Mike Coupe - CEO John Rogers - CFO

Francois Halconruy - Morgan Stanley Bruno Monteyne - Sanford Bernstein Sherri Malek - BofA Merrill Lynch James Tracey - Redburn Rob Joyce - Goldman Sachs James Grzinic - Jefferies Niamh McSherry - Deutsche Bank David McCarthy - HSBC John Kershaw - Exane BNP Paribas Rickin Thakrar - Espirito Santo Charlie Storey - Macquarie

Welcome, ladies and gentlemen, to the J Sainsbury analyst conference call hosted by Mike Coupe. Please go ahead Mike.

Welcome everybody to the Sainsbury's quarter four update call; I am joined by John Rogers, our CFO. We talked to you in November, following our strategic review, about our plans for the future and some of the important decisions we'd have to take as a business. I'm not going to talk too much about that today, this is our Q4 trading update, but I will say that we are making good progress in all aspects of our review and we'll certainly give a full update on this in our prelims announcement. I am pleased to be able to report a trading performance for Q4 in line with our guidance and ahead of our consensus expectations. There is no doubt that the market has been challenging and will continue to be so for the foreseeable future. Increasing levels of food deflation and competitive pressures on price have had a significant effect on all players since Christmas. Given this market uncertainty, delivering the numbers in line with our guidance gives us confidence in our view of the market and how it will evolve. I am confident we have the right strategy in a tough market delivered by a highly experienced management team. I would now like to hand over to you for any questions you may have.

Thank you. Ladies and gentlemen, your question-and-answer session will now begin. [Operator Instructions] Your first question comes from the line of Francois Halconruy from Morgan Stanley. Please go ahead.

Morning. I have a short question on your basket division. I think you were quoted this morning on the wireless saying that your basket division was at roughly 2.5% in the food business in Q4. Could you please give us a sense of how this has evolved throughout the quarter and is it fair to say that in Q4 you've seen the full impact of your price investment as a proper quarter four price investment? And related to that, please, out of this 2.5% for your food business, what part of this do you believe is a result of the market deflation and what part is specific to your investments please?

I'll have a go at the first bit and maybe John can put a little bit more color on it in terms of the second part of your question. I think pre-Christmas we reported between 0.5% and 1% deflation; we've seen that go to 2.5% in our food business and 2% overall and it's a reflection of a combination, as you say, of underlying commodity price decreases and our investment above and beyond that. And particularly in our fresh food categories, where we've seen both significant deflation from a commodity point of view, but also a lot of our investments in the early part of the quarter were in core commodities like our produce business and our meat and poultry business. So we have certainly disproportionately invested in those parts of our business and that's reflected in the overall quarterly deflation number. And, broadly speaking, it's spread across the quarter, so it would be difficult to say that there's a trend in the numbers because we made most of the big price investments in the early part of the quarter.

Yes, I don't think I've got a great deal to add to what Mike's already said. In terms of breaking out the minus 2.5% deflation into the two components, obviously one component being input price deflation and the second component being our overall price investment, of course, which we talked about our £150 million in the second half of this financial year and the first half of the new financial year. We're not going to break out that level of detail other than to say that, in terms of that deflation, what that means in practice is that we think our price position versus our competitors has never been better. If you look at the BRC food deflation data that would suggest that food deflation is running at about minus 1.5%, so our minus 2.5% over the quarter, we think, is a step ahead of the market reflecting the great value that we're now offering our customers.

Thank you for your question now. Our next question comes from the line of Bruno Monteyne from Bernstein. Please go ahead.

Just a few questions from me. On the impact of new space at quarter three it was a bit lower than expected and I think you indicated it might come back in quarter four, it still didn't come back. Is there any change in the way you're opening up spaces and implicitly further slowing it down? My second question is on your pricing strategy; clearly the EDLP strategy on the essential products is a hard one to communicate. Are you seeing any results yet on frequency or new shoppers you're attracting or price perception of that really resonating; any sort of internal data that helps us get color? And the third one is on Netto. Is there any sort of information on how Netto is trading so far over the first few quarters? Thank you.

