J Sainsbury plc

Good morning everyone and welcome to our 25-26 interim results presentation. Thank you for joining us today. I'm going to start with a brief introduction before handing over to Blaned to cover the financials. I will then share some more detail on our strategic progress over the first half of this year. You may remember this slide from our preliminary results in April. This is the plan that we set out to you then, with a commitment to accelerate into the year with a clear set of balanced choices, but with a priority above all else to sustain the strong, competitive position we've built over the last five years. We have delivered on this priority in the first half. Focused and effective investment in our customer proposition have consistently delivered on our winning combination of great value, trusted quality, and leading service. And that has resulted in more and more customers choosing us for their big weekly shop, driving continued volume growth and market share gains. Now we came into this year with great momentum. We planned for a strong summer and we really delivered through playing to Sainsbury's strengths. We invested where it mattered most to customers, extending our hourly price match to even more everyday essentials and building on our market-leading personalisation capabilities, making personalised Your Nectar prices available to all supermarket customers. And our product innovation continues to really set us apart. With more than 600 new products this summer, we focused our newness on summer sharing products and outdoor eating. Alongside outstanding fresh food availability, this allowed us to fully capture the benefit of the weather when demand was at its highest. And Argos delivered a good seasonal performance, grew market share and improved profitability. Our entire team stepped up again and really delivered for customers. I want to take a moment here to thank all our colleagues, partners, farmers and suppliers for their hard work, their dedication and their care, which really helped us to deliver this strong summer performance. So we started the year with strong momentum and a clear plan. We set ourselves up for success over the summer and we delivered. Our offer has never been stronger and you can see here how that comes through in our overall customer satisfaction, which continues to lead against our full choice competitors. But also in terms of our position in the market, reflecting a fifth year of outperformance, we are now at our highest H1 market share in five years. As you know, our key focus over the first three to four years of Food First was resetting our value proposition, investing over a billion pounds through this period. We learned how to invest in the most focused and effective way, selectively investing where it matters most to customers. And we have found a winning value formula that really works for our customers with the combination of Aldi price match, Nectar prices, and your Nectar prices. And so in a year where competitive intensity has stepped up and where as an industry we are facing into higher employment and regulatory costs, we have made balanced choices to keep price inflation behind the wider market and to ease cost of living pressures for customers. Customers are responding to the value we've consistently been delivering on the items that they buy most often. And this is why at a time when inflation is very much back in the headlines, we are the only grocer improving value perception with customers year on year. We are balancing our investment in value whilst driving forward our focus on innovation and quality. Customers have always trusted and expected Sainsbury's to deliver leading quality, and we are further extending our reputation here through the continued growth of our premium Taste the Difference ranges. As we continue to drive innovation and with a real focus on fresh food, more and more customers are choosing Taste the Difference. We achieved 18% growth in Taste the Difference fresh sales over the first half. And as you can see here, customer perceptions of our quality continue to be significantly ahead of competitors. Through the strength of our value proposition, with our passion and reputation for quality and innovation, and the consistent availability and customer service we're now achieving, we are delivering the winning combination. As a result, we have almost one million more loyal primary customers. Those who are doing the bulk of their grocery shopping with us, week in, week out. And the strength of our grocery proposition is clear. 65% of customers shop both Aldi Price Match and Taste the Difference products in the same basket during the first half. This is a clear demonstration of the way customers are now shopping with us across the full spectrum of our offer. Now we know that the strength of our own brand assortment is the reason many customers choose to shop with us and delivering the breadth and quality of our own brand products is only possible through the support of our suppliers and a commitment to long-term partnership. We continue to work collaboratively with our farmers and suppliers to face into food industry challenges. Long-term agreements enable suppliers to invest for the long-term and in outcomes that are great for customers and positive for the environment. And these commitments to resilience extend further than the UK. Our partnership with Fairtrade is a great example of the work we're doing to strengthen our supply chains around the world and support the communities from which we source. Having switched all our by Sainsbury's black tea to Fairtrade in July, we are now the biggest UK grocery retailer of Fairtrade tea. Now everything we do comes back to our purpose to make good food joyful, accessible and affordable for everyone, every day. And our partnership with Comic Relief supports us here through a shared vision of a future where everyone has access to good food. Our Nourish the Nation programme is helping fund meals and holiday club places for families that need them most. We will work with charities such as Fair Share, City Harvest and The Felix Project to distribute over 5 million meals this winter. So as we reflect on where we are halfway through the three-year Sainsbury's Next Level Plan, I'm pleased with the progress we're making against our commitments. Through making balanced choices, we have delivered sustained, strong momentum. We have invested where it matters most and as a result, more customers are trusting us to deliver great value, trusted quality and leading service. And it's this winning combination that has driven grocery volume growth ahead of the market for a fifth consecutive year and helped deliver a profit performance ahead of our expectations in the first half. And we head into this festive season with great momentum and confidence in the strength of our Christmas offer. We have the most important part of the year still ahead of us. And while we are strengthening our profit guidance today for the full year, we are deliberately giving ourselves the capacity to sustain the strength of our competitive position through continuing to make the right balance choices. With that, I will now hand over to Blunted to cover the financials.

