Interim Results 2019/20 Kevin OByrne Chief Financial Officer - - PowerPoint PPT Presentation

Interim Results

2019/20

Kevin O’Byrne

Chief Financial Officer

3 Interim Results 2019/20 - November 2019

Financial overview

• First period reporting on an inc. IFRS 16 basis
• Material impacts on depreciation, finance costs and net debt
• UPBT £238m (H1 2018/19 £279m)
• Phasing of cost savings, weather, higher marketing costs
• Delivering on our cost ambitions
• Financial services profits up £4m. Modest underlying decline offset by change in transfer pricing
• £229m charges excluded from underlying profit
• Largely non-cash relating to property strategy programme
• Strong retail free cash flow generation of £698m
• New longer term asset-backed pension plan agreed
• Interim dividend of 3.3p, +6%

4 Interim Results 2019/20 - November 2019

Group performance overview

Underlying results Group sales (inc VAT) Retail operating profit Financial Services operating profit Underlying interest costs Underlying profit before tax Underlying basic EPS Dividend per share Statutory results Items excluded from underlying results Profit for the financial period before tax Basic EPS Change H1 2019/20 H1 2018/19

1

£m

0.2% 10% 25% 4% 15% 16% 6% 33% 92% n/a 16,884 487 16 (228) 279 9.4p 3.1p (172) 107 5.1p 16,856 437 20 (219) 238 7.9p 3.3p (229) 9 (2.2)p

1 H1 2018/19 restated for IFRS 16

5 Interim Results 2019/20 - November 2019

Retail sales

1 Sales including VAT, excluding fuel  Expect to open 2 new

Sainsbury's supermarkets and up to 15 convenience stores

 Expect to open around 25 Argos

stores in Sainsbury’s (of which 11 are relocations) resulting in around 305 Argos stores in supermarkets

 Expect to close 2 supermarkets,

around 25 convenience stores and around 20 Argos stores in FY2019/20, as part of announced property closure programme of 10-15 supermarkets, 30-40 convenience stores and 60-70 Argos stores

2019/20 FY Guidance

3.3% (4.5)% (2.0)% (3.1)% 0.6% (0.5)% Q1 Q2 9.8% 5.0% 2.6% 1.5% (0.2)% (1.1)%

Grocery General Merchandise Clothing

Q1 Q2 Q1 Q2

Convenience Groceries Online Supermarkets

Q1 Q2 Q1 Q2 Q1 Q2 LFL sales growth

1

(1.0)%

New space1,3

0.4%

Total sales growth

(0.6)%

2 Supermarket sales include Argos stores in Sainsbury’s sales 3 Sales from net new space

6 Interim Results 2019/20 - November 2019

Sales performance versus market

GROCERY: Volume growth

1

Argos YoY BRC YoY (excluding Argos)

FY 2018/19 H1 2019/20

ARGOS: Sales growth v BRC

2

CLOTHING: Value Growth (%YOY)3

Sainsbury’s Total market

22 Aug 18 22 Sep 19

1 Kantar unit growth. Q1: 11 March – 30 June 2019, Q2: 1 July 2019 – 22 September 2019 2 Argos v BRC non-food non-clothing market, 52 weeks to 21 September 2019 3 Kantar World Panel 24 w/e 22nd September 2019

GROCERY: Volume growth

1

• 4%
• 3%
• 2%
• 1%

0% 1%

Q1 19/20

Tesco Asda Morrisons

Sainsbury’s

Total grocers

Q2 19/20

7 Interim Results 2019/20 - November 2019

Financial services

Transfer pricing benefit, FY guidance unchanged

Change H1 2019/20 H1 2018/19

£m

0% 25% 19% 18% 8% 5% 100 bps 50 bps 30 bps 100 bps 100 bps 226 16 £6.2bn £5.6bn 1.95m 2.10m 71% 4.0% 1.6% 12.7% 15.7% Total income

1

Underlying operating profit Customer lending

2

Customer deposits Active customers - Bank Active customers - Argos FS

3

Cost/income ratio Net interest margin

4

Bad debt as a percentage of lending

5

CET 1 ratio

6

Total capital ratio

7

227 20 £7.4bn £6.6bn 2.10m 2.20m 70% 3.5% 1.3% 13.7% 16.7%

3 Prior year restated 4 Net interest receivable / average interest-bearing assets 5 Bad debt expense / average net lending 1 Net interest, net commission and other operating income 6 Common equity tier 1 capital / risk-weighted assets 2 Amounts due from customers at the Balance Sheet date in respect

• f loans, mortgages, credit cards and store cards net of provisions

2019/20 FY Guidance

 Financial services underlying operating profit

expected to be c.£45m, including a c.£10m benefit as a result of a change in transfer pricing between Argos and Argos Financial Services

 Financial Services non-underlying costs are

expected to be around £30m

 No further capital injections into the Bank are

expected, following £35m in H1 2019/20 0.8 0.8 1.4 1.9 1.7 1.9 3.0 2.9 Personal loans Credit cards Mortgages Storecards

FY 2018/19

7.4 7.0

HY 2019/20

Customer assets (£bn)

7 Total capital / risk-weighted assets

8 Interim Results 2019/20 - November 2019

Change H1 2019/20 H1 2018/19

£m

Financial services

Metrics inc. AFS

1

3% 100 bps 40 bps 31 66% 6.3% Total Financial Services UPBT Cost/income ratio ROCE

2

30 67% 5.9%

1 H1 2018/19 restated for IFRS 16 2 Calculated on a post-tax basis. Comparative reflects the 52 weeks to 9th March 2019, as the 52 weeks to 22 September 2018 cannot be calculated on a consistent basis due to changes in accounting standards

9 Interim Results 2019/20 - November 2019

H1 2019/20 H1 2018/19

Items excluded from underlying results

Property strategy programme Retail restructuring programme Financial Services transition and other Argos integration costs Asda transaction costs Other Total (203) (25) (15)

• 14

(229)

• (69)

