Mike Coupe - Chief Executive Officer John Rogers - Chief Financial Officer

Bruno Monteyne - Bernstein Stewart McGuire - Credit Suisse Sreedhar Mahamkali - Macquarie Research Dave McCarthy - HSBC Rickin Thakrar - Haitong Research

Good morning everyone and welcome to the quarter four Sainsbury’s trading update call. I'm joined here today by our CFO John Rogers.

I'll ask John to run through our quarter four highlights in a moment and then we will hand over for the usual quick Q&A. I'm obviously aware that a number of want to ask questions about our proposed bid for the Home Retail Group, especially with [pull-through] (Ph) deadline extension expiring this Friday.

Of course John and I will try and be as helpful as we possibly can with our responses but until the company issues any further formal communication to the market we will of course be limited in what we can say. So now, I'll hand over to John.

Good morning everyone. As I will just take you through highlights of the Q4 the trading statement.

We had a strong trading performance this quarter delivering like-for-like ex-fuel sale of 0.1% the third positive like-for-like in over two years and it beats consensus. Our supermarket saw both positive like like-for-like transactions and volume growth giving us further encouragement that our strategy is working.

We continue to invest in the quality of our products, promotional participation levels reduced as we continue our move towards lower regular prices and we recently announced that we will be phasing out a vast majority of multi-buys by August of this year. And our in-store operational metrics remain industry leading and we've now won 16 Grocer 33 awards in the year, recognizing this performance.

Finally, we continue to see good growth figures in our closing, general merchandise and bank agencies and also of course from our convenient and online channels. So with that I'll hand over to Q&A.

Good morning Bruno.

Good morning Bruno.

Good morning Mike and John. Mine is about the new pricing approach towards excluding multi-buy promotions.

Looking at what you're doing also on the other data, it's quite stark. What does it do for consumer's price perception?

How confident are you that it isn't going to put your whole pricing approach out of whack with what all the other supermarkets are doing? Do you have any more color on that, please?

Yes we've been quite thoughtful about doing this over a number of years, we started out on the what we call value simplicity journey something like three years ago. So well in advance of me formally taking this job.

So we've got a pretty good idea of where it works and how it works and what we've seen through this quarter is a continuation of what we've seen in other trend over the last year or so as we've executed the strategy which is broadly speaking same volume growth and secondly seeing a significantly actually pretty significantly transaction growth over this quarter in particular. And that’s a reflection of the way that customers change their shopping habits, so they are tending to shop more frequently, we would argue has made the shop more convenient and they are overall buying more volume.

You see that reflected in the price perception overtime, but actually you see it more reflected in volume changes almost immediately. So you do see a change in behavior and he perception will lag what you see in the volume response when you change your post promotions.

So it’s quite interesting to see the way it works, but you can take it as red on the basis that we are serving more customers and we are selling more volume that we think its broadly speaking working in the categories where we have done it.

And very specifically we are seeing improvement in our price satisfaction index, so again it goes hand-in-hand with the fact that we are simplifying our messaging to our customers and seeing an improvement in our price satisfaction index and seeing the volume increase that Mike referred to suggested it’s a strategy that’s working.

As a follow-on maybe from that, would it be right to assume that actually it's easier to manage your commercial margin in that way, having less of the multi-buys? And also it would have an impact on waste, because you would have less volatility from the multi-buys, therefore an easier-to-manage waste bill?

Would that be fair assumptions?

Yes I mean underlying process the value of simplicity, there has been a lot of work that we have undertaken with our suppliers, with our packaged goods suppliers and it’s fair to say that we've transferred a lot of money from lump sum payments into underlying pricing on that part of success of the strategy and clearly that makes it easier to manage margins week-in, week-out for obvious reasons. So yes, to answer the question its working from that point of view, it makes it easier to run the overall mix.

I can't remember the second half of the question.

Yes that’s certainly is just on waste, and we said before of course if you reduce the volatility of promotions coming through your supply chain got better on signing demand and supply and you can manage that better and that results in reduced waste and we talked about our cost saving plan over this year and of course we upped our numbers over the year. Part of that’s because we are seeing better waste performance than we predicted and in part that is driven by the movement, as Mike has described, of taking the promotional monies and putting those into underlying price.

Perhaps the other dimension is actually by smoothing the volatility of demand, we've also improved store availability again we would argue underpinning our performance are great operational standards, whether it’s a service for our customers or whether it’s the availability of products on the shelf. And again if you - we point to the Grocer 33 its not necessarily the most scientific measure, but if you take it over the year you can see that our product availability is significantly ahead of our mainstream competitors.

