David Tyler - Chairman Kevin O'Byrne - Chief Financial Officer Mike Coupe - Chief Executive Officer

Bruno Monteyne - Bernstein James Tracey - Redburn Niamh McSherry - Deutsche Bank Dan Ekstein - UBS Rob Joyce - Goldman Sachs Andrew Gwynn - Exane Nick Coulter - Citi Stewart McGuire - Credit Suisse

Good morning everybody. Welcome again to Sainsbury, this is our Preliminary Results Presentation as you know for the 12-months ending March 11, 2017. We continue to concentrate as ever in this business on the quality of our food proposition, and we continue to make good progress this year on all of that. And Mike will take you through some details on that shortly. But this in fact has been a pivotal year in our business. As you know, we are very focused on the long-term trends in our markets and we’ve made investments this year with these firmly in mind. We believe they will create value for shareholders in the years ahead. The acquisition of Argos is already differentiating our office consumers and it sales are its profitability in the first six months of its period of life within Sainsbury had been very encouraging. Together with Sainsbury, we now offer a multi-product, multi-channel proposition with fast delivery networks. And it is unmatched by our competitors. And the management team are extremely excited about what more could be done in terms of our offer to consumers in the years ahead. So Argos has had a great start. The same time this year Sainsbury Bank has transferred much of its offer on to new IT platforms and has launched a mortgage proposition. All this gives us a lot of confidence that the bank will achieve strong profit growth in the years ahead, especially as it has a low customer acquisition cost and because it has real ability to use Sainsbury’s data to great effect. Sainsbury’s underlying profit for the 12-months we are announcing today is £581 million, 1% down and our underlying EPS is down nearly 10% to nearly £0.218. It has been referred very challenging year in a row in the grocery market, because I believe that shareholders can take some comfort from the fact that our sales and earnings have been a good deal more resilient over this period than our direct competitors. Our shareholders will also see, but we have cut on that debt this year to below 1.5 billion and we’ve continued to pay our dividend throughout this difficult three-year period. I can also assure investors that we have a very strong management team led by Mike and I’d also like to take this opportunity say thank you very much to all of our colleagues for their tremendous enthusiasm, commitment, and effectiveness over the last 12 months. And with that I’m now going to hand you over to Kevin O'Byrne, our CFO who joined us in January and he is already making a great contribution to the business and he will take you through the number. Kevin? Kevin O'Byrne: Thank you, David. Good morning everyone. I’m delighted to be here presenting my first results for Sainsbury’s. Is in the year, the food business delivered a resilient performance in one of the challenging market growing like-for-like transactions in the period in all our formats. We delivered strong growth online in convenience, in general merchandise, in clothing, and then Argos, since we acquired the business. Margins reduced in the year due to price investments in higher cost inflation in the second half as we guided. Argos stores within Sainsbury's are performing well and exceeding our returns hurdles and we now plan to accelerate these openings and deliver our synergies that we committed to 6 months early. It’s been a good year for Sainsbury’s Bank as David mentioned as we completed a number of key systems acquired the Argos financial services business, and launched mortgages. We are now well set up to deliver strong profit growth going forward. We continue to deliver on our cost savings target and have started to work on new plans to deliver additional £500 million from 2018, 2019 as we strive to simplify our business further. With a strong balance sheet and during the year we reduced net debt by $349 million, and finally we paid a dividend of £0.102 in the year. Group sales grew 13% helped by a half year of Argos sales with our 3.1 billion and as we reported Sainsbury's total sales grew 0.2% in the year and like-for-like sales were down 0.6%, excluding Argos. Retail profit of 626 million included a contribution of 77 million from Argos. As you know, Argos makes more than its annual profits during the second half because of the Christmas peak. Sainsbury's profits were therefore down about 85 million year-on-year, due to price investment and cost increases, partially offset by cost savings and this resulted in retail profits down 9 million or about 1%. Underlying profit in the bank increased in the year with a change in interchange fees and investment in the new mortgage platform resulted in a net reduction in the year of £3 million. The net underlying profit before tax was down 1% at 581 million, resulting in an earnings per share figure of 21.8p down 10% as we issued new shares with the Argos acquisition. Finally we exclude a number of items from our results, which we don't believe reflect the underlying performance of the core business, each total and £78 million in the year and I will explain these shortly. This resulted in a profit before tax of £503 million in the year down 8%. As I said, retail sales figures of 28.7 billion included 3.1 billion sales from Argos and while sales grew by 12% underlying EBITDAR grew 9%. The resulted underlying operating profit was 626 million and underlying operating margin of 2.42%. We expect cost inflation in the year just started to be in the range of 2% to 3%, and as you know we also expect first half underlying profit to be lower than the second half, due to the full-year impact of cost increases in price investments made in the year to March and of course first of losses of Argos, which we expect to follow the same profile as the year just completed. Total sales in Sainsbury's grew 0.2%, due to space contribution of plus 0.8%. We delivered very healthy sales growth in our convenience and online channels and in clothing and general merchandise. As you know, we are watching our capital expenditure carefully and are being very selective in our new space openings. In the year, we opened four supermarkets in 34 convenience stores, 72% of this new space was in London and the Southeast. We will continue to selectively open good sites in 2017, 2018, three supermarkets and about 25 convenience stores. The Argos business delivered strong like-for-like sales growth of plus 4.1% in the second half. And in addition to the strong like-for-like sales growth, Argos delivered 72 million of underlying operating profit in the period since acquisition of top end of expectations. Synergies of 5 million were also delivered, our total synergies figure of 7 million was delivered, but 2 million is accounted for in the Sainsbury's business. As we said, we are pleased with the performance of the Argos stores opened in the existing Sainsbury's supermarkets and in the year just started we expect to open 135 new Argos stores and have already opened 20 since March 11, giving 59 stores within Sainsbury's today. We also closed an additional 39 Argos and HomeBase stores leaving 18 trading at year end. And you know, we have robust plans to deliver the 160 million of synergies, we have delivered 7 million as I said, in the year just finished. We plan to deliver 58 million this year and as I said also we expect to deliver the full 160 million six months early. In the year to March 2018, we will incur one-off cost of 60 million and one-off capital expenditure of 90 million to deliver these plans. These are in line with the total cost guided to previously. This slide shows the financial structure of the Argos transaction. The gross purchase price is 1.3 million, including 226 million capital returned to HRG shareholders. There is just a slight error in the slide where it says consideration exceeding capital return on the left-hand side, that doesn't include capital return. The business had cash of 548 million and a loan book with Argos Financial Services of 615 million that were in effect Sainsbury's paid 156 million for the remainder of the assets and capabilities of the Argos business. As we previously guided, we expect to spend 270 million on integration, capital, and revenue. This was an important year of transition for the bank as we acquired the Argos Financial Services business and made material progress than in our ATM and savings IT platforms. Total income grew over 4%, driven by good growth in net interest income of almost 6% and commission income up almost 2%. Gross income ratio increased as we built the mortgage platform during the year. We would expect this to reduce materially over the coming years as we grow the business. In the year, customer numbers grew by 4% to 1.77 million and in addition we added the Argos Financial Services customer base of 1.8 million customers. Net interest margin was 4.4%, due to higher interest rates on Argos Financial Services products offsetting lower interest rates in Sainsbury's bank products in-line with changes in the markets. Bad debt as a percent of lending grew from 0.4% to 0.8% in the year. Half of this change was due to the bad debt profile of the Argos Financial Services loan book. This increased cost is of course reflected in higher interest charges and earned on these loans. The overall rate is in market leading reflecting the quality of the customer base. And we had a prudent, but more efficient Tier 1 capital ratio of 13.3% at year-end. As you know, we have been working hard to separate the bank systems from Lloyds Banking Group, and this is a complex project, very good progress is made this year in delivering the core systems at ATM and savings completed and the loans platform is now in test. Our new website in context centric systems were also delivered. In addition, the insurance broker platform was completed and our mortgage offer was launched in April. In the new financial year, the loans platform will be fully operational. In 2018, we would expect to launch a combined Argos Financial Services in Sainsbury's bank card platform. As I discussed previously, following the Argos acquisition, we changed our plans to deliver a combined more comprehensive solution. In 2017, we expect to spend £85 million on the loans on card system. So, we're developing a strong financial services platform and are therefore optimistic about the profit growth opportunity we have in the coming years. Profitability driven by growing our existing cards in loans business and our new mortgage business. We currently have a 3% share of the cards market and a 7% share in loans. Following the launch of a mortgage offer in April, we are targeting a 1% share of the mortgage market over the next five years. There are two drivers here. Firstly, we believe we can build a profitable loan book taking a relatively small share of a large market and secondly we want to balance the risk in our bank loan book, which is currently unsecured with the secure elements. I mentioned earlier that we had booked 78 million of costs, which are not included in underlying results and this is made up of a number of items. £60 million related to the cost of transition in the new bank system, which I have discussed, 53 billion related to the Argos deal and these included deal related integration and HomeBase separation costs. 33 million related to restructuring actions to make our business more efficient, particularly in store as we change our structures and work practices. Examples include, removing nightshift in store and these decisions typically deliver a payback of less than 18 months. The property gain of 36 million is the net of the profits on the nine element disposal offset by owners lease impairment and changes in fair value of investment properties. The 15 million gain is the net of a number of decisions taken in the year as we focus the business on our four key priorities, which Mike will talk more of those. There are two key areas here. Firstly, we rationalized our portfolio. We sold the pharmacy business at a profit and closed Netto, Sainsbury's Entertainment and Phoneshops. Secondly, we've had a thorough review of all projects and stopped a number which resulted in an IT write-off in investment previously made. It is important in a competitive market that we remain focused on fewer areas. Finally, the other adjustments relate to a number of accounting items for example, we add back to cost the perpetual securities as accounting standards determine these must be treated as dividends. Our net finance costs was slightly lower in the year at 119 million and our underlying tax rate moved to 23.2% in line with guidance. The prior year benefitted from changes to deferred tax. We expect our underlying tax rate to be in the 23% to 24% range in the new financial year. In the year, 130 million of the targeted three-year cost savings, 500 million was delivered, this gives a cumulative total of 355 million and we have detail plans to deliver the remaining 145 million. These savings were delivered in all areas of the business, store costs, store salaries, logistics, warehousing and head office. As I said, we're working on plan to deliver a further $500 million of savings starting in 2018, 2019. We are looking to simplify our business wherever we can for our customers and our colleagues and focus on the most value adding activities. In the year, we generated over 1.2 billion cash from operations. We spent 588 million in capital items and will talk more about that in a minute. After our annual pensions contributions, interest corporate tax, and capital expenditure we generated 345 million of free cash flow up 49 million on the previous year, and free cash flow is a key metric for the business and one we will be focusing on increasingly. From the free cash flow we generated 345 million we paid our dividend of 230 million. We also paid exceptional pension contributions in the year of 199 million. These where to both schemes and will not be required this year. We generated 28 million net from sale of freeholds in the year. We received cash from nine homes as I mentioned and purchased a store in Chiswick which we think is a good development detention. We injected 130 million at the bank, a 100 million of this relates to the refinancing of the Argos services loan book. The net cash inflow relating to the Argos acquisition of 457 million is detailed on the table at the bottom of this slide and is largely driven by the cost-effective refinancing of the Argos Financial Services loan book using customer deposits. The result is a reduction in the year of net debt by £349 million. Our dividend policy is to pay 50% of our profits to shareholders. In the year we will pay 10.2p per share, including a final dividend of 6p per share. Over the last five years, we’ve returned 1.4 billion to shareholders by way of dividends. The numbers in this slide differ slightly from earlier slides as they were cash paid in the year, while this slide covers capital committed to in the year. Total CapEx in the year of 639 million, including freehold acquisitions up 74 million, and 80 million related to the Argos integration. In 2016 and 2017, you can see we spent significantly less on new stores than in 2015, 2016 and we expect to spend around 600 million on core retail CapEx in 2018, 2019 and this includes business as usual CapEx on the Argos business, but excludes the 90 million of Argos integration CapEx we guided to previously. Balance sheet strength and financial flexibility is a key focus for us. In the year, we reduced our net debt by 349 million to 1.5 billion and we had undrawn facilities of 1.2 billion at the year-end. As you know, we have freehold properties of 10.3 billion and a combined pension deficit under IAS 19 at year-end was 815 million. Before I hand over to Mike, I wanted to make sure you had our financial reporting dates for the year just started. There is two changes of note here. First, we have removed the separate Q2 and Q4 announcements in line with our competitors, I want to update you on those quarters at the interims and the prelims, and second as we integrate the Argos and Sainsbury's businesses further we report one total retail like-for-like number. We will then of course continue to give you separate detail on food, on general merchandise and on clothing. I will now hand you over to Mike to update you further on the year's performance.

