Hello, and welcome to the Sainsbury's Q3 trading statement 2021/2022 analyst Q&A call with your host, Simon Roberts. Simon, please go ahead. Thank you. Well, good morning, everyone. Happy New Year, and welcome to our quarter three trading statement presentation covering the 16 weeks to the eighth of January. I'm joined this morning by Kevin O'Byrne, our CFO, and James Collins, Director of Investor Relations. Now, I'm gonna talk about our trading performance in the quarter, and then obviously, we'll take your questions. I'm gonna take about 15 minutes up front to talk to the slides that I hope you've been able to see this morning, just to give you some color up front, and as I say, we'll get into questions once we've done that. To get us started, I'd like to start by giving a really huge thank you to my colleagues across the business who worked extremely hard to deliver strong availability and service through the peak season, and who have made our customers feel safe as more and more customers returned to our superstores. Of course, a big thank you too to our suppliers for all their support as we worked with them even more closely than usual through what was a particularly challenging backdrop to deliver a great customer offer. Now, you will have seen that we've upgraded our profit guidance today. We're now expecting underlying profit before tax of at least GBP 720 million, whereas at the beginning of November, we said that we expected at least GBP 660 million. I thought it would be helpful first to give you some context behind this. Now, the first thing to note is that we in the whole grocery market have seen some benefit from higher in-home food consumption since the emergence of the Omicron variant in the U.K. towards the end of November, and the reintroduction of working from home guidance. Now, this is something that we expect to drop out of the sales base next year if we trade through a year with fewer COVID-driven restrictions. More importantly, what we didn't know back in November was whether the major calls we were placing on this Christmas and quarter three would pay off. We went big on colleague numbers. We went big on supporting maximum availability on Christmas stock levels and on new products for Christmas. We went big on value for Christmas, all to make sure we could deliver a really good Christmas for our customers. The good news is that our trading strategy paid off, and we saw a strong operating performance with market share gains and strong sales over the peak days as customers traded up to treat themselves over Christmas and bought into our Christmas value campaign. Now, this approach is absolutely in line with our Food First strategy, investing in value, innovation, and service to drive volume. The trading strategy has also delivered the profit outcome that we hoped for. Now, I signaled back in November that sales would be tougher in general merchandise than we forecast earlier in the year, but that we expected strong margin and cost delivery against a tougher sales backdrop. That is how Christmas played out. As you can see, we saw a slightly better trend later in the quarter as availability started to improve. Let's turn now to the slides and starting with quarter three retail sales growth. We'll start by looking at sales across the 16 weeks of quarter three. Grocery sales were stronger than we had anticipated earlier in the year, down just over 1% against a very strong lockdown-driven comparative from last year, but up nearly 7% versus quarter three in the prior year. General merchandise sales were down significantly for both Argos and Sainsbury's, as we anticipated in November, reflecting the exceptional performance last year, supply chain challenges impacting availability, and some conscious choices we took on promotional participation and category participation to improve profit delivery. Clothing sales reduced slightly, predominantly reflecting a further reduction in markdown and promotional activity, with full price sales up 38% versus two years ago, as we focus on offering good value all year round. It's also just worth noting a 48% increase in fuel sales, partially reflecting higher oil prices, but also normalization of traffic volumes and market share gains. Turning to the next slide, I think it's important to look specifically at trading over the Christmas period itself. Here you can see that sales were ahead of a strong Christmas last year, with sales up 0.1% year on year and nearly 7% versus two years ago. Up 8.8% if you exclude the impact of the fact that we were closed for Boxing Day this year. We invested heavily and worked hard to make sure we could deliver a great Christmas for customers, and we were rewarded with strong volumes. You can additionally see a better general merchandise number as some of the availability challenges eased a little heading into peak, but we would not be encouraging anyone to call the turn yet, given ongoing supply chain issues and a tough quarter four comparative ahead. The clothing numbers showing strong growth on a 2-year basis in particular are probably a better indicator of the underlying health of the business in the absence of comparisons against prior year promotional activity. Now, turning to the next slide, we've shown this chart of our supermarket