(40) (25) (17) (21) (172)

£m

 In 2019/20 cash outflows as a

result of items excluded from underlying results should not exceed £100m

 Property strategy programme

• ne-off costs expected to be

£230m-£270m (of which £30m- £40m cash) Sainsbury’s Bank

 Financial Services non-

underlying costs are expected to be around £30m

2019/20 FY Guidance

10 Interim Results 2019/20 - November 2019

Retail capital expenditure

H1 2019/20 H1 2018/19 Core retail capital expenditure Argos integration capex Retail capital expenditure 248

• 248

243 31 274

£m

 Retail capital expenditure to

be around £550m

 Retail capital expenditure is

expected to be around £550m- £600m per annum over the medium term

2019/20 FY Guidance

Core retail capital expenditure

Maintenance Growth Efficiency

£243m

2018/19

£248m

2019/20

11 Interim Results 2019/20 - November 2019

Pensions

Outcome

• 2018 triennial valuation deficit down to £538m,

from £1,055m in 2015

• Greater asset-backed security for the Scheme
• Immediate cash payments reduced
• Reduced risk of over funding and trapped cash

Agreed long term sustainable and flexible funding plan

Annual cash contribution reduces by c.£50m

Annual cash commitment under old plan

2019/20 2020/21 2021/22 2022/23

124 48 98 76 69

12 Interim Results 2019/20 - November 2019

Retail free cash flow

2 Interest paid net of interest received, interest elements of obligations under finance lease payments and dividends paid on perpetual securities 3 Excludes Argos integration capital expenditure 1 Operating cash flow before changes in working capital and pension contributions 4 Other non-cash includes new leases and lease modifications, and fair value movements on derivatives linked to borrowings

Adjusted operating cash flow before changes in working capital1 Decrease in working capital Pension contribution, net interest paid2, corporation tax paid Net cash generated from operating activities Cash capital expenditure before strategic capex3 Proceeds from disposal of property, plant and equipment Repayments of lease obligations and right-of-use assets direct costs Bank capital injections Dividends and distributions received from JVs, net of capital injections Retail free cash flow Dividends paid on ordinary shares Argos integration capital expenditure Repayment of borrowings, other non-cash and net interest movements4 Movement in net debt5 Opening net debt including perpetual securities as debt Closing net debt including perpetual securities as debt Of which: Lease Liabilities Net Debt excluding Lease Liabilities £m – Restated for IFRS 16 1,029 296 (279) 1,046 (243) 34 (231)

• 11

617 (156) (31)

• 430

(7,575) (7,145) (5,873) (1,272) H1 2018/19 Restated H1 2019/20 1,034 289 (282) 1,041 (248) 54 (232) (35) 118 698 (174)

• 44

568 (7,346) (6,778) (5,770) (1,008)

2019/20 FY Guidance

5 Net debt definition now excludes derivatives not linked to borrowings, and includes perpetual securities as debt  Capital injections into the Bank are

expected to be £35m

 Proceeds from disposal of property are

expected to be in line with 2018/19

 Expect underlying retail depreciation and

amortisation of around £1.2bn, including c.£500m right of use asset depreciation

 Net debt before fair value movements on

derivatives to reduce by at least £300m

 Net finance costs of around £405m,

including £320m lease interest in 2019/20, following the introduction of IFRS 16

13 Interim Results 2019/20 - November 2019

1 Net debt definition now excludes derivatives not linked to borrowings, and includes perpetual securities as debt 2 Net debt (inc. perpetual securities) on a post-IFRS 16 basis divided by Group underlying EBITDAR. We previously disclosed adjusted Net debt/ EBITDAR, but net debt on a post-IFRS 16 basis now includes lease liabilities 3 FY18/19 Net Debt exc. Leases of £1,522m compares to the previously reported Net Debt of £1,636m less £(122)m of finance leases, plus £8m other (predominantly derivatives no longer reported within net debt)

Balance sheet targets

• Net debt reduction of at least £750m
• ver the next three years
• Medium leverage reduction targets
• Net debt/EBITDAR

2 less than 3x

• Dividend policy changed to 1.9x

underlying eps cover versus 2.0x

• Adjusting for the impact of IFRS 16

FY 18/19

Net debt exc. Lease liabilities

1 (£m)

FY 15/16 2,125 1,5223 FY 21/22 (750) Target c.800

H1 2019/20 FY 2018/19 Net Debt Of which lease liabilities Net Debt exc. leases

1

(6,778) (5,770) (1,008) (7,346) (5,824) (1,522)

3

£m

(603)

14 Interim Results 2019/20 - November 2019

Summary and Outlook

• Grocery sales improving relative to the market
• General Merchandise and Clothing outperforming a difficult market
• H1 profits down
• Phasing of cost savings, weather, higher marketing costs
• H2 profits will benefit from
• Annualisation of colleague wage increases
• Normalisation of weather comparatives and marketing costs
• Material impact of property strategy programme exceptionals (largely non-cash)
• Strong free cash flow generation
• On track to deliver non-lease net debt reduction of at least £750m over the next three years

Mike Coupe

Chief Executive Officer

16 Interim Results 2019/20 - November 2019

Key industry challenges

Digitisation Growth of the discounters

£

Low to no market growth

17 Interim Results 2019/20 - November 2019

We will help our customers live well for less

Confident in the core Integrated customer offer One multi brand, multi channel business Strong cash generation supporting investment, dividend and allowing deleverage Financial flexibility and resilience Sustainable cost reduction, covering cost inflation and funding investment in our competitive offer

18 Interim Results 2019/20 - November 2019

Our strategy

To help our customers live well for less Metrics

Colleague engagement; Customer satisfaction; Volume share; Profitability; Free cash flow; ROCE

