J Sainsbury plc

Good morning everyone. Welcome to our interim results presentation. Thank you for joining us today. I'll begin with the key highlights of the first half, specifically how we're delivering for customers and how that's translated through to the strength of the performance we've achieved. Blathnaid will then take you through the financial performance and outlook before I come back to talk with a bit more detail on the progress we're making across next level Sainsburys. But before that, I want to start by saying a big thank you to every one of our colleagues and to all our farmers and suppliers for everything they've done to deliver for our customers through the first half. We all know just how challenging conditions have been across the food supply chain through the course of this summer with five record heat waves, particularly for our farmers and growers. And that's extended to the pressures that the extreme weather placed on all our logistics and store colleagues. So many of our team working right across Sainsbury's went the extra mile to really deliver. A huge thank you to them. Now we've delivered another strong first half with continued grocery volume growth, market share gains and profit growth. And what sits behind that is something you've heard me talk about many times. Our relentless focus on the things that matter most to customers. Great value, outstanding quality, excellent availability and leading service. On value, we're in a really strong position, improving against most key competitors in the half. Operationally, we've delivered outstanding availability at the most challenged times in the summer heatwaves, with fresh food availability two percentage points higher than the other full-choice grocers. We continue to pull ahead of the rest of the market on quality, with the strength of our innovation across Taste the Difference and Discovery. And we're building momentum and differentiated capability using the strength of our balance sheet to invest in accelerating customer loyalty through personalized value, technology which improves the customer journey, and infrastructure and systems that deliver efficiency and resilience. Now the cost of living remains top of mind for customers and we've continued to make very focused investment to ensure that we're razor sharp on price across all the items in the basket that customers buy most often. With the biggest Aldi price match in the market, Nectar prices on almost 11,000 products and personalized value through your Nectar prices where customers have saved 250 million pounds since launch in 2021. This is delivering a consistency in our value position that has really stood out over the last six months. And while we've strengthened value, we've kept investing in what has always set us apart, our trusted reputation and the association Sainsbury's as a brand has with customers for our food quality, range and innovation. This year, we expect to launch more than 2,000 new and improved products, our biggest innovation program ever. This includes more than 700 taste the difference and discovery products really stretching our lead versus the market. And innovation isn't just about premium food. We're building on our leading position to make healthier choices easier by introducing new products, reformulating current ranges and improving the visibility of nutritional benefits on packaging. We're seeing real momentum as we bring more of our food offer to more customers with fresh food sales up over 4% in the first half. We opened 14 convenience stores and two supermarkets, both of which were former home-based stores, and we're really pleased with their performance. We've also invested in around 170 stores in the first half, focusing on those with the greatest potential. That investment is delivering, with these stores seeing stronger volume growth and customer satisfaction scores higher than the rest of the estate. and to create greater fresh food capacity, we've been rationalizing general merchandise range and space, making the space work much harder with volume for general merchandise stocking point up 10%. And across all our supermarkets, we completed our biggest ever fresh food range reset, changing range and space allocations to reflect evolving shopping habits and improve availability and stocking efficiency. Sainsbury's has long had a reputation for strong relationships with farmers and suppliers, and we're building on that at a time when it matters more than ever. By the end of 2026, 60% of products in fresh produce, dairy, meat, fish and poultry will be in long-term agreements. This goes way beyond the agreements that you will hear other retailers talk about. This is about our cost of production models which give producers predictable profit margins, greater certainty and the confidence to invest for the future. That strengthens the resilience of our supply chain and helps our suppliers deliver the consistent quality and availability of food our customers rely on. So why do the inputs across what we're doing on value, innovation, quality and our relationships with suppliers matter so much? It's because they're delivering a winning formula that customers really trust. On Value for Money, I've talked before about how long it took for customer perceptions to catch up with the real change we've made in our value position following the investment we started with Food First back in 2021. That has now shifted. Customers consistently recognize the value they get at Sainsbury's, rating us ahead of our competitors. That reflects what we've delivered over time and the trust we've built. And importantly, we've strengthened our value position whilst maintaining the quality advantage that has always set Sainsbury's apart. You can see that really clearly here. Our quality scores remain significantly ahead of the other full choice grocers, maintaining an advantage we've built over many years. And it's the strength of that proposition that gives us the confidence to put more of it in front of more customers. In the stores where we've made the most significant investment, we've added an average of 1500 new products per store. And as part of our fresh food reset, we've given more space to key categories such as meat, fish and poultry. At the same time, we're getting more from the space we retain in general merchandise with higher trading intensity, lower working capital and simplified operations. Toys is a good example. It was one of the first categories to go through the full range reset and with fewer better products, sales grew 13% in the first half. So, we're creating more space for our stronger food offer while at the same time driving better productivity from the rest of the store. This is where it all comes together. We are right there with our customers, day in, day out, ensuring we deliver on the things that matter most to them. And at a time when the market has been a bit more volatile, we have maintained our lead and consistency on overall customer satisfaction, with more customers continuing to choose Sainsbury's for their big basket shop. This shows how our consistency has translated into performance, with strong volume growth relative to the market over a number of years. We knew we would be lapping some particularly tough comps through this period. So while we continue to grow volumes, we dipped a little below the market in the second quarter. The comp will remain tough through quarter three and we're expecting it to be another very competitive period. But we are really well set up for the second half. Our feed proposition remains consistently strong across value, quality and service and we expect to deliver another winning peak. So let me bring all of that together. We are really encouraged by our first half. We're continuing to invest in the things that matter most to customers and we can see those choices delivering strong customer satisfaction and continued growth of big basket main shop customers. We're heading into peak with a strong value position, outstanding quality and our best ever Christmas ranges, including 60 new Taste the Difference Discovery products. And we're going to continue to make the right balance choices that will deliver sustainable sales and profit growth. And our guidance today reflects that, with our central case implying continued profit growth in the second half. With that, let me hand over to Blathnaid to take you through the financial performance and outlook.

