David Tyler - Chairman John Rogers - Chief Financial Officer Mike Coupe - Chief Executive Officer

Bruno Monteyne - Bernstein John Kershaw - Exane BNP Paribas Clive Black - Shore Capital Niamh McSherry - Deutsche Bank Nick Coulter - Citi James Tracey - Redburn James Anstead - Barclays Capital Markets Rob Joyce - Goldman Sachs Stewart McGuire - Credit Suisse James Collins - Stifel Nicolaus & Company, Inc. Charlie Storey - Macquarie Research Edouard Aubin - Morgan Stanley

Sainsbury's preliminary results; this is for the 12 months to March 12, 2016, as you all know. And it's been a year of great significance for the business, particularly because of the strategic progress that we've made.

I'd just like to introduce the presentation by speaking very briefly about three issues: our results, the acquisition of Argos, and our management team. So first, on results, as you'll have seen, our underlying profit before tax is down 14%, and underlying EPS down 8% in the year.

In the context of a grocery market under significant pressure, and in the light of market expectations this time last year, I think it was a credible achievement to achieve earnings before tax, underlying profits before tax of GBP587 million. And it was achieved by a tenacious and skilled execution of what is a clear corporate plan.

Our business has been transformed by that execution, by major cost reductions, by quality improvements, by price reductions, and, in particular, by our value simplicity program. And we've also been making good progress on our capital expenditure.

Our retail capital expenditure in the year was actually down by GBP400 million. And talking about transformations we believe that the acquisition of Argos will add great value to our Company, differentiating our offer even more clearly than ever for consumers.

The combined business, as you know, will be a multi-product one, multi channel with fast delivery networks, which we think will be very attractive to customers. We're really looking forward to the date when the process of the acquisition is completed and we can begin to implement our plans.

We are raring to go. Finally, I can't emphasize enough the quality of our management team, led by Mike and John.

It's all of our colleagues who've driven this business forward over the last 12 months, and I'd just like to thank them very much, indeed, for their commitment and for their skill. And with that, let me just pass over to John, who will talk about the financials.

John?

Thank you, David. Good morning, everyone.

Right, just before I get in to the detail, obviously, today we'll set out to you the guidance for the year ahead. All of that guidance is, though, going to be pre an Argos overlay.

So remember of the guidance today takes account of the potential Argos transaction. Assuming we complete that transaction in August, September of this year, we'll then provide you with much more detail, of course, at our interims in November in relation to guidance, going forward, but also, how we plan on reporting the acquisition itself.

And with that, I'll move on to the financial highlights for the year. So we've maintained our market share with good growth in convenience, online and non-food.

Operational cost savings we stepped up to GBP225 million in 2015, 2016 and that's a significant step up from the previous year, where we delivered GBP140 million of savings. So a good step up year on year and we're on track to deliver our GBP500 million of savings over the three-year period that we outlined as part of our strategic review.

The pension deficit has reduced significantly to GBP389 million as a result of a slight increase in the discount rates; but also, a large contribution from the Company in to the scheme. Pharmacy sale proceeds of GBP125 million have already been received in the last financial year.

And we expect to complete that transaction in the first half of the new financial year. Property profits of GBP101 million realized in the year.

And that's, as we've outlined before, largely driven by our Fulham Wharf development. Liquidity position has been strengthened through the issuance of a perpetual security.

We've got GBP4.1 billion of facilities across the group of which GBP2.9 billion are drawn down, so plenty of capacity to fund the business, going forward. And, of course, our net debt is down to just over GBP1.8 billion if you account for the perpetual equity.

So coming on now to the Group performance overview; Group sales down 1.1%; retail sales overall up 0.4%. These are numbers that we reported at our Q4 trading statement.

Given food price deflation and our price investments in the year, we've seen our profit decline by 11.8% to GBP635 million. A good performance from the bank, so a small step up, just under 5% improvements in the performance underlying profitability of the bank.

Finance costs of GBP121 million; in line with to where we guided. All of which delivers a profit before tax of GBP587 million; as David said, just down around 14%.

The tax rate, 20.8% lower than that we guided to. So we've seen a big movement in deferred tax balances as a result of the reduction in the future corporation tax rate, and that's reflected in a lower tax rate than that we guided, which has obviously helped our EPS; so 24.2p down 8.3% on the year.

And, of course, a dividend of 12.1p; again, down 8.3% reflecting of course, our dividend policy of having 2 times cover. Results outside of underlying, a loss of GBP39 million; I'll take you through the details of that in a slide later on delivering a profit before tax of GBP548 million.

So coming on now to the sales line, retail sales, again these numbers on the left are not new numbers; these were given at our Q4 trading statement. But overall, like-for-like sales for the year down 0.9%; contribution from new space of 1.3%; delivering total sales growth of 0.4%.

Of course, again, when you break that out across channels and across products you see some of the challenges and the opportunity facing the sector going forwards, and the business going forwards. So we continued pressure on - of course on our supermarkets and on the food business reflected in the food price deflation that we've seen coming through, but great opportunity to grow our convenience business, our clothing business, general merchandise, and of course online.

So some good growth coming through in those channels. Guidance for your models for 2016, 2017, we expect to see the contribution from net new space to be around 1%.

That is down slightly on the 1.3% we delivered in the last year, again, reflecting the slowing down of our property opening program. And, again, if you look at the property, the space that we plan to open in 2016, 2017, 250,000 square feet, so down again year-on-year.

Expect to open about 40 to 50 convenience stores and about five new supermarkets. And again, you'll see the 40 to 50 convenience stores, that's a slight step down from the number that we delivered last year in 2015, 2016, 69 stores in total.

In the new financial year, we expect to deliver about 40 to 50. It's becoming tougher to find the really good sites.

And given that we won't compromise our capital returns that's why that number comes down very slightly. Coming on now to margins; and again, if you look at the EBITDAR margin line, so delivering 7.58%, down 18 bps.

And clearly, that's a reflection of the ongoing food price deflation, reflection of the investment that we've been making in prices over the last year; and, of course, offset in part at least, by that step up in cost savings that we delivered this year, the GBP225 million that I made reference to and again, if you look at the underlying operating margin, again, down 33 bps to 2.74%. So guidance going forwards: what we'll clearly state is we'll remain very competitive on price in the market.

We've said many times already over the last six to 12 months that our pricing position versus our competitors has never been better. That remains the case today and indeed, you will seen, last Wednesday we announced a further ream of price investments, price cuts to products; again, sharpening our price position in the market.

And we intend to remain competitive on price, going forwards. Food price deflation will certainly continue in the first half and we anticipate that we'll continue to see food pricing deflation so going through in to the second half as well; again, a familiar theme in the sector over the last year or so.

Coming on now to the Bank; as I said previously, really good performance for the Bank. So total income up just over 5%, and underlying operating profit up just under 5% to GBP65 million, so really good performance from the Bank.

And again, some good improvements in some of the key underlying metrics, so the net interest margin up to 4.1%; the bad debt asset ratio down to 0.4%, that's very low, really good numbers there; and a very healthy Tier 1 capital ratio 15.8%. We only need to carry about 12.5%, or so, for regulatory purposes, so we're probably carrying a little bit of excess capital there.

But given that success, and given the growth of the Bank, we feel very confident in our ability to launch a new mortgage product in 2017. And we believe that's a product that really complements our existing portfolio of products, and we look forward to the success that, that will drive.

From a guidance perspective for 2016, 2017, we expect the underlying operating profit to be around 10% lower year-on-year. And the key reasons for that is twofold, first, we'd have to invest upfront to kick off that mortgage product, so invest in the mortgage market.

And secondly, of course, we've seen the impact of reduced interchange fees. So our guidance for 2016, 2017 is 10% lower profits year-on-year.

If you stripped out those two components, though, if you stripped out the impact of interchange fees and the investment that we're making in launching mortgage product, you would see a year-on-year increase in profitability. So that should give you some comfort on the underlying opportunity that the Bank represents.

Of course, we've said many times that the key priority for the Bank over the year ahead is transitioning on to a new state-of-the-art banking platform. We feel that when we've got that platform up and running it's going to give us real competitive advantage in the banking market.

We're very much focused on enhancing our customer experience through that banking platform. In terms of our savings customers, we expect to migrate those over to the new platform.

The new platform is now up and running and we're going through a lot of testing at the moment. We expect to migrate our savings customers on to that new platform by late summer this year.

Cards and loans, we're currently in the process of re-planning the timing of that migration; principally, of course, because of the potential acquisition of Argos, where we've talked in the past about bringing Argos's loan book under the umbrella of the Bank. We're just looking at how we potentially integrate that side of the business, so we're looking at replanning the cards and loans migration.