Good morning everybody and I’m not quite sure why they chose that photograph, but anyway, it looks like my dad. So, I’ll just take us back to November 2014, we outlined a very close strategy and that clear strategy was to adapt our business to our customers changing needs and actually played back a little of Sainsbury's DNA. So the idea of great products and services at fair prices, sold by colleagues that we value and do a brilliant job of serving our customers, underpinned by the values of the organization, which have existed since 1869. We were also introduced to broader ideas. The first is that that we had to know our customers better than anyone else, in a world which is increasingly being driven by digital and mobile technology, although we had to satisfy our customers, whenever and wherever they wanted. And we had to adapt to our business for those changing customer needs, particularly in the world of online. And we think we have done a pretty good job, albeit we have now got the building blocks in place to adapt our strategy and grow that strategy as we look forward. And in that backdrop against that backdrop, our food business has been pretty resilient and of course the acquisition of the Argos business gives us the opportunity of accelerating that strategy and to really drive the component parts of that strategy and make it work together, such that one plus, one plus, one equals more than three. And I thought it was just also worth reflecting upfront on the relative performance of our food business over the last five years, and you can see from this chart it’s been in incredibly resilient and I will come back and talk a little bit about why over the last five years. So whether we look at our relative market share performance or indeed our relative like-for-like performance against a very competitive market backdrop. We have done a remarkable job of maintaining our market share and shows how resilient our underlying food business is. And as you look forward, four pretty straightforward objectives that we have, the first is to enhance our food offer and to continue to differentiate our food offer. Secondly, we think there is a fantastic opportunity within general merchandizing clothing, even with the acquisition of Argos we have a relatively low share of the general merchandizing and clothing business. So we believe there is a significant opportunity to score that. Kevin has already talked about the bank and I will talk a little bit about that as well. We have put the real plan fully in place, and we now have the opportunity of diversifying and growing our bank. We must never let loose sight of the fact that we also need to make our business more cost efficient, and so we need to deliver not any vicious cost savings with the 500 million that we have committed to for the subsequent three years and make sure that we got a resilient balance sheet to finance our business. We have also got fantastic management team in place and so Simon Roberts has joined us as our in office Director in our food business to help me and to help Paul Mills-Hicks on the commercial side to really think about how we adapt our food business to the market conditions as we look forward. John Rogers who you all know, or a lot of you who will know is now running our Argos business and he is really getting a new piece into that and really driving that hard. Peter Griffiths, the COO of our bank has been with us now four years to help us to grow the bank and again we see lots of opportunity. And then Kevin and Angie on the HR front will help me and help the business more widely, making the cost changes and cost improvement that we have been making in our business over the next period of time. So we have a fantastic group of people working closely together on executing the strategy with very clear accountability of who is doing which space. If I talk about our food proposition, this is a slight actually we have put up in November 2014 and help us explain how we think about our food business. So in the bottom left-hand corner you have got pretty much commodities like toilet rolls, or salt or sugar, then you have got everyday essentials, anchor products which make a big difference, while business particularly fresh fruit products and then specialty products in the top right-hand corner. And we know we need to be price competitive in the bottom left-hand corner and that’s therefore where we have invested a lot of money and that is where we concentrated our pricing for our power as the last period assignment. Some of the changes we made are quite remarkable so if you take chicken breast fillets, a couple of years ago, we were selling those for 6 pounds, 650 grams, we are now selling them for 395. Meats we were selling for 395 we are now selling it for 275. Cheese we were selling for 3 pounds we are now selling for £3.20 so there has been a very significant investment in the products in the bottom two boxes and everyday essentials, and commodities. Equally in the top two hand boxes we can actually invest in quality and add utility to products where we think our customers are prepared to pay a premium for Sainsbury's quality for Sainsbury's recipes and for Sainsbury's products in those categories. And again, I will talk a little bit about that in a second. So we have improved 3000 products in our ranges as we for the last couple of years. 20% of our food sales are now being so difficult to arrange a review in the course of the last financial year. We have seen a significant investment in our core by Sainsbury's range and indeed seen volume increases around 2% in that part of a business in the last year and we will continue to invest in the quality in growing category. So, this year we plan to do another 70 range reviews, which will cover around 40% of the fourth business overall, as well as investing in underlying price and adapting our offer we will continue to invest in the quality of the products that we sell. And if you look at our value simplicity, our value strategy, we have done the hard job, we are making our business less dependent on promotions and investing in underlying price. And as you can see from this chart how dramatic that change has been. So our pending deal from a volume point of view has changed from just under 35% to now around about 20%. So we have lowered our regular prices, particularly in the categories in the bottom left-hand part of the chart and that helps us actually to run our business more operationally, efficiently. So we took to the floor about the fact by having less volatile supply chain less promotional dependency, actually helps lower our operating cost and particularly in the areas of food waste and our in-store operations. And actually, we've seen our customer satisfaction rise on the back of that, and we're pleased with that performance. And we've continued to maintain the gap versus our mainstream competitors. Just one case study, just to show some of the changes that we have made. So if you take produce, we took out a lot of promotions and multi-buys a couple of years ago. We've tightened the ranges in our stores, and that means that we get faster returns, which means we offer our customers better quality products. And of course, by simplifying pricing and promotions, it actually helps us maintain availability in our shops. And then we started to make quality improvements in our underlying produce ranges. So for instance, more added value products like prepared fruit, and also looking at how we can adapt products in a different way. So, for instance courgette lasagne or cauliflower rice are all examples of how we can add value to that particular category and perhaps bring some newness in areas where there hasn't been a lot of product innovation in the last few years. And you can see again, that although our promotional participation has dropped dramatically. Actually, our volume on market share performance has remained remarkably resilient against that backdrop. And we must never forget that we run what we believe to be the best shops in the industry. And we do a pretty good job and against the backdrop where we have made significant changes in our operations and simplified our business and made ourselves more operationally efficient. For the fifth year running we think we will win The Grocer Gold Award for service and availability. And again we see in our internal measures, that our customers really value the service that our colleagues offer, that our stores are clean and tidy, easy to get around, easy to get in and out of. And actually, if you look with a few - I think we now got 6 weeks to go, we think we will maintain the gap relative to our competition, and I think again if you look at the grocer data, it would suggest very strongly that we run out the availability in our stores at a much higher level than our competitors. And indeed, broadly speaking, we've maintained that gap over the last 3 years or 4 years. And again, we've done a lot of work with our colleagues. And for the third year running, we've been accredited gold status for Investors in People. And again, we're very proud of the work of 190,000 colleagues do in Sainsbury's and now Argos, in serving our customers week in, week out. And it does make a genuine difference to the underlying performance in the business. And we believe it's one of the reasons why we've been resilient in our business in a challenging market. Again, a slide that you've seen before. On the right-hand side of this chart, we showed this 2.5 years ago, and broadly speaking, the market dynamics are playing out as we expected them to. So we've seen the growth in the penetration of online. We've seen the growth in the discounters, and we've also seen a growth in the convenience business. And of course, that's had an effect of having the pressure on the supermarket chain, but we do have an advantaged store portfolio. We have the right sizes in the right locations. We continue to invest in our supermarket chain, so we've changed around 20% of our space. So we have space initiatives around 20% of our supermarket chain. If you went back to 2014, we acknowledged that around 1.5 million square feet of our space would be surplus to our requirements over a 5-year period. Actually, we're repurposing that pretty aggressively, so we would have repurposed around 250,000 square foot of space during the course of last year. Clearly, Argos is part of that, but there are other things that we've done to adapt our space for clothing and general merchandise to introduce things like sushi bars into a number of our stores and even something like Patisserie Valerie, which is now in trial in 10 of our stores. There are all things that we've done to make our underlying supermarket business more attractive to our customers. We have 59 Argos stores in Sainsbury's stores now, and I'll talk later about the number that we plan to roll out. Now I have 207 digital collection points, of which 90 also offer the Argos service as well. So we're adapting our supermarkets pretty rapidly now to the changing market, and our job is to accelerate that change over the next period of time. Our convenience business has been great over the last number of years, growth again at 6%, like-for-like positive in the year. We opened 41 stores, albeit 7 of those were actually franchises with Euro Garages. And actually, if you looked at the weight of where we've invested in convenience stores, it's broadly in the big metropolitan areas in London and the Southeast of England. And if you look at our underlying sales densities, they are significantly ahead of any of our competitors. So, we think we run brilliant shops. It's a great opportunity for investment in the future. But the number of attractive sites is diminishing over time, which is why we've said we'll open less stores, so around 25 stores this year. And we'll only open stores where we think we can make returns, which are attractive to the business overall. And we'll see where we go with Euro Garages. We've, so far, got 8 stores trading. So far so good, but it's very early stages. But we do think there is a broader opportunity for growth within franchising as we look forward. So this is a different way of bringing more points of presence for our business in the future, if we can get a formula that works for us and works for any franchise partner. And again, our grocery online business has had a strong performance during the course of the year. We've always talked about the fact that our grocery online business was about providing service to Sainsbury's customers. And against that backdrop, we've seen sales grow by 8%, orders grow by 12%. We've now brought all of our grocery online assets, digital assets together. So our recipe site, our in-store SmartShop app, our Groceries Online, and online presence are all now under the same leadership team. And if you think about that as we look forward, that means our customers will be able to access, say, recipes or their shopping list wherever they are in the Sainsbury's ecosystem. So if they're shopping in the shop, they can download their shopping list. If they're shopping online, they can download their shopping list, they can look at their shopping history and they can even, as I say, now look up recipes and download them straight into their grocery online order. Our Groceries Online app was launched last year. Actually, last week was about 14% of our sales, so has already moved for an average of 10% and every week. It grows in it's importance as far as our online grocery business is concerned. We opened an online fulfillment center. Still, our predominant model will be picking from our shops. But London is one of the most, if not the most, penetrated grocery online market in the world. And we were just running out of capacity, so we needed to open the fulfillment center, and that gives us 2 or 3 years worth of growth opportunity as we look forward. Another big part of our program this year in online is to introduce a new picking system that makes us more accurate, allows us to pick faster and also allows us to deliver fresher products to our customers, and that has now been successfully rolled out. We now have around 200 sites doing Click & Collect and around 40 sites doing same-day delivery. And as we look forward, our customers demand more flexibility and faster service in all of our businesses and particularly in the online space. And we're adapting our grocery business to be able to deal with that customer demand. And of course, our food business, indeed our business more generally, is underpinned by the values of the