Mike Coupe - CEO John Rogers - CFO

Bruno Monteyne - Sanford Bernstein Edouard Aubin - Morgan Stanley John Kershaw - Exane Niamh McSherry - Deutsche Bank Mike Dennis - Cantor Fitzgerald James Grzinic - Jefferies Rob Joyce - Goldman Sachs Arnaud Joly - Societe Generale

Good morning. It's Mike here.

I am also joined by John Rogers, our CFO. John will just headline our trading statement and then we'll open up to questions.

Good morning, everyone. Happy New Year.

I'll just take you through three key points. I'll assume that you’ve obviously read the statement in full, but first and foremost obviously the like-for-like performance of the third quarter down 1.7%.

Secondly, we had a fantastic week in the run-up to Christmas with over 29.5 million customer transactions that was up year-on-year, so a really strong Christmas week performance. And the third point just to highlight that in the outlook statement we think the market does remain challenging and reflecting food price deflation and the price reductions of course that we announced yesterday, we do expect our fourth quarter like-for-like to be similar to that of our first half, which was of course at around minus 2%.

So overall we think a strong performance beat expectations, but we remain cautious about the outlook in the market in the fourth quarter. And with that, we'll hand over to Q&A.

Good morning.

Good morning, Bruno.

Good results. Just a few questions for me.

One is the -- I am trying to -- back pool -- backsaw for the Christmas like-for-like, because obviously you have a full quarter of results and it looks to me that your Christmas over the last four, six weeks would have been even better than what your quarter three suggests. Would that sound right that you were close to flat or even positive like-for-like for Christmas?

My second question would be your space growth contribution has been below what you guided to be full. Is it anything that we need to understand better on that?

Is there any more color on that? And my last question is Netto stores, anything particular to say how they traded through their first Christmas?

Thank you.

Well as you know, we don't break out any of the individual weeks over Christmas. So you'll have to take as the trading statement reads the 14 weeks.

We do however bring out the customer numbers in the week before Christmas. We serve 29.5 million customers and that was certainly up year-on-year.

So you can draw your own conclusions from that. And of course you'll have to wait and see the market data, such that there is to see our overall and relative performance of the market price and because of the realities we don't know at this moment in time when we won't know until the Kantar data is published next week.

So we don't break out the numbers. We never do, but as you can see, it's relatively in line with the guidance we gave at the half year.

Perhaps John can comment on the space growth and I'll come back on Netto.

Yes and just before I comment on space growth, just to reinforce Mike's points on the like-for-like, I mean if -- I don't know where you're doing your -- take lessons from Bruno, but if you're using the Kantar numbers to make an inference that we outperformed over the Christmas week, then I'll push back on that analysis on the basis that we said quite consistently that the Kantar data is on the reading our performance and I think that's reflected in the overall minus 1.7% number when you look at the Kantar data. And actually whilst we don't break it out on a period-by-period basis, that may particular period throughout the quarter where we either outperformed, it was relatively consistent performance throughout the period -- throughout the quarter that wasn’t particularly characterized by either a strong or a weak Christmas performance.

It was relatively flat over the whole quarter. In relation to the space growth, I mean, you're right to highlight that the contribution from the space has been slight down when compared to the 2% guidance, but we're maintaining that 2% guidance.

So the reason is slightly lower this quarter is just simply due to the timing of openings of stores and if you look at this quarter, we actually opened stores relatively late in the quarter, compared to the same period last year where we opened the stores at the right beginning of the quarter. So the contribution has taken a small step back year-on-year, but this was absolutely in line with our expectations and we're not in any way, shape or form, changing our guidance for the full year.

And on that, we don't say anything about and actually other than the fact that we opened five stores before Christmas. It's very early to say.

They've only been trading for what five or six weeks in the period before Christmas and when we got something to say, we'll say it.

Thank you.

Yes, hi good morning, Mike and John.

Good morning.

Just two questions for me. For Q4, so you're guiding for like-for-like sales evolution slightly below current consensus, but is your forecast for the next quarter in line with what you had initially in your budget at the beginning of the second half?

And my second question is, could you just give us by how much online sales impacted your like-for-like sales in Q3 and what was the figure in Q2 if possible?

I'll ask John to answer both of those, probably because I don't know what the second number is.

In terms of our expectations for Q4, actually it's bang in line with where we guided at the trading statement in October. We said at that time that we expected like-for-likes in the second half to be similar to first.

