Justin King - Chief Executive Officer John Rogers - Chief Financial Officer Mike Coupe - Group Commercial Director

Edouard Aubin - Morgan Stanley Andrew Gwynn - Exane James Tracey - Redburn Frank Walding - Goldman Sachs Andrew Kasoulis - Credit Suisse Jonathan Pritchard - Oriel Keith Richardson - Lloyd Mike Dennis - Cantor Fitzgerald

Hello, everyone. Thanks for coming on the line and I have John Rogers and Mike Coupe with me.

I appreciate you coming on early. We are doing the call earlier today for obvious reason.

And this is our Second Quarter Trading Statement for the 16 weeks ended last Saturday, the 20th of September. And as you all have seen we delivered strong sales, market outperformance and market share growth.

Our total sales for second quarter up 5% or 4.6% excluding fuel, like-for-like 2.1% or 2% excluding fuel. And that brings our like-for-like in the first half to 1.4% excluding fuel at the top end of the 1% to 1.5% range we guided to.

As I have already mentioned, market share growth was measured by the key market monitors, the only one of the major supermarkets to be able to say that. In the quarter where we tapped -- lapped tough comparative particularly during the Paralympics games last year.

Of course we matched some of that activity during the quarter without support of the British Athletics and Paralympics program through the Sainsbury’s Summer Series. I know some of you got the opportunity to enjoy that both at the stadium but also on television, a fantastic demonstration that we are continuing to pay our part in that Olympic and Paralympics legacy.

Our underlying sales driven in particular by the sales of our label growing twice the rate of branded goods, taste the difference particularly strongly and buy Sainsbury's, the main part of our own label offer too. And many first and leadership positions to note, as we start the new British apple and pear season, please to note that during the 12/13 season, our leadership position the fifth year in the running maintain, the largest and widest retailer of British apples and pears.

But, of course, the real growth successes in our business are online at 15% and convenience at 20%, convenience in particular benefiting a little from that summer weather where people tend to shop up -- top up a bit more when the weather is warm. General merchandise continues to grow strongly too, again around twice the rate of food continuing its long run of our growth, we re-launched our two clothing brand in the quarter, now in around 400 stores and we’d a fantastic back-to-school season with highlights like a 1 million Apollo shirts showing that we are now mainstream school uniforms.

Our sales performance though underpinned by great standards in our stores. We believe that the standards in our store, service and availability, the best they’ve ever been.

And that’s recognized by the industry in the last week or so at the Retail Industry Awards we were awarded Supermarket of the Year for sixth time in eight years and the fourth year on the chart for our convenience business, demonstrating the industry recognize our outperformance on these measures. And of course, the Grocer 33, which I know many of you watch has awarded our stores Store of the Week 10 of the last 16 weeks, so we can be confident that our in-store standard are industry leading.

We continue to invest in new businesses, of note in the quarter, the launch of Mobile by Sainsbury’s, a joint venture with Vodafone, a great growth opportunity for future there. And of course, we continue invest in our store estate, 31 convenience stores and five new supermarkets in the quarter, adding 307,000 square feet of space, meaning we are on track to deliver the 1 million square feet we’ve guided for this year.

So now let turns, we are of course encouraged by improving economic indicators, but our customers’ budget challenges remain, inflation, food inflation running is around 3%, wage inflation is good bit behind that. And so they are continuing with the behavior that they’ve adopted during this economic downturn of savvy shopping.

And the unique tools that we have at Sainsbury, be it our brand match, coupons till, our use of Nectar data and of course, as I have already mentioned our leading own label offer, we helping our customers live well for less. We are investing as you would expect heavily -- in innovative products for Christmas running and therefore, we are confident in the quarter ahead that we can continue to out trade our competition.

With that, I’ll hand over to questions.

Yeah. Good morning, gentlemen.

And so as you mentioned…

Good morning.

As you mentioned you continue to outperform your main competitors and then continue to gain market share. Have you seen any substantial change in any of your main KPIs, such as product availability or private label, price perception explaining this outperformance or are you just improving your offer across the board?

Well, I think it is, the answer really is across the Board answer, this is about small incremental notches on many, many measures, rather then any one particular spike. I mean, I mentioned, there are sort of wide industry recognition of our service and availability.

And the delta, the gap that we enjoy versus our competition on our measures and of service and availability is as wide it has ever been. To some extent that’s more the measure of us maintaining high levels and some other slipping a bit on our measures.

But nonetheless it is across a wide range of measures where we are maintaining the gap where we have leadership or closing the gap where we are coming from a bit behind as of course, we are on price perception. But it’s a little notchy as across the whole wide range of measures.

And so in terms of -- if you look at the independent external measures, our suppliers would recognize that we are the best on executing in the industry. And I think that’s reflected in our customer’s perception.

Edouard, even in your own report of a few weeks back on price, we were absolutely competitive in the market compared to our peers.

Okay. Great.

Thank you guys.

Hi. Good morning, Justin.

Good morning.

Good morning.

