Mike Coupe - CEO John Rogers - CFO

Edouard Aubin - Morgan Stanley Arnaud Joly - Societe Generale Jaime Vazquez - JPMorgan James Anstead - Barclays Capital John Kershaw - Exane Rickin Thakrar - Espirto Santo Mike Dennis - Cantor Fitzgerald Sherri Malek - Bank of America Merrill Lynch Rob Joyce - Goldman Sachs Niamh McSherry - Deutsche Bank James Grzinic - Jefferies David McCarthy - HSBC Clive Black - Shore Capital Bruno Monteyne - Sanford Bernstein

Welcome to the J Sainsbury Analyst Call with your host Mike Coupe. Please go ahead Mike.

Good morning, everybody. It's Mike here. Welcome to our -- well, my first quarter trading statement. I would just like to start by emphasizing that this is a quarterly trading update, but we will have a more complete strategic review at our interims on the 12 November. So you can understand that we won't be able to answer or field all of your questions. I'll now hand over to John, who is going to take you through the headlines of the segment and then we'll open up to questions.

Good morning, all. I am going to assume that you’ve read the statement. So I am just going to pick out the key headlines. Retail sales for the second quarter down 0.8%. Like-for-like sales for the second quarter down 2.8%. We recognized the ongoing trend of more frequent convenient shopping and indeed that trend has accelerated over the quarter and we also note that there is significant deflation in many areas of our food business. General merchandise and clothing continues to perform well, growing at around 6.5% in total and indeed our clothing business has actually experienced double-digit growth over the second quarter. Convenience business continues to grow strongly at 17%, helped of course by the addition of 23 new stores in the quarter and our online business has grown by about 7% over the quarter. In the outlook statement, we made the observation that we expect the tough market conditions to continue going forward and therefore we are revising our guidance on like-for-like sales for the year, such that we expect like-for-like in the second half of the year to be similar to the first half of the year. It's also just worth noting in the notes to the statement where we observe that we don't recognize the trend as evidenced by the Kantar data, which could suggest a material and liner decline in our sales performance over the 16-week period. We don't recognize that trend ourselves and we just made the observation that we've made in the past that it can be very misleading to look at the four-week data. And with that, I'll hand over to questions.

Thank you, ladies and gentlemen your question-and-answer session will now begin. (Operator Instructions) Our first question is coming from the line of Edouard Aubin from Morgan Stanley. Please go ahead.

Good morning. Edouard Aubin - Morgan Stanley: Good morning, guys. Just two quick questions from me. First of all, John, regarding the comments you made on Kantar. So should we assume that the like-for-like sales decline in September was more or less in line with that of July? If you could just provide a bit more color on how things went throughout the quarter. And secondly, I know it's just a trading statement but if you could just take this opportunity to tell us how confident you are that you have the appropriate controls and processes in place when it comes to vendor allowances, given what happened to one of your competitors recently.

I would let John answer both of those questions.

I think on the Kantar data, I don't know, there is much more to be said and we've always resisted splitting out four weekly trading performance for the obvious reason, but we felt the need to comment in this instance because the Kantar data suggested a trend that we were not seeing. The Kantar data would suggest that we had a relatively bullish first four weeks of the period and relatively -- a relative decline in the last four weeks of the period. That's not a trend that we ourselves saw in the actual data. So we felt it was just worth commenting on. But, I don't really want to get into breaking out full weekly periods for the obvious reason that we said in the past, which is the four weekly data can be very misrepresentative. In terms of the questions on the accounting for promotional monies, I mean I should really go on record of saying we are 100% confident in the way that we account for our promotional monies. I think there is a bit of a misunderstanding and misrepresentation indeed in the sector that this is somehow very subjective area. It is not. The vast majority of this is governed by very clearly defined accounting rules and regulations. We have checks and balances in our business that make sure that we account for things in the right way. We have a very rigorous process, in fact much of the process that we adopt is very automated again giving us confidence that we are doing things in the right way and I am 100% confident as I said that we account for things appropriately.

I'll just reiterate that as a former Commercial Director 84 days ago, I can reiterate the fact that we're rigorous in the way that we account for our supplier monies and that we are 100% -- I am 100% confident in the integrity of our accounts. Edouard Aubin - Morgan Stanley: Okay. Very clear. Thank you.

Thank you for your question. Our next question comes from the line of Arnaud Joly from Soc Gen. Please go ahead.

