J Sainsbury plc

Good morning everyone and thank you for joining this call to talk through our results for the year to the 2nd of March. I'm going to kick off with an explanation of some very good results, tell you how we got here and lay out where we're going. Blunheim will then take you through the financials and then I'll spend some more time on the highlights of the last year and look at the momentum we're taking with us into this new financial year. Now today's results are all about Sainsbury's winning in food. Really good food at really good prices. Food is three quarters of our business and it's now firing on all cylinders. We've made record market share gains. Our volume growth has accelerated every quarter and we've been winning customers from all our key competitors. When we launched our food first actually three years ago, our goal was to have the best combination of value and quality. We've really delivered on that and customers looking for the best value, that's our quality and prices, are turning to Sainsbury's for their weekly shop and especially trusting us for all the big events, for Christmas, for Easter, for every special occasion. And we've significantly improved our lead in customer service. All of this reflects the hard work and commitment of all of my colleagues and I'd like to thank every one of our team for everything they've done in achieving these results. We've delivered financially as well, with higher profits, lower debt and strong cash generation, in part driven by our very determined and consistent delivery of a much higher level of structural cost savings. We've achieved the balance of financial delivery and strong trading through deliberate balance choices for our customers, colleagues, communities, suppliers and shareholders. This has been the case over the last year, with another £220 million investment into price, delivering a further strengthening of our value position against competitors. We've also continued to lead the market on investing in our people, with another £200 million investment in colleague pay announced in January. We've put £36 million back into communities, and we've continued to tackle food poverty and reduce food waste through our partnership with Neighbourly. And we continue to reshape the way we work with our suppliers, providing more support to British farmers and building longer-term, more strategic partnerships, bringing benefit to us and them. Now, we are constantly asked whether we can win from the middle of the market, and this slide shows that's exactly what we're now doing. We're the only full-choice retailer getting from both the premium grocery retailers and the limited-choice supermarkets. And while we've driven a real shift in customer perception of value at Sainsbury's, this hasn't impacted our reputation for quality. You'll remember when we set out our plan back in 2020, we were too expensive and we were losing market share. We knew that to make real progress, we needed to fundamentally reset our value position and then significantly shift customer value perceptions. Having invested £780 million over the last three years, we are at our most competitive on price ever. And as you can see in the left-hand chart, we're now really seeing the impact of this investment with a step change in value perception. We always knew that it would take time for customer perceptions to catch up with the improved reality, but value perceptions are now at their strongest in six years. The right hand chart shows the feed through to volume market share gains and increasingly value market share gains as the extent of the catch up in value investment starts to ease. So, we're now in a really strong place to build on this position. We're a business with momentum and our customer base is growing. We have reset the efficiency of this business and the strength of our financial position provides the opportunity to invest to become more efficient and drive growth. widening the gap versus competitors who aren't in a position to invest. We are investing in areas where we have clear visibility of very fast paybacks, in putting more food range into our highest potential stores, in building our network of highly productive convenience stores where we typically see a two-year payback, In our front of store technology, giving a payback of less than two years on a significant scale investment. And in Nectar, building on the strength of Nectar 360 with investment in new tech platforms giving clients easier access to high returning retail media opportunities. As you'll remember, these are the eight commitments that we laid out with our next level Sainsbury's strategy in February. and very consistent with the last three years, we will report against these commitments every time we talk with you. Now looking to the year ahead, our guidance on both cash and profit reflects those commitments. This business is in the strongest position as a team we can remember. As a result, we are confident of delivering strong profit growth over the year ahead. We expect to continue to deliver grocery volume growth ahead of the market. Along with resilient Argos profit delivery and a growing contribution from Nectar, we expect to grow underlying retail operating profit faster than sales, with growth of between 5% and 10%, so delivering on the commitment to drive profit leverage from volume growth. To be clear, this is an ambitious range. It's not us aiming low with the intention of raising over the course of the year. It assumes some better summer weather, but just a normal summer. This will provide some support to our sales and margins, but also to Sainsbury's sales. And we know our grocery business will face tougher comps through the year as we annualise the success of nectar prices. But given the strong momentum we have, we are assuming in our central case that we can continue to outperform against those tougher comps. I'm now going to hand over to Blanid to cover a bit more detail on the numbers.