Purpose Priorities

Provide a seamless customer experience

6

Drive efficiency to invest in the customer

• ffer

4

Make shopping convenient, supported by great service

3

Offer distinctive products and new categories

2

Be competitive

• n price

1

Grow connected services

5

19 Interim Results 2019/20 - November 2019

Be competitive

• n price

1

20 Interim Results 2019/20 - November 2019

Be competitive

• n price

1

Value brand investment

Sainsbury’s Meat, Fish & Poultry Value Own Label

1

Gains Losses

Incremental Switching within Sainsbury’s

Dec 17 Oct 19

+2%

Sales

+4%

Volume

Bread: Investing across Own Label Tiers 120+ EPP SKUs launched in H1, 200 by end 2019/20

Repackaged and NPD within Premium New Owned Brand Replacing Basics NPD within Core+. Responding in Growth Areas Repackaged Core bySainsbury’s

New New

Improved Improved

1 Kantar 12 w/e 6 October 2019 – rolling 12 weeks switching within total Market MFP

21 Interim Results 2019/20 - November 2019

Be competitive

• n price

1

Lower prices on key volume lines

In-Store Volume Returns Examples

Chicken Wings 1kg

+12% Volume

£1.70

was £2.10

£0.50

Only

White Pittas x6

+15% Volume

Chestnut Mushrooms 250g

+45% Volume

£0.80

Only

1 Pre wave 3 lockdown (started 24th March to 15th June 19) YoY 2 Last 6 weeks since wave 4 lockdown (started 28th August 19) YoY

• 4%

0% 4% 8% 12% 16%

• 6
• 5
• 4
• 3
• 2
• 1

1 2 3 4 5 6

Change in volumes (%)

Pre1 Post2

22 Interim Results 2019/20 - November 2019

Be competitive

• n price

1

We continue to be less dependent on promotions

23.0% 22.8% 20.7% 20.9%

Sainsbury’s Promotional Participation

18/19 19/20 19/20 18/19

Morrisons Sainsbury’s Tesco Asda

Spend on Deal

1

Q1 Q2

1 Source Nielsen 4 weekly data to 21 September 2019

10 20 30 40 40% 30% 20% 10%

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

2018 2019

H1 19/20

H1 19/20 AVERAGE 34% 31% 22% 21%

23 Interim Results 2019/20 - November 2019

Be competitive

• n price

1

Improved grocery value

Base Price Index

2

• 1%

0% 1% 2% 3%

Grocery inflation (Kantar)

1

• 960bps
• 550bps

Commodity VI

2

Aug 17 Jan 18 Jun 18 Nov 18 Apr 19 Oct 19 2004 2007 2010 2013 2016 2019 Morrisons

Sainsbury’s

Tesco Asda Total Market Mar Apr May Jun Jul Aug Sep Oct 2019

1 Kantar City Reads to Oct 2019 2 Sainsbury’s value index, based on Brandview SKU matching data, to Oct 2019

24 Interim Results 2019/20 - November 2019

Offer distinctive products and new categories

2

25 Interim Results 2019/20 - November 2019

Offer distinctive products and new categories

2

Category tier performance

YoY value share change by tier 12 weeks to September 2019

• 0.3%

0.1%

• 0.1%
• 1.8%

52 weeks to March 2019

Branded Premium Own Brand Branded Standard Own Brand Economy Own Brand 0.2%

• 0.8%
• 0.4%

0.0% Premium Own Brand Standard Own Brand Economy Own Brand

Source Nielsen Panel, Total FMCG, Market Universe: Total outlets, 52wks data to 9 March 2019 and 12wks data to 21 Sept 2019

26 Interim Results 2019/20 - November 2019

Offer distinctive products and new categories

2

Premium private label

Taste the Difference re-launch

• Over 350 products new, repackaged or reformulated
• Premium ready meals growth now outperforming the market

4.1% 2.5% 2.4% 1.9% Sainsbury's Morrisons Tesco Asda

Premium Own Label volume share

Source Nielsen Panel, Total FMCG, 28 weeks data to 21 September 2019. Premium Own Label share of sales by retailer

27 Interim Results 2019/20 - November 2019

Offer distinctive products and new categories

2

Distinctive brands

• 57% of customers have bought Distinctive Brands since launch
• On track for £100m incremental sales
• 37 new brands in H1 across Fresh and Grocery
• ‘Taste of the Future’ bays launched in 70 stores
• 67% incremental sales

Leon

• 3 year exclusive partnership
• 14 products launched

28 Interim Results 2019/20 - November 2019

Offer distinctive products and new categories

2

Beauty Rollout

• Now rolled out to over 60 stores
• Sales up over 40%
• Customer numbers up 7%
• Spend per customer up 25%
• Beauty range doubled, 1,200 additional lines
• Double digit growth differential against the market

29 Interim Results 2019/20 - November 2019

Offer distinctive products and new categories

2

Our values make us different

• Committed to reduce plastic packaging by 50% by 2025
• First retailer to remove single use plastic produce and

bakery bags from our stores

• Launching reusable bags in fruit and veg aisles
• Investing in our loose produce offer
• Removed black plastic trays from ready meals
• Fresh water stands in cafés for customers to refill bottles

UK’s first major retailer to make significant commitment to reduce plastic

30 Interim Results 2019/20 - November 2019

Offer distinctive products and new categories

2

Argos category and range focus

• Availability improvement
• Argos master range reduced by c.30% over 3 years
• Eliminating duplication, removing low value items
• Better availability of key lines in store
• Rebalancing into higher margin categories
• Gaining share in Furniture

1

• Higher quality lines introduced
• Increase in weekend delivery slots
• Changing customer perceptions

1 GfK Markets 6 months ended 31st August 2019

31 Interim Results 2019/20 - November 2019

Offer distinctive products and new categories

2

Clothing

• Strong market share gains
• Tu online
• Sales +52%
• 800,000+ new customers, +31% YoY
• Margin rate improvement
• Better buying and markdown management
• ‘Work It’ campaign
• New seasonal, high quality value-led work wear ranges