Good morning. Arnaud Joly - Societe Generale: Good morning, guys. I have three questions. First one, could you please give us some color on the traffic trends and the average basket trends in Q2? Second, have you noticed any deterioration in your price perception over the last, let's say, few months and, in particular, in August and September? And last, regarding Brand Match you will simplify and now match Asda. Which proportion of your food assortment will be concerned? And have you -- what is the level of price investment that you plan for this year and maybe for next year? Thank you.

Okay. I'll pick up the traffic trends and then we'll probably both cover price perception and Brand Match. In terms of traffic trends, I mean the traffic trends that we're seeing a reflection of the trends of the sector overall, which is more customers in the shopping mall frequently buying what they need when they need and so what that means in supermarkets in effect is we've seen a reduction in transactions on a like-for-like basis within our supermarkets business. And indeed we've seen an increase in transactions on a like-for-like basis within our convenience business and that is indeed a reflection of what's happening in the sector overall. In terms of price perception, I would say that it’s interesting– - look at many of your analyst -- many of the analyst reports recently that point you to the Bernstein report, could point you towards the Morgan Stanley AlphaWise survey, but we have never been as competitive on price versus our competitors as we are today. So I can't comment directly on price perception, but price reality according to your own individual surveys in many cases reflects the fact that we've invested in price over the last 18 months and we are now more competitive on price than we've ever been.

And just to reiterate our point, I do know the perception data and the reality is that in the last five years there was a gap between ourselves and Tesco and that has now closed to virtually nothing in overall perception terms. Just a bit of color on the transaction numbers, we actually yesterday I just had text from our Ops Director, we actually had a record number of transactions in our convenience business, which kind of describes the shape of the way that the business is trading at the moment. On Brand Match specifically we match 14,000 lines, that's roughly I think is about 40% of our product portfolio. So it's all of the major brands matched by barcodes. Arnaud Joly - Societe Generale: Thank you very much.

Thank you for your question. Our next question comes from the line of Jaime Vazquez from JPMorgan. Please go ahead. Jaime Vazquez - JPMorgan: Hi, good morning all.

Good morning, Jaime. Jaime Vazquez - JPMorgan: You mentioned that there is deflation in many areas of your basket. Was there a deflation in the basket as a whole? That's the first question. Second one is can you make a quick comment on non-food, whether it was positive in the quarter in terms of like for likes. And finally coming back to Brand Match, I think you used to say that you were in more than 50% of the baskets cheaper than Tesco. I was wondering if you can quantify the difference in the number of baskets in which you are cheaper than Asda versus the number of baskets in which you are cheaper than Tesco. Thank you

I'll take the last one first and then we'll work back up the list. We are actually 50% cheaper. We were 50% cheaper on all of the baskets matched against Tesco and Asda, and we will be, when we are matching directly against Asda significantly more than 50% of the time cheaper than Asda. So actually taking Tesco out isn’t big a deal as you might think it is, which probably is a reflection of -- is a reflection of our relative pricing position, but we are confident and customers get the fact that matching with Asda is absolutely the right thing to do. It's a customer driven thing and actually we'll have an effect on our price perception especially when they see that we're cheaper significantly more than 50% of the time. John, I don't know if you can comment on underlying non-food like-for-like, like I said we had a very good quarter on non-food.

Yes, we had a great quarter on non-food and it's certainly increasing our market share. We saw overall growth in non-food, about 6.5% that sort of total sales level and recently we saw like-for-like growth of around 4.5%, so really strong growth in our non-food business reflecting the gains in market share that we've delivered over the quarter. And I think related to your first question on the deflation, as you say the certain categories in our food business we saw significant deflation, which produces a great example, but overall for the entire business over the quarter, we saw a little bit of inflation probably somewhere between 0% and 1% overall for the total business or be it the exit rate for the quarter would be around 0%. Jaime Vazquez - JPMorgan: Thanks very much.

I will add just a bit of color on that. The item price -- the average item price has started to come down, but basically the story of the quarter, in fact the story of the industry is frequency up basket -- items per basket down and now an increasingly deflationary environment. I guess the one other comment I would make, which relates to consumer spending is that headline fuel prices, which hasn’t really been covered today are down by around 13 to 15 pence a liter. The average family buys about 30 liters a week. So that in of itself is putting four or five pounds back in the hands of customers. Jaime Vazquez - JPMorgan: Thanks.

Thank you for your question. Our next question comes from the line of James Anstead from Barclays. Please go ahead.