Just going back to the point you made on an improved consumer and so forth. Obviously consumer confidence is picking up.

But as yet -- as you comment, we're not really seeing that in the broader industry. I know your like-for-like is reasonably good but the broader industry is still pretty flat.

When would you expect to see the improvements come through and are there other forces at work? Obviously, we hear a lot of comment about discounters.

We hear a lot of comment about supply. So I'm just wondering about that relative balance between the demand and the supply side?

Well, I think what I tried to balance in my commentary is that there are economic indicators which are more positive or one might perhaps argue less negative than they’ve been. From a consumer perspective, they’ve not noticed a difference.

So I guess, they’ve noticed a difference when they open their newspapers or switch on their TV in terms of the drumbeat of commentary. They are certainly not hearing relentlessly bad news which would have been the case year or two ago.

But the reality for consumers is average wages are up maybe 1% year-on-year. Inflation is running at about 3% and that’s the reality what the vast majority of consumers experience.

So we’re always quite cautious of overplaying the economic indicators because we think the average consumer says -- well not when -- if they hear, for example, me on television saying that well, not for me, it’s not -- I'm still struggling each week to make the household budget add up. And I suppose implicit in your question is if there were to be a sudden change in consumer behavior -- consumer perception of how well off they were or even consumer reality.

Will that lead fundamentally different shopping behavior? Our assumption is no.

We think the habits that consumers have developed over this economic downturn. On the whole, they quite like.

We don’t imagine the consumers are certainly going to wake up one morning when they get a pay rise and say I’m going to go back to throwing away food. So we don’t think that you should sit waiting for a sudden change in consumer behavior to lead to fundamentally different market conditions.

We think we’re dealing with, if you like, a new reality. And the fact that we’re able to grow within that new reality consistently over the long term, we believe the demonstration of the fact that we’re understanding that with our customers and giving them the solutions to that problem.

I mean, you talk about new reality. And I think we probably all recognize many elements of that.

But do you think the industry is in the right sort of place? I come back again to that supply side of things.

I know you're opening space, you're trading relatively well, but everyone's opening space. Is there a broader imbalance do you believe?

I'm sure you've read plenty of commentary from us and pretty much everybody else who writes on the sector that our belief there is but what's your belief?

I think I have been quoted in the past as saying that sort of individual space-owning strategies. It can be rational and collectively irrational.

But I’ve also said that if you add up the total for the industry, we have about two or three years as in industry clearly been opening more space than has been the historical average. But the question therefore is for individual retailers whether it remains rational for them.

And two of our competitors have in recent time said it is no longer a rational strategy for them. If, of course, they do notch back or even step back in a big way from their space opening strategy than the conundrum for the wider industry is significantly reduced.

If we look at our space opening approach, we’re opening convenience stores, very comfortable with that. I think you would be too with the number of opportunities that are there to reflect customer shopping behavior.

We’re extending our existing estate and our new extensions continue to perform very strongly. And the new stores are adding on the whole in parts of the country where we’re not.

So we think our opening strategy remains entirely rational than good use of shareholder funds.

Okay. Thank you very much.

Good morning, Justin, John and Mike.

Hi James.

Hi.

Can you confirm some external surveys which show your promotional levels are down from a high level last year. And does that helps the profit outlook at all for this year?

Thank you.

Yeah. It’s been a slight downturn not just for us but for the industry in general on promotions.

And we’re basically fundamentally changing our trading strategy. So we’re looking at stabilizing our prices but we continue to help drive our promotions as well.

So overall that’s reflected in (inaudible). It’s all one of the things that’s driving our performance.

Our customers see continuous value day and day out, week and week out. And that’s reflected in our sales performance.

Okay. And also it seems as though your like-for-like was better in this quarter than you were hoping for at the beginning of the year, especially given the comparisons with via the Paralympics.

Do you see any need to increase your guidance for your like-for-like?

I mean right James. It certainly was a strong quarter at 3%.

But if you look over the half, that we are reporting a like-for-like of 1.4% for the half. Clearly, we guided at the prelims to a like-for-like for the full year between 1% to 1.5%.

So we are currently trading at the upper end of that range. But I wouldn’t expect to change that guidance to the rest of the year.

I think 1% to 1.5% still remains the case.

Okay. Thank you very much.

Hi. Good morning.

Hi Frank. Good morning.

Hi. I just have two questions, the first of which was just on online.

So clearly the continuation of good growth in that business. Could you confirm whether you're thinking about dark stores in terms of your investment plans over the next couple of years?

I don’t think we have anything to add on that, Frank, from what we previously said which is that we think dark stores are likely to be part of the future. But our first focus is to invest on productivity in our existing operations.

And we continue to exceed our own expectations of what’s possible from a store pick operations both in terms of the productivity of that operation but also in terms of the capacity. The key balance in an in-store pick is that you don’t want to interfere with the in-store experience for real customers in the store.

And the progress that we’ve made over the last two or three years, both in the layout of our stores but also in the timing and approach of our picking operations means that we remain confident we’ve got capacity growth there. But the dark stores will come.

