Sainsbury’s plc – ShareSoc and Yellowstone Advisory webinar for private investors

Detail on the strategic review and how the business is operating

Presenter: James Collins, Head of Investor Relations

We were delighted to welcome J Sainsbury (LON:SBRY) Head of IR, James Collins, to present to private investors at yesterdays’ webinar. To watch the recording please click here. The half year numbers were released on November 5th (RNS here) and a strategy review was announced simultaneously. The latter topic formed the bulk of the presentation to give more flavour as to the future direction of the company.

A brief overview of the half year numbers shows the underlying profit before tax at £586m on sales of £31.8bn reflecting the thin margins in this sector. However, food sales grew at 10.5% in Q1 and 5% in Q2. Clothing has suffered through lockdowns, but the Tu clothing brand has still outperformed the sector. The strong FCF has helped to deleverage the business c. £600m in the period and although the final dividend was postponed at the end of the last financial year due to the uncertainties surrounding the business, this has now been paid.

Sainsbury’s overall has been a beneficiary of Covid as sales across nearly all segments of the business have seen growth in H1. Grocery sales increased as the consumption of food moved into the home versus eating out during lockdowns. An increase in costs of £290m to protect staff and customers and operational cost increases to manage Covid requirements have been, to some extent, netted off by the business tax relief of £230m. This relief is not expected to be repaid to the Government given the high spend on Covid related costs. Across all of retail, the likelihood of business rate relief repayments occurring is unlikely as the line to draw as to who should repay and who should retain their relief is moot.

The financial services part of the company, Sainsbury’s Bank, is the worst performer as lower lending volumes, a reduction in the ATM business YoY and the travel money business Covid impact have all combined to take the division into a loss.

A net debt reduction of £750m by the end of the FY 2021/22 is planned into the forecasts for the company. There has already been a deleveraging of c.£1b from the £2.125bn net debt levels of 2015/16. This year…

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