Good morning, James. James Anstead - Barclays Capital: Good morning. Just two questions, if that's okay. Firstly on the Kantar data, clearly you don't accept that we should necessarily get too wound up in individual four-week periods, which is understandable. But I guess if we look back at 2013, you were pretty consistently gaining share. And this year you've either been holding it, or perhaps losing a little bit. And just the big-picture question, why do you think that is? Why have your share trends become less remarkable? And then secondly, from the online point of view you talk about your sales growth of 7% being low, partly because there's a high level of competitor customer acquisition activity in the quarter. So it sounds like you're choosing not to necessarily get too engaged in that. What's your logic behind that? Do you think there's better places to invest the money, basically?

Yes, it's Mike speaking. The realities of the Kantar data, we are seeing an acceleration of the trends that we've already described and that's laid as already being talked about to a relatively slowing performance in the marketplace. That's why we're doing the strategic review and that's what we'll come back and talk to you about on November 12. As far as online indeed all aspects of our business, we look to invest in things that make a return in a world where people are spending money that's not making a return for them just to drive topline sales that doesn’t make commercial sense to us. James Anstead - Barclays Capital: Just to come back on the first one, I can definitely see that the overall industry has slowed down quite significantly and a lot of challenges. But I just wonder if you've got any clear ideas about why it was that you were noticeably outperforming and now you don't seem to be. Is that because you think competitors got their act together more? Or is there something you were doing that was having a big effect that isn't so much any more? Or are you executing less well? The market just isn't as well set up from -- to place your strength as it was. Anything you'd particularly highlight there? Or you just feel you need to look into that more deeply.

James I don't think the data actually supports what you are saying. I think clearly the market has got a lot tougher for the supermarket sector overall over the last 12 months and you’ve seen that reflected in the Kantar data. But if you look at our relative performance versus that of our supermarket peers, if you look to our performance versus that of Tesco and Morrisons, you will see the gap -- the difference in our performance has been maintained over the last 12 months. So what we are seeing today is really an industry trend, which is the challenge that the supermarket sector in isolation is facing against growth of convenience, online and discount. But we're maintaining a very healthy gap in our performance versus that of our peers.

You could never big up a minus 2.8% like-for-like, but I think if you went back through the data and if you look at the trends in the industry overall, I think you would find it's one of the biggest gaps we've ever had to our two quoted peers. But clearly the issue that we need to tackle going forward is not how we performed relative to Tesco's and to Asda, but how we perform in the market overall and indeed of course that's why we are in the midst of a strategic review where as Mike had described no stone is going to remain unturned and we'll be updating the market on the output of that strategic review come November. James Anstead - Barclays Capital: Okay. That's very clear, thanks.

Thank you for your question. Our next question comes from the line of John Kershaw from Exane. Please go ahead.

Good morning, John.

Good morning, John. John Kershaw - Exane: Good morning, guys. I was going to follow-up on the previous question, but I think you're pretty clear that -- let's come back to Brand Match and then one other if I may. I understand what you're saying in putting the customer first in matching versus Asda, but Tesco probably has far greater range overlap with yourself and clearly taking it out will save you money, so first of all how much money do you think you will save by removing Tesco from Brand Match and obviously do you risk the business going forward, but how have you exposed yourself do you think from a marketing attack from Tesco going forward. And then because Brand Match was a brilliant tactical marketing campaign, but you feel more exposed now and then finally just no stone unturned in terms of the strategic review, what won't be on the agenda if balance sheet leverage is a dividend, what will you not include?

We're laughing on that question. I'll let John answer the -- we could go on for about five hours, but anyway, so I'll just come back on Brand Match, this -- we went out to our customers and we talked to them about how we can improve Brand Match. We started as a customer thing and we actually started with a pretty open mind about how we might move it forward into the future. I thank you for the fact that you acknowledge the fact that it was brilliant in the first place. Absolutely, customers see Asda as the price perceptional leader in the market place, that's the core point that we're making. They don't see that in Tesco and they benchmark us against Asda in their heads, regardless of whether Tesco, Sainsbury's, Asda, or Aldi shopper and that's the way they look at the marketplace. And by being much more focused, we can drive home that message and it feels surprising to customers when they get the vouchers more than 50% of the time we achieve within Asda and it is a very single minded way of putting over the proposition. Of course it saves us amount of money, but we will reinvest that money in our underlying base prices and that's one of the reasons why we've seen our prices come down relative to our major supermarket competition over the last period of time.