Good morning and thank you, Simon. I will now cover the financial highlights for the 28 weeks to the 13th of September. Starting first with a reminder of our financial framework. This lays out the factors that underpin our commitments to deliver profit leverage from sales growth, strong sustained cash flows, higher returns on capital employed and enhanced shareholder returns. We made good progress on delivering profit leverage in the first year of the next level strategy, but this year we have significant incremental cost pressures through higher national insurance contributions and an EPOR charge. Our priority is sustaining our strong competitive position and so we're unlikely to move forward on profit leverage again this year despite our continued delivery of food volume growth ahead of the market. As outlined previously, we continue to invest in our business for future growth while maintaining our cash commitments. We are also delivering on our commitment to enhanced shareholder returns, and we expect to return more than £800 million to shareholders this year through dividends and buybacks. Turning now to our sales performance for the first half. Sales in Sainsbury's grew by 5.2%, with consistent volume growth through the quarter, despite higher inflation. Argos sales grew by 2.3%, helped by a good summer weather and offsetting a Q2 comparative, which was boosted by significant strategic stock clearance activity last year. Together, this delivered total retail sales growth of 4.8%, excluding fuel, and 2.7% growth, including fuel. Retail underlying operating profit was broadly in line with last year's at £504 million, which was ahead of our expectations. Sainsbury's profits were down slightly year on year, with volume growth and cost-saving delivery enabling focused investment in value, customer service and quality, and partially offsetting higher employment and regulatory costs and elevated disruption from our space reallocation activity. Improved profitability in Argus year-on-year primarily reflected a stronger trading margin performance versus last year's clearance activity. We announced in January last year a phased withdrawal from core banking, that is loans, credit cards and deposits, and a move to a model where financial services that are complementary to the retail offer will be provided by third parties. We've made excellent progress with this over the last six months. We completed the sale of loans and credit cards and savings to NatWest and transferred the Argus Financial Services book to New Day. We additionally signed agreements on our home and car insurance back books with Allianz and completed deals on ATMs with Note Machine and on travel money with Vexco. Alongside the strong execution in partnership with NatWest and New Day, these deals have contributed to the extra cash proceeds that we announced today. We are now expecting net proceeds of more than £400 million, significantly higher than our original guidance, and we will return £400 million of cash to shareholders via special dividend and share buybacks. We have also established forward arrangements with these financial services partners that will give us strong ongoing commission income. In the short term, the ATM and travel money disposals mean that we now expect the financial services' underlying profit contribution to be broadly break-even this year, lower than our previous guidance as the income from these businesses drop into the discontinued line until the deals are completed and a new revenue arrangement in place. This is reflected in the restated financial services numbers. This is just a transitionary impact and we continue to expect the underlying operating profit contribution from financial services products of at least £40 million in the financial year to March 2028. This comprises of income from the New Day Partnership together with the Commission's income from insurance, travel money, care and ATMs. Total underlying operating profit increased by 7%, driven by this year's financial services profit against last year's restated loss, while underlying EPS increased 12%, reflecting a reduced share count as a consequence of share buybacks. In December, we will pay an interim dividend of 4.1 pence, up 5% year-on-year, in line with our policy of paying an interim dividend of 30% of the prior year's full-year dividend. And we will pay a special dividend of 11 pence also in December. The next slide lays out items excluded from underlying results. We incurred £95 million of non-underlying costs in the half, with the largest item relating to retail restructuring costs of £58 million. The largest element of these relate to the costs ahead of our full reopening of our distribution centre at Daventry. Cash costs were around £55 million, with the majority relating to redundancy payments associated with the head office restructuring that we completed and booked in the P&L last year. We continue to expect retail restructuring cash costs of around £100 million in the full year and next-level Sainsbury's strategy implementation cash costs of around £150 million over the three years of the programme. Turning to our cash flow metrics, retail free cash flow of £310 million was down year on year, mainly due to lower working capital inflows and capex phasing leaning more to H1 year on year. Net debt was broadly unchanged year on year, but £231 million lower versus the year end position. primarily relation to the timing of a net £250 million cash inflow from the bank that will be paid out as dividend to shareholders in the second half. This table shows the key elements of cash flow and the movements in net debt this year and last. A lower working capital inflow was primarily driven by timing and a strong benefit from inventory reduction last year. Cash contributions to the pension scheme were down year on year, in line with our guidance, of around 26 million in the full year. CapEx was higher year on year, primarily reflecting the phasing of work on our new store openings and store refit activity. We continue to expect capital expenditure of between £800 and £850 million versus £825 million last year. As mentioned earlier, we received a £300 million dividend from the bank, partially