Nonetheless, total transition costs, we're not changing the guidance here; we expect that to be at the top end of our GBP340 million to GBP380 million range. Indeed, if you look at the components in this year, you will have seen transition costs for this year of GBP59 million, and capital costs of GBP19 million.

That's quite a lot lower than that, that we guided to. And that's principally driven because we've been able to share some of that capital investment with our third-party provider.

Capital injections in to the Bank in 2015, 2016 were GBP137 million. Again, not quite as high as we guided.

So we guided to GBP160 million of injections; we've been able to rein that track in a little bit. And indeed, I've talked many times before about the attractiveness of the business case in the Bank.

If you look at some of the performance of the challenge of banks in the market today, and you look at the opportunities that the Bank presents for us in terms of helping our customers through financial service products, and we've always talked in the past about customers that come in to our stores and buy financial services product end up spending more on their food and the synergies that, that creates, we still believe this is a very attractive opportunity. But, of course, the priority for us as a business is to get this new banking platform up and running.

So guidance for 2016, 2017, Sainsbury's Bank transition costs expected to be around GBP40 million; and capital costs, again, capital expenditure costs within the Bank, for the platform, expected to be another GBP40 million. Just to draw out specifically capital injections, this is capital going from the Group in to the Bank to support the equity of the Bank.

We expect to be circa GBP20 million in the 2016, 2017 financial year. Coming on now to items outside of underlying, this is the GBP39 million loss that I made reference to earlier on; I'll just break that down in to its constituent components.

So great results on profits on disposal of properties, GBP101 million; again, as I said, largely through the Fulham Wharf development. Bank transition costs of GBP59 million, which we just made reference to.

And there's other items outside of underlying, you'll see them broken down here, things like the internal restructuring costs; the transaction costs associated with our Argos acquisition; and things like the usual pension service charge, refinance, retail financing, fair value movements, et cetera, coming through to deliver a loss outside of underlying of GBP39 million. So, guidance for 2016, 2017, if you remember, we guided to overall GBP200 million of property profits from mixed use developments over last year and this year.

Given that we've done GBP100 million in 2015, 2016 then we expect to deliver a further GBP100 million in 2016, 2017. And of course I’ve already mentioned the sale of our pharmacy business to Lloyds.

We expect to complete that in the first half of this year. Clearly, that's subject to competition approval.

And that is expected to recognize a profit on disposal of around GBP100 million, and of course will go outside of our underlying numbers. So coming on now to financing costs, just to be absolutely clear, and as we said to you last time, we've included within these financing costs the coupons on the perpetual securities.

So technically, from an accounting perspective, you would account for that as a dividend. We haven't done so.

We've made sure that was put in to the underlying numbers, so you can really see the underlying performance of the business. Again, an overall interest cost of GBP121 million; in line with that, that we guided to, which has had an impact, given the reduced profitability, of reducing our interest cover and our fixed charge cover slightly.

Most of that increase is principally driven through the reduction in capitalized interest, so a GBP10 million reduction year-on-year. And you see that flowing through in the step up in our overall finance costs.

And, of course, the perpetual securities coupons I've just mentioned is within that number. So guidance for 2016, 2017, finance costs will be slightly high year-on-year.

A little bit of annualization of that perpetual coupon coming through, that results in finance costs being slightly higher year-on-year. Capitalized interest expected to be similar, so give or take around the GBP7 million number.

And, of course, just for completion, we expect the underlying tax rate to be between 22% to 23%. So a step up year-on-year, given that this new financial year we don't benefit from the deferred tax movements that we have done in the 2015, 2016 year.

Cost savings. Again, this is a chart that we are very proud of as a business.

A real step up in our cost savings in the year to GBP225 million. There's been a huge amount of hard work to deliver those savings.

Again if you remember, we upgraded our numbers at the half in terms of what we expected to deliver in cost savings for the year. Very pleased to say we've hit our target of GBP225 million.

Guidance going forward, we expect cost inflation at the lower end of the 2% to 3% range. Could actually maybe dip below that 2% for the financial year, going forward.

Operational cost savings of around GBP120 million. And we remain on track to deliver, as I said, our GBP500 million over the three years of our savings programs.

And in fact, what we've done, of course, by delivering the GBP225 million in 2015, 2016 is really pull forward some savings that we had badged for 2016, 2017. We've pulled those forward into the 2015, 2016 year, so we had a bit of a running start; hence, why you will see the slight step off in 2016, 2017 for the GBP120 million.

But again, if you do the math, you'll work out in the 2017, 2018 financial year we'd expect that to step back up to GBP150 million to GBP160 million. Again, we've got plans in place to deliver that.

So we're confident we can deliver the GBP500 million over the three-year program, as we stated. And again, it’s difficult to say where those savings have come from, because the reality is they've come from all parts of our business.

But clearly, some of the larger items in the year, we've done significant restructuring of our store support centers and our retail management. We talked in the past about our value simplicity program, and Mike will talk about it later on from a trading perspective.

But we also see the benefit of that value simplicity program in our underlying operating costs. So, lower levels of waste.

Given that we are reducing promotional participation in our sales, we're seeing less volatility come through our supply chain. That allows us to control waste more effectively; it allows us to spend less time managing our inventory.

And, of course, fewer price changes. All of which results in operational cost savings within our business.

We've also done an exercise to improve our whole logistics operations, looking at improving fill in our vehicles. Again, this program will extend in to the new financial year and will deliver further savings going forward.

And again energy saving initiatives is one that we've called out in the past, but we continue, year-on-year, to deliver fantastic energy savings through our various initiatives that we're making. In fact, as I said in the past, that capital investment that we make in those areas is one of the fastest paying-back areas of all the capital we spend in the business.

Going on now to cash flow, cash flow at the headline level, we had operating capital before changes in working capital. Really pleased here, year-on-year, with an increase year-on-year.

We have delivered a working capital savings this year of GBP23 million. It's not as large as it was the previous year.

But again, that's consistent with the guidance that we gave at the half. If you remember, that number was a large number at the half and I said that some of that would unwind in the second half.

That unwind has taken place, but we're pleased to continue to deliver improvements in our working capital position. And then going down the line, taking account of the Bank, of course; tax; interest, et cetera, you see the proceeds from the pharmacy business coming in there; investment activities; obviously, the impact of the perpetual; and a one-off contribution in to the pension scheme, GBP125 million, we'll make another special contribution in the financial year ahead; dividends, et cetera, et cetera.

Moves down to an overall net debt position of GBP1.82 billion, so different reduction year-on-year. Now, of course, that's taking account of the perpetuals as equity.

Even if you put the perpetuals in there as debt, we would still see a reduction year-on-year. So we've been able to make significant contributions into our pension scheme and yet still reduce our overall net debt position year-on-year.

Capital expenditure, a significant reduction: GBP947 million in 2014, 2015, GBP542 in 2015, 2016, so almost halving our capital expenditure year-on-year. That's largely a reflection of the slowing down of our property pipeline.

Again, you can see the breakdown of that expenditure in this chart here. Again you see that less CapEx is on the new stores and extensions than would have been seen historically, a bit of a step up in the IT spend, and so forth.

If you look at our guidance for 2016, 2017 going forwards, full-year core retail CapEx of around GBP550 million and of course that excludes the Bank CapEx. And there's a slight change in shape here.

So again you'll see a little bit of a step back in the new stores and extensions piece compared to 2015, 2016; a little bit of a step back in convenience, because we're doing 40 to 50 rather than the 70-odd, 69 that we did in 2015, 2016; and a step up in refurbishments. Again, we said to you last year we were going to look at doing the six trial stores and learn from the format experience in those six trial stores, and then we would take those learnings and start to roll those out across our estate; hence, why we're stepping up our capital spend in our refurbishment program in 2016, 2017.

Just a specific point on guidance for 2016, 2017 on depreciation: we expect depreciation, so if you look at depreciation in the 2015, 2016 financial year at GBP550 million for the retail business, put the Bank aside for a second, we expect that GBP550 million, GBP551 million, to step up to about GBP570 million year-on-year. This is primarily due to the investment in our digital and technology assets that clearly are depreciated over a shorter time period than would be the case of course for new stores and extensions.

On the balance sheet, we've seen a reduction in the overall net debt and strong levels of liquidity: the net debt at GBP1.826 billion, facilities of GBP4.1 billion. Again, plenty of capacity to fund the business, going forwards.

The value of our property has stepped down slightly. It's a combination of a reduced expectation in future rent, and also a yield shift.