organization. Our values make us different, but we also look through the lens of making sure that it's the right thing for the business from a reputational and commercial point of view. So not only do we look for new growth opportunities; so for instance, things like the ranges, the freefrom ranges that we have brought into our business, we have a significant market share. It plays to a particular customer need, a particular customer agenda. And we know it brings customers into our shops, and we have a relatively high market share of the freefrom market. I've already talked about pre-prepared vegetables. It helps us reduce our operating costs. So we have food donation partnerships in about 80% of our stores, 4 out of 5 stores, which enables us to do a better job of dealing with our wastes. We have more healthy basket, so we reduced the sugar content in our cereals by 13% in the year. And we mustn’t forget our relationship with Comic Relief. I think we handed over the largest charitable check in corporate history, again this time around with an GBP 11.6 million contribution to Comic Relief. Also, our values program helps us to mitigate risks. So looking at water and energy security, we've reduced the energy costs in our business by over 10%, despite the fact that our space has grown by over 50% over the last 5 or 6 years. So we continue to have a significant energy reduction program to make sure that we can mitigate the risks in our energy and water supply chains. We work with our farmers to help them reduce their costs through the Farmer Development Groups, and we've reformulated a lot of products by taking sugar, salt and fat out. And lastly but by no means least, one of our values is to be a great place to work, and we're increasingly focusing on diversity and inclusion and have significantly increased or improved the gender balance. For instance, within our store management, we have now got 500 apprenticeships in our business. And we continue to make sure that we reward our colleagues appropriately, and during the course of last year, as you all know, we gave our colleagues a 4% pay raise, and we're staying ahead of the national living wage. So in clothing and general merchandise, we now have one of the largest businesses in the U.K., round about GBP 6 billion. But if you think about the market size it's around GBP 130 billion, of which probably from our perspective GBP 100 billion is a market that's accessible to us, and we believe that there's a significant opportunity to grow our clothing and general merchandise business during the next period of time and to grow that market share. If you look at our market positions, now with the acquisition of Argos, we're Number 1 in toys, we're Number 1 in electricals, we're the third largest retailer of outdoor furniture. Argos has the third largest or third most visited transactional website in the U.K. We're now are sixth largest retailer by volume in clothing. And that business, for all intents and purposes, didn't exist 10 years ago. And we've now achieved over GBP 1 billion with the sales through the Argos business through mobile technology. So you can see how rapidly that market is changing, but also that we have very strong market positions in a number of key general merchandise and clothing categories. So, if you look at our general merchandise business within the Sainsbury's portfolio, it grew by over 2%. And we grew our market share, particularly in big seasonal events, and that's primarily led by higher-margin, own label categories, so design-led products like homewares and bedding and indeed, things like kitchen essentials and kitchen utensils. And our clothing business has been remarkably resilient and has again grown its market share, growing by over 4% during the course of the year. In an extremely challenging market, we continue to grow our market share. Now around 8 million customers a year shop our Tu clothing range. We've added additional ranges whether that's premium ranges or the Admiral menswear ranges, which allows us to grow share in some markets where we've underperformed. So for instance, menswear still represents a significant opportunity for us to grow share relative to some of the other market positions that we have. So on to Argos, great progress. We're saying today that we'll deliver the GBP 160 million of the synergies 6 months earlier than we told you last time. And that's because we're now confident with the business model, and we can execute at pace. We're already at 59 Argos stores within Sainsbury's stores. In fact, that's when the slide was written. We're now at 63 because we've opened another four during the course of this week. The business is focused on delivering synergies, and the underlying performance has actually surpassed certainly, our expectations, probably your expectations as well with an underlying performance since we've owned the business of 4.1%. Of the 59 stores, 46 are new stores in new spaces. And we've got now 13 relocations, and I'll talk a little bit about our success in that area because we have said before, that's the one part of the equation that we didn't know because we haven't done it before, and now we've got some experience to base our models on. And it's one of the reasons why we're confident that we can go faster. And what we're seeing with the stores that we've annualized. The first 10 that we opened we're seeing growth of between 20% and 30%. And that growth is being sustained during the 6 months of the annualization. So it gives again a high level of confidence that, that business model really works. And it also enhances the one plus one equals more than two case because we know when we do a brilliant job of clothing, when we do a brilliant job of general merchandise, when we add Argos concessions to our existing supermarket space, we will grow our grocery business by between 1% and 2%. And again, we see that trend continue as we've launched the Argos stores in Sainsbury's stores. So we'll open 250 Argos shops over the next period of time. We will complete that program 6 months earlier than we originally said, which of course means that we will deliver the synergies 6 months earlier than we originally said in 2.5 years rather than 3 years. Just to give you a little bit of flavor about replacement stores, so this is Hereford. We moved the store a mile, closed the old store, opened an Argos store in the Sainsbury store. And we've seen actually a sales increase because generally speaking, Sainsbury's stores attract more footfall and therefore customers are more inclined to want to shop at Argos as a result of that. So we've seen a sales increase of 2.5%. We're actually seeing an improvement in the Argos product availability with a more efficient stockholding, and a not insignificant reduction in operating cost. So in that site, we saved GBP 280,000 as a result partly of the rent roll but also being more efficient in the way that we operate the store. So that's worth, I'd say, GBP 280,000 is a 6% reduction in the operating cost of the store. And again, as I said already, we see the halo effect on the supermarket sales of between 1% and 2%. So that's why we're driving hard at this opportunity, and it gives us a lot of confidence now about the substantiation of the business model we put to the market when we first acquired the business. And it is a digital business. It's incredible how quickly Argos is changing. The Internet and mobile penetration is increasing fast. As I've said already, it's the third most-visited website in the U.K., a billion annual customer visits and with mobile visits now up from 66% to 76%. Something like Fast Track delivery, which we think is a unique proposition in the marketplace, the ability to order on your mobile phone and have it delivered somewhere convenient to you within 4 hours, has grown by 59%, and Fast Track collections are up by 48%. And indeed, when we look at the Sainsbury's stores with Argos in them, actually those numbers are higher. So that business actually is even more mobile, even more Click & Collect, even more Fast Track than the underlying Argos business. And outside the synergies I already identified, we think there are other significant opportunities. And I won't go through all of these, but as an example, international sourcing. The Sainsbury's clothing and general merchandise is roughly 40% direct sourced. The Argos business is about half of that, so that suggests there's a significant buying opportunity, an opportunity to bring our buying offices together in the Far East and to do more direct sourcing. We've got a great team and delivery service. So whether it's furniture or white goods, again, that represents an opportunity that we haven't factored into our overall synergy case. And we can grow the financial services penetration of the Argos business. It currently runs about 16%, but if you look at kind of the norm for many businesses in the same space, it's, let's say, around 25%. So we believe that there's a significant opportunity through the bank to grow the financial services business as well. But there are many other opportunities. So again, as we look forward, we think we can adapt the business quite significantly as well as delivering the synergies that we've already outlined. If I talk a little bit about the bank. First of all, it's a major asset for us as a company. It's a business which has a strong brand and customers really trust. And they like giving us their money, and they like borrowing from us. And of course, we can use our customer data to help us manage risk, whether that's insurance or credit risk. But also, it helps us significantly lower the cost of customer acquisition. So we get much better targeted customer offers, and we also find our conversion rates are enhanced by the use of our transaction data, and again it's one of the examples where 1 plus 1 can make more than 2. Where customers own a bank product, they will spend more money in our supermarket chain, whether that's a credit card or, indeed, a house or pet insurance product. And as I said already, the finance offer, the Argos Financial Services offer has the ability, the opportunity to help us grow our clothing and general merchandise business. And we believe that's an opportunity to grow the penetration of consumer credit and will also help us drive sales of the bigger-ticket items. And as I said, that's particularly the case where we have a 2-man delivery service, which we think is pretty competitive in the marketplace that we offer - that we operate in. And the business has performed well, so we've seen strong credit card and loan performance. New savings accounts up 60%, and that helped us finance the Argos book. We've changed our insurance model to have a pool of insurance providers, which allows us to get much higher market penetration. The new Sainsbury's Bank website has launched in 2017, and we're seeing online visits up 50% year-on-year. Travel Money's transactions up 35%. The ATM estate grew by 5%. So I think we give out something like 1 in 10 of every pound note that's ever taken out through an ATM in the U.K. And of course, we've launched mortgages in April, with a plan of getting to around 60,000 mortgages over the next period of time as a way of balancing our loan portfolio in a more sensible way as we look forward. And last but by no means least, we're on track to deliver GBP 500 million worth of cost savings. We would have delivered GBP 130 million in this year. To get to the first GBP 500 million, we need to save another GBP 155 million during the course of this year. And they come from lots and lots of little projects. There isn't a silver bullet. I think in the past, we've talked about around 80 things what we've been doing, whether it's investing in online picking systems or energy reduction or looking at the logistic flow within our supply chains; all of these things that require small incremental changes which add up to a very large number over a period of time. And we're also confident that we can deliver a further GBP 500 million from the beginning of next financial year and for the subsequent 3 years, roughly a rate of GBP 165 million, and we stand by our track record of being able to deliver that. I think we've got a pretty consistent track record of delivering the cost savings that we set out. And that means that we've maintained and, indeed, improved our balance sheet strength. So as Kevin has already outlined, we'd expect our core retail CapEx, including the business as usual CapEx rather to remain around GBP 600 million. We have an increased focus on maintaining and improving our cash flow. We would expect to see our net debt to reduce over the medium term. We've got pretty stable balance sheet metrics. And we continue to pay a dividend. And if you've been a Sainsbury's shareholder for the last 5 years, you would have received 69.5p in the form of dividends. And again, we believe that makes us an attractive investment and it will maintain the underlying dividend cover at 2 times. Of course, I've talked about the individual components within our organization, and I've talked a little bit about how we see some of them joining together. But we believe we can join this group together, particularly through the use of our customer data to share across all of our organization and also by consolidating areas within our back office, for instance, our HR teams or our finance teams. And we've already made quite a lot of changes in our organization to make that happen. So with 26 million customers a week, we know our customers better than anyone else. And we can simplify the shared services across the group and really harness the opportunity, not just in the individual businesses, but on a group-wide basis. And as I said, as I've gone through the presentation, hopefully, I've given you some flavors of how the one plus one plus one can equal more than three. So in summary, it's been a pivotal year, lots of changes. We've made some brave decisions about things that we'll stop doing. We've acquired the Argos business, which we think gives us a platform for growth in the future. The food performance has been resilient in a challenging market, in a market that we expect to be challenging for the foreseeable future. But we continue to adapt our business to that changing market dynamic and we would expect, having re-platformed the bank and having done the hard jobs, to see strong profit growth out of our bank over the next period of time. So that's it from me. I think at this point, we are going to open up to Q&A for Kevin and I. A - Kevin O'Byrne: One of you choose...