And John, just in terms of the strategic review, the strategic review will cover all aspects of our business from how we interact with our customers, where we invest in the future, our pricing strategy, our service strategy, what we're spending in relation to CapEx. And of course it will also pick up dividend and balance sheet, as you would expect any strategic review to do. John Kershaw - Exane: Okay. And then just so how have you -- coming to a different way of asking a prior question, if you were looking at the vouchers you issued, how many have been versus Tesco and how many versus Asda, regardless of what the consumer mindset is, which I grant, is in some ways the most important thing? We're financial analysts, so…?

And that's the underwriting point. It is more single minded and customers absolutely get it and when you see the advertising breaking, you will see how we are positioning that. On the point of our cost and who is cheaper than and more expensive than, we wouldn’t disclose those numbers, but actually the saving is probably not as big as you think it might be and which is probably a reflection or is a reflection of the relative price positions of the competition.

I was going to make that same point. If you again making reference to the recent pricing surveys conducted by some of your peers, it does show our position versus Tesco is as good as it's ever been and therefore Tesco, over time was becoming increasingly irrelevant in our Brand Match equation. And the way that you guys have approached this is a very analytical way as was expected to, but the way that we've looked at this is from a customer perspective and actually cleaning up making it very clear that we're benchmarking against Asda, actually we feel gives us a much more traction with the customer than the previous dynamic, which also included Tesco and indeed that's something that's very much supported by our colleagues in store and very much supported by the early customer reaction to the changes that we've made. John Kershaw - Exane: Okay. And then just finally, any comment on profits? I know you don't normally make precise comments, but consensus has come down a long way. £710 million PBT, I think, is the consensus. More recent numbers come in below £700 million. Any thoughts there?

And John, you'd expect me to say it's trading statement. We are not going to comment today on profit. John Kershaw - Exane: Okay. Thank you.

Thank you for your question. Our next question comes from the line of Rickin Thakrar from Espirto. Please go ahead.

Good morning. Rickin Thakrar - Espirto Santo: Hi. A couple of questions. First, sorry just back to that, would you be required to tell us at this stage if your profits materially differed from consensus forecasts because if -- based on the statement, would the lack of a differentiation there mean that you have no issue with consensus forecast? The second question is do you -- are you seeing any benefit from falling producer prices? Is that supporting some of your recent price investment? Thanks.

It's John. I'll pick up the first question and Mike will pick up the second. We're obviously well aware of our reporting obligations and if we needed to update you on profits today than we would be, but we're clearly not.

And obviously the second question, supermarkets are very, very good at passing on lower producer prices on to retail prices. So traffic on that will be fuel prices, which I've already said will drop by something like 15 pence a liter year-on-year and that's the reason why we've seen retail prices coming down on core commodities. So it is almost a direct correlation on the way down between prices -- producer prices going down and retail prices going down.

Thank you for your question there. Our next question comes from the line of Mike Dennis from Cantor Fitzgerald. Please go ahead.

Good morning, Mike.

Good morning, Mike. Mike Dennis - Cantor Fitzgerald: Good morning. I have several questions. One, I wanted to know how far you've got in price simplicity categories doing the price rebasing. And could you give us, given it's a trading statement, an update on that basis on your promotional participation and where you think the industry's going on that, given you've now realigned Brand Match to the new benchmark in the industry, which is Asda? And just for complete clarity, Asda always say that their baskets, on whichever way they look at their business are -- and any survey out there I guess as well, are about 6% to 8% cheaper than their competitors. So what is -- I guess everyone on this call is asking what is that gap now? And last question on fresh produce. What is the deflation in fresh produce now and when do you think that will start to come out?

I can't write them down fast enough. On price simplicity, I think we're probably about 80% the way through our categories, which is why we started talking about it publicly. As you might gather you can't really talk about it until you can talk about all of it. So we're mostly there through. On promotions broadly speaking the participation is flat and obviously your question…

I guess we would expect obviously with our recent announcement on the move from a high low to a medium low pricing strategy that we would that promotional participation to come off as we go forward, but in the last quarter it's been broadly flat with the previous quarter.

And of course you made the observation about baskets and of course we would measure baskets in exactly the same way and I've already said, if we look at brands specifically, our branded offer when you are shopping at Sainsbury's for the products that you would buy within Sainsbury's is well over 50% of the time cheaper in Sainsbury's and is in Asda. But we've also acknowledged that we charge a slight premium for our enabled products because they are better quality and customers get that.