Good morning and thank you Simon. I will now cover the financial highlights for the 28 weeks to the 12th of September 2026. Starting with a reminder of our financial framework. This lays out the factors that underpin our commitments to deliver profit leverage from sales growth, strong cash flows, higher return on capital employed and enhanced shareholder returns. As we near the end of our three-year next-level strategy, we are pleased with our progress. We delivered continued food volume growth, higher profits and strong cash flow generation. We are well on track with our plans to deliver £1.6 billion of free cash flow over the three years to 2027. Together with the bank exit proceeds, we will have returned nearly £2 billion to shareholders through dividends and buybacks. We are now going to look at the performance of our continuing operations, excluding Argus. As a reminder, we have entered into an agreement to sell Argus to Swift Partners. As a result, the performance and cash flow directly attributable to Argus has been represented as a discontinued operation. Underlying performance in this financial review refers to the Group's continuing operations, unless otherwise stated. Starting first with our sales performance. Grocery sales grew by 2.9%, reflecting continued volume growth and a lower level of inflation versus last year. Grocery growth was partially offset by a 3.4% decline in general merchandise and clothing. General merchandise sales were down 5% year on year, in line with our expectations, reflecting our strategy of allocating more space to food and simplifying the range. Clothing sales were down by around 2% in a subdued and promotional market and against tough comparatives. Despite this, volumes performed ahead of the market, reflecting the strength of our offer and improved availability. In total, Sainsbury's sales grew by 2.6% in the half. Fuel sales were up substantially year on year, reflecting higher average wholesale prices and a modest volume decline. Together, this delivered total continuing operations sales growth of 4.5%. Looking at the shape of that by quarter, grocery growth was lower in Q2 than Q1, entirely as a result of lower inflation. Volume growth was broadly similar across both quarters despite tough comparatives. Turning now to the sale of Argus. As announced in July, we have agreed the sale of Argus to Swift Partners, enabling us to fully focus on our core food business. This transaction is expected to complete in February 2027, with full separation expected by February 2029. Additionally, in July, we handed back our banking licence. The final bank colleagues exited and we exited the last of the owner's contracts. Together these have created significant complexity in the accounting for the half with the exit charges relating to the bank and moving Argus to discontinued operations. While the bank is now clear, the Argus exit costs will continue to move. The largest element will be the working capital true up that we will need to complete at year end. The numbers you are looking at today reflect the half year position. They will be adjusted for both trading performance and the working capital true up as we finalise the sale and exit in February. While we have treated Argus as discontinued, given the fact that it is heavily integrated into Sainsbury's, this has driven a review of the Sainsbury's assets and resulted in some impairments in continuing operations. I will cover those in the next few slides. This table shows the breakdown of Argus discontinued operations numbers. Before I talk about some of the bigger numbers, you can see that Argus made a loss of 8 million in the first half, slightly higher year on year. This was in line with our expectations and we continue to expect Argus full year operating profit to be in line or ahead of last year. We have recognised a non-cash impairment loss We have also booked a provision of £102 million in relation to separation costs, largely tech driven. There will be further separation costs to be recognised as we finalise the exit. Separately, we recognise £37 million of restructuring and impairment costs in line with our Save and Invest programme. Turning now to profits from continuing operations. Last year we reported total underlying operation profit of £506 million. Excluding the Argus discontinued operating loss and taking into account perimeter adjustments, this creates a continuing underlying operation profit base of £507 million. Versus this £507 million base, underlying operation profit increased by 3.6% to £525 million, reflecting volume growth, balanced investment in the customer offer and continued cost-saving delivery. Underlying finance costs were flat year-on-year and as a result underlying profit increased by 5.2%. We expect continuing operations underlying net finance costs to be around 300 to 310 million in 26-27 versus our previous guidance of around 320 million pounds. Underlying earnings per share increased by 10.4%, reflecting a lower underlying tax rate year-on-year and a reduced share count as a result of the cumulative effect of share buybacks. This slide sets out items excluded from underlying results on a continuing operations basis. We incurred £60 million of non-underlying costs during the half. The largest item was £87 million of divestment costs. This primarily relates to non-cash impairment of non-trading sites and Sainsbury's stores following the announced disposal of Argus operations, as well as fees associated with the disposal. It also includes £8 million of final bank exit costs. Retail restructuring programme credits in the period primarily reflect gains from lease