And it's reduced the value of our property to GBP10.6 billion, but it's still a healthy number. And we've already commented on the reduction in our pension deficit, quite significant reduction there, as a result of an increase in discount rates, and the contribution being made by the Company in to the scheme.

And of course we said before, but it's worth saying again, we have no financial covenants across any of our borrowings in the business. Guidance for 2016, 2017: we expect year-end net debt to reduce year-on-year, so a further deleveraging of the business over time.

If we look at our fixed charge cover, again, largely as a result of the reduction in profitability, we've seen the fixed charge cover come down slightly, and the lease adjusted net debt-to-EBITDAR go up slightly. If you treat the perpetuals as debt, we treat them as equity, it's broadly flat year-on-year, slightly down.

And then coming on to the dividend, of course we're committed to paying an affordable dividend. The final dividend for this year will be down 1.2% to 8.1p, which means a full-year dividend of 12.1p; down 8.3% year-on-year.

And we maintain our guidance for the future, that the dividend cover will be maintained at 2 times underlying earnings. That's me done.

Thank you very much. I'll hand over to Mike now to give you an overview of the business.

Good morning, everybody. A year is a long time in retail.

As a team, we're reflecting on the fact that it is almost a year to the day that I returned from a day trip to Cairo. How times have changed.

I think it's fair to say, from our perspective, we introduced our new strategy, our revised strategy, in November 2014. I think, we think, we've done a pretty good job of executing that.

If anything, we're slightly ahead of where we expected to be at this point in time. And that's reflective of the fact that we've maintained our market share.

We've seen transaction and volume growth; we've improved our service and availability; we've delivered well on non-food, and our overall multichannel capability; as John's already talked about, we've actually over-delivered against the cost saving challenges that we set ourselves; and we've had a pretty good performance from the Bank. And, of course, I'll talk about this in a little bit more detail; we're in the process of acquiring, fingers crossed, the Argos business, which will help us accelerate our strategy overall.

If we just reflect a little bit on where customers are, actually, if you look at the growth of disposable income, we've seen that rise by about 15% over the last couple of years; and it continues to rise, and has risen, during the course of this year. So, customers do have more money in their pockets.

And if you look at the historical trends, there's a direct correlation between disposable income and the performance of the grocery market. What's peculiar about the last couple of years is that has not happened, and what we're finding is that customers are spending that money elsewhere.

You can see that in, perhaps, the travel industry, particularly the discount Airlines. Or, indeed, record car sales would be another reflection of the fact that customers are choosing to spend that money elsewhere.

So you can look at the blue line, the underlying industry has shown virtually no growth over the last period of time. And even the little pickup in March that we've just seen is as a result of the timing of Easter.

Clearly, you can see on the Nielsen data this morning, there has been a tick down the other way as that's annualized out, as the [staggered] annualized out. So, it continues to be a challenging market.

Although customers have more money in their pockets, that's not necessarily reflected in the way that they're spending in our business. We can see that in the trends overall.

We've seen pretty sustained volume growth actually during the course of the year, perhaps reflected, again, of the historical trends. But we've also seen the persistence of price deflation.

If you measure it over two years, prices have fallen by about 4%. If you think about an industry which is GBP160 billion, that's over GBP6 billion of sales that have disappeared over that period of time.

And we would expect that continue to remain – the market will continue to remain competitive in the second half of this year. And we would expect that price deflation will persist at least through the summer, and we'll see what happens after that.

We also have to think about the longer-term trends as far as our customers are concerned. As we look forward, certainly, our customers will expect us to offer a multi-channel offer.

They expect us to be there for them whenever and wherever they want; whether that's in a conventional supermarket, or, increasingly, online. Or, indeed, when they shop with us online they want the ability to either click and collect, or have it delivered it to home, or any other variation on the theme.

And we have to reflect that. It's a reflection also of the rise of technology, the free interaction of data both ways; certainly, data that we can see from our customers, but equally, the data that they see from our business, week in, week out, and the transparency that affords them in terms of whether they shop.

And of course that leads to the risk in our market of some form of disintermediation: somebody putting themselves between ourselves and our customers. And that's something that we have to respond to over the next period of time.

And we set that out in November 2014. At the heart of our strategy, we still have to do what Sainsbury's is brilliant at, which is deliver great quality products, great services; delivered by colleagues who are motivated to serve our customers week in, week out; underpinned by the values of the business.

But also, to reflect the fact that we need to understand our customers better than anyone else, and that we need to do that on a constantly evolving basis; and that we need to be there for our customers whenever and wherever they want. And that was the strategy we outlined in November 2014; that is the strategy that we're executing against.

So if you look at the specific details, great products and services at fair prices. We've relaunched and improved the quality of 750 products.

The rate of improvement will increase over the next period of time. We have a target of 3,000, and we'll get most of the way through those 3,000 by Christmas of this year.

And actually, we've maintained, if not slightly improved, our lead, relative to our customers, relative to our competition, rather, in the quality of the products that we sell. We shouldn't underestimate that, at least in part, our value simplicity program provides an easier way of our customers working out where the value is and where the quality is in our offer.

Indeed, if you go in to our shops today you'll see that we've changed some of our product tends to reflect the fact that we are putting new and interesting and innovative products on our key promotional space; which, again, is a reflection of the fact, as I say, that customers appreciate us highlighting the quality in our overall offer. It's also reflected in our advertising campaign.

Our Little Twists campaign is now very prominent in our marketing. And we'll continue to drive our quality perception through the way that we market in the future.

Just to give an example, our fish range: this is an example of a product range where we've gone back to first principles. We've worked with our suppliers.

We've actually changed some of our suppliers to make sure that we can deliver the right level of quality at the right kind of price. We've improved the specification of the products; we've improved the packaging; we've improved and made the designs more consistent.

And we've re-launched something like 50 new products so quite a big overhaul of that range. And that's reflected in the sales performance in our shops.

So we will continue to take an end-to-end view of the product improvements that we make and we need to do that on a consistent basis, going forward. Another example, the well-flagged courgetti and boodles, which are vegetable substitutes for spaghetti and noodles, get it right.

That provides our customers with what they want, which is products which are more orientated towards their needs in the future, not least their health needs. And that's also reflected in our ready-meal range, and our updating of that.

We've updated our Be Good To Yourself range and My Goodness! ranges.

We've introduced some more sophisticated ingredients, seaweed, grains improved the packaging design and made sure that the message on pack is clearer and simpler. And John's already referred to this and we've made a pretty profound change in the way that we market our pricing to our customers.

And if you think about it, over the last period of time we've reduced the number of Nectar points we're giving out we've actually removed Brand Match in the last period of time, we've significantly reduced our promotional participation. And we've reinvested that back in to what our customers say that they want from us, which is ongoing, regular, everyday low prices.

That has the effect of improving our customer satisfaction scores, as far as our price perception is concerned, which is pleasing. But also, perhaps more interestingly over the last period of time we've seen volume and transaction growth.

So we see a response from our customers almost instantaneously when we make the right and appropriate level at targeted price investment, so something that we'll continue on the road of. It's quite a significant and profound change over the last period of time as I say.

And you can see in the chart the level of multi-buy reduction in our business over the last year or so. And we're making progress on our cost of goods reduction program.

We set ourselves a target of reducing our cost of goods by GBP150 million over a three-year period. And we will do that in a way which plays to Sainsbury's strengths, which is understanding our end-to-end supply chains, working with our supplier base to make sure that we understand how their business works, how we can remove areas of value leakage and that we can use, in the case of the pork example we give, the secondary products in a different way and in a way that allows us to create value throughout the supply chain.

So, it's a big area of work for us. We continue to do it in the right way and we continue to do it in a way where we think we can get strategic advantage by working with the right suppliers in the medium to long-term.

And again, another example is our cereals range, where we've done an ingredient recipe review, we've reduced the cost of packaging; again, working with our suppliers, working out where value leakage occurs in the supply chain. And we've broadened our supplier base.

So we have a more pan-European supplier base which then gives us the advantage of scale, cost of cost good reductions in that particular category. Great performance on clothing and general merchandise it has to be said, I think, we would now claim to be the sixth largest clothing retailer by volume.

Every year, we tick off another point in the chart. I think we've just overtaken Matalan.

So, give us another five or six years. Don't quote me on this, but I think Primark are currently the largest retailer by volume.

But we're very, very pleased with the fact that we've grown that business by 8.5% over the last period of time, so great result there. Of course, we've launched clothing online during the course of the last year.

Again, interesting reflection on customer trends around about 70% of the products that are bought in our clothing online business are actually click and collect, so customers coming in to stores. We've seen general merchandise grow by 3.5% and we've had a great performance particularly in our seasonal ranges during the course of the last year.