Good morning everyone and thank you Simon. I'm going to take you through the results from last year and also run through some of the details behind our guidance for the year ahead. Covering sales first, grocery sales increased 9.4% in the year with volume growth in every quarter accelerating significantly in the second half as inflation slowed. General merchandise sales declined by 0.5% but grew 1.2% excluding the closure of Argos in the Republic of Ireland. Argos sales in the year were impacted by poor seasonal weather against tough comparatives. Weather also impacted clothing sales throughout the year, where we took a disciplined promotional stance. This position had a significant impact on the seasonal impulse purchases in a highly promotional market, but we protected profitability and maintained good stock management. In total, full-year retail sales, excluding fuel, were up 6.8%. Including the impact of lower fuel sales, primarily reflecting lower input prices, sales growth was 3.2%. Turning to retail underlying operating profit, this was up 4.3% in the year. We committed at our capital markets day to delivering profit leverage ahead of sales growth. As you can see in the left hand chart, we were pleased to deliver retail underlying operation profit ahead of sales growth in the second half, in fact with stronger profit growth despite weaker top line growth. This was primarily driven by momentum in the grocery volume growth, as you can see on the right, as well as continued delivery of cost savings, partially offset by weaker general merchandise profits. This strong momentum means we enter the year ahead with confidence. Consistent with our commitment on profit leverage, we expect to grow retail underlying operating profits ahead of sales, driven by grocery volume growth ahead of the market and another step up in profit contribution from Nectar. Moving on to cost savings, we've achieved 1.3 billion savings target we laid out as part of our food first strategy, including savings of around 350 million in the year and reduced our operating costs to sales percentage by 165 basis points since financial year 1920. We have committed to a further one billion of cost savings over the next three years, and we are well underway with many of these savings initiatives, which Simon will talk about later. In the year ahead, the major drivers of operating cost inflation are higher wage costs, with our hourly wage 9% higher than last year, and higher business rates, with some very modest offset from lower energy costs. There are three elements to our financial services business. First, core banking products, that is loans, credit cards and deposits. Second, commissions, insurance, travel money and ATMs. And finally, consumer credit, that is Argus Financial Services incorporating warranty products. In January, we announced a phased withdrawal from core banking and a move to a model where financial services that are complementary to the retail offer will be provided by third parties. We are continuing to work through this process and I will update you once we are further along. Looking now at the financial services results. Underlying profits fell 37% to £29 million. The decline is predominantly driven by the core banking products and is reflective of our funding model, where we are unable to fully pass higher funding costs from increased interest rates onto customers. As you know, our banking business is subscale and while we will continue to manage our risk carefully, as seen in the bad debt ratio flat at 2.1%, we have found it difficult to achieve the cost savings required to keep our cost ratio flat and it has increased to 70% this year. This has meant that we've seen reduced profits in our core banking products, such as credit cards, moving from profits to losses during the year. This year-on-year move offset relatively resilient profits from our Commission and Argos financial services businesses. Looking to the year ahead, we expect continued healthy profit contribution from the Commission's businesses, which we will retain, but expect continued losses from the core banking products, impacted by higher funding costs and by preparations for the phased withdrawal from these products. Hence, we expect a further reduction in the net financial services contribution in the year ahead, with underlying profit of between break-even and £15 million. The withdrawal process means that the scope of our financial services business is likely to change over the course of the year and we hope to provide a further updated interim in November. As we work through this exit path, there are £273 million of non-underlying restructuring costs associated with the phased withdrawal from our financial services division. These costs comprise of impairment of non-financial assets, additional allowances relating to effective interest