offset by a £50 million payment relating to the withdrawal from core banking. We expect to receive the majority of the remaining bank proceeds in the second half of this year, which will be used to fund the additional buyback activity this year and next. The movement in other is primarily driven by higher additions of lease liabilities last year, reflecting the home-based stores acquisition and our new London office. We continue to expect to deliver retail-free cash flow of at least 500 million in the full year. Net debt to EBITDA is broadly unchanged year on year, benefiting from the bank cash inflow. On shareholder returns, we will now return £400 million of bank proceeds to shareholders through a £250 million special dividend and a £150 million addition to the share buyback. We will add £50 million to this year's buyback to make the total buyback £250 million and we will add £100 million to next year's core buyback. As you know, we will specify the level of next year's core buyback with our preliminary results next April, but to be clear, this £100 million will be in addition to the core level. In this financial year, through paying ordinary dividends of more than £300 million and a £250 million special dividend, as well as a £250 million share buyback, we will return more than £800 million to shareholders. In summary, we have traded strongly in the first half of the year. Together with cost savings, this has allowed us to make focused and effective investment in the customer proposition and additionally offset higher costs to deliver a retail operating profit ahead of our expectations. Strong execution in our financial services phased withdrawal strategy has produced higher than expected proceeds and this will be reflected in enhanced cash returns to shareholders. We now expect to generate a retail underlying operating profit of more than £1 billion in the full year, reflecting the strength of our H1 performance, but allowing us to continue to make balanced choices to sustain the strength of our competitive position. We continue to expect to generate retail-free cash flow of at least £500 million. Thank you for your time. I'll now hand back to Simon.

Thank you, Blanit. Now, as I said, We're at the halfway point of the three-year plan that we set out in February 2024, and I'll now run through each of the strategic outcomes that we put in place to define this next phase of our growth, starting with our plan to be first choice for food. We are bringing more of our food range to more customers in more locations, attracting more bigger basket primary shoppers and delivering further grocery volume share gains. We've built really strong foundations over the last four years, providing great momentum. And we've built on those with investment in areas that really matter most to our customers. On value, on quality and freshness, on availability, and on range. And this is reflected in customer satisfaction metrics across the board, where we've taken a big step forward, as you can see. But what really stands out for me is the progress we've made on value perception in every channel, in supermarkets, in convenience, and in online. We're making sure customers have access to great prices, however they want to shop with us. And so at a time when customers are much more sensitive to rising prices and inflation is top of mind, the consistency and focus of our pricing investments is really resonating. We've shown you before the significant improvement we've made on value versus our competitors since the launch of Food First back in 2020. And now building on this, you can see on this slide we've made focused and effective investments in the first half of this year. And that has further improved our price position against all competitors. We have the biggest Aldi price match in the market, having extended the number of everyday essentials included in April, and Nectar prices now on around 10,000 products. Both of these key value platforms are included in the value index you can see here. But beyond this, we're offering more value to more customers through your Nectar prices, with personalized offers on up to 10 items each and every week that are tailored to each customer based on their shopping habits. We are leading the way in personalization across UK grocery, having first launched this capability back in 2021. And we've gone even further this half, fully scaling Your Nectar prices across all supermarket tills, enabling many more customers to access this really meaningful personalized value. And it's worth highlighting here that if we did include Your Nectar prices within the value index, this would further strengthen our position against every competitor. Now, the consequence is that more customers are choosing Sainsbury's for their main grocery shop. We also did something quite different with our marketing investment and focus in the first half, cutting through a much noisier market. Through the peak summer weeks, we dialed up our marketing across Audi price match, and at the same time, taste the difference, and we delivered a campaign focused on everyday trade-ups. This helped drive the strongest brand consideration for Sainsbury's since 2013. Now our reputation for food quality, range and innovation sets us apart. Working closely with suppliers, we delivered more than 600 new summer products, with the result that we were the go-to for customers' key summer occasions. And from an already strong position, the strength of our taste the difference momentum delivered the biggest premium own label market share gains. And we can see great opportunity here. The potential for gaining more in-home dining occasions is clear from the chart on the left. And we've taken a further step forward in the last month with the launch of Taste the Difference Discovery, a range of restaurant-quality meal solutions and premium speciality products and ingredients. The response from customers has already been really strong, with premium dining sales growing 40% since launch. Now these new ranges really lean into the core strengths of our brand and customer demographic, and we're really excited about how far we can take this. Now, a key part of the strategy we laid out in