32 Interim Results 2019/20 - November 2019

Make shopping convenient, supported by great service

3

33 Interim Results 2019/20 - November 2019

Make shopping convenient, supported by great service

3

Channels: Supermarkets

Investing in stores

• Over 870,000 sq ft space repurposed since FY 2014/15
• Tailored, targeted investment
• Significant step-up in 2019/20
• Investing in 450+ supermarkets
• 172 delivered in H1

16/17 17/18 18/19

Supermarkets Trading intensity

1

1 Supermarkets inc. GM&C and Argos stores in Sainsbury’s

34 Interim Results 2019/20 - November 2019

Make shopping convenient, supported by great service

3

Store investments driving customer satisfaction

Source: Lettuce Know in-store programme; Supermarkets only, 4 weeks to 12/10/19 YOY

Checkout experience

Smartshop:

• 200+ handset stores
• average sales participation c.15%
• best stores >25%
• 160+ app-only (hybrid) stores

Self checkouts:

• 2,600+ upgrades
• 10% improvement in speed

Availability

• f products

Connected colleagues

• Technology driving efficiency

and availability

• Replenishment + stock apps

Core investment

Store fabric upgrades

• 70 stores in H1
• 250 by year end

Ease of Checkout Speed of Checkout

4.8% 6.1% 2.6%

Availability of products Overall satisfaction in core investment stores

1.4%

35 Interim Results 2019/20 - November 2019

Make shopping convenient, supported by great service

3

Channels: Convenience

• 2 year capital light programme resetting range,

space and pricing

• 158 stores reset in H1
• On track to deliver 200 in FY19/20
• Around 15% SKUs standard to each store
• Upgraded Self Checkouts in 69 Convenience stores
• Improved customer satisfaction
• Ease of checkout up 7%

2 YoY

• Speed of checkout up 6%

2 YoY

2nd 5th

Value for Money Spent

1

1 Lettuce Know Competitor Benchmarking Survey, Convenience, July 2019 vs Feb 2019 2 Lettuce Know in-store survey, Week 31 2019/20, Lettuce Know Sources:

Knowledge of colleagues Speed of checkout Friendliness of colleagues Ease of checkout Availability of colleagues Customer satisfaction (total) Q2 18/19 Q4 18/19 Q1 19/20 Q2 19/20 Q3 18/19

3 Lettuce Know Q2 19/20

Improved perceptions vs competitors Strong and improving customer satisfaction3

2nd

3rd

Variety

• f Items

1

36 Interim Results 2019/20 - November 2019

Make shopping convenient, supported by great service

3

Channels: Groceries Online

• Sales growth 7%
• Same day delivery now covers nearly

60% of UK households

• Groceries Online app accounts for over 20% of orders
• Extended delivery slots
• Bagless deliveries

500 600 700 800 900

H1 2015/16 H1 2016/17 H1 2017/18 H1 2018/19 H1 2019/20

7.0% 8.0% 7.2% 6.9% 7.0%

Sales and YOY growth rates

£m

37 Interim Results 2019/20 - November 2019

Make shopping convenient, supported by great service

3

Channels: Argos

Strong Fast Track growth

• Fast Track collection growth 14% YoY
• Fast Track delivery growth 5% YoY

166 660 657 216 Old formats Digital Stores

H1 2019/20 At Acquisition

Digital store investments

• 176 Digital conversions and 15 full store refreshes in H1
• Majority of remaining stores to be converted to digital

in H2

• Pay @ Browse in 362 stores versus 162 at year end

0% 20% 40% 60% 80% 100% Walk-in Check and Reserve Home Delivery Fast Track Click & Collect Fast Track Home Delivery 0% 20% 40% 60% 80% 100%

Fast track

15%

2016/17 H1 2019/20

Fast track

24%

Walk-in

43%

Walk-in

36%

38 Interim Results 2019/20 - November 2019

Drive efficiency to invest in the customer

• ffer

4

39 Interim Results 2019/20 - November 2019

Drive efficiency to invest in the customer

• ffer

4

Product Quality Framework helps us fund investment

PQF activity to date covers

49%

• f food

volume

Improved Value Index

more competitive

More distinctive range

more reason to shop at Sainsbury’s

Reduced SKU count

• perational efficiencies

Cash gross profit +3.5% Increased sales/volume intensity

• perational efficiencies

40 Interim Results 2019/20 - November 2019

Drive efficiency to invest in the customer

• ffer

4

PQF cereals case study

Improved Value Index: >100bps

more competitive

More distinctive range

more reason to shop at Sainsbury’s

Reduced SKU count: -20%

• perational efficiencies

Higher cash gross profit: +2% YOY Volumes: +8%

• perational efficiencies

41 Interim Results 2019/20 - November 2019

Drive efficiency to invest in the customer

• ffer

4

BAU savings to offset cost inflation

Manages inflationary pressures BAU savings H1 2019/20

Procurement GNFR Retail Technology Efficiencies Retail HR Retail management structures Shrink Reduction

42 Interim Results 2019/20 - November 2019

Drive efficiency to invest in the customer

• ffer

4

Strategic cost transformation: 5 year plan

Converge Tackle fixed cost End to end reviews

Retail Operations, Marketing and Commercial Operations Other central support Logistics and Supply Chain Project A Project C Project D Shared Services/ BPO Property strategy Project B GNFR procurement Capital prioritisation Technology, Digital and Corporate Services

£250-£350m £150-£250m £400-£600m

Execution underway In planning Opportunities identified

£5bn addressable cost base

43 Interim Results 2019/20 - November 2019

Grow connected services

5

44 Interim Results 2019/20 - November 2019

Grow connected services

5

Financial Services: Priorities

To be the provider of financial services for loyal Sainsbury’s and Argos customers An agile, capital and cost efficient provider of simple, mobile-led financial services Vision Objective Priorities Reshape Simplify Strengthen

45 Interim Results 2019/20 - November 2019

Grow connected services

5

Current Customer Base Customer Credit Risk Balance Sheet Earnings Argos Storecards 2.2m Prime/ Near Prime

 

Credit Cards 0.9m Prime

 

Personal Loans 0.5m Prime

 