So it's a minus 2% overall. Obviously the number that we announced today at minus 1.7% is a little bit better than that.

We're now guiding for Q4 to be minus 2%. So we're not really changing our guidance back from October.

We said around minus 2% for the second half in October and we're broadly reiterating that today. So absolutely bang in line with where we expect it to be.

In terms of the contribution from online in the quarter, it was for Q3 it was around the 0.1% level and historically it's been a little bit higher of course because we've had higher growth. So in the past it's been around the 0.3% level, but in this particular quarter Q3 a 0.1% contribution towards the minus 1.7%.

Okay. Great.

Thank you.

Good morning, John.

Hey, good morning, guys. Happy New Year.

Good morning, John. Happy New Year.

Just a couple from me. Obviously, some of the key ones are already boxed off.

So as far as you can, can you comment on just initial reactions to what you're seeing from ASDA? Clearly, we'll hear some words from Tesco tomorrow and perhaps more actions.

But anything of surprise from ASDA seeming that accelerated the price curtain seen on the newswires that you said you'll follow and match any price cuts. I suppose how far do you take that.

Obviously ASDA has gone to 89 pay on four pints of milk. No one else has yet responded.

So how far -- at what point do you stop following and then just a couple of specifics, like-for-like in convenience if you could give us some color on that? And I think you were talking to 0.5% deflation in food, but about a 0.5% inflation overall at the company level.

So why have we got sort of 5% to 10% inflation in non-food please?

I'll start with the prices issue and I'll ask John to pick up the other two points. Well the first point I will make is that our price position has never been stronger.

We're very happy with our price position and certainly we feel that we're very competitive at the moment. If you wanted the reaction of the ASDA as sort of detail, the reality is it would appear that they've certainly dressed up some promotional activity as a series of price cuts.

Our price cuts are focused very much on main stream food commodities and they are as far as the things are permanent prices ongoing week in, week out prices. And we will match prices toe to toe as we have done.

We can get into the specific details about individual skews, but the underlying point is that we will lower our prices, which are relevant to our customers where we think it will have the most impact on their individual baskets on their individual pockets. And we'll do whatever we need to do to maintain our price competitiveness in the marketplace.

We've got a pretty good job over the last year and we would anticipate that we will do a pretty good job in the future. John, if you want to talk about like-for-like convenience?

Yes, so John like-for-like on convenience is just over 3% and in relation to your point on inflation, deflation, you're right to say that we've seen food price deflation between say minus 0.5% and minus 1% probably exiting the quarter at around minus 1% which of course is a great message to customers, reflecting in part obviously price investments in the market overall. In relation to your comments on therefore the inference about what's seen on the inflation on non-food, that's purely driven by a mix effect very sensitive to what items you're selling and movements of course from electricals into other categories and so that's why you're seeing the mathematics of that in the way that you describe, but it doesn’t in practice reflect the like-for-like increase in prices on the non-food side.

So you recognize those numbers basically.

Yes, I think we recognize the numbers. So the food price just to be absolutely clear to everyone, the food price deflation between minus 0.5% to minus 0.1% overall for the, if you like, the overall basket slightly positive.

So about the sort of 0.2%, 0.3% level, but again that's driven by the mix effect in non-food. The key message and of course the take away from all of this is the food price deflation point and indeed in certain categories, particularly things like obviously fresh and produce, we've seen significantly more deflation than the 1% that we just made reference to.

So great thing for customers and maybe reflects the tough market that we're operating in, but a positive news for customers.

Okay. Thanks very much.

Good morning all.

Good morning.

So I have three questions. The first one was just on online.

I think I saw a number for 6% and you referred to the fact that it has slowed down. So maybe you could give us your view as to why online sales have slowed this quarter?

The second one was just kind of following up on price investment in the market and so confine on John's question, can I just confirm then that the price investment you’ve seen from ASDA isn’t anything more than you were expecting. So that you don't at this point feel the need for more than £150 million that you outlined in November as part of the three-year plan for price investment.

And then the third question was actually about the lower fuel price and given the Nectar Card data, is there any way for you to see whether savings from lower fuel prices whether customers are actually spending that in grocery or not? Thank you.

Yes, I think I'll go for all three. Our online growth was 6%.

The reality is that there was a huge amount of vouchering activity in the marketplace over Christmas and we said that our November update and we'll continue to reiterate we're not going to chase unprofitable sales. What's important for us is that we serve our customers, Sainsbury's customers on a week-in, week-out basis in our online basis and we did a pretty good job of that over Christmas.