Good morning, Bruno Monteyne from Bernstein. Three for me, please. If I read your guidance correctly, are you really implying that H1 of the next or the current financial year will be the low point of profitability for Sainsbury's? The second one is, you're generating about GBP 350 million of retail free cash flow, but guiding for flat net debt. So where is the use of that cash going out of the free cash flow? And third of all, could you indicate a little bit the size and the growth of Click & Collect and online food? Is it of the order of about 10% of the overall? Is it growing 2x, 3x faster than the rest of online market? Can you help us size a little bit at what rate that's changing the online food market?

I'll take the third one, and the good news is that Kevin can do the first 2. So, yes, I mean, it's still a relatively low level of the Sainsbury's grocery business, so less than 10%, albeit growing in penetration and we're now at around 200 stores. So it's something that our customers demand of us, but it's particularly important at certain times of the year, so it does allow us to offer more capacity in the run-up to Christmas and other big seasonal peaks. So what found during the course of last year, the penetration does increase quite significantly in the run-up to Christmas because it's just a more convenient way at that time of year for shopping for your groceries. Of course, the Argos business is very much founded on the idea of Click & Collect, and it's one of the things we think is unique in our offer. The combination of that for our fast-track delivery window and the fact that with the combination of the existing Argos real estate and of course, the Sainsbury's real estate, you have got a fantastic array of points of presence, places that customers can pick things up from, and we would expect over time that, that part of that Argos proposition will grow and, of course, help drive the supermarket business.