Mortgages 9K Exit

 

Total Lending

 

Deposits 0.3m

 

Insurances 0.5m Very Low Risk



Travel Money 266 Sites



ATMs 1,890



Financial Services: reshaping the portfolio

46 Interim Results 2019/20 - November 2019

Grow connected services

5

Increase connectivity and value for Group Stop mortgage acquisition; review back book options No capital input from the Group from now

1

Cost:income c.50%

3 within 5 years

Double UPBT; double digit ROCE within 5 years Upstream cash within 5 years

2

Financial Services: key targets

Transform the cost base Improve returns Financial services cash generative Reduce risk profile to Group Stop putting cash in to Financial Services

2 4 6 3 1 5

Focus on Sainsbury’s customer base

1 Subject to regulatory changes/ requirements 2 Subject to regulatory approval 3 On a Group contribution basis

47 Interim Results 2019/20 - November 2019

Grow connected services

5

Nectar

• Biggest loyalty programme in the UK
• Over 18 million collectors
• Most recognised loyalty brand in the UK
• Launch of Nectar digital
• 2.1 million app users
• Increase in overall Nectar participation
• Increased levels of personalisation
• 138,000 new Nectar customers
• #1 app on launch weekend
• Coalition strengthened with addition of Esso

in June 2019

48 Interim Results 2019/20 - November 2019

Provide a seamless customer experience

6

49 Interim Results 2019/20 - November 2019

Provide a seamless customer experience

6

Digital

• Groceries Online sales penetration of 8%
• App accounts for over 20% of orders
• 2.1 million digital Nectar app users
• 1.4 million Argos Financial Services app

downloads

• Smartshop rollout in over 350 stores

Groceries online Chop Chop SmartShop Universal discovery Seamless financial services Single basket

50 Interim Results 2019/20 - November 2019

We will help our customers live well for less

Confident in the core Integrated customer offer One multi brand, multi channel business Strong cash generation supporting investment, dividend and allowing deleverage Financial flexibility and resilience Sustainable cost reduction, covering cost inflation and funding investment in our competitive offer

Q&A

APPENDIX Interim Results 2019/20 - November 2019

Appendices

APPENDIX Interim Results 2019/20 - November 2019

Guidance for 2019/20

1 Space

• Expect to open 2 new Sainsbury’s supermarkets and up to 15 convenience stores
• Expect to open around 25 Argos stores in Sainsbury’s (of which 11 are

relocations) resulting in around 305 Argos stores in supermarkets

• Expect to close 2 supermarkets, around 25 convenience stores and around 20

Argos stores in FY2019/20, as part of announced property closure programme of 10-15 supermarkets, 30-40 convenience stores and 60-70 Argos stores Financial Services

• Financial services underlying operating profit expected to be c.£45m, including a

c.£10m benefit as a result of a change in transfer pricing between Argos and Argos Financial Services

• Financial Services non-underlying costs are expected to be around £30m
• No further capital injections into the Bank are expected, following £35m in H1 2019/20

Depreciation and amortisation

• Expect underlying retail depreciation and amortisation of around £1.2bn,

including c.£500m right of use asset depreciation Costs Operating cost inflation

• Cost inflation between 2 and 3%

Cost savings

• Continue to deliver cost savings to at least offset the impact of cost inflation

Finance costs

• Net finance costs of around £405m, including £320m lease interest in

2019/20, following the introduction of IFRS 16 One-off items

• In 2019/20 cash outflows as a result of items excluded from

underlying results should not exceed £100m

• Property strategy programme one-off costs expected to be

£230m-£270m, of which cash costs are £30-40m Dividend

• Sainsbury’s plans to change the full year dividend policy to 1.9x cover by

underlying earnings (versus 2.0x previously) to offset the dilutive (non cash) impact of IFRS 16 on underlying earnings Capital expenditure

• Retail capital expenditure to be around £550m
• Retail capital expenditure is expected to be around £550m-£600m per

annum over the medium term Net debt

• Net debt before fair value movements on derivatives to reduce by at

least £300m Tax rate

• Underlying tax rate to be between 25 and 26%

APPENDIX Interim Results 2019/20 - November 2019

Retail sales

1 Sales including VAT, excluding fuel

LFL sales growth

1

(1.0)%

Sales from net new space

1

0.4%

Total sales growth

1

(0.6)%

Supermarkets2

(0.7)%

Convenience

2.0%

Groceries Online

7.0%

Channels

(0.1)% (2.5)% (1.2)%

2 Supermarket sales include Argos SiS sales, FY 18/19 1.6%

£13.9bn

£10.3bn

Grocery

£3.0bn

General Merchandise

£488m

Clothing

2

APPENDIX Interim Results 2019/20 - November 2019

Sainsbury’s sales area and store numbers

As at 21 September 2019

Opening figures 2019/20 New stores Closures Replacement stores Extensions Refurbishments / downsizes Closing figures H1 2019/20 Area (‘000 sq ft) Number 21,210

• (20)
• (17)

21,173 608

• (1)
• 607

Supermarkets Convenience

Opening figures 2019/20 New stores Closures Replacement stores Extensions Refurbishments / downsizes Closing figures H1 2019/20 Area (‘000 sq ft) Number 1,934 12 (19) 2

• 1,929

820 5 (2) 1

• 824

Area (‘000 sq ft) Number

Total

Opening figures 2019/20 New stores Closures Replacement stores Extensions Refurbishments / downsizes Closing figures H1 2019/20 23,144 12 (39) 2

• (17)

23,102 1,428 5 (3) 1

• 1,431

3

APPENDIX Interim Results 2019/20 - November 2019

Sainsbury’s store estate

As at 21 September 2019

Sq ft sales area 824 46 870 40,001 to 60,000 20,001 to 40,000 10,000 to 20,000 Under 10,000 Total Over 60,000 122 122 197 197 175 175 67 67 824 607 1,431 Argos stores Argos in Sainsbury’s Argos in Homebase Other Argos total store numbers Habitat

