Financial highlights
· Strong operating performance, with grocery sales up 7.8%, general merchandise sales up 8.3% and digital sales up 102%, offset on a statutory basis by materially reduced fuel sales; changes we have made through the pandemic are creating good momentum as we move into the new financial year
· Underlying profit before tax down 39% to £356 million, with benefits from strong sales growth (excluding fuel) more than offset by £485 million of direct COVID-19 costs. Statutory loss before tax of £261 million predominantly reflects one-off costs and impairments associated with strategic changes announced in November
· Strong Retail free cash flow of £784 million, with significant working capital inflow more than offsetting lower profits
· Upgrading four-year net debt reduction target from £750 million to at least £950 million despite short term expectation of some working capital reversal. Expect to generate average Retail cash flow of at least £500 million per year over the three years to March 2025
· Proposed final dividend of 7.4 pence, full year dividend 10.61 pence, reflecting strong cash generation and consistent with our commitment to protect shareholder income from the full impact of COVID-19 on profits
· Continue to expect underlying profit before tax in the financial year to March 2022 to exceed March 2020 level (£586 million); comfortable with consensus forecasts of around £620 million2
Strategic highlights
We have made good early progress with the plan we announced in November to put food back at the heart of Sainsbury's. We are changing at pace, making bold decisions and investing in the areas that matter to customers, underpinned by an accelerated cost saving programme. Throughout the pandemic we have remained focused on delivering against this plan and have built good momentum:
· Adapted at pace to COVID-19, prioritising customer and colleague safety, supporting communities and helping to feed the nation. Record customer satisfaction scores for friendliness and speed of checkout and rated best for customer safety throughout the pandemic3
· Improved the value of our food ranges, lowering the prices of the products that matter most to customers and extending our Price Lock price commitment. Also launched Sainsbury's Quality, Aldi Price Match and customers are responding by spending more with us, more often
· Changing our ways of working and our supplier relationships; will triple our levels of new product innovation to 1,900 products in the year ahead
· Profitably grown Groceries Online from eight per cent of grocery sales in 2019/20 to 17 per cent in 2020/21 and gained more market share than key competitors4. Argos digital sales increased by 68 per cent, while also improving profitability
· 7.4 million digital Nectar users, up from 4.5 million last year
· Financial Services returned to profit in H2; remain committed to doubling profit contribution and returns by March 20245
· Building on our existing Net Zero by 2040 commitment, announced new target to reduce our absolute greenhouse gas emissions by 30 per cent by 2030, signing up to Science Based Targets. Principal Partner of COP26, the UN Climate Change Conference taking place in November this year
· Made a strong start to the transformation of Argos, which will improve product availability and deliver a lower cost to serve
· Transformed the reach of Habitat, making it our leading furniture and home brand