We shipped a 110,000 orders in the three days before Christmas and our operational statistics, our operational performance was the best we've ever seen over the Christmas period. So we're pretty comfortable with our position.

Price investment, what we said in terms of £150 million was that will be a relative price investment. So that's above and beyond the normal day cut and thrust of the marketplace.

When other people make a price investment and other people change their prices, we will match them toe to toe. We've also said that and we'll continue to do that.

Our price position if we look over the year and certainly most recently has never been stronger. So we've certainly been doing that and certainly some of our competitors have tended to dress up some promotional activity as ongoing price investment.

Our prices are -- our price investments are on every day food staples and our ongoing price investments. Fuel savings I think it's roughly 15p a liter year-on-year.

The average household buys about 30 liters a week. So you can do the requisite, but it works out on average customers are probably if you take food and fuel together somewhere around £8 to £10 a week better off.

But at the moment we remain very cautious because there is no evidence so far that that's reflected in an improvement in the grocery market whether that's an improvement in grocery volumes or an improvement in the way that customers are shopping in the sense that they are trading up overall. So certainly if you look historically, disposable income is a key driver of our industry, but we haven’t seen that reflected yet and certainly if you look at some of the other published data around other markets and for instance we saw car sales, automotive sales this morning, up year-over-year.

It appears that customers are kind of starting to purchase things that perhaps they've deferred a few years and so that's perhaps where that additional money is going at the moment. So no evidence so far in any of the dates that we're looking at that increase in disposable income is finding its way into grocery volume.

Great. Thanks very much.

Good morning.

Good morning, Mike.

I have three questions. Firstly on the Waitrose figures, rather than the other end of ASDA, on the Waitrose figures, their performance seemingly over the same 14-week period, their total sales were up 5.1%, they didn't give a like-for-like, but I am assuming it's sort of 1.5%, 2% like-for-like within that.

Is that an indication that higher net worth customers are sort of leaking out of Nectar and into my Waitrose or into the Waitrose business or the trading up factor of Christmas time is greater now than it has been before, is there any sort of data from your end from Nectar that suggests that, because that performance seems to be significantly better than the rest of the competitors? And inflation, I was intrigued by the minus 0.75% deflation in your food business, I was on the understanding that doing less promotions and changing base pricing was actually inflationary in categories or is that being covered up by the initial investment in price and will it become inflationary in categories in the second half of this year, that's the second question?

And sort of in terms of overall…

It was the third question.

Yes, I know, I was just going to say in terms of overall ASDA, are you gauging how effective your £75 million investment is, because there seems to be an awful lot of people talking about very big figures, but an awful lot of industry like-for-like and negative and given we haven’t got a relative figure for you against the rest of the market because you're not saying that Kantar data is relevant enough, I am wondering how effective you're seeing your £75 million investment in your eyes?

Three, I am still to understand the second question, but I'll come back later on that in a second. In terms of the first question I think it's a reflection of the continuing trends that we've talked about before.

The reality is that customers in all income brackets and all socio demographics are shopping around more. They're shopping little and often and that tends to play into the hands of chains that have smaller shops and shops, which are more conveniently located.

And of course perhaps the other factor in the Waitrose numbers is the fact that they've got a relatively immature online business and they've clearly seen a significant growth out of that. There is absolutely no doubt in the run-up to Christmas that we saw a trading up in the way that you describe and that's similar to the trading up that we would have seen in previous years.

That's the trading up through the sort of the mainstream grocers. I am pretty sure that we'll see our market share stepping up over the Christmas period when we see the numbers published.

And also within our overall mix, we've seen that customers do trade up. We've seen the growth year-on-year yet again.

In our case, the different sales up 5%, so that kind of in the overall mix is a reflection of the fact that customers will trade up over the Christmas period. As far as the second question is concerned, I think -- I am trying to think of a way to express it, but the reality is that we bring prices down to at least the average ongoing retail price would have been sort of when you include your promotions if that makes sense.

But also we're seeing significant deflation in commodity prices, which is reflecting itself in deflation in retail prices as well and that’s particularly the case in some of the fresh food areas like produce. So trying to unpick it in the way that you try to unpick it.