rates, onerous contracts and impairment of the remaining goodwill held in the bank. We should expect further restructuring costs over the next two years as we execute the withdrawal. Underlying profit before tax was up 2% to £701 million, just above the top end of our guidance range, with growth in retail profits more than offsetting declines in financial services profits and higher finance costs. We have a higher underlying tax charge this year, driven by the increase in the corporation tax rate, but including a 3% offset from beneficial prior year adjustments leading to underlying earnings per share reducing by 3.9% year on year to 22.1p. Moving on to statutory profit before tax, this fell by 15% year-on-year, primarily driven by non-cash one-off costs. Excluding the financial services restructuring costs that I went through earlier, we recognised £95 million of retail restructuring costs in relation to the structural integration of Sainsbury's in August, announced in November 2020. The majority of this programme has now completed. The 86 million of adjustments shown at the bottom of the table are primarily non-cash, specifically a year-on-year change in the movement of energy derivative positions and non-cash movements relating to the Highbury and Dragon property transaction. Now looking at our cash flow metrics. Retail free cash flow of 639 million was broadly flat year on year and comfortably above our guidance range of at least 600 million. Working capital inflows of 262 million were driven by higher payables alongside some of our stock control programme delivering early. We will continue to be very tightly focused on working capital opportunities and expect another inflow in the year ahead. Net debt, including leases, reduced by 790 million over the year. In addition to strong cash flow, this reflects a net benefit of 372 million from the completion of the Highbury & Dragon property transaction. As a reminder, we bought 21 of our best supermarkets back from a property investment pool, which we part-owned. This transaction completed earlier in the year, removing lease liabilities of just over 1 billion. The net cash cost of the transaction was £670 million. We funded this with cash and a term loan and this is reflected in the movement of ex-lease debt position from net funds of £144 million to net debt of £200 million. This table shows the key elements of the cash flow and movements in net debt this year and last. There are a few moving parts within the broadly flat retail free cash flow position versus last year. Stronger operating cash flow, offset by higher capex as guided and the non-repeat of last year's dividend of 50 million from Sainsbury's Bank. We have broken out the elements of the Highbury and Dragon transaction for you here. For the year ahead, and as already laid out in February, we expect capex of between 800 and 850 million, with an additional 70 million of spending on EV rollout. We continue to expect free cash flow of at least 500 million this year, with higher capital expenditure and cash tax costs only partly offset by higher retail EBITDA and continued working capital inflows. Here we lay out our balance sheet metrics. Net debt to EBITDA reduced to 2.6 times, reflecting the impact of the Highbury and Dragon transaction on net debt and continued strong cash flow generation. You will see our return on capital employed has improved from 7.6% to 8.3%. We have committed to delivering higher return on capital employed over the next three years, and the profit and cash guidance we have set out today clearly implies another good step up in the year ahead. We are proposing an unchanged dividend year on year, with the payout ratio increasing to 59%. The increase in payout ratio offsets the impact of higher corporation tax on net earnings. We are commencing our 200 million buyback programme tomorrow, as previously announced, and we are moving to a progressive dividend policy. So in summary, we are pleased with the performance delivered in the year, with a very strong growth through performance throughout the whole year, but particularly in the second half, where we saw higher volume growth delivering profit leverage with improved retail operating margins. With continued good cost discipline, we delivered underlying profits at the top end of our guidance range, despite both financial services and Argos profits being lower than we originally anticipated. And we had another good year of strong cash generation. In the year ahead, the continued momentum in the business means we enter this financial year with confidence. We expect a strong growth through performance to drive healthy retail operating profit growth of 5% to 10%, and for that to feed through to strong free cash flow generation. Thank you for your time. I'll now hand back to Simon to cover the strategic highlights in more detail.