And that's an important to know. Obviously there are lots of comments on the call on pricing and pricing strategy, but in a world where we are tackling the threat of the discount is the need to differentiate our quality and service from those, the discount that is ever more apparent and we've got a strong track record of performance in that area, both on the service side frankly and also obviously the quality of our private label products.

And on fresh produce, I think the headline deflation is something like 5%, but within that there are some very specific commodities like potatoes, which are down far more. Mike Dennis - Cantor Fitzgerald: Okay. Great. Thank you very much.

Thank you for your question. Our next question comes from the line of Sherri Malek from Bank of America. Please go ahead.

Good morning.

Good morning. Sherri Malek - Bank of America Merrill Lynch: Good morning and just a few questions from me. Firstly, what was your convenience store like for like in the quarter then, given the comps you made? Secondly, it would be great to have a bit more color on the price cuts that you announced. You stated thousands, I've read 12,000. Just some clarity there for particular categories that you're focusing on initially. And if you could give an indication on the average price cuts, that would even be better. And I know you're not commenting on profits, but would it be reasonable for us to assume that H1 is going to be 50% of full-year profits as in the past and that's it from me.

So I'll pick up the first and the last and then Mike will pick the question on the price cuts. In terms of convenient like-for-likes, they were just about 2% for the quarter, so a strong growth reflecting the growth of our overall convenient business. The overall growth as I mentioned was around 17%, 2.2% of which was like-for-like growth. So that's a very positive message. In terms of the profit split between half and half two, I am not going to comment on that. It's a trading statement today and we'll update you on profit at the interims on November the 12.

And on prices, we're quoting 4,500 product prices reduced over the last period of time, but we're not quoting a headline percentage reduction. Sherri Malek - Bank of America Merrill Lynch: Okay. Thank you.

Thank you for your question. Our next question comes from the line of Rob Joyce from Goldman Sachs. Please go ahead.

Good morning, Rob. Rob Joyce - Goldman Sachs: Hi, good morning. A couple from me. Firstly, on the guidance for the second half of minus 2% like for like, can you tell us how much deflation is assumed in that, as in the price volume mix of that, and why you see that improving in the second half relative to what we've seen in the second quarter? The second one is just in terms of the Kantar data, do you agree with the Kantar data that shows that -- in the switching data that shows Aldi and Lidl are where you're losing most of your sales to? And, in that regard, what is your pricing level versus the discounts and how has that been changing? Thanks?

In terms of the guidance as you rightly said, the guidance of the second half will be similar like-for-like sales to the first half in terms of the inflation component of that. As I alluded to early on, we saw overall inflation about flat exiting the quarter. We see that trend continuing. I guess the reason why the second half looks a little bit better than Q2 is because we got some slightly softer comps in the second half. So if you remember Q4 in particular last year was minus 3.1. So as the combination slightly better comps in the second half which lead us to feel confident that the run rate for the second half will be slightly better than the exit rate for Q2 if that makes sense.

And just to put a bit of color on that, the deflationary trends that we're seeing are unlikely to change for the foreseeable future and it looks like the harvest this year will also be pretty good, the way it has been pretty benign. So I doubt very much if there is going to be any inflation in the future. The data sources, everybody's fixated on Kantar. There are many, many data sources we've in our business and lots of lots of them, the reality is that if you brought Sainsbury's basic products, you would buy the cheapest shop in the marketplace and it would be considerably cheaper than Aldi and Lidl. Rob Joyce - Goldman Sachs: Okay. On -- is that what you would consider a like-for-like product, I guess? Or on a like-for-like product basis, what would you consider -- what's the pricing…

Well, they are not like-for-like products. There is an impossible comparison to drill. The reality is that we're very confident in the quality of our basic ranges and if you were to shop in a Sainsbury shop, you will get a full shop by buying our basics products and it will be considerably cheaper than the discount is. Rob Joyce - Goldman Sachs: Okay. Thank you.

Thank you for your question there. Our next question comes from the line of Niamh McSherry from Deutsche Bank. Please go ahead.

Good morning. Niamh McSherry - Deutsche Bank: Good morning. Most of the questions have been answered, but I just had one small follow-up question on the convenience business. And can you remind us which format you include in that £2 billion of convenience sales? And, also, would you say that the price deflation that you've experienced in that business is similar to the broader business? Thank you.

Yes, in terms of the format question, all our stores are around 2,500 to 3,000 square feet sales area. So those are under 50 to date, so it's quite clearly broken out.