February last year was to build on the renewed strength of the Sainsbury's grocery proposition and to bring it to more customers in more locations. What we didn't know then was that we would be presented with an opportunity to achieve some of that through new supermarket openings, filling in a number of key target locations through the acquisition of stores from both Homebase and the Co-op. We've now opened four of these stores, two of each in the first half, and we're delighted with the results. Collectively, the six new supermarkets and 12 new convenience store openings we achieved in H1 are trading around 20% ahead of budget. And specifically on the home-based stores, we're particularly pleased with the look and feel we've been able to deliver in these stores, but on a much lower than standard fit-out cost, while the feedback from colleagues and customers on the transformation of the former co-op stores has been exceptional. Now, subject to final planning consents, we plan to open another six supermarkets in the second half, including three home-based conversions, and up to 12 more supermarkets next year. In total, we expect our new store opening program and the growth of food space in existing supermarkets to have added more than 1 million square feet of grocery space by the end of next year, an increase of around 6% over the three years. And we remain excited about the opportunity we have to reach new customers in new key target locations. And we expect this to be a strong driver of market share gains over time, particularly as the new stores mature and the disruption from refit activity reduces. Now, alongside new store openings, we have been continuing to invest selectively in our existing supermarkets through our more-for-more plan, reallocating space to provide more food range. And there's no cookie-cutter approach to our store refit program, with the level of capital spend, change, and space reallocation adapted to fit the trading profile and potential of different supermarkets. We're learning as we go, and we're rolling out rapidly the most successful elements. So in particular, we have improved the prominence of next prices and the look and feel of our centre aisles. We have extended range and enhanced presentation in beers, wines and spirits, also often relocating the department within the store, delivering a sales uplift. Our free-from hubs, combining fresh, frozen and ambient products in one aisle, are contributing to a growth of 14% in free-from across the business. That's a 7% market outperformance. And we've made our food-to-go fixtures more compelling and easier to shop, with new formats delivering double-digit sales outperformance. So in those stores where we have come through the disruption, we're really pleased with progress, with the stores delivering higher food sales, higher trading intensity, and a good customer response to the range improvements. So in two, the work we've been doing over the last year to improve the customer offer is really delivering. We've been investing in leadership and enhanced capabilities across our clothing business. And as a result, we're now seeing improvements in ranges, product design, and in our operational performance too. Our combination of great value and quality design is driving stronger customer perception metrics, and we've also significantly improved availability. We delivered sales growth of 7.8% in the first half, with higher full price sales, and we've achieved our fifth consecutive quarter of market outperformance. So turning next to loyalty everyone loves. We continue to believe that a well-invested loyalty and retail media capability is a fundamental requirement for success in grocery retail. And Nectar is at the leading edge here in the UK and globally in terms of enabling personalized rewards for customers and in delivering leading retail media capabilities. As a result, Nectar continues to generate very strong returns. A reminder here of the two sides of Nectar. On the left-hand side, our customer-facing Nectar loyalty scheme, which is how we deliver value to customers through points earned inside Sainsbury's and with coalition partners, as well as through Nectar prices and increasingly through personalized Your Nectar prices. On the right-hand side is our Nectar 360 retail media business. We help our suppliers and other clients understand how customers shop and help them talk directly to the millions who visit our stores and our websites every week. either directly through our media in-store and online, or using our targeting capabilities to address customers on third-party media. Retail media continues to grow its share of total media spend in the UK, driven by the high return on investment it delivers, and we're at the forefront of making it easier and more effective for clients and agencies to tailor the effectiveness of their digital media investments. Nectar Prices continues to deliver outstanding value for customers. Supported by suppliers, Nectar Prices were available on up to 10,000 products in the first half, delivering customers an average £14 saving on an £80 weekly shop. We also extended the availability of your Nectar Personalised Prices. Previously, this was only available to customers shopping online or through using Smart Shop in stores. We have now extended this to be available for all our customers in our supermarkets. As a consequence, more and more customers are now accessing individual and personalised value, which is even more meaningful and accessed every week through the Nectar app. And an important reminder here on how much customers can earn through collecting Nectar points in Sainsbury's and also through our coalition partners, particularly given the growing number of customers who now use the Nectar app. Now, at a time when value for money is much more on customers' minds and there's a lot of noise out there in the market, it's been important to increase visibility here on the extra value benefits Nectar customers are seeing. These benefits are getting stronger and stronger and becoming increasingly valued by Nectar customers. And this is reflected in the value perception scores we have presented today. We talked in July about the launch of