Well shall I take the last two and I'll ask John to comment specifically on new space. We're not saying anything on Netto, other than we've opened the five stores; they're open, they're trading. We've committed to 15 stores by the end of the calendar year and we will -- we believe we're in line to fulfill that commitment and clearly at the next update, which is our prelims, we're likely to say a little bit more about that. As far as our price strategy is concerned, we say on the face of the statement that we've seen an improvement in our units and the volume that we sell year-on-year, which is the first time we've seen that for just about over a year actually. And we've also seen an improvement in underlying like-for-like customer transactions, both of which are -- I guess you could argue, are green shoots in terms of the future prospects for the business, but that's in an environment which we expect to be deflationary for at least the rest of the calendar year. And, generally speaking, an improvement in volume and an improvement in like-for-like customer transactions are leading indicators and it would certainly, in terms of our underlying data, suggest that the price investments we've made are having a positive impact. Maybe one other number we pick out is the fact that the volume on the products that we've invested in, the 1,100 products we've invested in is outstripping our overall volume growth. So that would indicate that that's having an impact on our customers. Generally speaking, behavior is ahead of perception, so people behave in a particular way, which we're beginning to see; before that it was reflected in overall price perception and you would expect a lag of probably six to nine months before it comes through in real customer price perception. But, in the end, what we're interested in is behavior and the behavior at the moment looks like it's moving in the right direction. John, if you'd just like to update on the new space numbers.

Yes, just to your question Bruno, just to remind people it's obviously the new space contribution. We guided for the full year to around 2% and what it looks like we'll out-turn the full year at somewhere between 1.7% and 1.8%, so not a million miles off where we guided, perhaps a little bit lower. If you try and break that out a little bit, the supermarkets that we've opened have performed bang in line with expectations and indeed consistent with our overall estate, so no major trends there. I think if you look on the convenience side the one thing I would comment, and it will account for some of the shortfall, is that we've tended to deflate proportionately more in our convenience estate, because that over index is in fresh and clearly fresh is one of those categories that's seen marked deflation. So given a significant proportion of our space that we're opening now is convenience, that would explain some of the shortfall; but it's not a million miles out of what we guided at the beginning of this year.

Our next question comes from the line of Sherri Malek, from Bank of America. Please go ahead.

My first question is on the like-for-like transactions that you pointed out that grew. I just wanted to understand how precisely that trend has developed over the last few quarters? Secondly, you've given the growth in online orders, but I just wanted to know the absolute online sales growth in the quarter? And finally, on the price reduction that you've made, which is often an encouraging start, but do you think your plan is enough to reverse the current trend of market loss [indiscernible]?

Shall I do the last two and I'll ask John to comment on the like-for-like transaction trend, because we're trying to get the graph out of the pack. The headline on sales growth for online is 5.5% sales growth but, as we said in the face of our statement, we're very encouraged by the increase in order numbers, 14%, and we haven't spiked the business with the level of vouchering that we've seen in the market overall. So we're very pleased with that performance, because that's a great underlying reflection in the offers that we give our customers. We'll continue to monitor our price position relative to our competition; we've already talked about that briefly on the call, we are confident we've made the right moves. We've seen that reflected in underlying volumes; we've seen that reflected in underlying like-for-like transactions, but clearly it's a competitive and dynamic market and we'll react accordingly as and when we see what other people do. But we're confident our price position has never been better and, actually, one of the things which we haven't commented on directly, but one of the things that we have seen in the market is a compression between the supermarkets and the mainstream discounters. And we've certainly seen our price position year-on-year improve by 9% relative to the discounters, so quite a significant reduction in the relative gaps of the discount sector. But we'll continue to review our pricing policy in the light of what is an extremely dynamic and fluid market at the moment. And like-for-like transactions.

Yes, did you pick up the online question as well?

Yes, I did.

5.5%, okay. Just in terms of like-for-like transactions, we have -- as you said, we have seen positive like-for-like transactions over the overall quarter. We wouldn't particularly want to break that down within the quarter, but it's fair to say that, given the phasing of our price investment through the quarter, there is a direct correlation between our phasing of the price investment and the uptick that we're seeing in like-for-like transactions. So it's probably not unreasonable to say that we've seen the biggest uptick towards the end of the quarter as we've seen the benefits come through of the price investment that we've made. If you were to look back over the period of the year, the like-for-like transactions have been largely negative, so this is a very encouraging sign that we're starting to see this uptick and, indeed, report an overall positive for this last management quarter.