All the ones with local over the door. Yes, the pricing is relative in our business. So the reality is our convenience business would have the same levels of deflation as our main supermarket business. Niamh McSherry - Deutsche Bank: Okay. So the same levels of inflation, but from a different base.

Yes. Niamh McSherry - Deutsche Bank: Okay. Thanks.

Thank you for your question there. Our next question comes from the line of James Tracey from Redburn. Please go ahead.

Good morning.

Good morning, James. James Tracey - Redburn: Good morning, guys. Three questions from me. The first one is on online sales growth. It was 7% in the quarter, 10% in the previous quarter. Going back to 2012/2013 it was 20%, so a big long slowdown over the years. Is that something to do with online generally reaching saturation or something else, maybe? Your insight would be appreciated there. The second question is on -- back to John Kershaw's question. In the past you matched the cheaper of Asda and Tesco. Now you're matching only Asda. If Tesco were cheaper only 10% of the time, that's 10% of the time when you'd be giving away extra vouchers, so there must be a cost saving from doing that. Can you reveal what that is? And the final question is on the financial strategy. What is the maximum lease adjusted net debt to EBITDA that you would be comfortable to operate with? Thank you.

I'll try to answer the first two and John can comment on the third or not comment as the case may be. So on the Asda price match I think we've already discussed this in some detail. We won't disclose the specific numbers. All I can say that is it not as much as you think and that is a reflection of the pricing positions of the relative competitors in the marketplace. The two data points for us which I'll stress again are that more than 50% of the time our baskets and brands are cheaper than Asda's firstly and secondly our price position as measured independently by you guys as well as by ourselves on brands such as Tesco is sharper than it has ever been and actually is currently below them. As far as online is concerned we're keen on building a sustainable and -- a sustainable business in the future. So we're not going to get carried away buying business in the short term against the long-term objective of building a sustainable online business. Our view of the world is that that business will continue to grow. The market will continue to grow probably not at the same rate that it's growing at the moment. You'll see some level of saturation over time, but for the next period of time for the next five years all of the market data would suggest that online will become a bigger and bigger part of our overall business and the overall market. James Tracey - Redburn: But just, sorry, following back on that, would you say it's a more of a 5% to 10% online market growth or more 15%, 20%?

We'll talk more specifically about this on the 12 November so you can -- you can get hold of the IGD number that is probably as good a factual representation looking at market growth trends over time and I think they're calling at about 12% compound. I am just looking at John something about that over the next period of time, but that's slowing down. James Tracey - Redburn: Okay. Thanks.

And James just to answer your question on the sort of financial strategy and balance sheet strength, clearly we'll come on to comment more about that when we report the strategic update on November 12, but we've had a lease adjusted net debt to EBITDA ratio in the past. It's been very consistent as you know between 4 and 4.1, 4.2, 4.3 and we said in the past that we're comfortable with that level of balance sheet gearing, but we'll certainly provide a further update to our thinking around dividend funding strategy as well as all other aspects of our strategy when we update you on November 12. James Tracey - Redburn: Okay. Many thanks John and Mike.

Thank you for your question there. Our next question comes from the line of James Grzinic from Jefferies. Please go ahead.

Good morning. James Grzinic - Jefferies: Good morning, guys. Just had a very quick one for John, actually. Can you perhaps remind us of what covenants apply to your CMBS, John?

Well, we don't disclose any of our banking covenants as per previous comments. I don't know -- there are no specific covenants in relation to the CMBS in any case, but we don’t -- we certainly don’t disclose the details of our covenants in any of our banking relationship. We believe those are commercially sensitive, but there are none in relation to the CMBS. James Grzinic - Jefferies: Just wanted to have that confirmed. Thank you.

Thank you for your questions. Our next question comes from of Bruno Monteyne from Sanford Bernstein. Please go ahead. Bruno Monteyne - Sanford Bernstein: Good morning.

Hello. Bruno Monteyne - Sanford Bernstein: Three questions from me, please. So in my head I'm trying to rationalize the minus 2% like for like and I can clearly see inflation in the market, your own self-inflicted price drops. The one I'm not 100% clear on whether you have a net switching loss to all other retailers, not just supermarkets. I think historically Tesco, Morrison offset losses to the discount but is that still the case? Or are they starting to have substantial net switching losses? The second one is this strategy update is obviously a bit new news today. What really triggered you to decide to have a serious strategy review? What was the main driver for that? And the third thing is on online growth I didn’t fully hear or understand what is explaining your relative performance. I think last time you had the result that you refer in your website launch and having some issues and sort of not wanting to market it too much while you were transitioning. Does the element of pickup points? Could you comment a bit more on whether there’s any Sainsbury specific things that are holding you back right now? Thank you.