Out of the 8% online food growth you quote, would the Click & Collect be a material contributor to the 8%? Would it be...

It would be small in the overall scheme of things. The online growth is being driven by 12% order growth, offset by a slight reduction in baskets albeit actually, the reduction in basket size has started to stabilize. One of the things we've done is link our recipe menu sites directly to our online site, and that's one of the things that has helped us drive the number of items that we're selling within our online grocers business, and it's one of the things that gives us some belief in the possibilities for the future. Kevin, on the first two. Kevin O’Byrne: Yes, just on your cash question, Bruno. We - clearly we're focused on generating free cash flow and then we make some choices, pay the dividend by freehold properties if we think there's good development opportunities, and/or invest in the bank. And next year the 2 that we see is definitely dividend and investing and injecting capital into the bank, which will broadly leave us neutral, if you like, when it comes to net debt. And then on the first point about the shape of profits next year, it is an unusual year because in the first half we will get the impact of changes made on prices, and on salaries in the second half of this year will come through in the first half and bring the first half down relatively to last year. And we've got the Argos losses in the first half. Of course, you will have some synergy savings coming in, but they are somewhat weighted to the second half as well, which means the second half gets the benefits of synergies and doesn't have those other drags relative to the second half this year.

Which made it a bit more difficult for you rather than just taking the first half and doubling it, you now have to do a little bit more work to get to the numbers.

Hi Mike, hi Kevin, James Tracey from Redburn. Two questions from me. The first one is on the evolution of market share in the grocery business. So it looks like you've been losing market share for the past 44 weeks. If we had have had this discussion perhaps a year ago, you were broadly holding share, and before that it was gaining share, and so - are you happy with this? Do you expect it to change anytime soon? Second question is on the EBIT margins, and excluding Argos, looking at the supermarkets business they fell slightly more than 50 basis points in the second half versus 20 basis points in the first half. Your new guidance seems to be indicating a similar 50 basis point or so decline in the first half of the coming year. How do you expect this to evolve going forward in the second half of the coming year and future years?