1

Collection points 594 281 8

• 883

16 317 As at 21 Sept 2019 Disposals/ closures New stores As at 9 March 2019 1 7

• 8
• 1

(7)

• (2)
• (9)
• (36)

588 288 6

• 882

16 282 Convenience Supermarkets Total stores

Number of stores

Sq ft sales area 1,929 350 2,279 40,001 to 60,000 20,001 to 40,000 10,000 to 20,000 Under 10,000 Total Over 60,000

• 1,844

1,844

• 5,818

5,818

• 8,501

8,501

• 4,660

4,660 1,929 21,173 23,102 Convenience Supermarkets Total stores

Space by store size (‘000 sq ft) Argos and Habitat store numbers

1 5 Habitat stores, 11 Habitat stores in Sainsbury's

4

APPENDIX Interim Results 2019/20 - November 2019 Closure Bitterne West

Sainsbury’s investment programme

2019/20

Q1

Supermarkets Convenience

New stores Milton Keynes, Brooklands District Cent Bromley High St Leeds, Wike Ridge Lane Salford, Harbour City Canterbury High St Replacement Mayfair, Stratton St Closures Mayfair Warren St Q1 Q1 Q1 Q2 Q2 Q2 Q1 Q2 5

APPENDIX Interim Results 2019/20 - November 2019

Retail margin

Retail sales (inc VAT, inc fuel) (exc VAT, inc fuel) Retail underlying EBITDAR1 Retail underlying EBITDAR margin %2 at constant fuel prices Retail underlying operating profit3 Retail underlying operating margin %4 at constant fuel prices 16,567 14,808 1,067 7.2 7.2 437 3.0 3.0 16,612 14,856 1,114 7.5 7.5 487 3.3 3.3 0.3% 0.3% 4.2% 30bps 28bps 10.3% 33bps 32bps

1 Retail underlying operating profit before net rental income of £6 million and underlying depreciation and amortisation of £636 million 2 Retail underlying EBITDAR divided by underlying retail sales excluding VAT 3 Retail underlying earnings before interest, tax and Sainsbury’s underlying share of post-tax profit from joint ventures 4 Retail underlying operating profit divided by underlying retail sales excluding VAT

£m H1 2019/20 H1 2018/19 Change 6

APPENDIX Interim Results 2019/20 - November 2019 H1 2019/20 H1 2018/19

Group retail

Return on capital employed %1 Net debt to EBITDAR (times)2,3 Fixed charge cover (times)2 Underlying tax rate % Core retail capex / sales5 7.1 3.1 2.6 26.5 1.5 7.4 3.3 2.6 25.7 1.5 £m

1 ROCE: Return is defined as a 52 week rolling underlying profit before interest and tax. Capital employed is defined as group net assets 2 Net debt of £6,778 million includes lease obligations under IFRS 16 and perpetual securities treated as debt, divided by Group underlying EBITDAR of £2,171 million, calculated for a 52-week period to 21 September 2019 3 Group underlying EBITDAR divided by rent (both capital and interest) and net finance costs, where interest on perpetual securities is treated as an underlying finance costs 4 52 weeks to 22nd September 2018 is not available due to the implementation of IFRS 16. Comparatives therefore reflect the 52 weeks to 9th March 2019 5 Includes retail sales inc vat inc fuel

4 4

7

APPENDIX Interim Results 2019/20 - November 2019

Plc Board

Kevin O’Byrne Chief Financial Officer Mike Coupe Group Chief Executive Dame Susan Rice Senior Independent Director Matt Brittin Non-Executive Director Jo Harlow Non-Executive Director Brian Cassin Non-Executive Director David Keens Non-Executive Director Jean Tomlin Non-Executive Director Martin Scicluna Chairman 8

APPENDIX Interim Results 2019/20 - November 2019

Plc Board

Mike Coupe Group Chief Executive Officer Skills and experience Appointed Group Chief Executive Officer on 9 July 2014, Mike has been a member of the Operating Board since October 2004. Mike has vast retail industry experience in trading, strategy, marketing, digital and

• nline as well as multi-site store
• experience. He joined Sainsbury’s from Big

Food Group where he was a board director

• f Big Food Group PLC and Managing

Director of Iceland Food Stores. He previously worked for both Asda and Tesco PLC, where he served in a variety of senior management roles. Date of appointment: 1 August 2007 Mike has served as an Executive Director since 1 August 2007 and as Chief Executive Officer since 9 July 2014 Committee membership Corporate Responsibility and Sustainability Committee Kevin O’Byrne Chief Financial Officer Skills and experience Kevin brings to the Board a wealth of retail and finance experience. Kevin was previously Chief Executive Officer of Poundland Group Limited until December 2016 and held executive roles at Kingfisher plc from 2008 to 2015, including Divisional Director UK, China and Turkey, Chief Executive Officer of B&Q UK & Ireland and Group Finance Director. He was previously Group Finance Director of Dixons Retail plc and European Finance Director of Quaker Oats. He was a Non-Executive Director of Land Securities Group PLC from 2008 to September 2017 where he was Chairman of the Audit Committee and Senior Independent Director. Date of appointment: 9 January 2017 Other current roles Non-Executive Director of Greene King plc. Skills and experience Martin brings a breadth of experience and leadership in both executive and non- executive roles. His previous roles include positions as the Chairman of Great Portland Estates plc, Senior Independent Director and Chair of the Audit Committee of Worldpay Inc., and Non-Executive Director and Chair of the Audit Committee of Lloyds Banking Group plc. He was a partner at Deloitte LLP for 26 years, serving as Chairman from 1995 to 2007, where his clients included Dixons, WH Smith, Alliance Unichem and Cadbury’s. Other current roles Chairman of RSA Insurance Group plc. Martin Scicluna Chairman Date of appointment: 1 November 2018. Martin joined the Board as Chairman Designate and Non-Executive Director on 1 November 2018. He was appointed as Chairman of the Board on 10 March 2019. Committee membership Chair of the Nomination Committee. Dame Susan Rice Senior Independent Director Skills and experience Susan has extensive experience as a Non- Executive Director, as well as in retail banking, financial services, leadership and

