Sainsbury (J) Plc – Full Year Unaudited Results

Proposed combination with Asda

Today, Sainsbury's has separately announced a proposed combination with Asda to create a dynamic new player in UK retail

Financial highlights

·     Underlying profit before tax £589 million, a return to growth; H2 profit increase of 11 per cent

·     Strong cash generation with free cash flow of £432 million, up £113 million in the year

·     Net debt reduced by £113 million to £1,364 million. Targeting to reduce net debt by a further £100 million in 2018/19

·    Delivery of £185 million cost savings in the year, bringing the total to £540 million over three years, exceeding our original £500 million three year target. We will deliver further cost savings of at least £500 million over the next three years to 2020/21, starting with £200 million in savings this year

·     Underlying earnings per share decreased six per cent to 20.4 pence per share, primarily reflecting the impact of a full year's consolidation of the additional shares issued at the HRG acquisition

·     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 7.1 pence per share, an increase of eight per cent, bringing our full year dividend to 10.2 pence per share. The dividend is also covered 2.0 times by free cash flow

·     Sainsbury's Bank profits of £69 million; expected to reduce to around £30 million next year

·     Profit expectation for 2018/19 is in line with current market consensus of £629 million

Strategic highlights

·     Good food performance: transactions growing ahead of the market and an improving margin trend

·     Convenience and Groceries Online sales up nearly eight per cent and nearly seven per cent respectively

·     In the biggest retail change programme we have ever undertaken, we are transforming the way we work in our stores. We propose to simplify our structures and our operations and invest in technology to be more efficient and to improve customer service

·     General Merchandise and Clothing, including Argos, continue to outperform a challenging market

·     191 Argos stores open in Sainsbury's supermarkets; resulting in around 280 by the end of 2018/19, ahead of our plan to open 250 by March 2019. We will also deliver £160 million EBITDA synergies by March 2019, six months ahead of plan

·     Nectar acquisition supports our strategy of knowing our customers better than anyone else

Mike Coupe, Group Chief Executive of J Sainsbury plc, said: “We have accelerated the rate of change and innovation across the Group and more customers are choosing to shop with us than ever before as a result. I am pleased to announce an increase in underlying profits before tax to £589 million, driven by delivery of Argos synergies, efficiency savings across the Group and improving food margin trends. 

“We are focused on making Sainsbury's a destination of choice. We are clearly differentiated by the quality of our food and we have recently invested a further £150 million to lower prices. General Merchandise and Clothing are both performing ahead of the market and, in response to great customer feedback and financial returns, we are opening Argos stores in our supermarkets faster than we originally planned. We will also deliver £160 million EBITDA synergies by March 2019, six months ahead of plan.

“Sainsbury's Bank profits grew as we fully consolidated Argos Financial Services during the year. Looking to the year ahead, we expect lending margins to remain under pressure in a competitive market. Combined with new accounting standards and interest payments on the external capital we raised in November, we expect Bank profits to reduce significantly next year. We have decided to limit capital injections in the Bank to £110 million in 2018/19. We will take a cautious approach to unsecured lending while maintaining focus on mortgage growth.

“Our acquisition of Nectar supports our strategy of knowing our customers better than anyone else and I was pleased to welcome our Nectar colleagues to the Group in February.

“We continue to find ways to simplify our business and reduce costs. We have exceeded our original three year £500 million target and delivered a total of £540 million in savings. In addition, we will deliver at least £500 million of cost savings over the next three years to 2020/21. Net debt has reduced by £113 million to £1,364 million and we are targeting to reduce net debt by a further £100 million in 2018/19. I am optimistic about the year ahead.”

Change of Directorate

Now that David Tyler has been Chairman for more than eight years, a search process has begun, led by Dame Susan Rice and the Nomination Committee, to find his successor as Non-Executive Chairman.

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 7.1 pence per share, an increase of eight per cent, bringing our full year dividend to 10.2 pence per share.

Outlook

The market remains competitive. However, we are well placed to navigate the external environment and we remain focused on delivering our strategy. Despite the reduction in profits at Sainsbury's Bank, we are comfortable with current market consensus for 2018/19 UPBT of £629 million.