Interim Results 2019/20
Kevin O’Byrne Chief Financial Officer
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% 3 Interim Results 2019/20 - November 2019
Group performance overview H1 H1 £m 1 2019/20 2018/19 Change Underlying results Group sales (inc VAT) 16,856 16,884 0.2% Retail operating profit 437 487 10% Financial Services operating profit 20 16 25% Underlying interest costs (219) (228) 4% Underlying profit before tax 238 279 15% Underlying basic EPS 7.9p 9.4p 16% Dividend per share 3.3p 3.1p 6% Statutory results (229) Items excluded from underlying results (172) 33% Profit for the financial period before tax 9 107 92% (2.2)p Basic EPS 5.1p n/a 1 H1 2018/19 restated for IFRS 16 4 Interim Results 2019/20 - November 2019
Retail sales Grocery General Clothing Merchandise 2019/20 FY Guidance (1.0) % (0.6) % Expect to open 2 new 3.3 % 1 LFL sales growth 0.6 % Sainsbury's supermarkets and Q1 Q2 Q1 Total (0.5) % up to 15 convenience stores 0.4% 1 sales growth Q2 Q2 (2.0) % Q1 New space 1,3 Expect to open around 25 Argos (3.1) % stores in Sainsbury’s (of which (4.5) % 11 are relocations) resulting in around 305 Argos stores in supermarkets Supermarkets Convenience Groceries Expect to close 2 supermarkets, Online around 25 convenience stores and around 20 Argos stores in 9.8 % FY2019/20, as part of announced property closure programme of 10-15 5.0 % supermarkets, 30-40 (0.2) % 2.6 % (1.1) % 1.5 % convenience stores and 60-70 Argos stores Q2 Q1 Q2 Q1 Q2 Q1 1 Sales including VAT, excluding fuel 2 Supermarket sales include Argos stores in Sainsbury’s sales 3 Sales from net new space 5 Interim Results 2019/20 - November 2019
Sales performance versus market GROCERY: Volume growth GROCERY: Volume growth 1 1 ARGOS: Sales growth v BRC 2 1% Argos YoY Sainsbury’s Morrisons 0% Total Q2 grocers Tesco 19/20 -1% BRC YoY (excluding Argos) -2% H1 Q1 FY Asda 19/20 2019/20 2018/19 -3% CLOTHING: Value Growth (%YOY) 3 -4% Sainsbury’s Total market 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 22 Aug 18 22 Sep 19 3 Kantar World Panel 24 w/e 22 nd September 2019 6 Interim Results 2019/20 - November 2019
Financial services Transfer pricing benefit, FY guidance unchanged H1 H1 Customer assets (£bn) £m 2019/20 2018/19 Change 7.4 1 Total income 227 226 0% 7.0 2.9 Underlying operating profit 20 16 25% 3.0 Personal loans 2 Customer lending £7.4bn £6.2bn 19% Credit cards 1.9 Customer deposits £6.6bn £5.6bn 18% 1.7 Mortgages Storecards Active customers - Bank 2.10m 1.95m 8% 1.9 1.4 0.8 0.8 3 Active customers - Argos FS 2.20m 2.10m 5% FY 2018/19 HY 2019/20 Cost/income ratio 70% 71% 100 bps 4 2019/20 FY Guidance Net interest margin 3.5% 4.0% 50 bps Financial services underlying operating profit 5 Bad debt as a percentage of lending 1.3% 1.6% 30 bps expected to be c.£45m, including a c.£10m CET 1 ratio 6 13.7% 12.7% 100 bps benefit as a result of a change in transfer pricing between Argos and Argos Financial Services 7 Total capital ratio 16.7% 15.7% 100 bps Financial Services non-underlying costs are expected to be around £30m 1 Net interest, net commission and other operating income 4 Net interest receivable / average interest-bearing assets No further capital injections into the Bank are 2 Amounts due from customers at the Balance Sheet date in respect 5 Bad debt expense / average net lending expected, following £35m in H1 2019/20 of loans, mortgages, credit cards and store cards net of provisions 6 Common equity tier 1 capital / risk-weighted assets 3 Prior year restated 7 Total capital / risk-weighted assets 7 Interim Results 2019/20 - November 2019
Financial services Metrics inc. AFS 1 H1 H1 £m 2019/20 2018/19 Change Total Financial Services UPBT 30 31 3% Cost/income ratio 67% 66% 100 bps ROCE 2 5.9% 6.3% 40 bps 1 H1 2018/19 restated for IFRS 16 2 Calculated on a post-tax basis. Comparative reflects the 52 weeks to 9 th March 2019, as the 52 weeks to 22 September 2018 cannot be calculated on a consistent basis due to changes in accounting standards 8 Interim Results 2019/20 - November 2019