Nectar 360 Pollen. This is a bespoke platform built in-house that helps clients assemble tailored omnichannel retail media campaigns. Now, we're just starting to roll it out to clients now, and the feedback has been every bit as good as the response we got when we first announced it. We think this will be a game changer for clients' return on investment and another driver of significant growth for us. We're also getting really good returns on our investment across the connected digital media screens in store, particularly where we're rolling these out to our center aisles. All in, we're comfortably ahead of our profit plan. So turning to Argos, we're making good progress with our More Argos, More Often strategy. Our focus is on building a more profitable business through improving the customer proposition, investing in product range, and the digital customer experience. We're building on our reputation for convenience and value and continuing to optimize the efficiency of our fulfillment network. We're making progress on the key customer metrics outlined here on value for money and promotions, but also on quality and range. This is driving higher online traffic and an increase in both volume growth and basket size in a deflationary market. Our digital performance is where we are really starting to make a key difference, most notably through investing in the Argos app, with strong results, as you can see from the chart on the right. But also through investing to make sure that customers find Argos as a solution more often and more easily, driving greater engagement through social channels and launching our own podcast, as well as scaling the use of AI and personalization in our digital channels. We're then improving conversion by making the customer journey easier once customers find us. From search tools and personalized recommendations to enhance product pages, all the way through to payment. This is how we will build a more sustainable, profitable sales base. And the move we made earlier this year to put in place a dedicated leadership team for Argos is really making a difference to the focus and the effectiveness of our strategic actions and operational delivery. Range-wise, alongside the sharpening of our own brand ranges, we're building deeper partnerships with key brands and bringing new brands and ranges into the offer through supplier direct fulfillment. We're also now giving the customers the option of click and collect on these SDF ranges. Customer familiarity with our big red promotional events is building too, as reflected in the promotional and value perception scores shown earlier. And we're trialing a delivery subscription offer, Argos Plus, for the first time. We're continuing to refine and reset the store operating model, investing in the store network and in technology. This improves quality productivity and the customer experience, particularly through easier collection and returns processes. Now turning to save and invest to win. The strength of our cost saving program is a key differentiator, and at a time of higher than normal operating cost inflation, it means that we can offset more of that incremental cost than our competitors. It's not just about finding ways to save money. It's about delivering sustained cost savings through structural efficiency gains, particularly through capital investment in improved technology and infrastructure. We have a well-developed program with a good pipeline of initiatives, and some of the big capital investments are starting to generate savings, which will build over multiple years. And we continue to be encouraged by progress in driving end-to-end productivity and efficiency benefits. Now, having delivered around £350 million of the savings last year, we're well on track to deliver to our plan this year, and £1 billion of savings over the three years to March 27. Our investment in the replatforming of our general merchandise logistics network will deliver savings of around £70 million when the programme is complete, and we're just going live in our Daventry warehouse. This is centralizing Argos and general merchandise stock in fewer locations, bringing more automation and improving productivity and capacity. And we're building on the strength of the machine learning forecasting platform. This has already significantly improved our forecasting and our stock accuracy, and we're now extending the benefits further down the supply chain by giving suppliers greater visibility and self-serve functionality. As you can see on the right-hand side of this chart, our use of video analytics technology to reduce shrink at self-checkout locations has significantly exceeded expectations, and we're now rolling this out rapidly to more stores. As a reminder, these are the commitments that we made to our Capital Markets Day in February 2024 with the launch of the three-year next-level Sainsbury's plan. We're now halfway through our next level plan, and in a year like this, where competitive intensity has stepped up, making the right balance choices has never been more important. So while we have very clearly prioritised sustaining the strength of our competitive position this year, we remain on track to deliver these commitments over the three years of the plan. We are continuing to drive forward progress against our next level plans, and we are strengthening our capabilities for the future. We're consistently delivering for customers, and more and more are trusting Sainsbury's for their weekly shop. And as you will have seen in the latest Kantar Reads, this momentum has been sustained into the third quarter, despite some tough comparatives through the same period last year. We expect Christmas to be very competitive and hence we're giving ourselves the capacity to make the right balance choices with really strong plans for Christmas across value, innovation and quality and by making sure that our service is at its best both in store and online. Our whole team and I are really excited about what we can deliver this Christmas and we look forward to updating you on that in January. Now, before Bernard and I take your questions, we wanted to share our Christmas ad, which went live just a couple of days ago.