exits and the renegotiation of dilapidation provisions recognised in prior periods, partly offset by the redundancy and property strip-out costs associated with bakery closures. Now turning to our cash flow metrics. Free cash flow increased by £57 million year on year. There are three elements to this. Firstly, the working capital of £67 million is largely driven by payment timings. We continue to deliver on our working capital programme. Secondly, capital expenditure was 71 million lower year-on-year in the first half, primarily driven by timing of spend. And finally, profits are higher year-on-year. Net debt will be covered on the following slide. This table shows the key elements of our cash flow and movements in net debt this year and last. Following the change in the financial services business model, net debt and associated cash flows from financial services are now included in the core net debt measure. Opening retail net debt has been adjusted accordingly as shown on the table. Comparatives have not been restated, given the prospective nature of the change in the financial services operations. Before the impact of this change, net debt, including lease liabilities, increased by £221 million, primarily reflecting shareholder returns, comprising of £213 million of dividends and £200 million of the £300 million share buyback programme Returning bank disposal proceeds received in the prior year. Free cash flow of £333 million was partly offset by divestment cash costs including the wind down of previously provided bank exit costs not directly attributable to portfolio sales and advisor fees associated with the disposal of Argus operations. Current year discontinued operation cash flow represent trading cash inflows of Argus operations and cash outflows to settle owner's contracts previously provided for by the bank portfolio sales. We continue to expect to generate free cash flow of more than £500 million in 26-27, consistent with our commitment to generate at least £1.6 billion over the three years to 2027. Continuing cash capital expenditure is expected to be between £750 million and £800 million in 26-27 versus our previous guidance of £800 million to £850 million, with the reduction reflecting the movement of Argus to discontinued operations. Here we lay out our balance sheet metrics. Net debt to EBITDA is broadly unchanged year-on-year at 2.6 times and within our target range of 2.4 to 3 times. Return on capital employed improved by 20 basis points year-on-year to 9.2%. Turning to shareholder returns. As previously announced, we intend to complete a £300 million share buyback programme this year, comprising a core of £200 million and an additional £100 million returning bank disposal proceeds. The £200 million core share buyback was completed in the first half, with the remaining £100 million expected to complete in the second half. We are proposing an interim dividend of 4.1 pence per share, representing 30% of last year's full-year dividend, consistent with our standard policy. In total, we expect to return more than £600 million of cash to shareholders this year. In summary, we are pleased with our performance in the half. We delivered profit growth against continued tough comparatives in a competitive market, generated strong free cash flow and are delivering strong cash returns to shareholders. We also announced the sale of Argus, which will allow us to focus our resources on our core food business. Looking ahead to the full year and the guidance we have issued to the market this morning, I thought it would be useful to clarify what exactly this represents and how it compares to our previous guidance. Our previous guidance was underlying operation profit of £975 million to £1075 million including Argus. Last year, Argus contributed £9 million of operating profit and we said that we expected profits to be broadly unchanged year on year. So on a continuing operations basis, if we exclude that £9 million from the previous guidance and round down by £1 million, that will be the equivalent to £965 million to £1065 million. Versus that range, we now expect to underline operation profit from continuing operations of between 1025 million and 1065 million pounds. I know plenty of you will ask about the financial services contribution. Financial services contributed around 3 million pounds to operation profit growth in the first half. For the full year, we expect a contribution to continuing operations profit growth of around £10 million versus the previously guided £20 million. This reflects the financial services contribution that now sits with Argus in discontinued operations. For next year we talked about £40 million of incremental income and we still expect to deliver at least half of that upside on a Sainsbury's only basis. So roughly another £10 million of incremental income from financial services next year. We won't separately disclose financial services income and we will only make a comment when it has made a significant impact on growth in any period. And, as a reminder for future years, when we announced the divestment of Argus we guided that the impact on underlying operating profit was broadly neutral, with loss to Argus operating profit and its synergies offset by Argus store-in-store rental income and Nectar income. This included the change to our financial services contribution expectation, so no further adjustment is required. We remain focused on maintaining our strong competitive position, delivering strong cash generation of more than £500 million and creating consistent value for shareholders. Thank you for your time. I will now hand back to Simon.