basket size and transaction numbers every quarter since the start of the pandemic. The story has been one of a very gradual normalization as more customers return to superstores and shop more frequently, reducing basket size. Broadly, this has continued through the quarter, but with a positive seasonal uptick in basket size at the same time as frequency has continued to improve. We've been really encouraged to see the number of customers who shopped online at the height of the pandemic now returning to our superstores. On the next slide, you can see here as we headed into peak, we continue to see supermarket transaction numbers recover, as well as gross online grocery order numbers growing. We've been pleased with our online operating metrics despite availability and labor challenges, and we've seen a 36% increase in the average number of Delivery Pass holders year-on-year in the third quarter after the introduction of the monthly Delivery Pass subscription. On the next slide, well, against last year, when digital was the only option for customers, particularly Argos, we've seen some moderation of participation, but the picture remains one of a transformed digital business, with groceries online sales still nearly double the level of two years ago. Total digital sales nearly 50% higher and nearly 80% of Argos sales starting online, despite stores being open throughout the whole of the quarter. We're encouraged by SmartShop participation, suggesting that a very high proportion of those customers who tried it last year have stuck to the habit and also reflecting some new users following the launch of Nectar Prices. Now, on the next slide, we're really pleased with the progress shown on this chart. There's a lot of noise in the market share data, but we have consistently said that we believe grocery volume market share is the key measure of our success. This chart shows that in quarter three, we continue to outperform the market on both a one-year and two-year basis. What I want to do now is to reflect a little on the drivers of that performance and how we're delivering against our strategy. Now, on this next slide, you'll all be very familiar by now with the key priorities we set out in November 2020. Putting food back at the heart of Sainsbury's with Food First focusing on delivering for our customers and driving profit with our Brands that Deliver and lowering operating costs through Save to Invest, underpinned by being connected to our customers and our Plan for Better. In the next slide, starting with Food First, we've been focused on improving value to customers, increasing the rate of product innovation and funding this through reducing our cost to serve and improving our buying benefits as we drive better volumes. On the next slide, this chart is taken from the Nielsen data and demonstrates our consistent delivery on investing ahead of our competitors in value, improving our price position, and delivering better value to customers on the products that really matter most to them. Now, Christmas was no exception. Taking the strong improvement we've built in our base value position and then extending that to the all-important Christmas shop, where customers could rely on Sainsbury's quality at Aldi prices on the key items of the Christmas meal. The numbers on this chart speak for themselves with great volume uplifts on these products. Our strategy is based on the belief that if we get prices right on the key items that matter most to customers, then those customers will buy the rest of their basket with us. We saw increased spend from secondary customers, those who typically spend less of their grocery shop with us. We saw frequency of visit growing ahead of the market, and crucially, many more shoppers' baskets contained all the key elements of a Christmas dinner than two years ago, with a really strong contribution from the Sainsbury's Quality, Aldi Price Match items shown here. The more that customers are able to trust us on delivering on the key fresh and center of the plate items at the right prices, the more spend we will win from secondary customers. You may have already seen that we are stepping on Aldi Price Match again this month with our new offers having landed in store last Friday. We're investing more, but focusing this investment on higher volume items which show up in more customer baskets and taking out some of the products which aren't as important to customers. As you can see here, there's a real focus on fresh food lines, accounting for 90% of the volume. On the next slide, at a time when prices are a concern for customers and cost price pressures are building, we've also reaffirmed our commitment that prices on over 2,000 products will be locked down, providing a level of reassurance that customers really need right now, and that we've had really great support from our suppliers on this. This work on base prices, on Sainsbury's Quality, Aldi Price Match and Price Lock is showing through in the consistent improvement of our price position versus key competitors, not only on the center of plate, meat, fish, and poultry items, but across the wider basket. We continue to build on the progress we've made over the last 18 months. Now on this next slide, as you know, we've committed this year to