Thank you Blanhead. I'm now going to cover each of our four strategic outcomes in turn, touching on where we are, what we've delivered over the last year and what we're focusing on in the year ahead. Starting with first choice for food. The key aim here is getting many more people to choose Sainsbury's as their destination for good food. Now we've already made strong progress here. Price is no longer a barrier to shopping at Sainsbury's and more people are choosing Sainsbury's for the reason we've always been famous, our range, our quality and our service. And we will bring more of that great range and quality to more customers as we allocate more space to fresh food. I'll talk some more about this later. But first, this chart shows the extent of the progress we've made over the last year, growing customer numbers significantly faster than all other full-choice competitors, particularly primary customers who do the majority of their grocery shopping with us. This is reflected in the type of baskets they're shopping to, where we're seeing the strongest growth in big basket destination shops, not just top-ups. This is because customers are trusting us more and more on the consistency of our value and the way we deliver it. We have a winning value proposition. Nectar prices, Aldi price match and low everyday prices. The fact that these products are in the vast majority of customer shops show that we're delivering value on the items that matter most to our customers. This year, we've actually doubled the number of products in our Aldi price match, meaning we now have over 600 products included across fresh, grocery and household ranges. And we're also delivering personalized value at scale with 85% of nectar collectors shopping into your nectar prices when shopping online. Now the Sainsbury's brand is built on its reputation for quality and we continue to be the destination for customers wanting to trade up for a special night in or a big event when they get all the family together. Our outperformance versus the market across all the key events has continued, and we've also annualised some strong performance last year. Easter was outstanding, with our biggest ever Easter grocery sales, and we performed well ahead of the market. We sold more than one million legs of lamb, with sales of items that make up the centre of Easter Sunday dinner up 10% year on year. Taste the Difference continues to be a key part of our success, with sales up 12% over the last year. Taste the Difference sales have grown by 30% to £1.6 billion since 2019-20. As you can see, we are really outperforming on TradeUp. Our growth has been strengthening over the course of the year, and we're building on an already strong position. We continue to give customers more and more choice of innovative and high-quality products at the right time, with our level of seasonal innovation driving really strong sales. We're also being bolder and more targeted behind key destination categories, rapidly rolling out new merchandising schemes after strong trial results. In Free From and Pet, we're rolling out multi-temperature aisles, helping customers much more easily shop the full range. I think we surprised a few people back in February when we said that only 15% of our 600 supermarkets carry our full food range. And we also said that it's often in fresh food where we're simply not giving enough of our customers the best of our offer. So we're already underway making very focused investments in around 180 of our highest potential supermarkets over the next three years. We expect this to be a key driver of volume growth. Making these improvements to our offer in so many stores will also bring more assortment and more ranges to online shoppers in many locations. While we're making these changes, we'll also be updating the look and feel of many stores, upgrading technology too, and making some end-to-end operating model changes to make these stores more efficient. We've already been testing in a number of stores and learning from this process, and we've had the good fortune recently of opening two brand new supermarkets in Southport and Talbot Green near Cardiff. The timings of these store openings have allowed us to bring the benefits of these test and learn trials to these stores. They've only been open for a few weeks, but both stores are trading well ahead of expectation. And it's not just supermarkets where we're seeing strong growth, with convenience sales up 9%. And we're pleased too with our online performance. Customers are really noticing the improvements in both our availability and service online. Both are key drivers of another big step up in our customer satisfaction and market share gains. We've been leading the way in on demand for some time, learning as we've grown and refining the fulfillment operating model in our convenience stores. And we've taken a big step on over the last year as we've rolled out now to well over 1100 locations. We spent some time at our update in February explaining how we're resetting the general merchandise and clothing offer within Sainsbury's stores to be more complementary to the food offer, with a tighter, more relevant range and more focus on key seasonal events. This is consistent with the direction of travel for our clothing business over the last three years. we have been more focused on a tighter product range with less markdown, higher average selling price and a better margin, delivering higher profit with less stock. This has helped us over the last year, which has been heavily impacted by seasonal challenges and hence a very promotional environment. But equally, there are aspects of the past year where we could have done better on our range and availability. So we've made some changes here and we're clearly focused on the opportunity in the year ahead. Checking in on our progress here against our plan for better targets. First on both healthy and sustainable diets and food waste, we are making progress. But we do have more to do here and we have some very clear action plans as we look ahead. Looking at carbon, we've made strong progress, accelerating our targets for reducing the level of both scope one and two greenhouse gas emissions in our own operations and scope three emissions within our value chain. Importantly, these targets have also now been verified by the SBTI. We have strong long-term relationships with suppliers and farmers. We work with over 15,000 