So I'll take the first one. Kevin can comment on the second one. Yes, clearly, we don't like losing market share. And we would point, as I've done at the beginning, at our relative resilience in what has been an extremely difficult and challenging market. And I suspect for the foreseeable future that will be the case. We need to continue to adapt our food business in that environment. So the successes, we've invested in convenience stores, and they continue to do well. We've already talked about online groceries. And we're starting to make quite a lot of changes in our underlying supermarket business. So not only the Argos concessions, of which they'll be well over 100 Argos stores and Sainsbury's stores over the next period of time, but also around 60 refurbishments. And all of these things will add to the appeal of the underlying supermarket business. And of course, it's inevitably against the background where some of our competitors are in some form of recovery. But judges, as we've said a million times before, in the long term, because we believe that we're building a resilient business model. We have made some pretty courageous choices about how we wanted to run that business on a much less promotionally driven basis, much more stable basis. And we believe, over the long term that will pay off. Of course, we're only just annualizing. Literally, in the last couple of weeks, the removal of all the multi-buys in our business is one example. And we'll see how the performance plays out over the next period of time. But the components of that, there are things that we cannot control inevitably. But actually, we have more of the levers in our own hands today than perhaps we would have had even 6 months ago. And we intend to pull those levers as hard as we possibly can over the next period of time. Kevin O’Byrne: And James, one other comment and that’s why we're never complacent about shares, as you can imagine, you have to look at some of the changes and things like alcohol and you can change your share in a quarter with some special deals. It's over the medium term we're more concerned. On the EBIT point, there is no new guidance today. Just to be clear, the pressure that you're seeing, the H1 that we've talked about, is because the decisions we made in H2, which we guided to around the price investment and the increase in salaries which went through in August of about 4%. So, we're just seeing that flowing through into the first half of next year.

We'll pass it back that way and then down that side.

Thanks. Niamh McSherry, Deutsche Bank. I have two questions. The first one is on the 13 relocations...

Can you speak up? Sorry.

Sorry. 13, the 13 Argos relocations. I was wondering what's determining the kind of pace of store relocations? Is it a very complex job? And would you have capacity to accelerate that now that you're more comfortable with the results? And then the second question was actually about recent trading. So we had some counter data this morning which suggested that April was a very strong and sales growth for the market. I was wondering, obviously, there's Easter timing impact, but even taking that into account, it appears that there's strong growth in U.K. grocery. I was wondering if you had any comments on consumers' shopping behavior recently?

Yes. I mean, the criteria of the relocations are driven by a combination of things. One is how easy it is to do it, you're right. Secondly, how attractive is it. But probably more significantly, when does the lease run out of the one that you're planning to relocate? So we triangulate all of those three things and have a program laid out for the next period of time. I'm sure that program will change it. Inevitably it does. But we've got a pretty clear idea of the sort of running order, the batting order of what things we're going to do when. Going for 250 over 2.5 years is no mean achievement. It means that we'll we doing when we can, outside Christmas and outside the main holiday seasons, around four to five stores a week. We will do four this week, as an example, which is probably about the limit of our capacity. If we can do them faster, we will. But I think doing it in 2.5 years, given the underlying physical constraints that's going some. As far as the Kantar data is concerned, I wouldn't get too carried away at this point. We said it before in our last quarterly trading statement, Easter and the timing of Mother's Day is incredibly significant. It's unfortunate the way that our financial year-end fell. You will have to wait and see when we next publish our quarterly trading statements, which will be now at the beginning of July. And by then, I suspect a lot of the noise, the pluses and minuses of the timing of Easter, the timing of Mother's Day, the timing of the various Bank Holidays, the paydays will have worked their way through the system. So, I wouldn't read too much into the data if I was you. It does look strong on the face of it, but it is significantly skewed. I haven't looked in any detail of it, but I suspect it's significantly skewed by the timing of Easter and the timing of Mother's Day.

Great. Just back on your 250 stores comment, I think that's all new stores. And I'm asking specifically about relocations.

Yes, we haven't broken out the number of relocations as part of that 250.

I guess the question simply is, can you do it at a faster pace than you've done in this first six-month period? And do you have the bandwidth for that?

Yes. I mean, without being specific about the numbers, you wouldn't expect the number of relocations, the 13 out of the 59 to remain at that kind of proportion. You would expect the number of relocations to go up, and pretty significantly over time. We've been unhelpful or circumspect about being specific about the number of relocations simply because we want to make sure that our colleagues hear first from us. We've got 40,000 people who've been acquired by another business, and we want to make sure that they've got confidence in us as a leadership team. One of the great things about the relocations that we've done is that we've been able to place everybody that's been affected by that change somewhere in our organization, usually in the relocated store, but sometimes somewhere else. So that gives us confidence. But it's important for us that our colleagues hear first and we don't make some kind of announcement about the number of stores that we intend to relocate. But what I would say is that it will be more than 13 out of 59, or 13 to 59 as we go forward.

Thanks.

Do you want to set up the microphone? I think the last one on that side, so we might as well pass it over there. Work from the back to the front.

Thank you. It's Dan Ekstein for UBS. Good morning. I've got two questions, please. In the past you've talked about when all this is said and done with this strategic plan an ambition to deliver a 3% to 3.5% margin for the group, could you sort of just talk about your confidence in that today? And also, in terms of direction of travel within that, retail x-synergies, do things stay the same to deliver that? Do they get better?

Could you speak up? I didn't quite hear you.

So within that 3% to 3.5%, what is the direction of travel in terms of retail margins x-synergies? Second question, Argos is performing, as well as you would have hoped for the top end of expectations. You've given a little bit of color in the presentation. Could you be a bit more specific about the areas where it's performing better in terms of the concessions? Is it in-fills? Is it relocations? Is it range? Is it cost? Is it margin? I think that would be interesting.

Well, I'll have a go at both of them, but Kevin might want to comment as well. Yes, I mean, I'll start by what we said previously that we believe that Sainsbury's as a group can deliver margins of 3% to 3.5% over a 3- to 5-year period. And you can see the building blocks very clearly from the slide that outlines the four areas that we think we can do that, whether it's the underlying resilience of the food business, whether it's delivering growth in nonfood and delivering the synergies through the Argos business, whether it's growing profitability of the bank or, indeed, delivering another GBP 500 million of the cost savings. If you add all of those up, some of which you'll have to estimate, but if you add all those things up, you get to a number which is substantially higher than the 3%, 3.5%. And inherent in that is some assumptions, without being specific that we will need to invest in areas of our business, whether it's the quality of the products that we sell, whether it's prices or whether it's in colleague wages as another example. So, I don't think I can give you a direct answer to your question other than we have many of the things that we need to do to deliver the 3% to 3.5% in our own hands. We can't mitigate for market conditions inevitably. And I would always caveat whatever I'm saying by making that point. But if you add up all of the components that we've talked about and then you discount for some of the things that we will need to do in our businesses as we look forward, some of which haven't come our way yet, but I'm sure will at some point, you can kind of get to those numbers over that period of time. I mean, I guess as far as the Argos business is concerned, you listed a load of things, and I would kind of say all of the above. Whether it's improving underlying availability, whether it's improvement in the digital proposition so the business has a great digital team that's constantly iterating and improving the way that we market to our customers. The in-fills and relocations are performing as we would have expected them to, so nothing dramatic in terms of one particular piece working better than the others. And again I think we've been pretty upfront about the areas that we have seen the business growing. So big-ticket electricals, mobile, wearables, whatever. The PlayStation that was launched recently, which I can't remember off the top of my head. All these things, are things which have driven the business. And in many of the sectors we operate in, we've grown market share. So not only have we've grown the business well, we've also grown our market share. So it's difficult to pick out any one thing. We've done a lot of work on improving the business and we got a great team of people, led by John getting on and delivering the strategy. And above and beyond the things we've already overtly identified in our synergy case, I've outlined again, if you look at the slides, other areas where we're not going to quantify what the opportunity is, but we believe there are opportunities as we look forward. And if there's anything you have? Kevin O’Byrne: No. That's good.

Thank you.

