Preliminary Results 2012/13 David Tyler Chairman John Rogers - PowerPoint PPT Presentation

Preliminary Results 2012/13

David Tyler Chairman

John Rogers Chief Financial Officer

Group performance Highlights 2012/13 2011/12 Change Underlying results £m £m % Sales (inc VAT) 25,632 24,511 4.6 Sales (inc VAT, ex fuel) 4.3 Operating profit 829 789 5.1 Net finance costs (111) (109) (1.8) Share of JV profits 38 32 18.8 Profit before tax 756 712 6.2 Tax rate 23.7 % 26.1 % 245 bps (1) Basic EPS 30.7 p 28.1 p 9.3 Full year dividend per share 16.7 p 16.1 p 3.7 Statutory results Items excluded from underlying results 32 87 (63.2) Profit before tax 788 799 (1.4) (1) Underlying basic earnings per share

Retailing Good sales growth over the year LFL sales Sales from net Total (1) (1) growth new space sales growth Up 1.8% 2.5% 4.3%  Continued LFL outperformance to the market (2)  Contribution from extensions 0.7% 2013/14 FY Guidance  Full year LFL 1.0 - 1.5%, reflecting similar challenging market conditions with reduced contribution from (2) extensions of 0.2%  Contribution from net new space (excluding extensions and replacements) similar to 2012/13 Sales, excluding fuel, including VAT (1) Net of disruptions (2)

Retailing Good improvement in underlying profit 2012/13 2011/12 Change £m £m % Sales (inc VAT, inc fuel) 4.6 25,632 24,511 (ex VAT, inc fuel) 4.5 23,303 22,294 Underlying EBITDAR 1,824 1,740 4.8 Underlying EBITDAR margin % 7.83 7.80 3 bps at constant fuel prices 4 bps Underlying operating profit 5.1 829 789 Underlying operating margin % 3.56 3.54 2 bps at constant fuel prices 2 bps 2013/14 FY Guidance  Expect operating profit to grow in line with sales

Retailing Cost inflation of around 2.5% offset by over £100m of savings Annual operating cost savings (£m) 2008/09 100 2009/10 145 2010/11 100 2011/12 105 2012/13 104 2013/14 FY Guidance  Cost inflation towards the middle of 2-3% range  Efficiency savings of around £100m

Sainsbury’s Bank Continues to attract new customers  Sainsbury’s brand and in -store marketing reduce costs Bank profit before tax (1) (£m) of acquiring new customers 2008/09 13  Ability to leverage Nectar data to reward and incentivise customers 2009/10 19  Strong track record of profit growth 2010/11 30  8% increase in active accounts over the year to 1.5m 2011/12 42  Strengthened management team 2012/13 59 100% Sainsbury’s Bank PBT adjusted to J Sainsbury plc year end (1)

Sainsbury’s Bank Clear benefits for customers and shareholders  Opportunity to increase the number of Sainsbury’s customers with a banking product from 1 in 20  Offering accessible, high quality and tailored products which reward customers who bank and shop with us  Bank customers are more loyal and spend more in-store  Future investment in the Bank aligned to Sainsbury’s strategy  Cash payback within 8 years, returns above IRR hurdle rate  Highly cash generative in later years  Expected to complete January 2014

Sainsbury’s Bank Transaction terms  Acquire 50% for £248m – 1.03x Tangible Net Asset Value  Net capital injection of £40m over 3 years  Bank headline profit CAGR expected to be in the high teens over the next 5 years  Underlying profit expected to be broadly flat in the first 2 years due to double running costs, increasing thereafter as costs reduce  Bank will incur non-underlying transition costs of £170m and capex of £90m over 4 years to build and move onto a new, flexible banking platform

Joint Ventures Continued strong delivery 2012/13 2011/12 £m £m Sainsbury’s Bank (1) 22 16 Property joint ventures 16 16 Sainsbury’s Bank Property joint ventures  Strong growth in key  Profits in line with product areas guidance 2013/14 FY Guidance  Sainsbury’s Bank – UPBT broadly flat year-on-year, full consolidation from January 2014  Property JVs – Expect a similar level of profit (1) Sainsbury’s underlying share of Sainsbury’s Bank post -tax profit

Underlying finance costs In line with guidance 2012/13 2011/12 Change £m £m % Net interest cost (111) (109) (1.8) Net interest cover 7.8x 7.5x 4.0 Fixed charge cover 3.1x 3.1x -  Capitalised interest £32m (2011/12: £35m) 2013/14 FY Guidance  Expect underlying net finance costs to remain broadly flat year-on-year