• sustainability. Her career in retail banking

is particularly relevant to our ownership of Sainsbury’s Bank. Previously, Susan was a member of the First Minister’s Council of Economic Advisors, Managing Director of Lloyds Banking Group Scotland and was previously Chief Executive and then Chairman of Lloyds TSB Scotland plc. She has also held a range of other non- executive directorships including at the Bank of England and SSE plc. Committee membership Chair of the Remuneration Committee and a member of the Nomination Committee. Date of appointment: 1 June 2013 Other current roles Chair of Scottish Water and Business Stream; Chair of the Scottish Fiscal Commission; Non-Executive Director of the North American Income Trust, C. Hoare and Co.; and Senior Independent Director of the North American Income Trust.

9

Other current roles Non-Executive Director and Chairman of the Audit Committee of Centrica plc.

APPENDIX Interim Results 2019/20 - November 2019

Plc Board

Jean Tomlin Non-Executive Director Skills and experience Jean has extensive experience and breadth of skills in human resources and corporate responsibility. Jean was formerly Director of HR, Workforce and Accreditation for The London Organising Committee of the Olympic and Paralympic Games, where she set the strategic direction to ensure the mobilisation of the combined 200,000-strong workforce including paid staff, volunteers and contractors, which represented the recruitment and mobilisation of the largest peacetime workforce and set the industry standard for volunteering with the highly acclaimed Games. She was previously Group HR Director at Marks and Spencer Group Plc, HR Director and founder member of Egg plc and Sales & Operations Director of Prudential Direct. Date of appointment: 1 January 2013 Committee membership Audit Committee, Corporate Responsibility and Sustainability Committee and Nomination Committee. David Keens Non-Executive Director Skills and experience David has extensive retail experience and knowledge of consumer facing businesses, together with his core skills in

• finance. David was formerly Group

Finance Director of next plc from 1991 to 2015 and their Group Treasurer from 1986 to 1991. Previous management experience includes nine years in the UK and

• verseas operations of multinational food

manufacturer Nabisco and, prior to that, seven years in the accountancy profession. Date of appointment: 29 April 2015 Committee membership Chair of the Audit Committee and a member of the Nomination Committee Other current roles Independent Board member of Capri Holdings Limited, Non-Executive Director of Hakluyt and Chief Executive Officer of Chanzo Limited. Other current roles Non-Executive Director, Senior Independent Director and Chair of the Audit Committee of Auto Trader Group plc. Matt Brittin Non-Executive Director Skills and experience Matt has extensive experience of running a high profile, fast moving, innovative, digital business. Since 2015, he has been responsible for Google’s business and operations in Europe, the Middle East and Africa and he’s been in leadership roles at Google since 2007. Prior to that, Matt spent much of his career in media and marketing, with particular interests in strategy, commercial development and sales performance. This included commercial and digital leadership roles in UK media. Date of appointment: 27 January 2011 Committee membership Nomination Committee and Remuneration Committee. Other current roles Google’s President – Europe, Middle East and Africa and Director of The Media Trust. Brian Cassin Non-Executive Director Skills and experience Brian brings present day experience of running a FTSE40 group and of big data and analytics – topics of key importance to Sainsbury’s. Brian joined Experian plc as Chief Financial Officer in April 2012, a post he held until his appointment as Chief Executive Officer in July 2014. Prior to this, Brian spent his career in investment banking at Greenhill & Co where he was Managing Director and Partner. Brian has also held various roles at Baring Brothers International and at the London Stock Exchange. Date of appointment: 1 April 2016 Committee membership Audit Committee and Nomination Committee Other current roles Chief Executive Officer of Experian plc

10

APPENDIX Interim Results 2019/20 - November 2019

Plc Board

Jo Harlow Non-Executive Director Skills and experience Jo brings a wealth of experience in consumer-facing businesses and in the telecoms and technology industry, both in the UK and internationally. Jo spent 12 years in a variety of senior management roles with Nokia and Microsoft. Prior to this, she spent eight years at P&G and 11 years at Reebok in senior sales and marketing positions in both Europe and the US. Date of appointment: 11 September 2017 Committee membership Chair of the Corporate Responsibility and Sustainability Committee and member of the Nomination Committee and Remuneration Committee. Life President Lord Sainsbury of Preston Candover KG Other current roles Non-Executive Director of InterContinental Hotels plc; Non-Executive Director of Halma plc; and Member of the Supervisory Board

• f Ceconomy AG.

11

APPENDIX Interim Results 2019/20 - November 2019

Operating Board

Mike Coupe Group Chief Executive Tim Fallowfield Company Secretary & Corporate Services Director Kevin O’Byrne Chief Financial Officer Jim Brown Chief Executive Officer of Sainsbury’s Bank Paul Mills-Hicks Food Commercial Director Angie Risley Group HR Director Phil Jordan Group Chief Information Officer Simon Roberts Retail and Operations Director Clo Moriarty Group Chief Digital Officer 12

APPENDIX Interim Results 2019/20 - November 2019

Operating Board

Mike Coupe Group Chief Executive See Appendix page 9 Kevin O’Byrne Chief Financial Officer See Appendix page 9 Tim Fallowfield Company Secretary & Corporate Services Director Date of appointment: September 2004 Skills and experience Tim joined Sainsbury’s in 2001 as Company Secretary and joined the Operating Board in September 2004. In addition to his role as Company Secretary, Tim is responsible for the Corporate Services Division comprising Legal Services, Data Governance, Safety, Shareholder Services, Insurance and Central