Items excluded from underlying results H1 H1 2019/20 FY Guidance £m 2019/20 2018/19 In 2019/20 cash outflows as a Property strategy programme (203) - result of items excluded from underlying results should not Retail restructuring programme (25) (69) exceed £100m Financial Services transition and other (15) (40) Property strategy programme one-off costs expected to be Argos integration costs - (25) £230m-£270m (of which £30m- Asda transaction costs - (17) £40m cash) Other 14 (21) Sainsbury’s Bank Financial Services non- Total (229) (172) underlying costs are expected to be around £30m 9 Interim Results 2019/20 - November 2019
Retail capital expenditure H1 H1 2019/20 FY Guidance £m 2019/20 2018/19 Retail capital expenditure to Core retail capital expenditure 248 243 be around £550m Argos integration capex - 31 Retail capital expenditure is expected to be around £550m- Retail capital expenditure 248 274 £600m per annum over the medium term Core retail capital expenditure Maintenance £248 m £243 m Growth 2019/20 2018/19 Efficiency 10 Interim Results 2019/20 - November 2019
Pensions Agreed long term sustainable and flexible funding plan Annual cash contribution reduces by c.£50m Outcome • 2018 triennial valuation deficit down to £538m, from £1,055m in 2015 124 • Greater asset-backed security for the Scheme • Immediate cash payments reduced 98 • Reduced risk of over funding and trapped cash 76 69 48 2019/20 2020/21 2021/22 2022/23 Annual cash commitment under old plan 11 Interim Results 2019/20 - November 2019
Retail free cash flow H1 H1 2018/19 2019/20 FY Guidance £m – Restated for IFRS 16 2019/20 Restated Adjusted operating cash flow before changes in working capital 1 1,034 1,029 Capital injections into the Bank are 289 expected to be £35m Decrease in working capital 296 Pension contribution, net interest paid 2 , corporation tax paid (282) (279) Proceeds from disposal of property are expected to be in line with 2018/19 1,041 Net cash generated from operating activities 1,046 Cash capital expenditure before strategic capex 3 (248) (243) Expect underlying retail depreciation and amortisation of around £1.2bn, including 54 Proceeds from disposal of property, plant and equipment 34 c.£500m right of use asset depreciation (232) Repayments of lease obligations and right-of-use assets direct costs (231) Net debt before fair value movements on (35) Bank capital injections - derivatives to reduce by at least £300m Dividends and distributions received from JVs, net of capital injections 118 11 Net finance costs of around £405m, Retail free cash flow 698 617 including £320m lease interest in 2019/20, Dividends paid on ordinary shares (174) (156) following the introduction of IFRS 16 Argos integration capital expenditure - (31) Repayment of borrowings, other non-cash and net interest movements 4 44 - Movement in net debt 5 568 430 1 Operating cash flow before changes in working capital and pension Opening net debt including perpetual securities as debt (7,346) (7,575) contributions 2 Interest paid net of interest received, interest elements of obligations Closing net debt including perpetual securities as debt (6,778) (7,145) under finance lease payments and dividends paid on perpetual securities 3 Excludes Argos integration capital expenditure Of which: 4 Other non-cash includes new leases and lease modifications, and fair Lease Liabilities (5,770) (5,873) value movements on derivatives linked to borrowings 5 Net debt definition now excludes derivatives not linked to borrowings, and Net Debt excluding Lease Liabilities (1,008) (1,272) includes perpetual securities as debt 12 Interim Results 2019/20 - November 2019
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