Interim Results - J Sainsbury plc
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Interim Results 2005/06 Philip Hampton Chairman Interim results 2005/06 Good progress - delivering the plan Interim dividend maintained at 2.15p per share Strengthened the Board - Darren Shapland joined on 1 August 2005 - new SID, John McAdam joined on 1 September 2005 Darren Shapland chief financial officer First stage of recovery on track Group performance IFRS Encouraging performance in Sainsbury’s Supermarkets Disappointing results from Sainsbury’s Bank Exceptional items Cash flow and debt Group performance H1 2005/06 £m H1 2004/05 £m 8,978 8,481 Underlying operating profit 163 156 Finance charges (45) (39) Underlying profit before tax 118 117 87 (292) 35.5% 36.0% 53 (226) 4.8p 3.9p 2.15p 2.15p Sales (inc VAT) - continuing operations Profit / (loss) before tax Underlying tax rate Profit after tax Underlying basic EPS Dividend See presentation book for definitions IFRS update Underlying profits Impact of IFRS H1 2005/06 £(2)m (2004/05: £(2)m) - includes fixed rent adjustment £(2)m (2004/05: £(2)m) Impact full year 2005/06 expected at £(5)m - includes fixed rent adjustment of £(4)m (2004/05: £(4)m) 2004/05 restated full year profits £238m IAS 32 and IAS 39 mark to market adjustments Arises from ineffective hedges H1 2005/06 PLC Sainsbury’s Bank £4m £6m £10m No adjustment in 2004/05 Year on year volatility, excluded from underlying profits No cash impact, will unwind over time See presentation book for definitions Sainsbury’s Supermarkets Underlying operating performance H1 2005/06 £m H1 Change 2004/05 % £m (1) 8,815 8,348 5.6 Underlying operating profit 168 148 13.5 Underlying operating margin % (VAT inclusive) 1.9 1.8 0.1pp 3.1 2.1 1.5 (0.9) Sales (inc VAT) (2) LfL growth - inc petrol (%) - ex petrol (%) (1) (2) Restated under IFRS Easter adjusted Sainsbury’s Supermarkets Sales led recovery Investment in offer Sales (1) LFL +2.1% Deflation -1.4% Volumes (1) LFL +3.5% (1) Investment in the customer offer funded by - cost savings - terms improvement Additional costs of better availability and extra volumes (1) Excluding petrol and Easter adjusted Sainsbury’s Supermarkets Reducing underlying costs Operating cost savings 2005/06 2006/07 100 250 2007/08 Supply chain IT systems Stock loss Store operations Marketing Central Other Cumulative total Savings help fund investment in customer offer Also offset cost pressures in rates and wages Additional savings in H2 2006/07 from insourcing IT Will help absorb additional energy costs in H2 2006/07 Expect to achieve £400m in total 400 Sainsbury’s Bank Disappointing result - H1 underlying operating loss of £5m (2004/05 restated: profit £8m) - expect similar result in H2 Bad debt charge up 68% year on year at £49m - maturing loan book - worsening economic environment - continue to make prudent provisions - further tightened credit scoring Moving to a more commission based model Investment in customer and offer Customer accounts up 16% Original 3 year profit target not achievable Property Property (loss) / profit H1 2005/06 £m H1 2004/05 £m (7) 8 Losses in H1 driven by Greenham Common sale Proceeds in H1 2005/06 £121m (2004/05: £88m) Forecast proceeds for full year 2005/06 £150m (2004/05: £266m) Exceptional items H1 2005/06 £m Business Review costs Business Transformation Total 14 14 H1 2004/05 £m 395 (1) 22 417 Estimated £50m Business Review costs in 2005/06, excludes any exceptionals arising from insourcing IT costs Full year cash outflow expected to be £80m (1) Restated under IFRS Insourcing IT IT services and people to be integrated in house from Accenture - taking control of core competencies - commercially beneficial Termination and / or transition costs will be exceptional items in 2005/06 Future cost savings pay back within 2 years Migration expected April 2006 Full cost savings in H2 2006/07 Capital expenditure (1) Sainsbury’s Supermarkets capital expenditure £m 600 IT and supply chain 500 Refurbishments and extensions 400 300 New stores 200 100 Other 0 H1 2005/06 H1 2004/05 Expected £550m for the 2005/06 (1) Includes £305m on acquisitions of stores – 13 Safeway branded stores and 1 Morrisons store Cash flow (1) H1 2005/06 £m H1 2004/05 £m Operating profit / (loss) 142 (253) Depreciation / amortisation / write-offs 270 519 Operating cash flow pre working capital 412 266 On track for cash neutral in 2005/06, after adjusting for 2004/05 Easter timing benefits Working capital movement (43) 244 2006/07 cash positive Operating cash flows 369 510 Net interest (85) (55) IAS 32 & IAS 39 increase to net debt £61m 18 (71) 302 384 (301) (607) Sale of fixed assets / operations 112 1,435 Equity dividends (95) (218) Capital redemption (6) (641) Net cash flow pre IAS 32 and IAS 39 12 353 Taxation Cash flow before appropriations