So a great all round performance within our non-food business, and something that we're really pleased about. Again, the Bank's had a good year.

We now have 1.7 million active accounts. We've seen a big increase in our travel money volumes up 30% year-on-year; personal loans up 15% year-on-year.

John's already talked about the introduction of mortgage products. Our customers trust Sainsbury's as a brand when it comes to financial services.

They're very happy to deposit their hard-earned cash in our accounts, which, again, as I say, gives us the opportunity of broadening our lending products, not least with the launch of the mortgage product. And we've also introduced a Western Union ability to send money on an international exchange so, again, a big step on very focused on our customers.

Our business has very, very low complaint levels, very high levels of customer satisfaction, which again, is reflected in what we set out to do as a brand, with great quality products and services at fair prices. We've done a lot of work on our store layouts, particularly in our large stores.

Again, we talked this time last year about our six trial stores. And we've pushed the boundaries.

We've gone in to lot and actually, during the course of this year we'll start to rollout those learnings within our broader estate. And we're planning currently around 25 significant refurbishments of our large out-of-town superstores.

Key learnings: certainly, the food-for-now part of our business has worked really well, the way we've brought those products together. New counters, differentiating us, patisserie, take-away food and the balance between food and non-food has worked well, and, again, one of the key drivers, potentially, of our business in the future.

And we've seen a lot of improvements in our customer satisfaction with the way that we've setup our checkouts and our customer service desks. A lot of work on our training as I say, we plan to rollout those learnings during the course of this financial year.

Our convenience business is GBP2.3 billion business. So continues to grow, continues to represent an opportunity, continues to be in the heart of our customers are shopping more frequently.

And when they're shopping they're tending to buy less. We've opened a second micro convenience store in Richmond, and we're looking to stretch the franchise both ways with smaller shops and larger shops.

And we've been highlighted as the convenience retailer of the year for the sixth year running. There is a disproportionate effect of some of the deflationary trends in the industry.

They are largely in the fresh food categories, and that has an effect on our convenience business, because that business is largely driven by fresh foods. If you look around here, you can see that reflected in the stores that we trade here.

We've opened 69 stores during the course of the year. John has already talked about it means between 40 and 50 next financial year and we currently have 773 convenience stores trading.

Groceries online: again, a great story for us during the course of the year. We've seen sales growth of 9%, and that sales growth has accelerated as the year has progressed.

We've seen order growth of nearly 15%. 289,000 orders is a peak week, so we continue to see growth in the order count.

We've announced yesterday that we're extending click and collect, reflecting the fact that our customers want more flexibility in the way that they choose to shop with us, not just in our non-food business online, but also in the grocery business. And we're running out of capacity in London.

It is the most highly penetrated and online grocery market in the world. And we need to open a dark store fulfillment center during the course of this year, which we'll do in the third quarter.

And we know that throughout our business we have the Velcro effect. So we know that when customers shop with us online they will spend more money with us overall just like when they buy our non-food products or our banking products they'll spend more money in the grocery business.

It's important that we drive that virtual circle in the future. Netto, we have 15 stores trading we'll open another one during the course of this month.

And we continue to look at the business performance with our partner, and look at what the trends are and we'll continue to review that business opportunity as we look forward. I will give a further update when we get to the interims, in November.

One of the areas we're very proud of, we've talked about the cost savings that we've made in the business, but we haven't done that as a result of a reduction in any form of our customer service. If anything, our customer service metrics, measured either internally or, indeed, recognized externally have improved during the course of the year.

We're very proud of the fact that we consistently win the Grocer 33. I think we're now [indiscernible] 19, so we'll definitely win the Grocer 33 award for service and availability this year, and that will be the fourth year running.

So I can't overestimate the response of our colleagues week in, week out in the way that they serve our customers. And we do a brilliant job.

I think, we run the best shops in the UK, consistently. And we continue to invest in understanding our customers better than anyone else.

And we think this is a core part of our strategy as we look forward. We now have our single view of our customer database live.

It's working. It gives us the ability to target our customers in a more sophisticated way.

And we have a new customer relationship management platform, operating as we speak. The statement is blindingly obvious, if you currently try and signing with Sainsbury's in our various multi-channel world, you'd probably need about 20 passwords and 20 different sign-ons.

We now are in the process of rolling out for single sign on, wherever you interact in the Sainsbury's digital world just one sign-on gets you in, has all your payment details, your address, all your personal details. And, of course, as we look forward towards the Argos transaction, that's one of the critical building blocks which will enable us to bring the businesses together in a reasonably quick manner, from a customer-facing digital point of view.

Just want to mention also, I would say this wouldn't - but we had the most popular Christmas ad, this year. Certainly, if you look at the number of YouTube views, or Twitter re-tweets, very proud of the fact that Mog's Christmas Calamity was big news over the Christmas period; and actually, raised a lot of money for charity.

In the end, we gave GBP1.5 million as a result of selling the Mog's Christmas book. So, a great story there.

And we must never forget that our values make us different. Our customers will say to us number one on their list is household waste.

And we're doing a lot of work to help them reduce their household waste and think about how we can move that forward over the next period of time. We've made a commitment to invest GBP10 million in an initiative to waste less and save more, starting with an in-the-round trial in Swadlingcote, in Derbyshire, where we're working with the local community, testing ideas, helping them work out how to waste less and save money, therefore.

And as we learn, we intend to rollout those initiatives across the country more widely. Our customers also talk to us about health.

I've already referred to some of the healthy ranges. And the My Goodness!

range is a good example of a product range where it helps our customers get one of their five-a-day if they consume one of those products. The third area that our customers will talk about to us a lot is British sourcing.

One example would be our lamb sourcing, where although we can't sell British lamb the whole year round we've certainly manage to extend the seasons, which means that we can provide better continuity as far as our British lamb farmers are concerned. I've already talked about Mog's Christmas Calamity.

But another example is that we're very proud of the fact that we've raised now over GBP100 million for Comic Relief, for Sports Relief, through that relationship since 1999; which, I think, is probably the largest corporate donation to any charity on an ongoing basis. Very proud of the fact that again, we've done a great job for that charity.

And we've won the Climate Disclosure Leadership Index award. We're the only UK retailer to get a band A rating.

And that's all about the disclosure that we give on the work that we're doing to reduce the environmental impact that we make within our business. John's already referred to the fact that we've invested a lot of money in reducing particularly our energy consumption over the last period of time, and that's reflected at least in part in that award.

To some extent, we've covered this three or four times already, the Argos transaction. I'm sure you'll us ask some questions about it.

I'm not going to go through the detail today. As I say, I think we've probably done it to death over the last period of time.

Just to talk a little bit about where we are in the process, we clearly have a recommendation from their Board. For Sainsbury's, as an organization, it's a class 2 transaction.

It is a scheme of arrangement, so there is a shareholder vote from their side, which needs a 75% approval. And it says conditional, amongst other things, on.

We have to get the acceptances, as I said. We have to get the CMA approval.

There's no reason, from our work, that they shouldn't approve it as part of a Phase I, but clearly they have to opine on that. Clearly, they have a decision to make around that.

And then, FCA and Guernsey Financial Services Commission approval. But we would expect, all other things being equal, that we will complete that transaction during the third quarter of this calendar year.

In summary, we think, in a challenging market, we've had a good year. And certainly, against the plans that we set out in November 2014, we think we're slightly ahead of where we expected to be.

The important thing for us is to continue to drive the points of differentiation; the quality of the products that we sell; the service that we offer in our stores; and also, to invest in the channel for future growth, whether that's convenience shopping or online. And of course, the acquisition of Argos gives us the ability to serve our customers' needs in the future, whenever and wherever they want.

That's it from me. Now, we'll open up to questions.

Thank you.

Good morning, Bruno Monteyne from Bernstein. I know you're limited in giving guidance on the forecast profitability because of the Argos deal, but about two analyst sessions ago, before the Argos deal, you guided towards this year being the bottom in your margin path, and therefore recovering in future years.

Do you see any need to step away from the guidance you gave before that Argos deal, on the existing business?

I'll defer to my colleague on the right in terms of what he can and can't say.

Bruno, you know that we're very restricted in what we can and can't say in this offer period. We'll do the best that we can, but hope you understand that there's a limit to what we can say.

I'm not going to comment on short-term guidance for obvious reasons. What we did say at that time was that we expected the business to – in the medium to long- term, deliver an operating margin in the range of 3% to 3.5%.

Now, clearly, in a market with a lot of uncertainty there are upsides scenarios to that and there are downside scenarios to that. But our base case, our central case for the business, is a business that returns to that 3% to 3.5% over the long term.