I suspect it’s almost impossible and you probably need a degree in math, but our ambition as far as our simpler pricing is concerned is to reflect a similar average retail selling price sort of with or without promotions if that makes sense, but the main deflationary factor in the marketplace is undoubtedly the fact that we're seeing commodity prices falling and that’s reflected in a very efficient market price passing those prices on to customers. The last question on Asda, lots of companies dress up the numbers in lots of different ways.

We would reflect on the fact that what ASDA seemed to be describing as rollback which is in effect the series of promotions. That’s the way they've expressed their promotional investment.

What we've said all the way along is our £150 million is aimed at improving our relative price position and we believe that we've done that and that we see a volume response when we do that in the individual categories, but it’s a long term game. It takes a long time for price investments to reflect themselves in volume growth and volume changes.

So I think it’s even at this stage too early to tell the overall impact on our business in the medium to long term whether that’s reflected in customer numbers or in the overall volume growth. I don't know if John want to reflect.

I just wanted to -- just wanted to reinforce what Mike is saying hopefully provide clarity as well that the £150 million that we talk about is not reflected in the current deflation number that we are seeing. That deflation number as Mike has highlighted is being driven by input cost price deflation flowing through the weaker price deflation.

We are not in the way that we calculate our price investment number counting that as price investment. Now I can’t say that's true with all our peers, but we think it’s more intellectually honest that that just reflects input prices coming down and that follows through into retail prices.

It's the £150 million that we talk about is entirely separate to that just to be absolutely clear.

Okay. So just one other thing then.

On the question about price simplicity, or value simplicity then, what's your promotional participation doing in your business? I'm assuming the whole industry is now becoming slightly less promotional so what's yours doing?

I think if you look to the Kantar data, overall promotional participation as it always does step up slightly a little bit over the Christmas period. However, as a consequence of what we talked about, I think it’s about sort of 8, 9, 10 weeks ago where we talked about moving from a high low pricing strategy to a medium low pricing strategy.

As a consequence of that, we are starting to see all else being equal, a reduction in the volume of product that’s bought on promotion. So in other words, a reduction in the promotional participation all else being equal.

That’s slightly masked over the Christmas period because you tend to see a little bit of a pickup, but we are starting to see the tide turning slightly, but as Mike has already highlighted, this is a ride along game. This takes time.

It involves working very, very closely with your suppliers. It involves having that relationship of trust with your suppliers that we believe that we have in order to bring the promotional -- our promotional participation down slightly over time.

And of course, it’s a journey we’ve been on over the last two or three years. So it's important to reiterate that this is not something that we have done overnight.

We continue to have the ambition of simplifying our overall price and promotional proposition to our customers to make it more transparent, to make it easier to read through the price comparisons at the shelf edge. The consequence of that over time should be to reduce the level of promotional participation, but of course it also means that sort of ongoing retail prices will be lower to also reflect the overall mix.

So that’s the ambition. That’s the direction of travel but there is also a high level of jeopardy and risk if you get it wrong.

So we are making sure that we do it systematically, thoughtfully and in a way that our customers understand over time and that should ultimately reflect in increased customer footfalls and also increased volumes.

Okay. Thanks a lot.

Good morning.

Good morning, happy New Year. I have two quick ones.

The first is: Can you perhaps help us understand what you think that minus 0.5% to minus 1% does in terms of food deflation into your guide for Q4 LFLs, please; how that contributes to that? And secondly, I think you're being quite careful not to put your performance in context around Christmas, but clearly, IGD gives you a fairly good take as to how you've done relative to the industry.

Can you perhaps shed some light on that? Thank you.

I will ask John to answer the first but I will reiterate what I have already said on the second part. We don’t break out the numbers.

We give you a 14-week rate. I think it would be wrong to break out the individual numbers, but you can summarize that given the fact that our customer numbers were 29.5 million, that was a significant increase year-on-year.

But broadly speaking, we were -- I am pretty satisfied with the Christmas trading period. As John has already said however, if you look to the profile of the quarter, it's broadly speaking the same level of performance over the entire quarter and we will see the relative market performance when we see the published market data clearly the IGD doesn’t include all of the players.

So it’s important that we look at the performance in the round.

And James, I think in relation to your question on food price deflation going into Q4, I don’t want to get to the drawn on specifics other than to say that we are projecting further food price deflation in Q4. That’s clearly wrapped up in the overall guidance of the minus 2% like-for-like that we've given and at this stage, I wouldn’t want to be more specific than that.

There’s clearly a lot of pricing activity going on in the market at least not of course by ourselves and so -- but it’s wrapped up in the minus 2% guidance that we've given and we certainly expect food price deflation to continue.