triple the rate of product innovation. We delivered 600 new lines in the third quarter, of which 300 were specifically Christmas products, and of these, 100 were Taste the Difference Christmas products. Taste the Difference was our fastest-growing product here over Christmas. We're already the market leader in premium own-label and have grown sales of Taste the Difference 13% over Christmas two years ago, driven by fresh food categories like meat, fresh fruits, vegetables, and bakery. Our customers consistently respond well to new trade-up options, and through our work on value, we're making it easier for customers to save on the basics and treat themselves. We know we have a long way to go on this with lots more opportunity. Now, this next slide is perhaps the best demonstration of the fact that we're getting it right for customers. Looking at the eight weeks running into Christmas, customer satisfaction scores increased on availability, range, value, and service. Of these, value is the one that is perhaps the most significant. It takes a lot of time and effort to change value perceptions, but this suggests we're landing some stronger progress here now, both on an absolute basis and relative to our competitors. In supermarkets, we're maintaining a healthy lead versus our competitors on overall customer satisfaction. We still have work to do to get back on top in online. We've not been helped by labor shortages impacting stock availability over peak and some ongoing challenges on product availability. We know we can do even better here for customers. Now, moving beyond the grocery business on the next slide, general merchandise and clothing. It's worth going back to the priorities we set out for these businesses. Consistent with the idea that our Brands that Deliver need to be profit-focused and to support the core food business. We've been focused on reducing cost to serve and improving profit delivery. Now, we've discussed the previous results and on earlier slides, some of the key drivers of the sales declines for Argos and for the Sainsbury's general merchandise business. Sales last year were exceptional, given the combined benefits of lockdown-driven demand and a number of competitors who are unable to trade effectively. Against that comparative, we've seen some very subdued markets. In some areas, such as consumer electronics, this has been exacerbated by stock shortages and global supply chain issues. The chart on the right shows the importance of some of these categories to our sales base, particularly through peak in quarter three. Turning back to prioritizing profit delivery, we've made conscious choices aligned to our strategy to focus on profitable sales and profitable product categories. At Argos, we reduced significantly the amount of promotional activity that we run, which has impacted sales in some categories like toys, and we've stopped regular clothing promotions in favor of a consistent year-round focus on value. Now, together with mixed benefits from higher participation of stronger margin categories like home and furniture, this is driving stronger general merchandise and clothing gross margins. Alongside the transformation of the Argos cost base, these stronger, more sustainable gross margins are making our general merchandise and clothing sales base a significantly more profitable and sustainable one. Now, on the next slide, I've said that I will reference these key metrics every time we speak. Clearly, you would expect a full update with results rather than a trading statement. Suffice to say, as I look at these today, I am pleased that we are very much on track for the full year. In summary, we are delivering on the strategy we laid out in November 2020. We've made bold decisions to make the business more efficient through structural cost reductions and to improve the profitability of our Brands that Deliver. We've made major calls investing those gains back into the core grocery offer, into value, into product and innovation, and into customer service throughout the year, and especially over Christmas. This is delivering volume market share gains, and it's strengthening our competitive position. More customers shop more frequently with us for food over Christmas. As we improved our value this Christmas, we drove bigger baskets and trade up. Now, clearly, we've also benefited from the strength of grocery sales as in-home food consumption has remained stronger for longer, and this has been a contributor to today's profit upgrade. Looking ahead, we do expect some normalization next year, and life will get tougher for U.K. consumers as the cost of living rises and we face our own cost challenges. However, we believe we are in a stronger position than we've been for some time to offer great value for money alongside an improved food offer. Finally, I would say we are moving with a new level of pace and agility to be ready for the challenges ahead. Importantly, this Christmas, we have further improved our momentum in food, and at the same time, we're continuing to build out the delivery of our cost-saving programs. I hope that's been helpful in giving some color to the slides that we shared before this morning's call. Let's now open up the call and take your questions. Thank you. Thank you sir. If