And we also, at the time, gave some trajectory, as you said, to that margin path. Again, because of the restrictions, I can't comment any more on that today.

But, hopefully, that gives you at least a little bit of color about the margin trajectory of the business.

And given the results you have today, you're clearly closer to the base case rather than the downside scenario with the upside very much tracking in line with what you would have called the base a year ago.

Yes, I think that's - in terms of the performance that we delivered this year, as Mark's already argued, that we are, if anything, slightly ahead of where we would expect to be in our strategy. Now, it's clearly a challenging market, it's clearly a tough market.

But if you look back at the performance over the last 12 months to 18 months in terms of our outperformance relative to some of our other supermarket peers we're pleased with our progress. But clearly, there's still more work to be done.

I think what's clear from our perspective is the key to our business is maintaining that differentiated proposition. So we need to be competitive on price, we almost need to remove price as a point of competitive advantage, but we need to outperform on the areas of food quality, service levels, availability in our stores.

And I think some of that data that we showed in the charts demonstrates that, if anything, on those fronts we're stepping ahead of the competition. So we're neutralizing price as a point of competitive advantage compared to our supermarket peers.

I'm not saying price isn't important, it's very important. But if we neutralize price then we can compete on those other dimensions that our brand is known for, and that's what we have to continue to focus on going forward.

And in terms of net debt, you improved net debt this year, can you talk about the size of net debt improvement we should expect for the current financial year?

Yes, I don't want to get drawn on the details of the net debt movement, but clearly we are expecting a reduced net debt position year-on-year. If you again look at the trajectory going forward, and this is something that we've commented on in the past, we do expect that net debt position to reduce progressively year on year on year.

Some years it reduces more than others, so I think over the next year or so we'll see some reduction. But I think if you look in years two, three, and four of the plan you'll perhaps see an acceleration of that reduction in net debt, all else being equal going forwards.

Thank you.

Thank you.

Good morning guys. John Kershaw from Exane.

Good morning.

Good morning, John.

Just perhaps trying the same question in a different way, the reality is you've taken [store land] to outperforming the peers and you've done a good job with that to date, but from a lower base. They're coming back, nipping at your heels and certainly, some of the more recent data suggests perhaps they've reined you in.

So how confident – first of all, that you can outperform? And how would you view outperformance in relative and absolute terms, if you can help?

And then, just coming to the profitability side, you're signaling, at least short term, a significant reduction in the savings. You've got still 2% cost inflation, so how do you grow profit?

Are you confident you can drive volumes significantly, or are you signaling it's another down year? I know you don't want to comment on consensus, but your bridge-build suggests profits are down again on the core business before we consider Argos.

I'll ask John to reflect on the second question. I suspect he'll answer it in exactly same way as he answered previously.

I think a measurement of outperformance is a reflection of what we've done this year. So we've maintained market share, we've improved transactions, we've improved volume growth, and we've outperformed our peers.

And I would view success as being a similar outperformance next year. To John's point, we can only do that by improving our quality credentials, maintaining our lead on service, availability, and all the great things that Sainsbury's does, whilst investing in the areas of growth channels in non-food, online, and convenience stores.

And I think we've done a pretty good job in all of those areas over the last year. But to answer your question directly, if we ended up with a similar set of measures this time next year, I think that would be a pretty good performance.

Of course, you're right, it continues to be a very competitive market it always has been. I think every time that we've sat in this room you would have made exactly the same comments, which is sooner or later somebody's snapping at your heels.

I've been competing with Tesco, Morrisons, Asda, and the discounters for most of my career, and will continue to seek to do the right things for our customers, and ultimately that will reflect in our underlying performance. But, you're right the market continues to be challenging, but then it always has been.

And just to try and help you with your profit bridge and you'll understand the restrictions under which we have to operate. I really can't comment on year-on-year profit trajectory, nor on consensus.

But maybe if I give you some of the building blocks that a way of thinking about it, and then you can decide how you get there. Obviously, kicking off with sales, I mean we said, quite clearly, we expect to see deflation continue through at least the first half of this year and in all likelihood, the second half as well so that gives you a feel for food deflation.

But we have seen, as part of the price investments that we've made historically, volumes increase and that's very encouraging. And we think we have a way of really understanding through the data on our customers, as to where we get best bang for our buck on our price investments.

So it's a very empirical-driven process, a very test-and-learn process, and we think we have a very targeted way of making those price investments that gets results in terms of volumes. Now, who knows where price investment is going to go over the next year.

Clearly, it's a very competitive market. We've made movements last week alone on prices, sharpening our price position again versus the competition.

And we will continue to remain competitive in the market on price. So you can draw your own conclusions as to what that means in terms of the sales and the margin lines.

We you look at the cost inflation, again, we said at the bottom end of the 2% to 3% range. I hinted that it might even below the 2%.

So if you look at some of the key lines on inflation things like rent, for example, we are seeing rent inflation probably at about 0.5% now, whereas in the past we've seen it a lot higher. We are looking at utility prices as well.

If you remember, last year we didn't really benefit from reduced utility costs because we effectively hedge about 12 to 18 months forward. This year, we'll start to see some of that benefit come through on utility prices.

So some indications of downward pressure on some of the cost lines that could mean that we fall towards the lower end of that range and the savings of GBP120 million that offset that. There are other movements as well, of course.

It's probably worth highlighting that in the 2015, 2016 we're reporting a bonus number, for example, of around GBP100 million. If you looked at our average over the last two years or so it varies from GBP50 million to GBP60 million to GBP70 million, so again from a quality of earnings perspective some movements there.

So you've got to put all these components together in order to start to take a view about future profit projections. But unfortunately, I can't comment specifically on that; you'll have to do the analysis and come back to us.

But I hope that helps.

So, we look forward to reading your notes.

Bit of color.

Thanks.

Clive Black from Shore Capital. A couple of questions.

Firstly, I know you don't particularly want to talk about Argos, but can you tell us how you are planning to not be distracted, in terms of your core business by the Argos deal? Secondly, do you think the industry's reached a threshold where profitability in the online segment is more important now than just driving sales?

Perhaps, I'll ask John to comment on the second point. Yes, we've been very clear that the way we see it is the execution of the integration of Argos sits in the sweet spot of what we do well as an organization.

If you look at the buckets of synergies in the short-term, there are three big buckets, the first one is property. And given our history of what we do in the world of property, we think we're pretty good at that.

And rolling out Argos concessions in a reasonably aggressive manner is I would argue, a little bit simpler than perhaps opening 69 convenient stores, as an example during the course of the year. So certainly, that's one of the main areas, if not the main area of benefit.

Clearly, there are two other areas one is the buying book, and the other one is the potential opportunity to bring together some of the central functions. And again, this is well within the remit of what we do day in, day out.

We are buying a business that exists. It has 40,000 employees and it has a lot of skills; and we've talked very openly about the fact that it's the best of both.

And, whilst we would expect some level of Sainsbury's involvement in the business week to week, day to day, we would be plan to run it as a standalone entity; clearly reporting in to the Board of Sainsbury's, but nevertheless with its own trading dynamic, joining it together with the trading dynamic of Sainsbury's. And I look here: we talk a lot about the strength and depth of our team.

We have a group of people who've worked together now, on average for over five years. We've been through the hard yards over the last period of time and I think, generally speaking you would reflect on the fact that we execute pretty well day in, day out.

And the moment that we stop doing that, the moment that we stop having a relentless focus on the day job particularly around running the supermarkets is the moment that we start to lose that kind of potency in our business. I fully expect and anticipate that it won't be without its challenges.

But equally I don't think the executional risks relatively speaking are that high compared with other transactions, the [indiscernible]. I guess the other thing to point out is the businesses are very culturally aligned.

We've worked together pretty well for the last 18 months, so there's a high degree of interaction. I talked to their leadership group last week and there was – I felt a lot of warmth in the room about what we're trying to do together and I think a lot of buy-in to that.

And of course, we have the experience of the 10 concessions, plus three click-and-collect trials already so we know how this kind of works. So we're not naive.

We're not going in to this with our eyes closed; we've got a very strong sense of what the risks are. But equally, we think it's in the sweet spot of what we do.

And we're not trying to integrate all of the back office systems any time soon and not in my lifetime.

And, Clive, just coming to your point on profitability of online. I'm not sure we've quite got to that tipping point where the singular focus of the market is on online profitability as opposed to sales.

But I think it's fair to say that we're seeing some early signs of rationality coming in to the market. And I think it's fair to say that we, in part, have led that rationality.

