Making Sainsbury s Great Again. 19 October 2004

Transcription

1 Making Sainsbury s Great Again 19 October 2004

2 Philip Hampton Chairman

3 Justin King Chief Executive

4 Making Sainsbury s great again What we have found New and experienced management team Restoring universal appeal Fixing the basics Sales led profit recovery

5 What we have found Our core strengths 14m customer visits a week 150,000 loyal and committed colleagues Heritage of quality food at fair prices Strong relationship with suppliers National, well invested store network Management committed to success

6 What we have found Customer proposition Huge brand equity Sainsbury s brand remains unique and well positioned Failed to execute our unique proposition Over complicated approach to customers Under investment in customer offer Falling basket size Dynamic market place

7 What we have found Store portfolio Strong national presence stores 461 supermarkets of which 239 are freehold or long leasehold Average size of supermarket 34,000 sq ft 157 stores over 40,000 sq ft Trade well up to 55,000 sq ft 255 stores refurbished or extended in last 5 years Under investment in 131 stores Over complicated approach to formats

8 What we have found Retailing basics Business transformation - automated depots not fully operational - IT systems not achieving targets Store operations too complex - 50% of availability issue is in store - investment not customer focused Resulted in - poor execution of customer offer - unacceptable availability

9 What we have found Organisation and people 150,000 loyal and committed colleagues Lack of focus on customers and stores Bureaucratic process driven culture Low morale amongst colleagues Complex structure with unclear accountabilities

10 What we have found Unsustainable business model Margin driven Invested in infrastructure Low returns on capital investment High cost base Continuing decline in market share and sales densities

11 Current trading % Q1 Q2 H1 Sales growth including petrol - Total - LfL - LfL inflation / (deflation) (0.5) (0.1) Sales growth excluding petrol - Total - LfL - LfL inflation / (deflation) 0.8 (0.6) (1.1) (1.1) 1.3 (0.9) (0.5) (1) Expected PBT for H1 between 125m and 135m (1) PBT is stated before exceptional items, amortisation of goodwill and costs or charges that may arise from the completion of the business review, which will be subject to our normal audit review

12 Making Sainsbury s Great Again

13 New management team Outstanding retail experience and track record of delivery Operating Board - Lawrence Christensen (Supply Chain) - Jim McCarthy (Convenience) - Gwyn Burr (Customer Service) - Mike Coupe (Trading) Clear responsibility for results Finance succession underway New and existing talent

14 Restoring universal appeal Unique and competitive offer Mainstream grocery shopping Outstanding food Restore reputation for quality and innovation Premium and Health ranges best available Inclusive for all our customers Clear category hierarchy: Good, Better, Best

15 Restoring universal appeal Customer offer Great food at fair prices Supported by strong promotions programme Nectar improve effectiveness Have scale to succeed Straightforward approach to formats By end of 2007/08 (1) - grow sales by 2.5 billion - invest at least 400m in improving customer offer Annual investment of bp from buying efficiencies (1) Excludes Petrol and Sainsbury s Bank

16 Restoring universal appeal Relevant general merchandise Complementary, not destination, to food shop Three areas of focus - core general merchandise - clothing - home Matched to store size By end of 2007/08 grow sales by 700m

17 Restoring universal appeal Convenience stores Convenience management team is best in UK Focused on growth in neighbourhood model Good progress on conversions Existing estate reviewed - 13 stores to close Reviewing Shell store portfolio By end of 2007/08 grow sales by 400m

18 Restoring universal appeal Sainsbury s to You Important service to offer to customers Focus is on improving service Based on store picking model Expansion suspended until availability issues resolved Investment in improved service and systems Will not contribute to profit for next two years

19 Restoring universal appeal Sainsbury s Bank Quality management team Low customer acquisition cost Innovative products and services Strong growth in customer numbers - 1m credit card customers - over 2m customer accounts Treble profits to 90m by end of 2007/08

20 Fixing the basics

21 Fixing the basics Customer offer Making range relevant for customers - range churn reduced by 75% - more effective promotions Simplified range hierarchy with core offer in all stores Investment in price and quality

22 Fixing the basics Supply Chain New management team in place Completed review of automated depots Supplier compliance Additional manual support Protecting Christmas Asset write-off 120m

23 Fixing the basics IT systems Systems not delivering business benefits Slow down roll-out of new systems development Renegotiating Accenture outsourcing contract Simplify systems to increase effectiveness Rebuild internal capability Asset write-off 140m

24 Fixing the basics Store operations Recruit an additional 3,000 colleagues by January 2005 Focus on improving service All colleagues now bonused on availability and service Optimise working hours to support customers and supply chain Refurbish 131 stores

25 Fixing the basics Availability Driving volume to protect availability Substantially increase forecasting effectiveness Clearance catch up largely complete Simplifying range and promotions New stock management procedures Stock write-off 80m

26 Fixing the basics Organisation and people Focus on supporting store colleagues to serve the customer Colleague initiatives - new bonus schemes - suggestion and recognition schemes Streamlined effective central operations No move from Holborn Colleague related provision of 90m

27 Making Sainsbury s great again Improve availability Ensure store friendly deliveries from supply chain Renegotiate Accenture contract and reduce spend Accelerate investment in customer offer Reduce central costs Simplify in store and central support processes

28 Sales led profit recovery

29 Sales led profit recovery Driving sales (1) Grow sales 2.5 billion by end of 2007/08 - grocery billion - general merchandise - 700m - convenience - 400m Market matching sales growth by end of 2005/06 (1) Excludes Petrol and Sainsbury s Bank

30 Sales led profit recovery Operating efficiencies (1) Deliver at least 400m operating cost savings by 2007/08 m Supply chain 50 IT systems 40 Stock loss 120 Store operations 70 Marketing 40 Central 60 Other m (1) Realistic deliverable savings (1) Excludes the impact of write-offs

31 Business review Exceptional items for 2004/05 Estimated costs m Supply (1) chain assets IT assets Stock Employment Property Other (1) (2) Profit on sale of Shaw s 275 (3) (1) This includes property loss on disposal of 25m (2) Cash costs of approximately 100m (3) This is offset by an adjustment in respect of previous years disposals of 20m

32 Sales led profit recovery Cash flow management Continuing cash flow improvements (1) Tight management of capital expenditure - ongoing 450m pa - IT systems and supply chain completion costs 200m Dividend payments reduced by approximately 135m Opportunities from asset and store development - cash proceeds of around 75m pa until 2007/08 Opportunity to trade stores at the margin (2) Aiming for cashflow neutral in 2005/06 and positive thereafter Objective is to maintain investment grade credit rating (1) Including convenience acquisitions but excluding Sainsbury s Bank (2) Before repaying the balance of the capital returns outstanding of 40m

33 Sales led profit recovery Outlook 2004/05 outlook - further investment in customer offer (1) - H2 underlying PBT not significantly different to H1 Customer investment of 400m already begun - majority invested by end of 2006/07 Annual investment of bp from buying efficiencies Operational cost savings /06-100m /07-150m /08-150m Sales growth - market growth by end of 2005/06 (2) Grow sales by 2.5 billion by end of 2007/08 Operational gearing delivered strongly from H2 2006/07 (1) PBT is stated before exceptional items, amortisation of goodwill and costs or charges that may arise from the completion of the business review, which will be subject to our normal audit review (2) Excluding petrol and Sainsbury s Bank

34 Making Sainsbury s great again This time it will be different Strong management team Plans to fix basics Customer focus driving cultural change Investment in customer offer Sales led recovery

35 Making Sainsbury s Great Again