• Security. He chairs the Group Safety

Committee and the Data Governance

• Committee. Tim joined Sainsbury’s from Exel

plc, the global logistics company, now part of DHL, where he was Company Secretary and General Counsel. He began his career at the international law firm Clifford Chance and is a qualified solicitor. Tim is Chairman of the Disability Confident Business Leaders Group which works with Government in shaping the disability employment agenda and in raising awareness of the benefits of employing disabled people. Jim Brown CEO of Sainsbury’s Bank Skills and experience Jim joined Sainsbury’s Bank as CEO in June 2019 and is also a member of the Sainsbury’s Group Operating Board. He has held a number of senior international Financial Services roles - most recently for RBS in the UK as CEO of Williams and Glyn, and prior to that CEO of Ulster Bank in Northern Ireland and the Republic of Ireland. Before moving to Ireland he was based in Hong Kong and was CEO Retail and Commercial Banking, Asia and the Middle East for RBS and ABN AMRO. He has also been a member of the RBS Group Management Committee, ABN AMRO Executive Group, ABN AMRO Global Consumer Leadership Team, and the RBS/Bank of China Joint Steering

• Committee. Earlier in his career he held a number
• f senior executive roles for Citibank in Asia, and

Australia and New Zealand. Jim has also held various Board positions including at Ulster Bank, Saudi Hollandi Bank, The Royal Bank of Scotland (China) Co. Ltd, and RBS (Pakistan) Ltd. He is also a past President of the Institute of Banking in

• Ireland. He is currently a Certified Bank Director.

Date of appointment: August 2019 Paul Mills-Hicks Food Commercial Director Skills and experience Paul joined the Operating Board in May 2014 as Food Commercial Director having spent over ten years at Sainsbury’s. He was closely involved in the formation and execution of the ‘Making Sainsbury’s Great Again’ strategy. Following this he held a variety of roles in commercial, strategy and finance, most recently as Business Unit Director for Grocery. Prior to Sainsbury’s, Paul was European Controller at Marks and Spencer Group PLC and a Director at UBS Warburg. Date of appointment: May 2014

13

APPENDIX Interim Results 2019/20 - November 2019

Operating Board

Angie Risley Group HR Director Skills and experience Angie was appointed Group HR Director and a member of the Operating Board in January 2013 with responsibility for human

• resources. Angie is also a Director of

Sainsbury’s Bank plc. Angie was most recently Non-Executive Director and Chairman of the Remuneration Committee

• f Serco plc, and prior to this was Group HR

Director of Lloyds Banking Group and an Executive Director of Whitbread PLC with responsibility for HR and Corporate Social

• Responsibility. Angie is currently Non-

Executive Director and Chair of the Remuneration Committee at Smith & Nephew plc. Date of appointment: January 2013 Phil Jordan Group Chief Information Officer Skills and experience Phil joined the Board in January 2018 and has brought a fresh, global perspective on technology to the Operating Board in addition to a wealth of experience in digital, data and business

• transformation. Prior to joining Sainsbury’s,

Phil had a long and successful track record in telecommunications. Most recently he was Global Chief Information Officer at Telefonica overseeing Digital Transformation and Information Technology and prior to that was Chief Information Officer for Vodafone UK/Ireland. Phil has worked as a Non- Executive Advisor on Technology in the Investment & Retail Banking sector and is currently a Non-Executive Director of TalkTalk Telecom Group PLC and chairs its Cyber-Security Committee. Date of appointment: January 2018 Simon Roberts Retail and Operations Director Skills and experience Simon joined Sainsbury’s and the Operating Board in July 2017 as Central Retail & Operations Director responsible for Stores, Central operation and Logistics. In his previous role he was Executive Vice President of Walgreens Boots Alliance, and President of Boots with responsibility for commercial and retail operations across the UK and Ireland. Prior to Boots, Simon was at Marks and Spencer Group PLC, where he held operational and customer leadership roles across stores, divisions and central

• perations. Simon is also the Non-

Executive Chairman at the Institute of Customer Service. Date of appointment: July 2017 Clodagh Moriarty Group Chief Digital Officer Skills and experience Clodagh was appointed Group Chief Digital Officer in June 2018. Clodagh leads the delivery of a consistent and first-rate digital experience for customers across Sainsbury’s, Argos and Sainsbury’s Bank. Clodagh joined Sainsbury’s in 2010 from Bain & Co management consultants, where she had gained experience working on a broad range of projects across multiple sectors and countries. Following two years as Head of Strategy at Sainsbury’s, she moved into Food Commercial as Category Manager for Meal Solutions and then became Head of Online Trading, spanning Food, General Merchandise and Clothing, before being promoted to Director

• f Online in 2016. In this role Clodagh was

instrumental in driving innovation within Groceries Online and launching new initiatives including SmartShop and Chop Chop. Date of appointment: June 2018

14

APPENDIX Interim Results 2019/20 - November 2019

Supplementary financial details

• 3. Financial calendar

Q3 trading statement (15 weeks to 4 January 2020) Preliminary results (52 weeks to 7 March 2020) 8 January 2020 30 April 2020

• 1. Weighted average number of shares

The interim dividend dates: Ordinary shares Ex-dividend 14 November 2019 Record 15 November 2019 Payment 20 December 2019 H1 2019/20: 2,207.4m (2,461.3m diluted) H1 2018/19: 2,195.9m (2,464.6m diluted) Interim Final Total

• 2. Dividend

2019/20 3.3p 3.1p 7.9p 11.0p 2018/19 15

APPENDIX Interim Results 2019/20 - November 2019

Contacts

24

James Collins

Head of Investor Relations Tel: + 44 (0) 20 7695 7112 James.Collins@sainsburys.co.uk

Susie Lynskey

Investor Relations Manager Tel: + 44 (0) 20 7695 0889 Susie.Lynskey@sainsburys.co.uk

Glyn Davies

Investor Relations Assistant Tel: + 44 (0) 20 7695 0259 Glyn.Davies@sainsburys.co.uk www.j-sainsbury.co.uk J Sainsbury plc, 33 Holborn, London EC1N 2HT

Irene Galvan

Investor Relations Analyst Tel: + 44 (0) 20 7695 2762 Irene.Galvan@sainsburys.co.uk