Our next question comes from the line of James Tracey from Redburn. Please go ahead.

Two questions from me, would you be able to say what your internal basket inflation or deflation was for the full year? And the second question is on the online growth. So 5.5% value growth, 14% order growth implies 8.5% decline in the average basket. What's the dynamic happening there?

Well I'll ask John to pick out the numbers on basked deflation. In terms of the online business there's an interesting dynamic going on, which we've seen played out over the last 12 to 18 months. A combination in the reduction of delivery charging, so there are a lot of competition on delivery charges and, therefore, lower baskets as a result of that; and also delivery passes, where we were relatively late to the market on delivery passes, which obviously takes away the need to spend £100 in our business, and a number of our competitors have seen that work through their system over the last 12 to 18 months or so. That's what's resulted in lower basket, basically, there's less incentive for customers to put more into their basket and I suspect that trend will continue for the foreseeable future and things like click and collect will only exaggerate it. So the reality is the incentives to put more stuff in your basket because of a lower delivery charge are getting less and less and that's a dynamic, as I say, that's been going on for a while, so we would expect that trend to continue. But going back to the central thesis of our strategy, which is to satisfy our customers with our online offer, we're very pleased with the progress that we've made and we've talked in the last few weeks about rolling out click and collect to more of our stores, which is one of the things which will enable us to do that. John, would you comment on basket?

Yes, James, so just on the overall basket inflation/deflation for the full year, we see it as roughly flat, so we're clearly on a trend. So we talked about food deflation for Q4 already at minus 2.5, we talked about deflation in the third quarter of between minus 0.5% and minus 1% and then clearly, at the start of the year, we were more positive; but the overall net/net that's broadly flat for the year, but clearly on a journey as we invest in price.

Thanks John and just a quick follow-up question. Are you able to say what your average basket size is online as well?

No.

Thank you.

That was a succinct response from Mike.

Thank you for your question and now our next question comes from the line Rob Joyce, Goldman Sachs. Please go ahead.

How are you doing? Just a couple just to follow-up on some of the comments on prices versus the discounters. I'm not sure of the different basket you're talking about being flat on the year, but is the implication there that the -- on equivalent basket the discounters have increased prices 9% over the year? And also, could you give us the price gap now versus the discounters? I know its closed 9%, but the actual price gap would be very helpful. And then the final one is just in terms of your own price investments. Have all the £150 million gone through in this quarter or are we going to see furthermore incremental in the new financial year? Thanks very much.

Well I'm not going to comment on the absolute price of the discounters, but inevitably the market has invested in products which are most aligned to discounters, the ranges that they carry; and you can imagine the focus of our price investment on the 1,100 products that we talked about are on the kind of products which directly match the discounters. And, therefore, you've seen a disproportional amount of investment in those products and the gap has closed by 9%. That's not because discounters have put their prices up but, relatively speaking, all of the mainstream grocers, not least ourselves, have put our prices down on core commodity products and that's closed the gap down. There is still a gap, you're right, we won't comment directly on what that gap is, but we can see that reflected as we've seen already in an improving volume trend, which is the first time we've seen that over basically the last year and a bit. So we're encouraged by that and it's disproportionately in the sectors which we've invested in; so in the 1,100 products that we've invested in we've seen the price of -- sorry, the volumes increase disproportionately. As far as the investments are concerned, we made two slugs of investment, one in November, one in January, which is broadly reflective of the £150 million we talked about. But clearly, as we go through the year, we will continue to refine our pricing position and we're just understanding and experimenting as we go with where the sweet spot for our price position should be, given the market dynamics that we're talking about. So I'm not sure we can commit to what the number will be in the next year, simply because we don't know how the market dynamics will play out, but we've made a relative price investment of £150 million and we are confident our price position has never been better.

What we said at the interims, Rob, just to be clear, is that that £150 million of investment would effectively go in, in the second half of this financial year and the first half of the new financial year and that remains the case. We'll provide a further update on the detail of that at our prelims in May, in terms of the phasing of that investment.

Okay, thanks very much. And just quickly, to follow-up, I guess the residual of focusing price investments in a flat environment on certain items is that the rest of the basket's gone up in price. Is that and how has the volume response been in those areas; have you seen anything in that?