1 Excluding the Special dividend announced in November 2020 of 7.3 pence, as this relates to 2019/20.
2 Analyst consensus published on our website as at 9 February 2021
3 Sainsbury's came first in a supermarket safety survey conducted by the UK's leading consumer champion. This is corroborated by Sainsbury's own internal data
4 Nielsen panel market share data, 4 weekly report, FY18/19 vs FY20/21
|
Financial summary 2020/21 2019/20 Variance |
|||
|
Statutory performance |
|||
|
Group revenue (excl. VAT, inc. fuel) |
£29,048m |
£28,993m |
0.2% |
|
(Loss)/profit before tax |
£(261)m |
£255m |
N/A |
|
(Loss)/profit after tax |
£(280)m |
£152m |
N/A |
|
Basic (loss)/earnings per share |
(13.0)p |
5.8p |
N/A |
|
|
|
|
|
|
Business performance |
|||
|
Group sales (inc. VAT) |
£32,285m |
£32,394m |
(0.3)% |
|
Retail sales (inc. VAT, excl. fuel) |
£28,837m |
£26,868m |
7.3% |
|
Digital sales |
£12.1bn |
£6.0bn |
102% |
|
Underlying profit before tax |
£356m |
£586m |
(39)% |
|
Underlying basic earnings per share |
11.7p |
19.8p |
(41)% |
|
Interim dividend per share |
3.2p |
3.3p |
(3)% |
|
Proposed Final dividend per share |
7.4p |
– |
N/A |
|
Special dividend per share 5 |
– |
7.3p |
N/A |
|
Proposed Full-year dividend per share 6 |
10.6p |
10.6p |
– |
|
Net debt (including perpetual securities) |
£6,469m |
£6,947m |
Down £478m |
|
Non-lease net debt |
£640m |
£1,179m |
Down £539m |
|
Return on capital employed |
5.5% |
7.4% |
(190)bps |
5 On a Group contribution basis by FY23/24
6 Special dividend in 2020/21 paid in lieu of final dividend for 2019/20 following the deferral of dividend decision. The total dividend paid in respect of each year is equal at 10.6p per share, with a final dividend of 7.4p paid in 20/21
Simon Roberts, Chief Executive of J Sainsbury plc, said :
“Above all else, I want to recognise the extraordinary job that my colleagues have done over the last 12 months. Their efforts have been nothing short of heroic as our entire team went above and beyond every day for our customers and communities. I am enormously grateful to the whole team for the way they have risen to the huge challenges this year and so selflessly looked after our customers and each other.
“We have put our colleagues and customers first every step of the way and, as a result, delivered industry-leading safety in our stores and record levels of customer satisfaction. In a year like no other, our industry has stepped up and worked tirelessly across food supply chains to feed the nation and we are very proud of the part Sainsbury's has played. I also want to especially recognise our suppliers for all their support and partnership throughout this year in keeping goods flowing for our customers. They have done a fantastic job.
“This year's financial results have been heavily influenced by the pandemic. Food and Argos sales are significantly higher, but the cost of keeping colleagues and customers safe during the pandemic has been high. Our full-year direct COVID-19 costs were £485 million, leading to a 39 per cent decrease in full-year underlying profit. We are pleased to propose a full-year dividend which is in line with last year, protecting shareholder income from the full impact of COVID-19 on profits.
“We have a bold three-year plan to put food back at the heart of Sainsbury's and drive improved performance. We are transforming the way we work and I am encouraged by how all of our teams have responded and the early momentum and performance towards our plan.
“We have accelerated our digital transformation this year as we focus on serving customers however they want to shop with us. We have more than doubled our online grocery sales and have done this while improving profitability. Argos digital sales grew almost 70 per cent and our Argos transformation plan is on track to improve customer availability while reducing our costs.
“Like our customers, we are all looking forward to things feeling more normal over the coming months and getting excited about a summer of celebration, but we are also cautious about the economic outlook. While there is much that we cannot predict in the year ahead, we are absolutely focused on delivering for our customers and shareholders.”