Thanks guys. Rob Joyce from Goldman Sachs. A couple for me. First one, just on the cost inflation in the year just gone, could you tell us what the underlying cost inflation run up? And the second one is to elaborate, I guess, on the previous question. In terms of the grocery business, it looks like over the three-year window of the current 500 million cost-savings period, EBIT margins will be down broadly 80 to 100 basis points. Is that the way we should think about the grocery business over the next GBP 500 million cost-saving period?

Do you want to have a go at that? Kevin O’Byrne: Yes. Just on the EBIT margin, just repeating, Rob, what I said earlier, there's no new guidance today on what's happening with the margins. All we can see is what we can see at the moment. The decisions will be made in the second half being reflected in the first half, the price investment, et cetera. Clearly, the world can change and we can't predict the future. So we're not seeing that changing. As far as the price, we saw about 2.5% inflation. And we're guiding broadly the same this year, between 2% and 3%. And clearly, the one element that's impacting on the first half of this year more so is just the timing of the wage rise, which is clearly an above-inflation wage increase of 4%. But underlying, we saw around 2.5% across the year.

Just very quickly to follow up, I guess on things like wage inflation, given the kind of targets for the minimum wage in the U.K., is that 4%, should we think that as a one-off? Or do we think of that as a kind of a multiple-year increase?

Yes. One of the reasons why we have to make our business more efficient is that underlying pressure. And we don't know, I mean, there's a target that's been put out there. Whether or not that remains the target, we'll see. But we will endeavor to make sure we pay our colleagues above the national living wage, as it's currently called. And if you take the endpoint at GBP 9 an hour as being kind of a target by 2021, you would get to that kind of number ongoing. And that's one of the reasons why it's imperative that we make the cost savings and the efficiencies that we need to make. But we have to look at it as an overall package. As I say, the way I would suggest you think about the business is to think about the component parts added all up. And then you, like we, have to make a kind of underlying assumption around where we might have to invest. But I'm pretty certain whatever plans we may have in our minds today and whatever construct you can come up with, it will almost certainly change and it will change very quickly. The important thing is, from our perspective, we've got a lot of the levers, whether it's the cost-saving initiatives, the delivery of profitability in the bank, the Argos synergies making our food business more differentiated and adapting it to the changing markets. We've got a lot of those levers in our own hands whilst we can't mitigate for some of the broader macroeconomics and customer dynamics. Kevin O’Byrne: And Rob, maybe just one final point. We clearly, in our cost-saving targets, as we look to simplify the business, we'd be looking to more than cover the annual inflation.

Yes?

Hi good morning. It's Andrew Gwynn from Exane. I'll just go for three questions, if I can be a bit greedy. First question, a little bit sort of connected to Rob's. Obviously, we have the currency pressure working its way through. So could you just elaborate on where you are in that journey, maybe splitting it into the food and the non-food side of the business? Second one, discounters, unfortunately. If I get my ruler out, and we go back to the chart where you think you'll be in 2022, it looks like they are approximately double the size of where they are now. So is your intention just to sort of manage the decline? Or sort to take a bigger share of the smaller slice of the market effectively? And then the third one, I suppose the elephant in the room is the balance sheet. With a pension deficit obviously becoming materially bigger, still relatively an elevated level of net debt, what do you think you can do on the balance sheet just to give investors a bit more confidence on the group as a whole?

So if I can take the first two and Kevin can go on the balance sheet. Yes, the currency pressures there, I think we've talked about the ad nauseam. Some of the extreme rhetoric that was talked about hasn't come to pass because we have done, I suggest the market more generally has done, but we've done a particularly good job of mitigating cost within our supply chains and making sure that we look at all aspects of our business to reduce the impact as far as ongoing retail price is concerned. And I think, as I say, it's a little short of remarkable how much is being mitigated through that process. I mean, it's uncertain. We always use fuel because it's probably the easiest example to talk about the dynamics. On one hand, you saw a significant cost and, ultimately, retail price increase post-Brexit as a result of currency devaluation. We then saw the price come down because the commodity price, the price of oil had come down. And as we sit here today, fuel is about 10p a liter, more expensive than it was a year ago. But it's 5p a liter less than it was at the peak, somewhere earlier in this calendar year. And that's true then of many other commodity markets. And we've seen the value of the pound go up a little bit, and therefore, perhaps some of the other dynamics get mitigated to some extent. So we stand by what we said. Our job is to make sure that we don't pass on input prices, as far as we can to our customers. But we'll be the first to acknowledge, as we said at our [indiscernible] trading statement, we are seeing price inflation and you'd see that again today, albeit the rate of food price inflation has dropped from 1% to 0.9% I think in the index that was published this morning. As far as the discounters we've, again never shied away from the fact that we think the discounters will get to 15% of the market. And indeed, the charts that we showed, that I showed in this presentation, is now 2.5 years old. And actually, the shape of it hasn't materially changed since we presented it 2.5 years ago. And therefore, the underlying premise for our food strategy of investing in the areas of growth like convenience stores, like online groceries continues to be the case. And to adapt our supermarket chain and find different ways of utilizing our space so that we can continue to make our supermarket stores attractive places to come. And that's one of the reasons why we made the Argos acquisition. It's one of the reasons why we continue to invest in clothing and general merchandise, but also within the food offer things like Sushi Gourmet, things like having a relationship with Patisserie Valerie, things like launching 3,000 new products, things like simplifying our pricing, et cetera, et cetera, all things that we believe should allow us to remain in a good position as we look forward. But it is inevitable that the supermarket sector will become a smaller part of the grocery market overall. We've never shied away from that. And our job is to make sure that we can do everything we can to mitigate that risk as we look forward. Kevin O’Byrne: Just on balance sheet, just quickly. Andrew, I guess I'd probably challenge a little bit about the starting assumption that we've got a weak balance sheet. That's not to say we would be complacent and wouldn't want to strengthen it. But when I look at the balance sheet with 10 billion of freehold property, just under GBP 1.5 billion of debt, and the pension deficit we talked about 850 million, I wouldn't describe that as a weak balance sheet. Our focus will clearly be on driving free cash flow and looking at what we can do in areas like stock, in areas like CapEx. And we've seen that our average CapEx over the last 5 years was something like GBP 930 million a year, and that's dropping to GBP 600 million. And clearly, we're looking at capital-light ways to develop the business, things like the franchising with Euro Garages, and we'll continue to do that. And if you look at again the pensions, we injected GBP 324 million this year alone into the pensions. That will drop to GBP 124 million at our sort of annual payments. And we'll work closely with the pension trustees to make sure we've got the right investment strategy, they have the right investment strategy that manages that cost from a group point of view. But it is clearly very manageable, and we'll stay close to it.

And you can see, I mean, Kevin showed the chart that shows how the pension deficit, in the way it's calculated, has bounced around all over the place in the last year. I think at the low point, it was GBP 300-something million. I think at our half year, it's something like GBP 1.5 million. So it's very much dependent on the ongoing annuity rates.

Sorry, just very quickly. On the first question, how far are we through the cost transfer? Is it now at the currency weakness, specifically? Kevin O’Byrne: On the hedging, Andrew?

Well, not necessarily hedging, but just in terms of - to the extent you had cost increases coming through as a result of a weaker currency, has that now more or less fully washed through the business on the food and the nonfood side? Or is there more pressure to come?