Thank you, Blathnaid. Let me now take you through the progress we're making across our Next Level Sainsbury's strategy. When we launched Next Level Sainsbury's in February 2024, we set a clear purpose and four strategic outcomes. We're now in the final year of the plan and we continue to make sustained progress. As we announced in July, the planned sale of Argos is an important evolution. It will create a simpler, more focused Sainsbury's while enabling Argos to continue its transformation under dedicated ownership. I'll come back to Argos shortly, but let me start with first choice of food. Now our ambition here has been consistent right back to when we launched Food First in 2021. We want many more people to choose Sainsbury's as the place they come to for good food. On value, what's distinctive is how the different elements work together. We have the biggest Aldi price match in the market and Nectar prices on almost 11,000 products. And increasingly, we're combining that broad-based value with personalized offers through your Nectar prices. Together that's delivering really meaningful value for customers, saving £16 on average on a big trolley shop and consistent trusted prices on the items customers buy most often. And while customers have the reassurance of trusting us on value, they know they don't need to compromise on quality. As ever, it's the quality of our food that really sets us apart. Taste the Difference sales have increased nearly 50% over the last four years. And on that strong base, we're still seeing growth ahead of the market again this year. With continued investment in fantastic innovation and quality, we see huge further opportunity here. And our biggest programme of Taste the Difference innovation is coming for this Christmas. Taste the Difference Discovery, our range of restaurant quality meal solutions and premium speciality products is building on that strength and opening up new territory for customers seeking the most exciting innovation in food. We've doubled the range this year and it's now contributing around a quarter of Taste the Difference growth. Our product development teams working alongside our suppliers are doing a brilliant job expanding discovery into new categories including BBQ, Italian meals and premium meat, fish and poultry choices like Norfolk Black Chicken. And we expect the range to exceed 200 products by the end of the year. We want our customers to be able to access the best of our food offer however they choose to shop with us. and we're encouraged by the growth we've continued to have across all channels, not just through supermarkets, but also convenience and groceries online. Online performed particularly strongly with sales up 9%, reflecting improved overall customer satisfaction, including the friendliness of our drivers, quality, range and availability. As you know, we were early into the rapid delivery grocery market, both with our own on-demand proposition, Chop Chop, and then we moved into partnership with Deliveroo, Uber Eats and Just Eat through 2025. We've largely completed our role out of on-demand, now in more than 1,400 of our supermarkets and convenience stores. Alongside expanding our digital offer, we're making shopping at Sainsbury's easier and more seamless, creating a more joined-up experience both online and in-store. and we've bought Smart Shop on demand and Groceries Online together in our enhanced Sainsbury's app. We're also adding new features to take the effort out of shopping. Search Your Store helps customers quickly find products, while AI-powered Smart Lists turn a photo or even a meal idea into a shopping list, helping customers plan, find what they need and keep track of their budget. Now in two, the work we've been doing to strengthen the customer offer is continuing to deliver. We've been focused on developing our ranges and style credentials alongside driving better availability through a step up in operational performance. We're seeing the benefit of that focus. Customer perceptions of style are up, availability is stronger, and too has outperformed the wider clothing market. We also delivered our best ever back to school performance with sales up 8%. This is being supported by the rollout of RFID across clothing, giving us better stock accuracy and helping drive availability and operational efficiency. So while the overall clothing market remains subdued, we're making good progress on the things that will strengthen the to offer for the longer term. Turning next to loyalty everyone loves, Nectar continues to be a really important part of how we deliver value for customers and deepen their relationship and connection with Sainsbury's. We're continuing to make Nectar more personalised and more rewarding, while giving customers more ways to earn and benefit through our growing coalition of partners. At the same time, we're investing in the data and retail media capabilities that continue to strengthen the long-term growth opportunity for Nectar 360. And what's really powerful is how those two sides increasingly work together. For customers, it's about delivering great value through Nectar prices, points and increasingly personalised rewards, alongside more ways to earn and redeem points through our coalition partners. And for suppliers, Nectar 360 brings together our customer insight, targeting and retail media capabilities to help brands connect with customers in more relevant, measurable and higher returning ways. And that's driving deeper digital engagement. Nectar participation continues to grow with digital nectar users up 9%. And 17% more customers are accessing personalized offers on their favorite products each week through your nectar prices. We know that this engagement drives a real