So again it shows that the machine is working pretty well.

Thank you.

Good morning.

Good morning Stewart.

Good morning Gentlemen. Just on the online, three sort of questions all related to online.

Can you say how much it contributes to your like-for-like numbers? And then on basket size, you say that online sales grew 14%; orders 19%.

Can you give us an idea of how big your baskets typically are? And then, finally, you are going to, or maybe you have, commissioned your dark store.

Can you give us an idea of how that is going and what percentage of your orders will be going through that? Thanks very much.

Well I'll do the last one and John can do the first two.

I guess in terms of the online contributions to like-for-like sale contribution is 0.8%. and then secondly, just in relation to the basket size.

The average basket size is just below 100 pounds. We have seen a reduction in our average basket size principally driven of course by the structure of our delivery cost.

So that explains that dynamic, but as you see at the headline level a significant increase in our overall sales and our transactions numbers.

And then on the point of dark, so we haven’t actually opened our dark store yet, that won’t happen until the third quarter of this calendar year, so I expect that to happen September/October time. One of the pleasing aspects of our online performance is we've managed to drive this growth out of our underlying infrastructure underlying base.

So again it drives the fact that we've managed to make the business operationally more efficient over the last year or so and therefore been able to squeeze more out of a lemon. And that’s good from an operational efficiency point of view.

I mean it’s worth just drawing out Mike’s point there, because often we understand obviously the design to strip out online sales and bricks-and-mortar sales, but the reality is from our perceptive, we are a multichannel business, of course we fulfill the vast majority, all of our online sales through our in-store pick model. So I see the market in that sense we are at the heart of our online operations and hence when we look at the grades in that channel its sweating the supermarket assets more intensely, because we've seen that growth effectively, come through our supermarket assets.

Great. Could you give us an idea of what percentage might be click & collect versus home delivery?

Well we looked at, say, click & collect, and still click & collect is a growing part of our business, but its roughly speaking about 6% or so of our online sale through click & collect that continues to grow. And again, it points to the in-store pick model being potentially the operating model of choice overtime, because we think a significant percentage of customers in the end will also like - as well as those that like home delivery, there'll be a significant percentage that like the click & collect model and therefore the ability to fulfill click & collect obviously lends itself to an in-store pick model versus a dark store model.

Brilliant. Thank you very much.

Good morning.

Hi Sreedhar.

Just three questions, and maybe one short follow-up. One is deflation in the quarter.

If you're able to - sorry if you've actually already mentioned in your remarks. What was in the quarter and are you able to isolate commodity deflation within that?

Second one, I think you have helpfully in the previous quarters given, certainly in Q3 anyway, general merchandise, 5%. What was it in Q4, please?

And last one is clothing. Again, from Q3 to now, it was plus 6% in Q3 and now it looks like plus 10%.

Is this related to additional space coming in or is that a genuine kind of like-for-like acceleration. Those are the three, thank you.

So on deflation Sreedhar and we've seen food deflation in the quarter of somewhere between 1% to 1.5% so a slight reduction in deflation of it, we call down 1.5%, 2% in Q3, so we've seen that soften slightly through the quarter. As we've said in the past you know an element is commodity deflation, an element of that causes price investment, I wouldn’t want to split that our specifically other than to say that there are those two components.

In terms of…

Just on commodity deflation, John, is that the moderation from Q3 to now? Or is it what?

Which one is moderating I suppose.

I think it’s more probably an animalization of pricing investments that would explain the differential at this point. In relation to I think your question is on general merchandise growth.

What I can give you is the total non-food growth for the quarter which is about 7.8 so within that obviously you will have got the clothing growth of 10%. So you can put the - general merchandize growth of roughly 5% delivering an overall total non-food growth of 8%.

I'm sorry what was your third question?

I mean clothing is broadly speaking an acceleration back to the sort of long-term trend that we've seen. It’s fair to say that in the apparel business the summer and autumn were pretty dire because it basically rained for six months.

So I think what you are seeing is a slightly more comparable set of weather, so year-on-year it was probably a slightly sensible quarter from that point of view and it’s just a reflection of the fact that’s we are doing a brilliant job from sort of improving the quality and improving the value of the products every season. So I think it’s a great business for us and it continues to grow, but I expect the anomaly is more of the fact that the summer and the autumn were pretty dire because of the unseasonal weather.

And just to answer your question typically on the like-for-like component versus the space component on non-food. The vast majority of our non-food growth driven through like-for-like performance and that’s the same as clothing as is the general merchandise, which is also pleasing because it demonstrates our ability to continue to sweat our assets; put more volume through the same amount of space.

