J Sainsbury Plc - Final Results

Full year profit ahead of consensus; accelerating investment in stores and digital

 

·     Underlying profits up 7.8 per cent; net debt £222 million lower, ahead of target; dividend up 7.8 per cent

·     Accelerating investment in store estate and technology while reducing net debt and maintaining our dividend policy

·     Investing to improve more than 400 supermarkets this year

·     New target to reduce net debt by at least £600 million over the next three years

 

Strategic highlights

·     Customers continue to rate Sainsbury's first for food quality and we outperformed the market in premium categories1

·     Growth across all Sainsbury's channels. Convenience and Groceries Online sales grew 3.7 per cent and 6.9 per cent respectively, with Convenience outperforming the market2. Supermarket sales grew one per cent, benefiting from the addition of Argos stores inside supermarkets

·     Completed a major reorganisation of Sainsbury's store operations, introducing a more efficient  structure and more flexible colleague contract, with industry-leading pay of £9.20 per hour

·     Argos grew sales, outperforming3 a highly competitive and very promotional market

·     Completed the integration of Argos, delivering £160 million in synergies. 281 Argos stores in Sainsbury's supermarkets at the year end and increased the number of Argos collections points in Sainsbury's convenience stores to 207 and total physical Argos points of presence to 1,200

·     £4.7 billion of our sales start online and we are accelerating our investment in technology: 

o  Rolled out SmartShop self-scan to over 100 supermarkets

o  Pay@Browse available in 162 Argos stores enabling customers to pay without queuing

o  Trialling digital Nectar in Wales ahead of a broader roll-out later in the year

o  Trialling the UK's first checkout-free Grocery store

 

Financial highlights

·     Underlying profit before tax of £635 million, up 7.8 per cent, driven by solid food performance, delivery of £160 million Argos synergies nine months ahead of schedule and reduced interest costs

·     Retail underlying operating profit up 10.7 per cent to £692 million

·     Sainsbury's Bank underlying profits of £31 million, in line with guidance

·     Statutory profit after tax of £219 million, down from £309 million, due to non-underlying charges relating to legislation on Guaranteed Minimum Pensions; retail restructuring; Sainsbury's Bank transition; Asda transaction and Argos integration

·     Strong cash generation with retail free cash flow of £461 million, up 6.7 per cent in the year

·     Net debt reduced by £222 million to £1,636 million (including perpetual securities). Net debt reduction of £162 million before fair value movements on derivatives, ahead of £100 million guidance

·     £220 million cost savings delivered in the year

·     Underlying net finance costs reduced by 19.3 per cent to £96 million

·     Underlying earnings per share increased 7.8 per cent to 22.0 pence per share

·     In line with our policy of paying a dividend that is covered 2.0 times by underlying earnings, we propose to pay a final dividend of 7.9 pence per share, bringing our full year dividend to 11.0 pence per share, an increase of 7.8 per cent

 

Capital Markets Day

·     We are planning a Capital Markets Day on 25th September 2019 to further update on our progress

 

1. Nielsen Panel, Total FMCG, Market Universe, Total Outlets, 52 weeks data to P13 18/19

2. Nielsen EPOS Convenience Total Business, Quarterly data to Q4 18/19

3. British Retail Consortium, market data 52 weeks ended 9th March 2019

 

 

2018/19

2017/18

Variance

 
 

Business Performance  

 

Group sales (inc VAT)

£32,412m

£31,735m

2.1%

 

Group like-for-like sales (inc VAT, ex fuel)

 

 

(0.2)%

 

Underlying profit before tax

£635m

£589m

7.8%

 

Underlying basic earnings per share

22.0p

20.4p

7.8%

 

Proposed final dividend

7.9p

7.1p

11.3%

 

Proposed full year dividend

11.0p

10.2p

7.8%

 

Net debt (including perpetual securities)

£1,636m

£1,858m

£222m

 

Return on capital employed

8.5%

8.4%

-

 

 

 

 

2018/19

2017/18

 
 

Statutory Reporting

 

Group revenue (ex VAT, inc fuel)

£29,007m

£28,456m

 

Items excluded from underlying results

£(396)m

£(180)m

 

Profit after tax

£219m

£309m

 

Basic earnings per share

9.1p

13.3p

 

 

Mike Coupe, Group Chief Executive of J Sainsbury plc, said"I am pleased to report that we have increased profits, reduced net debt and increased the dividend. This is testament to the hard work of colleagues across the business and I would like to thank them for their commitment during this year of change.

 

"We completed the integration of Argos that we set out in 2016, delivering £160 million in synergies ahead of schedule. We completed a major transformation of how we run Sainsbury's stores and have made significant improvements to store standards in recent months, which remain a focus. Customers continue to rate us top for quality food and we are growing our premium ranges. We are also focused on reducing costs so that we can invest to make commodity products better value for our customers.

 

"We will increase and accelerate investment in the core business, investing to improve over 400 supermarkets this year. £4.7 billion of our revenue now comes from our online businesses and we are increasing investment in technology to make shopping across Sainsbury's, Argos and Sainsbury's Bank as quick and convenient as possible. We will also continue to strengthen our balance sheet and are making a new commitment to reduce net debt by at least £600 million over the next three years.

 

"I am confident in our strategy and also clear on what we need to do to continue to evolve the business in a highly competitive market where shopping habits continue to change." 

 

Dividend

 

In line with our policy of paying a dividend that is covered 2.0 times by underlying earnings, we propose to pay a final dividend of 7.9 pence per share, bringing our full year dividend to 11.0 pence per share, an increase of 7.8 per cent.

 

Outlook

 

Retail markets are highly competitive and very promotional and the consumer outlook continues to be uncertain. However, we are well placed to navigate the external environment and remain focused on delivering our strategy.