British farmers sourcing two billion pounds of fresh products each year. And these relationships put us in a unique position to play a leading role in building a more resilient and sustainable food system in the UK. We're working more closely to support farmers, adapting cost models where necessary to offer greater security and, in many cases, enabling smaller growers to be part of our supply chain. Now, as I covered earlier, we're also increasingly committing to longer-term partnerships with key suppliers to support them investing for the future with confidence, bringing commercial benefits as well as driving sustainability progress. And we're starting to tell customers about the work that we do that makes us different through our Good to Know campaign. So turning now to Nectar. We've supercharged the power of Nectar in terms of what we can now deliver, what it brings to customers, and our value proposition over the last year. In turn, the stronger engagement with millions of customers every week in stores and across our websites is supporting the growth of our world-class Nectar 360 platform, offering significant media opportunities for suppliers and putting us in a really strong position to capture more share of a rapidly growing retail media market. We launched Nectar Prices in April last year, scaling up over the course of the summer to the current level of around 7,000 Nectar Prices offers in store and online. The execution has been outstanding and customers love it. It's driven a very significant ramp up in participation and it's building long-term loyalty. We now have over 17 million digital subscribers, that's 5 million more since we launched Nectar Prices. Our customers have made savings of more than £1.3 billion since launch, and we just saw a new high sales participation level over Easter. Nectar Prices is live across most of our offer now, but we will be extending to some more areas over the next 12 months. And as we laid out in February, we will be rolling out a new Nectar app later in the year. So there is more to go for here in terms of building customer engagement. Now this slide speaks both to the scale of the Nectar 360 business and the scale of our capabilities and the reach we've been building across Nectar. This means we punch well above our weight given the strengths of our digital capability and our relationships with the 870 brands and clients we work with and key agencies in digital media. That translates into very strong returns on investment for clients who are working with us across grocery and increasingly now general merchandise. And you can see this in the example shown here with high returns on advertising spend being realised. And we expect to generate really strong returns as we invest targeted capital into Nectar 360 to keep innovating and to lead the market. We are investing in people capabilities, in our media and agency relationships, into digital screens and in the tech platforms that make it easy for our brands and clients to access the best media opportunities. As an example, we have just launched a key pillar of growth for Nectar with the Trade Desk, creating a supply hub on our digital trading platform. This will help clients target very effectively specific Nectar audiences and then enable them to measure and optimize performance of their campaigns. We are focused now on driving the targeted investment necessary and delivering fast payback and strong levels of return. We are very confident we will deliver at least £100 million of incremental profit contribution from Nectar360 over the next three years. Let's turn now to more Argos, more often. Our plan to continue to transform Argos with a focus on range, convenience and value so that more customers buy more complete baskets more often. When it comes to Argos, our focus has been on creating a more resilient business. We've talked to you over the course of this year about the influence of seasonal patterns on Argos, and you can see in the sales performance on the left-hand side of this slide how the poor summer weather impacted some of the higher margin seasonal categories. But the work we have done to transform the Argos operating model, reducing the standalone storage state and driving greater operating efficiency, means we have reduced operating costs by more than 300 basis points over the last three years. And on average, Argus profits over the last three years, importantly excluding the year when we saw significant lockdown benefit, were three times the level of the prior three years. This year is a case in point, where we were able to better protect profits when sales were skewed to lower margin categories like consumer electronics. And we are confident this profit resilience will continue in the year ahead, helped by our continued focus on cost savings and based on our expectation of more normal seasonal weather. Now, when we announce the next phase of our strategy in February, you'll remember I told you our key focus for August will be driving more frequent customer engagement and bigger baskets. Half of UK households shop at Argos. They know that we are here for them when they need us, and our ease, value and convenience are key drivers of our high customer satisfaction. But Argos isn't the go-to destination for enough shopping missions, and we aren't inspiring customers enough when they're shopping with us, so they only add to their baskets the one item they originally came to us for. So more Argus more often will focus on better inspiring customers, widening the range of premium brands we have on offer, and better showcasing our own label products. We will also drive greater awareness of our market-leading click and collect and delivery propositions, further building on customers' love of our famously convenient service. And we will ensure we are always delivering great everyday value. Another key focus area of our strategy is supercharging our digital capabilities to drive online growth at Argos. Now, our team are well underway with a number of activities to adapt the way we attract traffic to the site, such as enhancing our search engine optimization activities and growing organic traffic through introducing leading CRM capabilities. At the same time, we're really improving our customers' digital experience when they reach our site. We're making enhancements to browsing, personalisation and payment options, and we're increasing the relevancy and value of our attached