of 30 per cent of the previous full year dividend, our interim dividend will be 3.6 pence per share.”

Mike Coupe added: “The acquisition of HRG accelerates our strategy to give customers choice, convenience, speed and flexibility in when, where and how they shop. Food will always be at our heart and we are strengthening our Clothing, General Merchandise and Financial Services offers to realise the potential of the Group. The combination of our products, services, customer data and fast delivery networks gives us a strong platform for growth and enables us to deliver clear synergies.”

Outlook 

The market remains competitive and pricing pressures continue to impact margins. The full impact of the devaluation of sterling on retail prices is as yet uncertain. However, we are well placed to navigate the external environment and remain focussed on delivering our strategy.

Financial highlights

 

28 weeks to 24 September 2016

28 weeks to 26 September 2015

% Total Change

Business Performance  

Underlying Group sales (inc VAT)

£13,923m

£13,641m

2.1%

Like-for-Like sales (inc VAT, ex fuel) (Sainsbury’s only)

 

 

(1.0)%

Underlying profit before tax(2)

£277m

£308m

(10.1)%

Underlying basic earnings per share(3)

11.2p

12.0p

(6.7)%

Return on capital employed (excluding pension fund deficit)(4)

8.0%

8.5%

(57)bps

Statutory Reporting*

Group sales (ex VAT, inc fuel)

£12,642m

£12,419m

1.8%

Items excluded from underlying results

£95m

£31m

 

Profit before tax

£372m

£339m

9.7%

Basic earnings per share

14.8p

13.6p

8.8%

Interim dividend

3.6p

4.0p

(10.0)%

*Variation between Business Performance and Statutory Reporting is due to items excluded from underlying results

  • Our full year underlying profit expectation for the combined group remains in line with current market consensus (which includes Argos)1
  • We expect Sainsbury’s second half underlying profit (excluding the impact of Argos) to be lower than that achieved in the first half, as a result of continued price investment and a step up in cost inflation in the second half
  • Argos is expected to deliver an underlying profit contribution to the Group of £55m-£75m2 in the second half
  • We expect full year 2016/17 net debt to be around £1.5bn, mainly as a result of the HRG acquisition

Strategic and operational highlights

We know our customers better than anyone else

  • Recognising that our customers want a clearer and simpler shopping experience, we have removed multi-buys and our Brand Match scheme and we are investing in lower regular prices. Promotional participation is down from 37 per cent two years ago to 24 per cent3. Customer satisfaction scores continue to improve4

Great products and services at fair prices

  • Our programme to invest in the quality of 3,000 Sainsbury’s branded food products is on track, including launching a new On the Go range of sandwiches, sushi and salads and a leading Deliciously FreeFrom range which is a newly expanded range of allergen-free fresh, frozen and ambient lines such as lasagne, pizzas and dairy-free alternatives to cheese
  • General Merchandise sales growth of nearly five per cent driven by seasonal items and popular ranges such as our design-led bedding and homeware
  • Our Clothing business grew by nearly one per cent in a challenging market and continues to gain market share; we are the UK’s sixth largest clothing retailer by volume5
  • With the acquisition of Argos, we are now a market leader in toys, small domestic appliances, electricals and homeware
  • We have successfully built and deployed Sainsbury’s Bank’s new banking platforms and transferred all savings customers and ATMs

1

2016/17 UPBT consensus estimate (including Argos) of £573m, as published  on 1 November 2016 on www.j-sainsbury.co.uk/investor-centre/analyst-consensus

2

Before synergies and Homebase disposal impacts

3

Nielsen Homescan, % Spend on deal (Total Business, four week data up to 24 September 2016)

4

CSI Data – Customer Satisfaction Tracking Q1 and Q2 2016/17

5

Kantar Worldpanel for the 52 weeks to 28 February 2016

There for our customers

  • There are now 22 Argos digital stores in our supermarkets and we will have 30 by Christmas
  • By the end of November there will be 30 Argos digital collection points. These will form part of the rollout of 200 new digital collection points where customers can collect Tu clothing, eBay and DPD parcels
  • Convenience sales growth of over six per cent; this business contributes around £2.4 billion of annualised sales
  • We opened 16 new convenience stores and are trialling six Sainsbury’s Locals in a franchise partnership with Euro Garages in service stations
  • Groceries Online grew eight per cent and contributes around £1.3 billion of annualised sales. We opened an online fulfilment centre in East London to meet increasing demand in London
  • A same-day groceries online delivery offer will be available from 30 stores across the country by Christmas and we are trialling one-hour deliveries
  • Our new Nine Elms flagship store in London highlights the benefits to our customers of the HRG acquisition. Nine Elms hosts an Argos digital store, a Habitat, Sushi Gourmet, Lloyds Pharmacy, Explore Learning and Starbucks

Colleagues make the difference

  • We increased the standard rate of pay of Sainsbury’s store colleagues by four per cent this year, the same rate as last year and we continue to pay well above the National Living Wage
  • We continue to win awards for high levels of customer service, including the industry-leading Grocer Gold Customer Service and Availability Awards for the past four years
  • Including Argos, nearly 195,000 colleagues now work across the Group and we will create approximately 1,000 net retail roles within Argos stores over the next three years

Our values make us different

  • In September we were awarded a Gold accreditation by Investors In People for the third time, making us the largest employer to have reached the Gold standard and the only retailer to achieve three Gold awards
  • As part of our £10 million investment over five years in our Waste less, Save more campaign we have launched 16 trials to help families reduce food waste in Swadlincote, our test-bed town
  • We published our corporate food waste figures within our operations, reporting an overall reduction of 9.4 per cent year-on-year
  • We have increased our food donation partnerships by 300 per cent year-on-year and now have more than 1,100 charity food donation partners
  • Over 8,000 schools took part in our Active Kids Paralympic Challenge, giving more than 2.5 million children the opportunity to engage in Paralympic sports such as sitting volleyball
  • We received the highest possible score from the World Wildlife Fund’s Palm Oil Buyers’ Scorecard, reflecting our ongoing commitment to sourcing palm oil sustainably

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Notes:

  1. Net debt excludes the net debt of Financial Services and is calculated as the sum of current available for sale assets, current net derivatives, net cash and cash equivalents, loans, non-current finance lease obligations and non-current net derivatives. Refer to Alternative Performance Measures disclosure on page 57
  2. Underlying profit before tax: Profit before tax before any profit or loss on the disposal of properties, investment property fair value movements, non-underlying finance movements, IAS 19 pension financing element and defined benefit pension scheme expenses, acquisition adjustments and one-off items that are material and infrequent in nature, but after the coupons on the perpetual subordinated capital securities and perpetual subordinated convertible bonds. Refer to Alternative Performance Measures disclosure on page 57
  3. Underlying basic earnings per share: Underlying profit attributable to ordinary shareholders, 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. Refer to Alternative Performance Measures disclosure on page 57
  4. 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). In light of the acquisition of HRG on 2 September 2016 and the disproportionate impact this has on the ROCE calculation (using a two point average for Capital Employed and the inclusion of only three weeks of ‘return’) a calculation based on a 14 point average has been used. Refer to Alternative Performance Measures disclosure on page 57
  5. 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
  6. J Sainsbury plc will report its 2016/17 Third Quarter Trading Statement at 07:00 (GMT) on 11 January 2017. 

A results presentation for analysts and investors will be held at 09:30 on 9 November 2016.

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 597 417. 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

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About the article

  • Posted on: 09 November 2016
  • Type of article: Press release

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