Items excluded from underlying results 2012/13 2011/12 £m £m Profit on disposal of properties 66 83 Investment property c.5.1% yield (March 2012: c.5.0%) fair value movements 0 (10) Financing fair value movements (10) (16) Pensions accounting (5) 17 3 One-off items (9) 87 Total 32

Pensions accounting Triennial Valuation  March 2012 valuation expected to be finalised June 2013 Consultation  Proposed closure of the defined benefit pension scheme to future accrual  If proposal proceeds, it is expected to: - Decrease the defined benefit pension cost; - Increase the contribution to defined contribution plans; and - Reduce the defined benefit pension liability 2013/14 FY Guidance  Expect underlying service cost to be around £64m under IAS 19 (Revised)

Retailing Margins and returns  Overall returns in line with guidance (1) (1) Underlying EBITDAR margin % Underlying operating margin % 2008/09 7.62 2008/09 3.26 2009/10 7.79 2009/10 3.36 2010/11 7.81 2010/11 3.50 2011/12 7.80 2011/12 3.54 2012/13 7.83 2012/13 3.56 (2) (2) Return on capital employed % Pension adjusted return on capital employed % 2008/09 10.12 2008/09 10.24 2009/10 2009/10 10.97 10.53 2010/11 11.08 2010/11 10.66 2011/12 2011/12 10.56 11.06 2012/13 11.18 2012/13 10.41 (1) (2) Not fuel adjusted 12 month rolling earnings before interest and tax divided by average shareholder funds and net debt

Growing space Delivering space growth plans ‘000 sq ft Store development Stores As at March 2012 20,347 1,012 Openings: c.45k sq ft average size New/replacement supermarkets 634 14 Supermarket extensions 165 c.21k sq ft average size 8 Refurbishments 18 35 New convenience stores 190 87 Gross new space 1,007 4.9% Closures: Replacement stores/closures (7) (89) 3 supermarkets/4 convenience Net new space 4.5% 918 As at March 2013 21,265 1,106 2013/14 FY Guidance  Expect to deliver around 1m sq ft gross new space  Expect to open around 2 convenience stores per week

Growing space and creating property value Unlocking property profits  Significant property portfolio, valued at £11.5bn - £0.5bn added due to investment and development of assets - £0.2bn of cash proceeds from sale and leasebacks  Property profits of £66m have been realised (nearly £350m over the last 5 years) Over the last 5 years Market value of properties (£bn) Valuation Gains £4.0bn 2008/09 7.5 Property Proceeds £1.3bn 2009/10 9.8 £5.3bn 2010/11 10.5 Land & Buildings Capex (£2.5bn) 2011/12 11.2 Increase £2.8bn 2012/13 11.5

Capital expenditure Core capital expenditure reduced in line with guidance 2012/13 2011/12 £m £m Core capital expenditure 1,040 1,240 Acquisition of freehold properties 37 25 (1) Net disposal proceeds (202) (303) Net capital expenditure 875 962 2013/14 FY Guidance  Full year core capital expenditure of around £1.1bn, excluding the investment in Sainsbury’s Bank (1) £192m from sale and leasebacks and £10m from other disposal proceeds

Capital expenditure Rebalancing capital spend and targeted reduction in the medium term  Increased focus on convenience, digital and cost saving initiatives with quick pay-back 2011/12 - £1.2bn 2012/13 - £1.0bn 2013/14 - £1.1bn New Stores Convenience Extensions Refurbishments Logistics and Commercial Initiatives IT 2013/14 FY Guidance  Capex/sales ratio similar to 2012/13  Targeted reduction from 4.1% to <3.5% capex/sales ratio over the medium term

Cash flow Small decline in cash from operations due to increase in working capital requirement 2012/13 2011/12 £m £m Operating cash flow 1,294 1,238 Change in working capital (26) 53 Cash from operations 1,268 1,291 Net interest (131) (129) Tax (144) (82) Net dividend (290) (285) Net cash used in investing activities (899) (940) Proceeds from shares 17 14 Other non cash movements (3) (35) Movement in net debt (182) (166) Net debt (2,162) (1,980)

Balance sheet Maintained strong position  Market value of property increased to £11.5bn (March 2012: £11.2bn)  Net debt £2,162m (March 2012: £1,980m) - secured, low-cost, long-dated debt - facilities of £3.4bn  IAS 19 net pension deficit (1) £(688)m (March 2012: £(455)m) - 0.6% decrease in the real discount rate - increase in asset value of £649m 2013/14 FY Guidance  Year-end net debt position expected to be around £2.4bn, £2.6bn including the consideration to be paid for Sainsbury’s Bank  When Sainsbury’s Bank transaction completes in January 2014, Bank assets and liabilities will be fully consolidated at 2013/14 year end Net of deferred tax (1)