And we talked 12 months or so ago about not simply just chasing sales, promotional sales in the online market, which I think a lot of the market was doing at the time, particularly through vouchering. And we've very much stepped down from that activity and really focused on delivering the best offer that we can to our core Sainsbury's customers.

And yet, having stepped down that marketing activity, we've still seen good growth in the online business over the last 12 months, at 9% in sales and 15% in orders. So it's a critically important part of the business.

But it is worth saying again, we made this point before, that, frankly, just trying to split out online profitability in of itself slightly misses the point about us wanting to have a multi-channel business. We've said in the past that the whole rationale behind having online is about customer loyalty.

We know this from the data: every time somebody switches to shopping with us from our stores on to online they become more loyal, we capture more of their spend that's absolutely critical to our multi-channel, multi-products and services strategy. So I think it is right that the market is looking more rationally at this, and looking at how to improve the discreet channel profitability.

But at the same time, it is the wrong way to look at it as well. We've got to look at more holistically at what our online offer gives and provides to our core customers.

And that's certainly the way that we've approached the business over the last 12 months.

Niamh McSherry, Deutsche Bank. I just wanted to ask some questions about the nice chart you've presented on multi-buy coming down.

A two kind of questions on this: one is what has enabled you to reduce the multi-buy percentage of your sales relative to peers? Or, an equivalent question is do you think competitors could replicate this strategy?

And then secondly, given that you've made such good progress, is there a lot further to go? Or are there different areas, kind of like that’s the promotional, commercial strategy, where you can differentiate yourself?

The answer to the first part of the question is our customers would say to us, increasingly, that they want simpler pricing. They want to understand where the value is.

And ultimately, that has the effect of simplifying the choices that they make. And we talked a little bit, I talked a little bit, about the effect it has on quality perception as well, so it has a reinforcing effect if you get it right.

Second point, I would make is you have to look at it in the round as far as our overall supply chains are concerned. So it's a customer-focused strategy.

We have to continue to simplify our pricing and invest back in the categories and the products that make a difference to where customers choose to shop. And John's already talked about we have a level of sophistication in our understanding of what that actually looks like.

But one of the knock-on benefits is it does simplify our volume profiles. If you look at our waste performance, for instance, this year, it has dropped quite significantly as a result of the fact that our supply chains are easier to manage, the demand volatility is less.

And, of course, that has a knock-on effect in our supplier base. So when we talk about, for instance, our cost of goods reduction, that, at least in part, is driven by less volatility of demand on our suppliers, and, therefore, we can demand of them that they reflect that in the pricing that they sell to us.

So, it's a customer-facing, customer-driven idea; but equally, it has significant knock-on and benefits in the overall supplier chain. And we'll continue to test it.

I genuinely have no idea what the sort of optimum level of promotions is. If you look at what we've done over the last year, I think we surprised ourselves by how aggressive, if that's the right term to use, we can be; and it is reflected in the volume and transaction growth.

And over the long-term, it will be the right thing to do in our view.

And just to build on that a little bit, I think your comment was partly aimed at what happens if the competition duplicate, copy what you're doing. Well, obviously, imitation may be the highest form of flattery.

But in the end, as I said before, if price as a point of competitive advantage is eliminated because we're all doing the same thing, and that may well be the case, others may copy what we're doing and follow what we're doing, and the end that will be a good thing for the sector, because it will reduce supply chain volatility and reduce waste, and so, and so forth. So, that's a good thing.

But then, it means that we're going to be competing on all the other dimensions. And this is about – this is again the importance of having that differentiated offer.

So it's the quality, the service levels, the availability and the ambience of our stores. I think if you look at any of your reports and many of the market research that has come out over the last 12 months, it all supports to the fact that if anything, we're improving the gap between ourselves and the competition on those fronts.

And I think that's something that is quite difficult for the competition to replicate. We've seen those gaps maintain themselves on quality service levels now for some time, and it is quite difficult for the competition to duplicate.

So, again, we recognize the challenging retail backdrop within which we trade. But equally, we have confidence in our differentiated offer that we believe will continue to allow us to outperform in this market, going forward.

Sorry can I ask one more? Just on market volumes, and if deflation persists in H2, but presumably is a bit less deflationary than it is at the moment, would you expect volumes to improve equivalently?

Is that kind of the best case?

Yes, broadly speaking, if you could project the trends that we've shown on the chart earlier forward, I think that wouldn't be an unreasonable set of assumptions to make. But like all of these things, there's a degree of volatility.

So it's very difficult to predict the future, it's very difficult to predict where inflation will go and where volumes will go. But it's fair to say, we have seen a sustained level of volume growth over the last year, and that's not something we'd seen for the previous four or five years.

So in the end you'll have to make your own assumptions, but it wouldn't be an unreasonable assumption to assume volume growth will continue in the market whilst there is a deflationary trend. And historically, you have seen an - if inflation goes up, generally speaking, you do see volumes come down for reasons that I'm not sure I fully understand, not least because there's the same number of people in the country as there was previously.

But there is an inter-relationship between the two things, historically.

Okay. Thanks.

You know classic forward is probably easier just.

Thank you. Good morning Nick Coulter from Citi, hi.

On price, you've mentioned price, but could you talk about where you are versus the discounters? Certainly, this time last year you were acknowledging a sizable gap and that you needed to do more.

Yes, I think we talked last year – we showed a chart which showed that prices on a basket of goods had come down from a gap, I think, approaching 40% to in the 20%. As we sit here today, I think there's a survey out that would show around 15%, of that order.

But the important point to make is that we're not going to close the gap down on a blanket basis. We don't necessarily see the need to do that.

But what we will do is make target investments in the right places, and a good example of that would be in the investments we've made in whole chickens. We're now down to GBP2.95 and I think that's undercutting the discounters.

We'll make the targeted investments in the right place. We'll do it in a thoughtful and we think quite sophisticated way.

And to the points that we've made already it's important then that we invest in things that differentiate us whether it's the quality of the products that we sell; the service we offer in our shops or indeed, at the broader opportunities within the channels and non-food businesses. But it remains the case that we will need to continue to invest in the underlying prices in our business.

Okay, great. So that process very much continues.

Then if I may a follow-up on the convenience opportunity. Could you talk about the medium-term run rate for store openings?

Certainly, from what you said today, it seems like there's a diminishing opportunity or you're being a little bit more cautious or thoughtful about your expansion.

Yes, maybe John can pick up on that point.

Yes, I think we said that we'll open in the new financial year 40 to 50 convenience stores. I mean I think in the end we will open as many as we just see clear line of sight delivering the capital returns for.

If you look at the capital returns of our convenience to estate it continues to outperform that of our supermarkets. So virtually, from a return on capital employed perspective, even reflecting the leases at 1.5 times that for supermarkets that continues to be the case.

It's around a 16%, 17% ROCE for the estate. So, it's really good performance in the convenience estate.

But we need to make sure that going forwards we continue to open very high quality stores. It's fair to say that the market, as we see it today, is, a, becoming probably a bit more competitive out there in the market; and also, the opportunities for having the right stores in the right locations.

And we're seeing – we've got good experience of knowing how to get it right, how to get it wrong as have others in the market. It's very clear that if you look at the volatility of returns of the convenience estate it's quite broad.

So whilst it's a high 17% or so the range is quite broad. And that's all driven by location.

And we are just simply seeing the number of locations that can deliver the right level of returns for us starting to diminish slightly. So, 40 to 50 this year.

I suspect, going forwards, probably, a similar type number, but I'm not going to give that as detailed guidance. We'll provide that specifically year-on-year.

But that's the direction of travel, for sure.

Can I just check that, that ROCE number is pre-lease adjusted, so not lease adjusted?

That's capitalizing the leases. If you didn't capitalize the lease, it would be even more.

So they are - there continue to be good investments, but the range of performance is very broad, and, hence, why you've got to get it right. Because you can open - dare I say it, others in the market have opened significant convenience estates, and when you get it wrong those returns are very poor.

So you have to really understand what makes a good store. We believe we've got the best team, and the best model that allows us to identify the right sites; hence, why we can keep those returns at those levels.

But the number of opportunities is starting to diminish.

Sorry, just one final one. What's the cash payback on those stores?

So, if you looked at cash payback typical for a convenience store, you'd be looking at three to four years would be a typical cash payback.

Very helpful. Thank you.

Okay.

Good morning John. I’m James Tracey from Redburn.

Hi, James.

Three questions from me. The first one is on could you quantify the cost saving from cancelling the Brand Match, and comment on whether it's included in the GBP120 million of cost savings?

Second question is how much do you plan to invest in price this year? And if you can't say it, directionally, more or less than previous years?