difference in loyalty. And increasingly, personalization can help customers discover different parts of our range, whether that's making healthier choices or introducing more customers to taste the difference. Nectar 360 continues to be at the forefront of retail media in the UK, fueled by innovation and the strength of customer engagement with Nectar. Pollen is the most advanced retail media platform in the UK. We launched this proprietary platform at the end of last year and we're now rolling out across a wider client base. It's revolutionizing the way that brands and agencies work with Nectar to run omnichannel retail media campaigns at scale. Pollan has now delivered more than 600 campaigns for around 100 clients. Nectar360 has also become the first UK retail media business to be accredited and independently audited against the IAB Europe Retail Media Measurement Standards. This provides a unique guarantee of credibility on the way that Nectar360 delivers and measures return on investment. And alongside Pollen, we're continuing to expand our in-store media network with more than 3,500 digital screens today and close to 5,000 expected by the end of the year. Now this slide brings to life what that capability can deliver for brands. Brands are able to connect with customers across in-store, on-site and off-site channels and measure the impact. This Diet Coke and the Devil Wears Prada campaign is a great example, reaching 8 million customers and delivering a 3.7 times incremental return on advertising spend. Let me now turn to Argos. As we announced in July, we've agreed the sale of Argos to Swift Partners, completing February 2027. This is the right next step for both businesses, creating a simpler, more focused Sainsbury's, while giving Argos greater flexibility to accelerate its transformation under dedicated ownership. The team continues to make good progress in delivering the transformation plan with investment in people, stores and technology and encouraging marketplace launch and strong new customer take up of the new credit proposition. And perhaps most importantly, it's business as usual at Argos and we expect four year trading profits to be in line with or ahead of last year. So our focus is on continuing that progress and securing a stronger future for Argos as we move towards completion of the transaction. Save and Invest to Win is about investing in technology and infrastructure to deliver sustainable structural efficiency gains. We're creating a simpler, more automated and more productive business, while continuing to invest in the capabilities that will make Sainsbury's stronger for the future. We're on track to deliver our £1bn cost saving target, taking total savings to £2.3bn over the past six years. Our focus has moved away from individual one-off saving initiatives towards end-to-end improvements in processes and ways of working that change the game in terms of costs. These will deliver savings well beyond the current year. Investment in technology is improving productivity and delivering benefits for customers. Our stores are becoming more connected from the shelf edge through to customer scanning. and AI is making a very real difference to in-store productivity and safety and loss prevention whilst improving customer satisfaction and availability. We've made good progress rolling out facial recognition technology following a successful trial which saw logged incidents fall by 46% and more than 90% of identified offenders not returning to our stores. Self checkout video analytics are now in nearly 600 stores, with continued rollout across supermarkets and introduction into our convenience stores, driving significant reductions in miss scanned items. Smart shop is now in all supermarkets with 20% more handsets year on year, supporting operational capacity and bigger basket shops ahead of peak. and we've rolled out our optimized reduction algorithm to all stores, reducing waste and improving colic efficiency. This has already delivered a double digit million pound saving. Before I close, let me come back to the commitments we made when we launched Next Level Sainsbury's. We're now in the final year of the plan and we continue to make good progress against those commitments. We've built on really strong foundations to sustain a very strong competitive position, consistently investing in our customer offer. We've grown food volume ahead of the market and we expect to have grown profit faster than sales and improve roki supported by our cost saving program. We've generated strong free cash flow whilst investing in our stores and in the long-term strength and resilience of the business. And we expect to hit our target of more than 1.6 billion of free cash flow over the three years of the plan. And we couldn't do any of this sustainably without keeping a strong focus on outcomes for customers and colleagues and our key plan for better outcomes. We'll give a full update on performance against all the metrics at the end of the year. And that brings us back to our key message today. We're delivering for all our stakeholders, building a stronger, simpler, more focused Sainsbury's with the capabilities that matter for today and tomorrow. Our winning combination of value, quality and service is consistently delivering for our customers. We have a strong and trusted value position and leading quality and innovation building on the core strengths of the Sainsbury's brand. We're deepening loyalty through Nectar and growing retail media income whilst investing in technology, productivity and efficiency. And this is generating strong, sustainable returns for our shareholders. Thank you for listening and thank you for joining us this morning. Ronald and I will now take your questions.