Purchase of fixed assets / operations (1) Restated under IFRS Summary Sainsbury’s Supermarkets - focus on sales growth - underlying cost savings on track - operational gearing largely in H2 2006/07 Sainsbury’s Bank - loss in H1, similar result expected in H2 Cash flow - capital expenditure of £550m - aim to be cash flow neutral based on adjusted net debt - interest similar pattern to H1 Tax - rate for 2005/06 of 35.5% - disallowable depreciation circa £60m pa Justin King chief executive Making Sainsbury’s Great Again Early stages of recovery - on track in challenging market - disappointing Bank performance Continued progress - fixing the basics - restoring universal appeal - customer focussed culture Sales and market share growing Availability at industry matching levels Investment in customer offer Now 15m customer transactions per week Early signs of improvement Quarterly sales growth (1) % 6 Total LfL LfL inflation/ (deflation) 5 4 3 2 1 0 -1 -2 Q3 Q4 2004/05 (2) (2) Q1 Q2 2005/06 (1) (2) All figures excluding petrol Easter adjusted Restoring universal appeal Great food at fair prices Customer satisfaction highest for two years Significant investment in price since January 2004 - 8,000 prices lowered Investment in quality and innovation - ‘Taste the Difference’ relaunched - c.900 lines - ‘Basics’ - c.500 lines in over 300 stores - ‘Organics’ - 300 products, 100 new, lower prices - 200 new Christmas lines Category reviews and supplier business plans - improved new product development Restoring universal appeal Try something new today Customers are ‘sleep shopping’ New advertising campaign - colleague and customer sampling - in-store ideas More than just advertising - part of cultural change programme Company wide training programme - improve service to customers - change leadership behaviours Restoring universal appeal Connecting with our communities Active Kids - 30,000 orders placed - donating over £17m of sporting equipment and experiences Comic and Sports Relief English Schools Athletics Association English Schools Football Association Restoring universal appeal Complementary non food Focus on core non food in existing space Opened buying offices in Poland and Hong Kong ‘TU’ performing strongly - 28% LfL - strengthen buying and merchandising teams Driving sales in all stores through seasonal aisle Restoring universal appeal Convenience Core locals now in LfL growth Good progress on conversions - 46 stores trading as ‘Sainsbury’s at’ – sales uplift c.25% Over 100 stores to be refurbished in 2005/06 Restructuring Bells and Jackson’s head offices Single service supply from Feltham for London and south east Locals Restoring universal appeal Sainsbury’s to You Covers 77% of UK, 97 stores 38,000 orders a week, up 27% Average basket size up 4% Customer satisfaction improved Shopping time reduced by 50% for first orders Fixing the basics In-store availability Steady improvement in forecast and inventory accuracy Improved in-store processes - effective use of night shift Retail stores system in rollout - 254 stores by Christmas Average out of stocks reduced by 75% Fixing the basics Supply chain Automated depot performance improved Optimising network - Charlton transferred to Exel, which together with Allington and Northfleet will provide consolidated south east hub - Rotherham in consultation - Christmas support at Buntingford - Basingstoke and St Albans now full composite sites - right stores and right depots Flexible labour approach to serving stores Fixing the basics IT systems Termination of contract with Accenture Drawing up detailed plans for migration and transfer of people Migration expected to complete during April 2006 Stabilising systems and developing simple good value solutions Five year agreement with Siemens to service and maintain automated distribution centres Fixing the basics Organisation and people Operating board with proven retail experience Darren Shapland, Dean Clegg, Peter Baguley, Giles Willits and Roger Burnley Continuing change at senior management level Attracting retail talent Top 1,000 leadership development Fixing the basics Supermarket store estate 443 supermarkets (1) 14 stores from Morrisons - annualising sales uplift over 15% Around 30% of 131 underinvested stores to be refurbished in 2005/06 - 11 completed to date Further 9 stores acquired from Morrisons (1) 13 Safeway branded stores and 1 Morrisons store Making Sainsbury’s Great Again 3 quarters of positive LfL growth - 15m customer transactions Customers have noticed difference Priority to continue to invest in customer offer - price, quality and service Maintain improvements while continuing longer term change - operational gearing largely in second half of 2006/07 Market expected to remain competitive Well positioned for Christmas Interim Results 2005/06