No, that's not right. We're talking about minus 2.5% deflation, we sell 30,000 food products, so you can surmise that in the core commodity areas that we've talked about we've seen disproportional amounts of inflation -- sorry, deflation, and clearly we will have seen deflation in other areas of the basket as well, depending on the commodity areas. But deflation has been particularly prevalent in the fresh food areas like fruit and veg, like meat, like dairy products. That's at least in part a competitive response, but it's also a reflection of the fact that commodity prices have come down and, like any dynamic market, there are ups and downs across the overall basket; but undoubtedly, the direction of travel in the food business is down, not up. Minus 2.5% deflation represents roughly something of the order of £5 or £6 a week for the average family. So from a consumer point of view it's extremely good news.

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

Hi, first one is can you perhaps adjust for Mothers' Day what you reported? I presume Mothers' Day would have helped within this Q4 reading compared to last year? And the second one, very quickly, for John. Have you changed the way in which you're buying energy? Are you still buying one year forward on a rolling basis? And lastly, still for John, what do you reckon is consensus to be PBT level for this year and presumably you're happy with that?

I'll let John answer all three of them, I don't think we adjust for Mothers' Day, but I'm now looking.

No, we wouldn't. As we've always said in the past, we wouldn't comment on individual weeks or trading weeks, so clearly there's a benefit to having Mothers' Day in the quarter, no doubt; albeit Mothers' Day itself fell on the Sunday, of course, which was outside the financial year, and you do see a lot of people still buying Mothers' Day cards on Sunday morning. So the benefit of that will tip into Q1 as well. In relation to energy buying, we haven't changed the way that we buy; we pretty much cover forward for about 12 months, that's consistent with what we've done in the past; again it just gives us budgeting uncertainties. In the past that's meant that we are in the money, of course at the moment, given the movement in energy prices, that means we're slightly out of the money, but we don't do it on a speculative basis, we do it on the basis to give a surety over our costs over the 12 months ahead. So no change in behavior there. And in relation to the consensus question, we see underlying consensus at the underlying PBT level at £659 million and given this is a trading statement; of course, we wouldn't expect to see that consensus change post this call.

Our next question comes from the line of Niamh McSherry from Deutsche Bank. Please go ahead.

I have two questions please. So the first one is, given your comment on food deflation persisting for the rest of the calendar year, can I ask does that mean that you expect market growth to be lower for this full calendar year than last year, so any comment on that? And then the second question was around promotional activity. So you commented on the value simplicity program, but can you give any numbers actually on reduced promotion activity or anything like that? Thank you.

Well I'll take the first and let John comment on the second. So food deflation, we're saying at 2.5% we would expect it to continue at that level for the calendar year. It won't be until we and indeed the market annualizes the price decreases that really started this time last year and, effectively carried on in the year. The big balancing factor is what will happen to volume. At the moment there are some signs that the market is returning to volume growth; it's been flat to negative for probably the last four or five year and I guess the unknown, the thing that we can't see as we gaze into our crystal ball, is the effect that the increase in consumer expenditure will have on grocery volumes. If you look at the historical norms, if you look at other post-recessionary periods, it takes about six months for customers to first of all buy the things that they deferred like cars and a nicer holiday and perhaps some of the consumer durables that they've foregone. They tend to eat out rather than eating in. At some point you start to see a trade up, a trade up in terms of buying more volume and a trade up in terms of the kind of things that they buy. If you look at the historical norms you might expect that to happen towards the back end of the year but I have to say I'm not holding my breath. So all other things being equal, given that deflation has increased during the course of the year, the underlying premise of your question is probably correct. The one thing I can't predict and we can't predict with any certainty is what's going to be the case as far as volumes are concerned and that might be to some extent a mitigating factor. But clearly you can reflect on the fact that you'd expect the competitive pressures in the market to be at the same level, if not at a more intense level, during the course of the next 6 to 12 months.

And Niamh, just on the promotional participation, alongside the announcements that we made in November about moving away from a high-low pricing strategy to a medium-low pricing strategy, in line with that investment we've made on behalf of our customers we've seen our promotional participation come off from around 36% down to 33%, so a 3% reduction in our promotional participation directly as a result of the pricing strategies that we announced at the end of the last calendar year.

Our next question comes from the line of David McCarthy from HSBC. Please go ahead.