you do have a question at this point please click star then one on your telephone keypad. If your question has already been asked, you can simple click star two to remove it. So please stand by for your first question. Now if you have a question, it's just star one on your telephone keypad, thank you. First question from Andrew Gwynn from BNP Paribas. Please go ahead. Hello, Andrew. Good Good morning. Good morning, Simon. Happy New Year. Yeah, firstly, just, I mean, fairly boring questions, unfortunately, but the first one on inflation, obviously we've seen that tick up, for the industry. Feels like everyone's being relatively well-behaved, particularly looking at that chart, the discounters, but just wondering what are your perceptions of how food inflation is working its way through the mix. The second question, and I'm sure it's gonna be prodded and probed, but on the PBT for next year, I think you've given us a couple of moving parts, so plenty of cost saving, but obviously some of the COVID volume dropping out. Perhaps, I'd appreciate you're not gonna give us a number, but just help us, with some of the moving parts, where your thought process should be. I suppose very bluntly, should we expect profit growth in 2022, 2023? Thank you very much. Andrew, thank you. Well, let me start on the inflation question, and then we'll talk a bit about next year and Kevin, I'm sure will comment on that as well. Yeah, look, I mean, in terms of what's happened in the quarter, as you can see, two key points. I mean, the first, as I hope we highlighted in the presentation there on the top 100 products, you know, as an indication of products that customers buy most, the fact that we were deflationary in the quarter, and clearly as you can see, others inflated further. In fact, the discounters inflated the fastest. I mean, it's clear there's low levels of inflation overall in the offer through quarter three. As you can see, we've been working really hard, Andrew, as we navigate this period to make sure that our relative value improves, and that's exactly what we did in quarter three. We will continue to do that as we look ahead. Look, I think it's really clear to us all that the market is inflating. It's clear the challenges that are there. I think what we've done this quarter is to do exactly what we said we'd do to strategy, which is to, you know, reinvest our cost savings in improving value, work really hard to improve our value perceptions. Value perceptions are up 4% year-on-year. We're growing our volumes, we're growing our volume market share. As we grow volumes, you know, we're working hard with suppliers to make sure we mitigate those headwinds. On inflation, that's where we are. You can see, you know, we've launched the new year, you know, with some strong value position. That's really important to us. Relaunching things with Quality, Aldi Price Match, a big focus on fresh product, big focus on products that customers buy the most often, alongside Price Lock. You know, there will clearly be inflation flowing this year, but you can see us doing everything we can to mitigate that. On next year, I mean, look, as you'd expect me to say, you know, it's too early to talk about next year yet. We'll talk about that clearly more once we've both completed this year and reported against it. But for all the obvious reasons, you know, as we all look at it, you know, there's a number of factors, clearly, as we think about the year ahead, the impacts on volumes, you know, to what extent the Omicron, the pandemic factors will drive volume. Clearly the inflation factors, you know, and clearly the whole cost environment we're thinking through. We will come back of course and talk to you about that as soon as we can. We'll finish the year first is how we're thinking about it. Kevin, anything to add on that? Only build, Andrew, as you can imagine, you know, this is. We always review this after the Christmas trading period we delivered. This year it's a bit more complicated. Lots of moving parts. We're pleased with the momentum in the business. We're really pleased with our cost, structural cost programs. There's lots of things to be positive about. As Simon said, you know, there's a lot of uncertainty. Certainly some of the tailwinds in grocery sales we'd expect to reduce as we go into next year. We just need to reflect on where do we pitch that? Thanks, Andrew. Okay. Wait and see. Thank you very much. Cheers guys. Thank you. The next question then is from Andrew Porteous from HSBC. Please go ahead. Hello, Andrew. Morning guys, and happy new year. Congrats on the upgrade. A couple from me. Can you just talk about, I guess coming back to that inflation point, has there been anything that's sort of really moved the picture in terms of what you're seeing away from that maybe sort of low single digit inflationary outlook? Is there anything more severe than that we can expect coming down the track? Secondly, around Argos, can you just help us in sort of how you're thinking about the year ahead? I mean, obviously pretty tough year for the business this year from a demand perspective. Are we expecting stabilization or are we a bit more concerned given the outlook for sort of discretionary spend there? Lastly, can you just talk about the role that