I don’t think that’s in debate. And as we’ve seen from our competitors and the capacity constraint for them will be the same for us.

It will be in the south east.

Okay. Great.

Thank you. And my second question was just on your pension review, have you got any updated timelines on when you’re likely to communicate that?

James, we’ll say more about that at the interims in the few weeks time.

Great. Okay.

Thanks.

Morning, guys. I know it's not a results statement but could you just comment on full-year consensus, please, whether you're comfortable with that, presumably you are.

And so a second question, what level of like-for-like do you think you would need to see some operational gearing going forward if so 1%, 1.5% doesn't give you any operational gearing in terms of margin going up? What sort of level do you think you would need going forward?

Andrew, hi, it’s John. I’m trying to give you the usual comment that obviously today is a trading statement and not we’re going to comment or be drawn too much on profitability.

But I would say obviously that we guided the prelims to a like-for-like range of 1% to 1.5%. And clearly for the half, we delivered 1.4%.

So we delivered at the upper end of our guidance range, which I think is the very positive story.

Okay.

The other thing, Andrew -- the other I’d add to that because there is a kind of implication in your question which I don’t agree with, which is that there is sort of implication of your question is that you need more than 1.5% like-for-like to deliver operational gearing. There is no sort of absolute conversion from like-for-like to operational gearing.

The key to operational gearing is of course relative. If you were to look at our operation gearing relative to our major competitors for the last couples of years, you will see that it’s fabulous.

But our major competitor against whom we clearly have to and see -- ensure our offer remains competitive has significantly rebased their profit level. So I think you have to recognize the relative context rather than assume that any absolute level or performance is necessary to deliver operational gearing.

So I think it’s fair to say that in absolute terms we’ve delivered at the upper end of our range. In relative terms, we’ve beaten the market by slightly more than we would expect it to.

But you can draw the right conclusions from that.

Okay. That’s helpful.

Thank you.

Good morning, gents. Just a quick here on store standards and staff levels, is it a case of getting existing sort man hours to work harder for you or are actually there some more people actually in the stores at the moment?

Well it’s more of the former than the latter and obviously, we’ve -- I think have got an enviable track record over the last number of years are both improving our productivity and creating a good number of extra jobs. But when you have got productivity delivering 1% to 2% gains and underlying sales growing it 1.5% they are in the first half, that’s’ roughly going to play a draw in terms of colleague numbers.

And we have also, if you think about our shops, we have simplified our offer and our approach quiet dramatically. So our stores are lot cleaner and tidier and therefore more easy, simpler to operate.

Okay. Thank you.

Yeah. Morning, guys.

And…

Hi, Keith.

Morning. Just a quick one on basket size or at least directionally, just trying to get a flavor of what you're seeing in terms of online, in your stores and convenience, how are people shopping?

What are you seeing them up to and what directionally are you seeing a shift away from one form to another?

Actually, Keith, what’s really interesting, is that we are seeing a small increase in basket size across each of the channels that you mentioned. So, obviously in convenience, we had a very strong quarter for convenience and soon enough uptick in the basket size there.

But, also from a maintenance status as well, we have seen a small uptick in the basket size on a like-for-like basis in our supermarkets. And again the same is true year-on-year for our online channels.

So what’s really pleasing is we are seeing growth in basket size across all three areas.

Excellent, guys. I just wanted to get a flavor there and picking up on Justin's comments in terms of how people are changing their shopping habits and cooking from the base position.

I was just trying to get a flavor of how people are shopping? So that's very useful.

Thank you very much.

Yes. Good morning, gentlemen.

I just want to get an idea in terms of your like-for-like food performance because you base most of your other comments on how your other business is growing relative to that? And I just wondered if you could give us sort of an understanding of the 0.8% to 2% improvement in the total like-for-like?

What is the improvement in the food like-for-like, has it gone up 0.5%, 1%, what's the improvement being quarter-on-quarter?

Mike, hi. It’s John.

Hi.

Well, as you know, we don’t disaggregate the like-for-like number into the different components, but fair to say, we have seen a growth again in all areas. So there is a good contribution from convenience in that like-for-like, a good contribution from non-food but also a contribution from our food business within that like-for-like number.

Right. But you would have seen the Tesco figure?

I think they inferred they did a 1% like-for-like in food or 1% growth in food. That's obviously a big improvement from whatever it was 0.2%, 0.3% in the first quarter.

So I was just wondering if that was more a reflection of the industry or do you think you've outperformed the industry in food?

Well, I think, we are confident that we have outperformed the industry overall in terms of our numbers. If you look at the food business, I think our growth again reflects that.

We are not going to break out the detail of that in the like-for-like number but it is positive as it is for the non-food area and for convenience and online.

I am sure you can disaggregate the numbers in a number of ways, so it depends what you define as food of course.

Yeah. Absolutely.

Okay. I just thought I would try.

Thanks a lot.

Guys thank you very much. I guess many of you have dashed off to other events this morning.

We look forward to updating you on our results in the middle of November. See you then.