recommendations. We're also continuing to invest in our Argos app with an ambition to double app participation. Transforming our operating model has been a big part of the story in Argos over the last three years, and that isn't going to change. As I've said to you before, the job of transforming and improving Argos is very much a continuum. Having largely redefined the store network, the next phase of transformation is about refining our store operating model, taking the opportunity to move from a one-size-fits-all approach to using a store clustering strategy to tailor stores by proposition type. This will ensure we have the right size store and model for each location, be that fast collection or more engaged service requirements. As you can see here, we're already seeing the benefits of our right sizing work, for example, in our Croydon store. Looking at the Argos model end-to-end, we see a number of efficiency opportunities still to come, and our big focus is primarily on optimising the amount of stock we hold. Part of this focus on efficiencies will be delivered through consolidating and automating our general merchandise distribution network. We are well progressed with the build of the new automation and the programme remains on track to open in financial year 2025-2026. This brings us to our final strategic outcome, save and invest to win, which combines how we continue to drive more cost out of our business with how we are investing capital with a clear focus to enable our growth and drive efficiency. Our ambitious cost saving plan over the last three years has delivered 1.3 billion pounds of savings and has been key to fueling the investments we've made in our proposition. This focus on minimising costs and driving efficiencies is now embedded in our culture, and we're confident we can maintain our current rate of cost savings over the next three years, targeting a further £1bn of savings, more than offsetting the level of inflation we anticipate. We've achieved some significant structural changes during the course of Food First. in our retail proposition as we've closed our fresh food counters and cafes, and in Argus as we've moved from standalone stores to stores inside Sainsbury's and transformed our logistics network. But as we look ahead, our focus is increasingly on automation and end-to-end productivity, taking costs out of an entire cross-functional chain of cost rather than looking at more siloed divisional savings. We are also investing capital in a very targeted and focused way into the high returning projects that will really power our growth and efficiency. And there are some examples here of the key capital projects we are already underway with. You would have heard me talk about our future front end program, which we have now completed in 390 stores. And this is an investment which has enabled delivery of more than 50 million pounds of cost savings. This programme yields a sub-two-year payback and has transformed the way we operate our checkouts, driving higher customer satisfaction at the same time as saving costs and improving productivity. Now there is more we can do here and the next phase of optimising our checkouts is focused on building an even more seamless, personalised and efficient experience for customers through further technology development. Underpinning our growth agenda is the work we're doing to simplify our logistics network and drive better availability for customers and greater efficiency within our operations. We're on track with transferring our logistics operations to our three strategic partners, GXO, Wincanton and DHL, with the implementation due to complete this summer. Of course, getting availability right is critical to delivering for our customers, and we're really seeing the benefit of working with Blue Yonder to migrate our food supply chain to machine learning-based forecasting. We have already migrated 100% of our ambient grocery products, resulting in an increase in availability of 170 basis points year on year, which is the equivalent of 150 more products available in each of our supermarkets. And we're on track with our fresh food migration too, due to complete this summer, with clear opportunities in the future to extend to our clothing and general merchandise businesses. Alongside this, we have conducted a forensic assessment of where colleagues are spending most of their time, and the value that time adds to customers. For those tasks that are adding less value, we're really questioning, can we remove them, can we optimize them, or can we automate them? We are using data science to predict availability and identify stock gaps, which helps colleagues to prioritize when they replenish items. And we're using a model to optimize product date checking and price reductions to enable more targeted use of retail labor. Both trials are saving colleague time whilst really improving the experience and availability we offer for our customers. So coming back to our purpose and the next level Sainsbury's strategy that we're focused on delivering. We're really clear as a team on how we're setting ourselves up to build on the great momentum we have as we move into this next phase of our strategy. As I said to you in February, this is a real moment in time for Sainsbury's. We've reset our value position and continue to outperform on quality with more and more customers shopping our food offer. We're building on our world-class capabilities in Nectar. We're continuing our transformation in Argos, now a much more resilient business. And our unique cost-saving opportunities continue to be a significant competitive advantage as we get underway with a program of high returning investments to power our growth. We've started this year with strong momentum in grocery. And while we will face tough comparatives, we expect to continue to generate volume growth and outperform the market. Consistent with our commitment to deliver profit leverage from sales growth throughout the life of this plan, we are confident of delivering strong profit growth. We think we're well placed to navigate the year ahead by continuing to make consistent and balanced choices for all our stakeholders and as a result, delivering more for our shareholders. Every part of the business is very focused on the opportunities ahead and what we need to do to deliver this year, to deliver on our plan and take Sainsbury's to the next level. Thank you for listening.