Our response to COVID-19
Throughout the pandemic, we prioritised: keeping our colleagues and customers safe, supporting our communities, particularly the most vulnerable and helping to feed the nation. We have:
· Invested £485 million, particularly to help keep our colleagues and customers safe and we have outperformed our main competitors in customer satisfaction for supermarket shopping overall7
· Delivered over 12 million online orders for elderly and vulnerable customers, prioritising them from day one
· Paid all colleagues that were required to shield in full for each shielding period and supported colleagues who needed to self-isolate
· Increased the hourly rate of pay for Sainsbury's and Argos store colleagues to £9.50 and awarded three special recognition payments for their extraordinary efforts, a total investment of more than £100 million in our frontline colleagues
· Raised £35 million for good causes, including donations to Comic Relief and FareShare and the creation of an additional £1 million local community fund for stores in January this year
· Supported suppliers in distress with vital cash flow and started paying nearly 1,500 small businesses earlier
· Forgone business rates relief on all Sainsbury's stores
7 Competitor Benchmark Survey 12-week trended data to 06/03/21
|
Like-for-like sales growth |
2019/20
|
2020/21 |
|||||||
|
|
Q3 |
Q4 |
Q1 |
Q2 |
H1 |
Q3 |
Q4 |
H2 |
FY |
|
Like-for-like sales (excl. fuel) |
(0.7)% |
1.3% |
8.2% |
5.1% |
6.9% |
8.6% |
11.3% |
9.5% |
8.1% |
|
Like-for-like sales (inc. fuel) |
(1.1)% |
1.3% |
(2.3)% |
(0.5)% |
(1.6)% |
3.2% |
3.2% |
3.2% |
0.7% |
|
Total sales growth |
2019/20 |
2020/21 |
|||||||
|
|
Q3 |
Q4 |
Q1 |
Q2 |
H1 |
Q3 |
Q4 |
H2 |
FY |
|
Grocery |
0.4% |
2.0% |
10.5% |
5.1% |
8.2% |
7.4% |
7.1% |
7.3% |
7.8% |
|
General Merchandise |
(3.9)% |
(1.3)% |
7.2% |
7.6% |
7.4% |
6.0% |
17.6% |
9.2% |
8.3% |
|
Of which GM (Argos) |
|
0.4% |
10.7% |
10.9% |
10.8% |
8.4% |
18.1% |
11.1% |
10.9% |
|
Of which GM (Sainsbury's Supermarkets) |
|
(8.1)% |
(9.3)% |
(6.9)% |
(8.2)% |
(5.4)% |
14.8% |
0.3% |
(3.8)% |
|
Clothing |
4.4% |
2.5% |
(26.7)% |
(7.5)% |
(18.3)% |
0.4% |
4.2% |
1.5% |
(8.5)% |
|
Total Retail (excl. fuel) |
(0.7)% |
1.3% |
8.5% |
5.2% |
7.1% |
6.8% |
9.2% |
7.6% |
7.3% |
|
Total Retail (inc. fuel) |
(0.9)% |
1.9% |
(2.1)% |
(0.4)% |
(1.4)% |
1.7% |
1.6% |
1.7% |
0.1% |
Outlook
We have carried good underlying trading momentum into the new financial year and started the year strongly. However, we have tough comparables ahead as customer behaviour normalises and we are prudent about prospects for the year. We continue to expect underlying profit before tax (UPBT) in the financial year to March 2022 to exceed that reported in the year to March 2020 (£586 million) and we are comfortable with consensus forecasts of around £620 million8. Within this we expect Financial Services to return to a full year profit.
Reflecting a strong cash performance in the year and our strengthening confidence in underlying cash generation, we now expect to reduce net debt by at least £950 million over the four years to March 2023, against previous guidance of £750 million. We expect to generate average Retail cash flow of at least £500 million per year over the three years to March 2025.
Dividend
The Board has proposed a final dividend of 7.4 pence per share. This brings the full year dividend to 10.6 pence per share, which is in line with last year (when treating the Special dividend announced in November 2020 of 7.3 pence as part of 2019/20), despite lower underlying profits. This diverges from our policy of a dividend covered 1.9x by underlying earnings, reflecting strong underlying cash generation and consistent with the commitment the Board made in November to protect shareholder income from the full impact of COVID-19 on profits.
Notes
Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
A webcast presentation will be available to view on our website at 07:30 (BST). The webcast can be accessed at the following link: https://webcasts.sainsburys.co.uk/sainsbury161
Following the release of the webcast, a Q&A conference call will be held at 09:30 (BST). This will be available to listen to on our website at the following link: https://webcasts.sainsburys.co.uk/sainsbury160
A recorded copy of the webcast and Q&A call, alongside slides and a transcript of the presentation will be available at www.about.sainsburys.co.uk/investors/results-reports-and-presentations following the event
Sainsbury's will issue its 2021/22 First Quarter Trading Statement at 07:00 (BST) on 6 July 2021.