No I had a handset on so I've taken it off and picked the handset up. So anyway, here we go. First question on pricing, coming back to that. What's the current gap between yourselves and Tesco? You say you don't want to give us your gap with the discounters but can you give us a feel to what's happening between yourselves and Tesco and indeed Asda, what the dynamic is there? And then related to that, can you give us an indication of what percentage of your customer base is actually price sensitive and that would list price as one of the top two or three attributes of store choice? Next question is coming back to deflation. Part of the industry problems have been that the big four all looked at themselves, they let the discounters pull away. We've seen a step back and you've talked about you've narrowed that gap by 9%. Do you think that's enough? Do you think this was just a one-off stepped adjustment or do you think that we're going to have a prolonged i.e. not just until we annualize but going beyond that for another two or three years of continual price adjustment and therefore deflation will take place in the sector for the next several years? And then thirdly, a very quick one. Any change to your CapEx guidance that you gave us for the year that's just ended?

Dave, if I pick up the last one, just very quickly. No, no change at all to the guidance.

So we're looking about £900 million then?

Correct, for this financial year.

I think I'll -- let me try and work out an order of play. So we if we start with our pricing relative to our competitors, we've talked before that actually as we measure it our prices are better than Tesco relatively speaking and have improved relative to Asda year on year. We won't talk specifically about gaps but we believe our price competitiveness has improved and that's reflected ultimately in the volumes that we're selling which is a positive leading indicator, and secondly the fact that we're seeing like-for-like transactions growth. I actually can't break out the numbers. We can find out the numbers; I'm sure somewhere in one of our decks we'll have percentage of customers -- of our customers who are particularly price sensitive. In certainly the surveys off the top of my head that I can remember, price always comes top but depending on which customer base, which customer demographic, indeed which retailer's customers you're looking at, clearly it varies. We don't have the specific data; I don't have it off the top of my head but we can certainly supply that with you. Is the price investment enough? To be quite honest Dave I don't know at this moment in time. Time will tell. As I said already, we've seen some encouraging signs. The question for us to address over the next period of time is what's the optimal price position for us both relative to our mainstream supermarket peers and indeed to the discount sector, given the other attributes of the brand, whether that's the quality of the products that we sell, whether it's the service that we offer or whether it's the broad range of products and services in our superstores. So time will tell as to what the, in your words, optimum gap is and I think the market is kind of feeling its way to that particular position over the next period -- certainly over the last few months and over the next period of time. But it's fair to say if you look at the headline data in the last two or three months, there has been a relative shift in the performance of the mainstream operators relative to the discounters. But that's a very early read and time will tell. I think that's answered your questions.

I'd just add some color to what Mike said. Clearly there's a lot of talk about price in the market at the moment understandably, given where the overall market is. And we have a commitment to compete toe-to-toe on price in that market and I think the price investment that we've made over the last few months or so demonstrates that commitment. But of course the reality is our business has got a heritage, not just about having great value for money but also great quality and great service. And we forget that at our peril because of course it's those two factors about our offer that bring many of our loyal customers into our stores week in, week out. So as well as the price investment that we need to make to remain competitive in the market, it's also important that we don't forget the huge investment that we're making in quality. We already have very strong quality credentials but we're stepping those on with the investment in the 3000 product lines that Mike's talked about. And again service as well. We maintain a very strong service level in our stores. Occasionally we quote the Grocer 33 survey; we don't always like referring to that but it's a useful external benchmark that demonstrates that we continue to give a great service to our customers. And there's a lot of talk about price so that's understandable but it's very important that the reason many customers come into our stores is a knowledge that they will have a great value for money offer, so very, very competitive prices, but in addition great quality offer and a great service level.

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

You'll be glad to know most of the questions have been answered but there's a bit of a -- I suppose I'm a little confused. I don't know whether you're being cautious or realistic because you're right, the volume dynamics do seem to be a little bit better in the market yet you're talking to sort of a sustained period of like for like. So perhaps we can push you off the fence and say where you think the momentum is. Because we are seeing better volumes for the mainstream versus the discounters so do you think we're getting to that tipping point or it is just a macro improvement? And then perhaps to push you, everyone's been cutting prices. You may argue that you've been cutting them a bit sharper but your relative trading momentum has deteriorated versus the mainstream. So why do you think you will win out, as you overtly say in the statement? And just a final one, more numbers based. What's your space opening ambitions for 2015/2016? Because it does look like it slowed a little bit in the back end of this year.