sort of petrol is playing in the business and the magnitude of improved profitability in the petrol industry, and whether that's sort of fueling price cuts? Thanks. Let's take each of those in turn. I mean, just to reiterate, I mean, the point on inflation as you described, I mean, clearly, you know, some things, you know, we've been planning and seeing for a while, clearly, you know, there's labor cost inflation, we know that. You saw our colleague pay increase that we put in last week. Really important we feel to do that. You know, we've had line of sight of that for a while. As we think about labor inflation, you know, we've been planning for that, you know, our cost plans, 200 basis points of cost reduction. As we invest in things like colleague pay, so we drive efficiency and productivity in the business and we're planning for that. I think that when we think about next year, clearly what happens with inflation and the extent to which, you know, that comes through, beyond where we are now, as I say, we're doing everything possible to mitigate that for customers. We've got very strong cost plans that we are ahead of in terms of planning for next year. You know, we continue to drive those plans through. As you would expect, you know, that focus on Save to Invest is so at the heart of our strategy. We think that's, you know, important preparation given the environment that's out there. On Argos, let me just talk a little bit about Argos. I think, you know, I would describe an exceptional year last year, in the year that we've anniversaried. We'll remember last year, we were in lockdown over, you know, the Christmas trading periods. That elevated volumes last year, so the comparatives are clearly tougher. It's been an exceptional quarter three this year, predominantly because of the supply chain challenges that we've clearly faced. You know, I would just say in terms of the top line, we wanted to guide you in November that the quarter three would be more challenging, and we did that. It was because the products at the heart of the Argos offer, TVs, consumer electronics, and toys, you know, are clearly those categories that have been most impacted by the supply chain challenges. I think it's important to say too that the market in these categories has been subdued too. You know, gaming down 10%, technology down 11%, toys down around 12% in the market data. I think the combination of the supply chain challenges, you know, impacting availability, impacting the way in which the market's performed. When we look out over the period ahead, a couple of things to say, I mean, the first thing you all remember, we had a particularly strong quarter four last year. As the lockdown continued through this period, we saw strong sales, I think 17% we did in this quarter last year. That, that's in front of us to lap. Then I would say that the comparatives get normalized significantly beyond that point. That's one point to say. Second thing to say is clearly the choices we've made on the level of promotion we've run are now in the base. As we look further ahead, you know, we're not gonna be anniversarying those in the sense that we've already put them in the base. The third thing to say is, look, I think it's in our view you know very early, too early to call a turn on availability. There are still challenges out there, for sure. They will continue. Some of the big consumer electronic brands are continuing to, you know, face those challenges. So they'll play through certainly well into this year. On the other side of that, as you've seen us report today and as we said in November, we knew the sales landscape would be challenging, but the work we've done on margin, the team have been working really hard on the margin in the GM&C business and on our cost transformation program. I would just stress the point that, you know, we're a year into that program. It's a three-year plan, and we're in the first year of it. There's lots in front of us to deliver in terms of our structural cost savings, and we're pleased with the progress on more profitable margins. Maybe on fuel. Kevin, should I just maybe hand to you on the fuel question? Yeah. Thanks, Simon. Yeah, just on fuel. You know, we're pleased with the sales performance as you've seen, and we're pleased also with our relative sales performance. We've taken volume share, we're very competitive on price. It's just one product we sell. We don't disaggregate our products in that way. As you know, we balance margin across categories and use stronger categories to invest in the food offer. Areas like fuel, and another example would be clothing, for example, will support our further investment in food. Thank you, guys. Thanks, Andrew. Thank you. The next question is from James Anstead from Barclays. Please go ahead. Hello, James. Good morning, Simon and Kevin. The two Andrews have both taken one of my questions, but I've got one left, which is just around your net debt target. I think you said this morning you're confident you'll deliver the GBP 950 million net debt reduction ahead of your target, which I think is March 2023. I suppose my question is, given you only kinda give us net debt numbers twice a year, do we assume that's essentially brought forward now to, what is it, September 2022? Or