Okay. Got it.

Thank you.

Thank you.

Hi. Good morning guys.

Good morning.

Good morning, Rob.

Just a couple from me. I think you semi answered them on the inflation one I am going to ask you but just in terms of the potential price mix in that minus 2 in the fourth quarter, can you broadly say how much you expect to come from your own price investments and how much from actual cost deflation and then the second one just in terms of the fourth quarter guidance again, comps last year minus 3 versus broadly flat in the third quarter implying that it's slightly tougher in the fourth quarter.

What is it that’s tougher sequentially quarter-on-quarter now that you see. Thanks very much.

I will ask John to answer those two.

I think in terms of -- your line's a bit crackly, Rob. So hopefully you can hear it.

I think in terms of what’s price investment and what’s cost deflation, I don’t think I want to be drawn on that for Q4 at this point. You know we've been given very clear indications on the price investment of £150 million.

We've given very clear indications of the anticipated like-for-like performance in Q4. We're perhaps a little bit more light on your question come the trading statement in Q4 and prelims, but I wouldn’t want to be drawn on that now.

In relation to the comp point on Q4 on Q4, this is -- first and foremost, the market is very uncertain and the market is challenging but clearly price investment going on in the market at the moment, so we're taking a sensibly prudent view of where we see Q4 out turning. I think that's eminently sensible in what is traditionally a tough quarter for customers.

So we’ve typically tightened our belts at this time of the year. But the other thing to highlight and again hopefully I won’t get drawn on talking about three-year wraps too often on these calls, but actually if you took the amount of the fact and look to the three-year wraps quarter-on-quarter in these full year wrap quarter on quarter, actually you would see that the sections for Q4 for this year are much -- seem much more sensitive in that context.

Of course, you mentioned the two-year wrap, but actually if you look at the three and the four year wrap, it looks much more sensible. And that, dare I say it, harkens back to the bump that we saw in 2012-2013 as a result of the horsemeat scandal where we saw a significant upturn in our performance.

That meant that last year’s Q4 number looked relatively weak versus the previous year’s horsemeat outperformance and therefore this year’s number if it comes within minus 2, sensible price to be. If that makes any sense to you at all?

Just about yeah and thanks very much.

Okay.

Going back to horsemeat is the answer.

I am trying not to. Thanks.

Okay.

Yes good morning Mike and John.

Good morning.

I have three questions. I have three questions, the first one regarding brand match.

When we had the conf call on Q2 sales, you mentioned that more than 50% of your basket were cheaper than ASDA. So which percentage did you have in Q3?

The second question on cost inflation. In Q3, are we still at the low end of the range that you traditionally give, between 2% and 3%?

And last question is regarding the decrease of fuel prices. Is it immediately passed on to customers or can we expect a positive impact on margins?

Thanks.

I will answer one and three and then I'll ask John to reflect on the second. Yeah, broadly speaking, the Brand Match and cheaper than redemptions are where they have been historically and it's actually a good proxy for our overall price position.

So that’s why we can be confident that our prices have remained sharp in the marketplace and indeed had never been sharper. So you can take it from that as a Brand Match cheaper than versus ASDA remain over 50%.

Yes fuel prices are pretty much as new as you get to the pure market. The cost prices, reductions -- cost price reductions are passed straight through to customers.

We do a brilliant job as an industry competing with each other as far as fuel prices are concerned. So there is a direct read through.

Of course, it does get distorted slightly because actually the underlying cost of the base fuel is only 25p a liter. The rest is all broadly speaking tax.

So sometimes when people talk about the cost per barrel dropping by half, the reaction -- the reality is that‘s only reflected in the underlying cost of the fuel, which is why the headline price doesn’t always reflect some of the headline cost of the barrel price. But as I say, it’s pretty much a pure market and the cost prices are fed straight through to retail prices.

So John, do you want to just reflect on something?

Yeah just comment on cost inflation in the quarter obviously is a trading statement. So I am not going to get drawn on reporting quarter-by-quarter cost inflation numbers.

However what I would say is that we are not changing the guidance that we gave at the interims and that we expect the full year outturn on cost inflation to be at the lower end of our 2% to 3% range, certainly around the 2% level. So that guidance hasn’t changed as a result of the Q3 trading.

Thank you.

Thank you everybody for dialing in. Look forward to seeing you all over the next few weeks and Happy New Year to everybody.

Speak to you soon.