Well let me have a go at the first one and I'll ask John to comment on the second one. So what are the things that we know? It's fair to say that, as you've already reflected, there is volume growth in the market overall and there is some evidence to suggest there's a bit of a rebalancing between the volume dynamics in the mainstream supermarkets, not least ourselves, and the discount sector. And we would cite that our optimism is born of the fact that we think we are disproportionately benefiting from the volume dynamic in the marketplace and we are seeing underlying like for like transactions improve. And both of those dynamics are very important leading indicators. The big unknowns, I guess there are two. The first is whether and if, if we look at previous recessions, we will see a general up-trading and improvement in customer volumes as a result of feeling a little bit better off. Generally speaking grocery businesses are lagging the overall consumer sentiment and at this point in time I don't think we're necessarily seeing that fully reflected. And I would suggest that if previous history is anything to go by we won't probably see that until the back end of the summer into the autumn. There's roughly a 6 to 12 month lag between customers getting a bit more money in their pocket and that being reflected in trading up through supermarkets, trading up in terms of volume and trading up through the offer within the supermarkets. And indeed you could argue at the extreme, the incentive to shop around, which we've seen very much at the heart of the business dynamics in the last period of time, to actually be reduced as customers get a little bit more money in their pockets and therefore the tradeoff between convenience and money, time and money, actually works a little bit more in favor of spending less time and perhaps a little bit more money. Of course the other big dynamic which we would remain cautious about is the fact that there is a deflationary environment with us for at least the next period of time, certainly we believe until the calendar year end and possibly beyond that. And in that situation it's very difficult to read what the competitive dynamics will be. And I guess the other reason for caution is that there's going to be a very tough environment for all of us but, to the point you make, and to the point on our trading statement, we believe that we're in a position because of the strength of the brand, because our brand is a lot more than just price, it's about the quality of the products that we are offering; we're investing a lot in that. It's about maintaining our service levels. Our service to our customers has never been better; our availability stats, our customer service stats, both independently externally measured and internally measured, and our investment in the other dynamics of our offer, whether that's online, whether it's the convenience offer or indeed other goods and services related to our business, all of those things give us confidence that over the next period of time, and by that I mean well beyond the next year or so, we will continue to outperform the market and outperform our peers. But it's very difficult to read the market and in the end the competitive dynamic is the thing which is most uncertain as we look forward. As far as the new space is concerned, I'll as John to give you specifics.

So John, no change whatsoever to the guidance that we gave at the interims. So for this current, well the 2014/2015 financial year, we're expecting to deliver around 750,000 square feet of gross new space. And in the new financial year, 2015/2016, as we guided, we're expecting to deliver around 500,000 square feet of gross new space. So as you highlight, we are stepping back our new space opening program and of course, if you look at the breakdown of that new space in the 2015/2016 year, the vast majority of that 500,000 of course is our new convenience stores which again reflects a fantastic growth opportunity for our business.

If I can just come back, follow back on one. What do you think you say the facts, the knowns are that you're disproportionately benefiting in volume terms? Can sort of shine more of a light on that because obviously it's difficult to see but Morrison talking to more of a stable volume backdrop as well, Tesco's market share trends or Kantar trends suggesting certainly in nominal sales something better than you've reported. So how can you make that claim?

Well we believe, as I say, we're seeing volume growth and we believe relatively speaking to the market, given the amount of deflation that we have in our business and we have put into our business, we believe that's a positive trend relative to our competition. Now that's our read of the situation. There's lots of data out there and to some extent the data sources that you're all citing do conflict and do contradict each other. But I take it as a positive thing as we look forward that we're seeing a combination of both volume growth and underlying like for like transaction growth, both of which are encouraging signs and are, we believe at least in part, a reflection of the choices we made, particularly in the way that we've invested in price. But time will tell. The reality is it's only 10 weeks since our last trading statement so we would be disingenuous if we said anything other than these are leading indicators and the direction of travel seems positive but --

But are you winning volume market share? Because I would think from Nielsen or various data points you can see whether you're actually winning volume share.

In the most recent past, yes.