Okay. Well, net switching loss, I mean, there are number of data sources that I’ve already talked about and you can read them as you see them. The reality is that as we’ve already said, our relative performance to our quoted peers is actually probably the gap is about as wide as it’s been since I can remember. So this is -- our performance is reflective of a slowdown in the market, but also change or acceleration to the change in customer shopping habits which again I think I’ve already referred to. It wouldn’t be surprising to you as a new CEO coming in I take the opportunity particularly in the current market condition looking at the business, and going through line by line and going through a detail overall assessment of the business and making sure that we’re doing the right thing to ensure the sustainability of this business into the future. And the reality is that the changing market conditions have ensured that we’ve had to think very, very carefully about some of the things that we might do in the future, not online growth, I think I've talked about it. We’ve won’t involved in buying business for the sake for buying business. We want to build a sustainable online operation, which is focused on delivering great service to our customers.

The reality is there’s a huge amount of promiscuity in the online sector with customers shopping across one offer or other. And in a way, what we want to do is to build an online business that fits the purpose for our customers. And therefore we’ve decided not to participate in what we see to be unprofitable customer acquisition activity evident in the market today. Bruno Monteyne - Sanford Bernstein: Okay. Thank you.

Thank you for your question. Our next question comes from the line David McCarthy from HSBC. Please go ahead.

Good morning, Dave.

Good morning, Dave. David McCarthy - HSBC: Right, a few questions. First of all, on the Brand Match, I want to come at this from completely different angle.

Okay. David McCarthy - HSBC: And how many lines were you matching on previously when you've got Tesco in the basket and how many are you matching on now? Because I think that's where the issue is, that the actual number of pure brand overlaps with Asda is going to be quite small, I would suggest, and, therefore, relatively easy for you to do promotions on something like a family-size pack of Pampers to, if you like, gain the results in a favorable way. That's the first one. The second one you’ve given us a like-for-like of your convenient stores and we’ve got the good news. Can we have the bad news as well and tell us what the like-for-like performance is in your core estate for stores more than two or three years old, so we can strip out all the online and refits etcetera. And then thirdly, you have just cut your guidance by 2%, 2.5% versus what you said four months ago. That’s equivalent to ₤500 million of sales across a year. I’m quite surprised that you’ve cut it by such a large amount. What is it that surprised to you to lead to such a big downgrade in your sales in such a short period of time?

Well, I'll have a go at the first one and then I think John will have a go at the next two and then I might come back on the last one just to round up. I am not going to go into the detail of Brand Match. You are asking a question in a level of detail but we would never disclose. What I would say is that we match 14,000 products versus our major competition and that’s reflected in the way that we use Brand Match. You cannot game in the way that you are describing; I think that’s disingenuous to suggest that we would do that. It would be misleading and we give the opportunity for our customers to actually check their receipts and work out how we actually calculate the Brand Match coupon one way or the other. So the suggestion you’re making is, it’s quite frankly not true and we come at it from a customer point. We already reiterate what I’ve said, what customers say, is that they see Asda as the price perception driver in the marketplace by focusing on them it makes it clearer to our customers and actually they are pleasantly surprised when they find out from an equivalent branded product basket in our stores we're cheaper more than 50% of the time.

And Dave just in relation to your question on breaking out the like-for-like obviously we don’t normally do that, but I’ll give you a bit of a flavor. Obviously we said convenience was a positive 2.2 that would mean that if you look at our core underlying, un-invested estates, you’ve got a negative like-for-like there of somewhere between 3% and 4%. And if you do the math on that, that gets you to the average of minus 2.8%. So hopefully that gives you a pretty clear flavor. And in relation to why we re-guided on sales, well I think its two key dynamics, the first of which is deflation, which we’ve seen coming through quite significantly. And the second thing is an acceleration of the trends that we've witnessed over the last 12 months to 18 months, the more frequent shopping, the more convenient-based shopping as Mike has already alluded to those, those trends have accelerated in the quarter. We see that continuing through the remainder of the year and therefore we've adjusted our sales guidance accordingly. David McCarthy - HSBC: Okay. I guess I'm just making the point I'm surprised that you're surprised that we've got deflation when it's been coming down the track for a while and these trends you're talking about have been accelerating. But secondly, I just want to go back to Mike's comments there on the Brand Match, because you seem to be taking a slightly different approach when you talk about Basics. And earlier on you only talked about the price and you wouldn't talk about the quality of the Basics versus the discounters. But then when we talk about own label you started talking about the quality gives you something better and so we all know value for money is based around that, around the mix between price and quality, and yet there doesn’t seem to be a consistent approach to those two different groups of products?