I think you've answered your own question.

And the final question is on the value simplicity program. Can you comment on how you think it differentiates Sainsbury versus your major competitors, and perhaps why other people can't copy that?

Thank you.

Well, I'll have a go at the first one and third, and perhaps John can [indiscernible] with you on the second. We don't include the brand match savings in our cost savings, and we don't break the number out.

In simple terms, we look at our investment in our marketing activity, including pricing in the round. And that's one of the reasons why we're able to do some of the things that we've talked about doing; not least, the value simplicity program.

And to the point that we've made several times this morning, our customers - we start at the customer end of the spectrum, at the end of the telescope. Our customers say to us they want simple everyday pricing, they want to be able to not have to have a math's degree to work out where the value is.

And that's reflected in the way that we are moving our overall pricing proposition. But above and beyond that, we see there are significant benefits in our supply chain; and it's one of the things that enables us to run very high levels of service, very high levels of availability.

If you look at the Grocer 33, they actually measures the percent availability. I think if you take the average of the year, we're something like two percentage points higher than the next nearest.

So we really do deliver consistently higher levels of availability; and, in part, that's reflected in the way that our customers look at our overall proposition. And then, again, as we've reflected on, it enables us to highlight areas of quality.

And we're moving our offer in a thoughtful way towards taking products where there's genuine innovation and offering them to our customers in more prominent positions, not least promotional ends. And, again we think that's a point of differentiation over time.

We have to do it in a measured way. We have to do it in a thoughtful way.

We have to understand the balance of risk and reward. But all of those things have a cumulative effect, as far as our customers are concerned.

And on the investment and price, I'll defer to my colleague on the right.

Again, I'm not really sure what more we can say on price, other than to say…

I suppose I could just ask a more simple question. You're basically saying you're going to follow the market on pricing.

Could you say the market's becoming more competitive because Asda appears to be cutting prices, and Tesco's [indiscernible].

I think you can see a myriad of scenarios in this market, going forward. There's no question that the market remains competitive, there's no question that the market remains uncertain, and potentially volatile.

What I can say is that we have and we will continue to remain competitive on price. And that's something that we've done over the last 12 to 18 months, and we will continue to do so over the next 12 months.

However, it's fair to say we are not by nature price leaders. That's not to say we won't sometimes initiate price reductions, of course we will from time to time.

We are not by nature price leaders. Why not?

Well, because we need to be competitive on price, but we don't need to necessarily always lead on price, and that's in terms of being the cheapest, or being the first to get there, because we have other components to our offer on which we compete. We talk about having a different - and I keep coming back to this and I won't apologize for it, because in the end we have a differentiated offer.

That's how we're competing in this market: differentiated on quality, differentiated on service, differentiated on to a store ambiance et cetera, et cetera. So we don't need to be price leaders in the market, but we do need to be price competitive.

Now, in terms of what the industry will do going forwards about pricing remains to be seen. But it has been a very competitive environment over the last 12 months, and I'm sure it will continue to be going forwards.

The one thing I will come back to, though, is the point about I do think we do price investment in a very measured and empirical data-driven way. We really do understand our customers.

We have the data. We trial and test and learn the impacts of price movements on volumes.

We look at the elasticity, we look at the [cost] of that elasticity, how it impacts different parts of our business. So I think we do it in a very informed way which enhances value to our customers and also to the business.

But we will remain competitive on price, full stop.

I think it's worth just reinforcing the point that John's made. Yes, there are products where we would seek to just match our competitors.

But going back to the level of sophistication we can look at, we will make targeted price investments where we think there's some material benefit for us as an organization. I'm looking at a list of products here.

Whole chickens would be an example where we know it will have a disproportionate effect on our business if we invest in that kind of product. And so we look at these things in the round.

And we're moving to fine-tune our overall value proposition, including the pricing of the products that we sell. And it reflects back on running a simpler business; a business that's easier for customers to get where the value is.

And ultimately, that's reflected in volumes and transactions.

James Anstead, Barclays.

Hello, James.

Just one question on business rates. I think, if I remember rightly in the two years before the one you're reporting today your business rates bill had gone up by GBP100 million or possibly even a bit more than that; whereas, the year you're just reporting they've actually gone down by GBP6 million.

Why has that happened? And what kind of trajectory do we see from here, because that's a huge swing factor, I guess, in your margins?

Well, first and foremost, it's still a big number. And if you look at the business rates number over the last five years, it's significantly increased.

We're paying roughly GBP450 million of business rates. It's a big number in our P&L, and that's significantly bigger than it would have been five years ago.

In terms of why has it gone down, successful renegotiations; and to some extent, some has been impacted by the timing of the revaluations, of course. But a lot of hard work in to those negotiations.

I think, going forwards, we'd expect to see inflation on business rates of the order of 1.5% to 2% in 2016, 2017, so to give you a little bit of guidance for your models.

Good morning.

Good morning.

Rob Joyce, Goldman Sachs. Just a couple.

First one, in terms of the bonus this year, will that number stay flat, do you expect, if you deliver a similar set of performance metrics for this year? And the second one is I wonder if you can give us any more visibility on how you see the national living wage impacting the P&L on a multi-year basis, and how much it's impacting that 2% number next year?

Thanks very much.

Maybe John can reflect on the first, and I'll reflect on the second.

Yes, just on the bonus, again, what we can say is we know in this year's number we've had bonus of around GBP100 million, or so. If you look back historically, the bonuses varied in a range, but typically would probably be somewhere between the GBP15 million, GBP17 million, GBP20 million range.

That would be looking back historically. We can't really comment.

We're seven or eight weeks in to the new financial year, so it would be wrong to comment at this point about where we are in relation to internal targets, and so forth. But I think I would just point you to looking back at what we've paid this year versus what we've paid on average historically to give you some shape and guidance as to where you might think about 2016, 2017.

But clearly, commenting on 2016, 2017 at this point is far too early.

As far as national living wage is concerned, you've just seen that we gave a 4% pay rise this year, so we managed to absorb that in the business overall. And it's reflected in the performance of the profitability of the organization.

And as we look forward, we will remain competitive. We would always seek to pay more than the national living wage.

It will be wrong to comment on the detail of that, but wrapped up in John's summary of where we might be, looking forward over the next, let's say three to five years, are the assumptions around what we will need to do on the national living wage. So our underpinning of the projections, the 3% margin, 3%, 3.5% margin that John's talked about over a longer period of time would be the assumptions that we'd make around how we deal with the national living wage.

Okay, thanks very much. As a quick one, on the underlying costs this year, what were they up for?

You've given guidance for just around 2% next year, what were they this year?

For 2015, 2016?

Yes, 2015, 2016.

Just under 2%, so GBP90 million, or so.

Got you. Thanks very much.

Yes.

Good morning.

Good morning.

Good morning.

Stewart McGuire, Credit Suisse. A couple of follow ups, I guess.

Pricing, can you give some color on the gap between convenience stores and supermarkets; whether there's been any widening in that pricing over time? And then, just back on to volume, would love a little bit of color on where this volume is coming from, frankly.

Your volume's up, Tesco's up, Morrisons' up, Aldi's up, Lidl's up, and, as you said, there's the same number of people in the country. Is that coming from trading up?

Is it coming from non-food, clothing? A little bit of color on the mix would be fantastic.

Thank you.

Well, I'm hoping John might be able to answer the second question, because I suspect it would be quite difficult to disaggregate. Typically, if you look at our convenience pricing it's of the order of 3% or 4% higher than the mainstream supermarkets, but it's very much on a product-by-product basis.

So some products are at the same price, and that hasn't materially moved over the last period of time. So the relativity would be the same today as it was this time last year or indeed, over the last three or four years.

So we do charge a slight premium overall in our convenience business. As I say, there are some lines which are actually at parity, but, on average, it's of the order of 3% or 4%.

The population of the UK, I said it slightly facetiously, the population of the UK is actually growing by 0.75% a year. So, all other things being equal, you'd expect the volume to grow by around by 0.75% a year, on the basis that nothing else changes.

But what we did see over a long period of time is five years where volumes stagnated. So a population growth of roughly 4% over that time, no volume growth.

And I suspect there's an element of catch up at the moment. But it's quite difficult to unpick the numbers.

If you can be bothered, you could probably go through it with the Nielsen data and work out exactly where it's come from. I'm not sure I could give you any more color than I've already given you.

I'll just look at John, see if he can.

Well, I think that's a very good perspective from the market perspective. I think if you look specifically within our business to the earlier point about how we target price investments, it will be no surprise that where we've seen the best volume growth is where we targeted price investments, because we've done so on the basis that we only target price investments where we can get that volume uplift.