So pretty much all of the 8% growth that we are seeing is coming from like-for-like.

Okay, last question. Just in terms of the clothing and GM, can you give me an idea in terms of how substantial they are, please, in terms of ex-fuel sales - as a percentage of ex-fuel sales?

It’s give or take between 10% and 15%.

Thank you very much.

Thank you.

Good morning guys.

Good morning Dave.

Good morning gentlemen. Just a couple of very simple and quick questions.

The vouchers at the till you issue, has there been any change in the number of vouchers that you have been issuing or has that been running at steady state versus this time last year? And similar question regarding the redemption.

The reason for the question is that when you are talking about deflation, you're coming out with a figure that's below what some of your competitors are coming out with. So I'm looking to triangulate what the disparity is and what the relative price positioning is, because no doubt you are going to say you have got the best price position you have had versus the leading competition in an age, and yet they're giving a bigger deflation number than you.

So I'm just trying to square the circle.

Yes so, in terms of vouchers till, we probably - seen a reduction in our vouchers at till, so it’s been again part of our value simplicity strategy to really simplify our value offer to our customers. In terms of redemption of vouchers I don't think - we are issuing fewer vouchers but the redemptions are broadly similar, broadly in line with what we've seen previously.

In relation to your point about deflation, obviously I can’t comment on how to derive that number but our number is between 1% and 1.5% deflation. What I can say is that when you look at our pricing metrics versus our completion, we continue to operate within a very, very narrow band with our major supermarket peers and that’s been true over the last three or four months.

Indeed if I reference you to two external pricing surveys both the [Exane] (Ph) survey and the Morgan Stanley Alphawise survey, both would point to a relative sharpening of our prices in February. I accept the math that you are trying to triangulate I can't help you there, but I'll just point you to those different data sources that suggest we remain very competitive on price and that’s certainly supported by our internal metrics.

And we do report on a consistent basis Dave, so we don’t - everything we been reporting, we've reported in exactly the same way.

Sure, I get that. What is your basket then, how do you measure, how many lines?

Is it just a front basket or a back basket as well? How many different lines in your measure?

Yes. Typically when we're looking at our own pricing indices it depends who we're comparing ourselves against.

But if look at comparing ourselves, for example, against Tesco I think we have over 14,000, 15,000 lines in that basket. So we think it’s pretty comprehensive comparison of pricing with respect to our internal metrics would suggest that we are maintaining our price position versus the competition.

Yes. There are a series of distorting factors and I think even the government has difficulty working out exactly what inflation is, it depends whether it’s last year’s volumes or this year’s volumes and of course we are you know effectively our volume mix and that will be different to our competitor’s volume mix.

We tend to over trading for instance fresh foods and that’s where we would put more heavy weighting on fresh foods than perhaps some off our competitors would. So there are many distorting factors in overall basket, but what we can say is that we report on a consistent basis.

Yes.

Okay. All right, good.

Thanks very much, guys.

Good morning Rick.

Good morning Rick.

A couple of questions. First are you able to comment on current consensus.

The consensus I think you have listed on your website of 573 PBT? Can you just comment on that first?

And secondly, on the multi-buys that you plan to phase out, could you just give some specific examples of where you plan to phase that out? What types of categories you specifically feel that you need to change the most?

And, yes, that's it, thanks.

So I might pick up the question on consensus. Obviously it's a trading statement so we're not going to make any comments on profitability in this trading statement today.

We will of course update the City in due course at our prelims in May.

And if you look at multi-buy, it’s a journey we've been on for a fairly extensive period of time. So if you took this on last year we would have taken for instance three for 10 promotion of our meat business and again that’s reflected in our underlying meat, fish and poultry performance.

More recently we've effectively announced that we are going to remove multi-buys from categories like confectionery, soft drinks, crisps and those types of categories. So perhaps the more impulse-driven categories.

That's more or like the last stage imposed on the journey that we bring across the year, but if you look at our business we've done it in a systematic way and we've done it in a thoughtful and controlled way. So as I say, the next phase of the journey is the more impulse-driven grocery categories.

And I think what is really pleasing about the reduction in multi-buys, is that we've done that relative to the market. The market is still operating at a level in the mid to high 30s and we've managed to reduce promotional participations to below 30% and yet we're still seeing out performance in our sales lines.

So we're really encouraged by our ability to simplify our value proposition to our customers and see the benefits of that accordingly.

Okay. Thank you very much.

Crikey, that was quick and thank you very much everybody and look forward to seeing you soon. Thank you.