Well I think that’s complete rubbish, David, if I’m honest. I did say, when I answered the last question that we are confident in the quality of our Basics products and not only that, it is underpinned by the values of our business. So your assertion is completely untrue. David McCarthy - HSBC: All right.

And just in relation to your challenge on the pace of change in the market, as Mike has already alluded to, we’re seeing a pace of change today unprecedented, that might have been in the industry for 30 years and this is the greatest pace of change that we’ve seen. And I don’t think anyone 12 months ago would have necessarily projected like-for-like the Morrison's in the order of minus 7% and indeed a consensus like-for-like for Tesco of minus 6.5%. So, I think the industry has changed a lot in the last six months, that’s reflected in the guidance that we’ve given today or the re-guidance on sales for the full year.

I’ll get all your notes out David and just dust them down and just have a look at the prediction in the past. David McCarthy - HSBC: I think you’ll find they’ve been negative for a while.

But what we know this is negative as the underlying performance of some of our competitors, but anyway. David McCarthy - HSBC: All right. Thanks very much.

Thanks Dave.

Thank you for your question. Our next question comes from the line of Clive Black from Shore Capital. Please go ahead.

Good morning, Clive. [Why are you always way to the last] (ph). Clive Black – Shore Capital: Well I think that’s your choice, rather than mine.

Quick enough on the bottoms. Clive Black – Shore Capital: Keeping the love-in between brokers and management going then. Firstly, Mike, were you trying to have a strategic review all along then, given your last comment to Bruno's question about you're in the seat now and it's time to look at the business? Secondly, a lot of questions on Brand Match today, but isn't it the case that price comparison, or price matching, is actually increasingly relevant now, given the performance of Tesco with Price Promise and the slowdown in your performance with Brand Match in tow? And, I guess, lastly, I've listened to you being very robust on pricing today. You're talking about matching or being undercutting Aldi's entry prices with your Basics. You've talked about having a basket that's more often 50% cheaper than Asda's. You've talked about having this gap with Tesco. With all these things, with this price advantage that you now have, why are your sales falling at such a rate? And why are you losing market share to the whole industry rather than just a couple of other poorly performing quoted companies? What else is it in your business that isn't working if price is?

Well, in answer to your question, in the order in which you asked them, I am not sure why it would a surprise to anybody -- I am coming in as the new CEO, want to have a look at the business in a full and complete way and we've set out with the objective of talking to the market about that when we get to the 12th November. I am not sure why you should be surprised by that. So… Clive Black - Shore Capital: We were surprised, Mike, to the extent that it's the first time we've heard any sight of it until this morning. So if it had been announced at the prelims or when you took charge that you were going to undertake a strategic review, which is totally and utterly reasonable, then that's fine. It's just it's the first we've heard it from the company. I think that's probably why you've had the questions.

Yes, well as you say, I think it's perfectly reasonable. So I am not sure I can add anything to the communication of it. As far as pricing is concerned, I get your point. In the end, our strategy is based on the principle of reducing price perception gaps between ourselves and our competition and that's one of the reasons why we've launched Brand Match and it's been very successful in doing that and improving our quality and values credentials and underpinning our brand is exactly that headline strategy. And in order to be successful in the future we will need to amplify the stuff that makes us different, whether it's the quality of the product that we sell, the ranges of the products that we sell, the service that we provide in our shops and to eliminate the things that customers perceive as downsides, which predominantly around prices you’ve already said. As far as the relative performance of the market, I think we've already commented in some detail on that, the reality is that against our quoted peers, our performance gap is wider than it's ever been, but nevertheless the trends in the marketplace have accelerated in the last period of time. Clive Black - Shore Capital: Okay. Well we look forward to seeing the amplification of what's different on the 12 November.

All good. Clive Black - Shore Capital: Thank you.

Thanks Clive. Okay. I think that's our last question. So thank you very much for coming on the line this morning and we obviously look forward to updating you on the 12 November on our strategy for the business going forward. Thank you.

Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you all for joining and enjoy the rest of your day.