The way you characterize it, it sounds like it's something that started and at some point is going to stop. That's not the way I would characterize it. It's a constantly moving landscape. Clearly, there was a direct and, in some cases, immediate impact of the currency devaluation, the devaluation of sterling. To some extent, in some categories we were hedged. And we talked again very openly about in some parts of our business being hedged for 1 year. So you might expect some of those positions to unwind. But to characterize it as something that somehow is going to finish, there are so many moving parts, whether it's underlying commodity prices, currency fluctuations. I suspect it's a never ending - well, it is a never-ending dynamic that we have to actively manage. But I would argue very strongly that we as a business have done a pretty good job of both absorbing those underlying cost pressures, not passing them onto our customers and maintaining all of the numbers that we've talked about during the course of this presentation.

Okay, thank you.

Good morning. Nick Coulter from Citi. Two for me, please. Firstly, on the capital injections into the bank, which I think you've guided to between 160 million and 190 million for 2017/2018. Clearly, that's a material amount and a big drain on the free cash flow. Could you say what the return criteria is for that capital allocation? And then also, beyond 2017/2018, how much more we're going to see because clearly, those amounts and the costs are way ahead of the initial projections when you bought in your other half of the bank? And then secondly, just to clarify in the volume uplifts in the range review categories. Did you say 2% for the ranges thus far? And is that across the ranges or just within certain elements of the range categories that you've reviewed?

Yes. On the second one, I'll ask Kevin to talk a bit about the first one. But on the second one, the Sainsbury's stand-alone name products, so by Sainsbury's volume in total, went up by about 2% last year.

So that's roughly half of that category then, basically?

Right. It's about half of our stand-alone enabled business. If you take out Taste the Difference it's probably around 40-something percent of our business.

So within the branded element, you have also changed, presumably, the branded elements of those categories. You haven't seen an uplift there?

I mean, broadly speaking, the business, if you characterize the business, it become a little bit own label and a little less branded in the last year by that factor. So whatever volumes have gone up in the Sainsbury's own label product, particularly by Sainsbury's would have come down broadly a corresponding amount, because it's roughly 50-50 in terms of the split between the 2 parts of the business.

Thank you. Kevin O’Byrne: Just on the bank, as you say, we're forecasting injecting between 160 million to 190 million. There's three reasons for the injections this year. There's a registered amount of capital, which is probably the smallest - well it's the smallest element of it. There's about 60 million on the system changes as we develop the loans platform and the cards platform. And we've earmarked around 70 million for growth. As we grow the loan book, we have to put some more capital into it to help grow that. We're targeting about 15% - to midteens return on invested capital. We would expect to see it slightly lower than that through 2018/2019 as we do this investment phase and then increasing in years, sort of 3, 4, 5 as we go out. And one of the things you will see improve a lot there is this cost ratio as well, which you saw at 72% today. That's clearly - we're investing ahead of growing the business. And if you look at other peers in the marketplace, you will see significant lower figures, so we'll see that going through.

So are you saying that basically we'll see hundreds of millions of capital injections in the Sainsbury's bank over the medium term, is that... Kevin O’Byrne: I can't sort of forecast. My estimate this year would be high, and then you would see it coming down in the next few years. And that will depend largely on the growth of the loan books. And clearly, in the current environment, we have ambitious plans for the bank but we also need to just be careful as we see how the environment changes from a lending point of view. But I could see it being maybe half of what's going in today in the per year, in the outer years. But it's probably a bit too soon to be really clear on that, but it will reduce.

I'll just reinforce the point that Kevin made at the end, we believe the business, the outcome for the business over the medium to long term will be a very attractive return on equity or return on capital invested, otherwise, we wouldn't be making those choices. It's fair to say, and I think we'd hold our hands up, it's taken us 1.5 years to 2 years longer to make the transitions that we've made. But actually, a lot of the hard yards have been done and we have the platform for future growth. So yes, there is an element of jam tomorrow about this. But actually, having done the hard yards, we believe we wouldn't be making the investment unless we believed that we can get a pretty attractive return on the capital that we've injected, albeit later than we would have expected.

Got it. Just a follow-up on the maturity profile of debt, as I think that's a couple of years since those have been extended. Are you comfortable with the maturity profile? And do you expect to have to do any work in that area? Kevin O’Byrne: In the Sainsbury's corporate debt?

Yes. Kevin O’Byrne: Yes, we've got some debt, as you know, with relatively short on the Eddystone financing. And we'll look at that over the summer as I sort of settle in and just decide what we do. We may or may not need to refinance all of that, but comfortable as we stand to date.

Okay. Thank you.

Good morning. Stewart McGuire, from Credit Suisse. If I may, a clarification before I ask my questions. The second part of your capital for the bank, you said 60 million in system changes? Is that non-returning capital, i.e., you're not going to get a return on that? Kevin O’Byrne: No, that's - when I'm talking about a return, I'm including that capital. That's building the platforms to separate from Lloyd's Bank. So that's the cards platform, which we would expect absolutely to get a return from.

Okay. And now, three questions. So first question, they're all regarding Argos. The case study, you had 280,000 of annual cost savings. Can you say whether that is estimated to be typical for a relocation? And secondly, on the other relocated Argos stores that you've had, can you discuss, give us a little bit of color on what the sales impact has been from closed to then reopened within Sainsbury, if there's been a positive or negative impact? And then finally, the 250 relocations you've talked about seem to be related to timing of your three-year program. Are there any reasons why this number couldn't continue increasing over time? Thank you.

Yes. I have to be slightly careful about what I say about the first one because we've actually given the synergy numbers associated with the relocations, and therefore, you can backsolve the arithmetic. So it wouldn't be atypical, but I wouldn't go as far as - try and avoid to answering the question and be slightly more circumspect to the balance between relocations and new sites. But we did backsolve the arithmetic, so it made enough sense for it not to be completely implausible. I didn't want to do a [indiscernible] this morning. So she could have avoided that. So as far as the Argos impact, I think we put it explicitly up on the slide. Wherever we do this, we see an average of 1% to 2% halo impact as an improvement on the Sainsbury's old business, [indiscernible] so whether that's clothing, general merchandise or the grocery business more generally. And clearly, there'll be outliers having done 59, but we're seeing a pretty consistent result as far as that's concerned. And the last question, which is, yes, we have done 250, or we will do 250 locations. A proportion of those will be relocations. A proportion will be new sites. And if we think there are more to do, we'll tell you when we're ready to tell you. But you can draw your own conclusions from that answer because I suspect when it actually comes to it, we'll continue to adapt the model. And I suspect there will be more to come at some point in the future. But that will be making myself [indiscernible] let's get to the next 2.5 years and then worry about what we do next over the next year to 18 months.

Just to clarify, on the sales impact I was talking about was actually at Argos. So, if you had 100 sales at the old Argos stand-alone and then you relocate it within a Sainsbury, are those sales still 100? Or do they drop a little bit or increase a little bit?

In the slide, we showed in the particular case was the 100 became 102.5, so it was a 2.5% increase as a result of relocating the store or closing the store and then relocating it in a Sainsbury's store. There are pluses and minuses. But the important thing from the synergy investment cases concerned is that, in effect, it confirms the case that we put to the market. And that enhances our confidence that we can deliver what we said we could deliver. And it was the only variable that we didn't have our arms around when we bought the business. We already knew what opening a new store in the Sainsbury's store will do, but we didn't know what happened when we closed a store and moved it. Perhaps the other thing just to reflect on is it's not quite as straightforward, as you close one and you move into a Sainsbury's store, you actually see the turnover redistributing in a way that presumably satisfies, whichever customers we're serving in the store that we've just closed. So it's not just about transferring the stores and the sales of Sainsbury's stores. We quite often see uplifts in geographically co-located Argos stores as well. But the quick answer to your question is 100 becomes 102.5.

Thank you.

We're done? Kevin O'Byrne: You want to go round again?

Well, thank you very much, everybody. I'm sure we'll get a chance to talk to your individually and collectively over the next period of time. Thank you.