As in the last month?

I wouldn't comment directly. You can take what you want from that comment. In the most recent past, yes.

Okay.

Our next question comes from the line of Rickin Thakrar from Espirito Santo. Please go ahead.

A couple of questions. The first one, John, I guess you haven't really made a comment on profits in the sales statement this morning. So you said you don't expect PBT to change for consensus. Does that implication mean that you are not unhappy with consensus forecast right now? Just to clarify that. The second question for Mike. You said you're competing toe-to-toe and you expect deflation to continue. Justin used to talk about mutually assured destruction if there was a price war. Have you prepared for that scenario if you expect deflation to continue for the foreseeable future? Thanks.

So in relation to profit, unfortunately I'm just not going to say any more than I've already said which is we wouldn't expect consensus profit numbers to change post this call. This is a trading statement so we're not going to comment on profit. We'll clearly provide an update on those numbers at our prelims in May.

And as far as competing toe-to-toe is concerned, I stand by what we said previously. I think our actions have demonstrated that we are prepared to take it on to make sure that we maintain, if not improve, our overall price position. That's what we set out to do and that's what we've achieved over the last period of time and that's reflected in some of the dynamics we're beginning to see in our business. In the past there's been less rhetoric and less commentary in the most recent past about the meltdown in the industry. Clearly there are some scenarios at the extreme end of the spectrum which would put the whole market in a level of distress. And you could argue to some extent we've seen that played out over the last period of time. But we are confident that the actions that we talked about on November 12 and that we're implementing give us the balance sheet strength and the cash to compete in all but the very, very extreme scenarios. That doesn't say that there aren't some extreme scenarios which would lead to, as I say, a considerable amount of distress in the marketplace and you pays your money and takes your choice on the potential outcomes from that. But we have absolutely set our business up to make sure that we can do everything that we need to do to compete in all but the most extreme scenarios that we can think of.

Our next question comes from the line of Charlie Storey from Macquarie. Please go ahead.

Hi guys. Sorry, most questions have been asked but just one really quick one. You commented on Bloomberg TV this morning saying that you do not see like for like rising in the foreseeable future. Is that a change versus your guidance? I guess that reflects your expectations of deflation, both self-inflicted and market but is that a change do you think?

No I don't think so. I think we said at our interims given the dynamics in the market that we foresee like for likes being negative for the foreseeable future. We're not changing that guidance today; it's a reflection of the deflationary environment that we're in. We made a note in our outlook statement that we expect that deflationary environment to continue for at least the calendar year, if not beyond. So no change to guidance there whatsoever. I think all that we've said today is entirely consistent with the guidance that we gave at our interims a few months back.

Yes and I think we've been -- one or two people have commented on the fact we're doom mongers. I think we're just being realistic about the market prospects. The reality is we're seeing 2.5% food deflation; that's largely reflected in price investments that were made in the back end of last calendar year and therefore you would expect that 2.5% deflation to continue. And unless there's a significant turnaround in customer volume growth, and you could argue that's possible -- I think it's unlikely but it's possible given the consumer environment and customers having a little bit more money in their back pockets -- it is a straightforward fact that you extrapolate the numbers through and you would expect the underlying like for likes in the industry to be negative, certainly for this calendar year and possibly even beyond that. So it's we would argue a straightforward function of the arithmetic that's already out there. I don't think its doom mongering and I think it's realistic and it's important that we set our business up on that basis and that we make the right choices both for the short term, the medium term and the long term.

What is encouraging in a sense is we set out strategic plan at our interims a few months back and we gave pretty clear guidance then as to how we saw [indiscernible] unfolding over the next few years or so. What we can say is so far so good in the sense that everything that we've delivered today is bang in line with where we said it would be. We're confident that we've got the right strategic plan for the business. We think we are being realistic about the industry backdrop which is clearly tough but everything that's happened so far is in line with our expectations. It's great to see some encouraging signs of the price investment in the form of volume uplift, but as Mike's highlighted, it's very early days and it's a very uncertain market. So it's right for us to remain cautious other than to say that we said -- we told you what we were going to do three or four months ago. We've done that so far and we've delivered in line with the expectations and the guidance that we've given you.

We have no further questions at this time.

Thank you very much everybody and we look forward to talking to you at our prelims in May. I look forward to that.