I think we've seen over the last 12 months or so, significant deflation particularly in the fresh category. And indeed no surprises, that's where we've seen a really good uplift in volume given our movement on price in those areas.

So if I wanted to pick out one example certainly on the fresh side, we've seen a good step-up in our volumes. Again, I think if you look at something like by Sainsbury's as well as a brand, again we've seen a really good step up in our volumes there; again principally driven by the price investments, the targeted price investments that we've made.

Yes. Good morning.

James Collins from Stifel.

Good morning.

Hi, James.

So, just quickly on the Bank, on mortgages I guess the question is why now? I know it's something you've done before and stopped and likewise with your competitors.

So why now? And then, just on the profit trajectory of both mortgages and if there's going to be any ongoing impact from interchange or if that's one-off.

That would be great, please.

Maybe I'll pick those up. I think on mortgages, I mean two reasons as to why now, one of which and probably the most important of which is customer driven.

I think it's a fantastic addition to our portfolio of products. I think it's very complementary to the products that we offer our customers.

I think in a way our customers increasingly expect us to offer a mortgage product. I think it sits very nicely alongside loans, credit cards, savings, et cetera.

As Mike said, the Sainsbury's Bank brand, our customers really, really, really trust it, and therefore, it provides us with a great opportunity. So certainly, customer – there's customer demand out there for it in our view.

I think the second reason is just again looking at the overall shape of the balance sheet and wanting to make sure from a risk perspective, that we've got the right assets and liabilities on both sides of the balance sheet. Again that's another reason to change the shape of the balance sheet over time to help diversify risk.

And indeed if you look at – as I said mentioned in the slides, if you look at the performance of some of the challenger banks that we've seen over the last 12 to 18 months I think that should give you some confidence in our ability to really deliver profit through the introduction of the mortgage product. In terms of the trajectory of the Bank going forward, interchange fees, it's fair to say that we will see a little bit of a continued drag from interchange fees going forward.

I don't really want to get drawn too much in to giving guidance beyond the next financial year, which we've been quite clear on, not least of which of course, is because we expect to complete on the HRG transaction in the third quarter of this year. And subject to Bank Board approval, we'd expect to bring the loan book of that business into the overall umbrella of the Bank.

So, if I may, perhaps I can just sort of hold on that for a while. And we'll provide more guidance on the Bank trajectory going forwards, once we've reflected how we think about combining the two businesses together.

But stepping back from that detail, I continue to make the point. I think I do really think this is a tremendous opportunity for us in our business.

We said it time and time again that the banking model in the supermarket world makes a lot of sense. And we're never going to be a bank of scale, it's not going to be the case.

We not going to compete with the high street banks on scale, but we are going to be able to compete with faster, nimbler, more flexible banking platforms which we're creating through the standing up of the new banking platform with our partners FIS, that will allow us to design product that is bespoke to our customers, the needs of our customers, in a way that allows us to really tap in to what we might call the halo effect or the fact that when customers take our financial services product they spend more in our stores. That is the heart of our banking model.

And I think we're very confident in our ability to execute against that plan, but I don't want to give too detailed guidance going forward on profit curves given the potential overlay at least of HRG going forward.

Okay. And sorry, just on mortgages, why did the Bank stop doing them previously?

I just think it's a moment in time. I think we were doing them almost on an outsourced basis.

I think this is now very much the opportunity to bring the mortgages on to the balance sheet and the reasons I've already highlighted in helping diversify the risk of the balance sheet as a consequence. So I think now is the right point in time to reintroduce them back in to the Bank's product portfolio.

Good morning. Charlie Storey, Macquarie.

Two questions please. This time last year, I think it was this time last year, you said that Asda was the biggest risk you saw to your business; do you still think that?

And if not what do you see as the biggest risk to your business? That's the first one.

Secondly, percentage of product from overseas, you mentioned increasing Europe sourcing, I guess clothing, majority sourced from Asia which has a lag effect on FX. What sort of FX do you see coming this year hitting the P&L?

And how do we think of that, going forwards? Thanks.

I don't recall, I'll have to look at the transcripts ever saying that Asda are the biggest risk. I think that might be a bit of a spin on what we may or may not have said.

In the end, going back to the point we've already made, it's a very challenging and very competitive market and will remain so in the future. You can see, from some of the market data that's been published recently, there are particular companies that have particular challenges.

And clearly, how they respond to those challenges will have an impact on the market overall. And it's important that we look at that and respond appropriately.

We come back to the same underlying point, which is over the medium to long-term this business will win by differentiating itself on the quality of the products that we offer, the services that we provide, the service that we provide, and maintaining a competitive price position, but doing that in a thoughtful and targeted way. And if we do that, we'd expect the underlying performance of the business to outperform our supermarket peers and outperform the market overall.

But the challenge is always out there. I mean I've been in this business for 30 years, as I've already said and there's always an ebb and flow in the way that the market operates.

The important thing for us is to maintain our focus on doing what we do well and continuing to do more of it.

If I could, I suppose the question is, is it the high or the low end that's more of a risk? Do you see the pricing, or that kind of the Waitrose?

I think we have to balance it. I mean we're a mass market retailer.

We serve 27 million customers a week and we have to respond to all of our customers' needs. We'd always talk about universal appeal, it's part of the ethos of the organization.

And we have to reflect how our shoppers are changing their behavior. At one end of the spectrum, our older shoppers still want a very traditional way of shopping with us.

At the other end of the spectrum, our younger shoppers increasingly look at their mobile phone as the way that they interact with an organization like Sainsbury's. We have to be able to respond to both of those needs and to do it in a way that's relevant, and not just relevant today but relevant in the future.

So I don't think there's an easy answer to your question. It's about doing lots of things brilliantly well rather than doing one thing in particular.

As far as FX is concerned, I don't know if there's anything you want…

Yes, I don't want to get drawn on the detail of our FX exposure per se, other than to say that we typically hedge forward on both a euro and dollar basis sort of 12 months or so, forward. So to protect ourselves, we'll budget for the year on movements in FX so that we can manage that through the cycle.

But the former hedges are relatively small in the overall scheme of things I don't think they have a massive impact on the business overall.

Thank you.

Yes. Good morning.

Edouard Aubin from Morgan Stanley. I think there's a report out in the press saying that AmazonFresh is about to launch in the UK.

Ocado will open a fairly large DC within the M25 in the coming months. I think Lidl is expanding as well fairly aggressively in the south east.

Could you just give us a rough idea of the share of your sales and profits generated within the M25, or maybe more broadly in the south east? I'm not expecting any exact figure, but just a rough idea.

That's good. So you've managed your expectations.

The short answer to that question is no. It remains a competitive market.

And, of course, the speculation about Amazon has been out there for quite a long period of time. I thought they'd already launched some of their AmazonFresh offer in some parts of the UK.

But nevertheless, they'll bring another dimension to the marketplace. You can never underestimate an organization like Amazon.

They've got very deep pockets, and they don't tend to stick at things for a long period of time. Having said that, it is the most sophisticated and competitive online grocery business in the world.

You're choosing to take on six very sophisticated competitors, who I don't think will give up lightly, and that is not an insignificant challenge. And running a fresh food supply chain with all of its volatility is a very, very significant capability that would need to be developed and you could argue that we've got systems that have run this business for 30 or 40 years that are very, very finely tuned to that.

So the sun is shining at the moment and the volatility of demand as a result of the sun shining is massive. And we have systems and the sophistication that allows us to do that week in, week out.

But you can't underestimate them. They are always going to be a formidable competitor.

And they clearly have a point of view that they can compete in this market, in this industry. As far as the overall development of discounters, we've talked before about the fact that the way that we look at the development program of Lidl and Audi is, broadly speaking, they're improving or increasing their market penetration where they already trade.

There isn't a particular focus on the south east of England. Lidl are biased toward the south east of England already.

Aldi are biased towards the north of England already, and the Midlands. And where we see their store development program developing over time it's, broadly speaking, in line with where they currently already trade.

So the idea that they're somehow coming to the south east is a little bit of an exaggeration. We won't talk specifically about our market share inside the M25, or, indeed I think we've drawn a chart before where we've drawn a line between Bristol Channel and The Wash, where we would say we have 20% market share below it, and 10% market share above it, if that's helpful.

End of Q&A

I think we're running tight on time, so perhaps if there's a last question and otherwise we'll draw a close. We do have, obviously the so-called fireside chats tomorrow, so you'll have plenty of chance to ask any further detailed questions then.

Any more for any more? Look at that.

Thank you very much.