is that something you might even be able to hit by the time you report in April? Well, James, look, we couldn't be that precise, but it certainly is pulled forward and I'd be optimistic it'd be pulled forward to the first half of next year. Just in general, we're, you know, just very pleased with the business cash generation ahead of forecast. We'll keep focused on that. Good news, and the right time, I guess, to update further on that will be at the year end when we've closed out the trading period. Just to follow up with a little bit more color, is that delivery ahead of schedule? I guess in part that's a function of your better profitability, but is it? I mean, I guess the hope is that Argos is generating quite a bit of working capital. Is that one of the other reasons why you're ahead of where you're expected to be? Well, there are three factors. There are two sort of non-trading ones. There is, you know, we obviously settled some long-running legal disputes and got cash for that, which was very helpful. The hybrid bond converted. The most important is that the business has been generating more cash, and there has been strong cash conversion. Our free cash flow will be stronger from sort of core trading, and that will be a combination of working capital. This year, our CapEx, you'll see, will be a little bit lower than we would've expected because of COVID. We've moved some projects into next year. On average, our CapEx spend I'd expect to be broadly the same year on year. Inevitably we'll get to our leverage target sooner than we anticipated, which is great. We're just gonna stand back with the board and just consider what next from a free cash flow point of view. We're very clear free cash flow is for shareholders. You know, we'll obviously consider are there any investments we'd wanna make to accelerate the strategy or drive better returns for shareholders. We'll look at, you know, should we be increasing the cash distribution to shareholders and if so, how much and how. That's all a discussion for the end of the year really. Okay. That's really helpful. Thank you. Thanks, James. Thank you. The next question is from William Woods from Bernstein. Please go ahead. Morning, William. Hi, there. Morning. Two questions from me. You've shown that you're kind of not passing on as much inflation as peers and reducing that price gap. I suppose how much of that is driven by actively reducing prices, rolling out Aldi Price Match? Or are you just not passing on that inflation, i.e. you're keeping all your prices locked? Linked to that, you mentioned improving relative value over the next couple of quarters. With inflation increasing into the next few months, do you still feel as though you need to bring your pricing down relative to the discounts in Tesco over those next couple of months? Finally, just on your kind of increase in expected profit, are you able to give a rough breakdown of how much you think is driven by volumes, cost reduction, and the bank, going forward? Thanks, William. Look, why don't I try to give you some sense on value to your point, and Kevin in terms of the composition of the guidance there. Look, let's just maybe take a step back here in terms of on the value positioning and the inflation picture out there. As you'll remember, when we laid out our Food First plan, we were very clear that we needed to improve price perception, particularly for secondary customers. When we think about what we're doing, our plan is all about focusing on the parts of the offer where that matters most. You know, we've been very focused on targeted on where we've invested price investment. We've invested at the center of the plate. We've invested in produce. We've invested in the key areas of the shop that most influence that secondary customer price perception. You know, one of the things we're encouraged by is that 4% improvement in price perception that we've seen come through. As you know, these things take time. We're a year and a bit into this plan now, but we can see the momentum building. You know, the value investments that we've made and we're making at the start of this year are all congruent and absolutely lined up to that strategy. I guess just to your question, you know, I'd wanna be clear that we are not reducing prices across the whole store. We're focusing on the parts of the shop that really matter. You can see. Maybe just going back to the presentation for a minute, on slide 14, where our relative value performance against the competitor set is clearly highlighted here, and you can see the degree of improvement over Q3 year-over-year. The key point I would just pull out here is the center of the plate. You remember we talked about meat, fish, and poultry as being so important in driving price perceptions of that secondary customer. For example, initiatives like the Sainsbury's Quality, Aldi Price Match over Christmas and as we start this year are very much anchored into making sure that as inflation pressures build, we can continue to deliver that value perception, you know, without having to overinvest in value. You know, getting all the value benefits in perception, but doing it in a very targeted way. When we look out over the course of this year, that's what we're gonna continue to do. We're achieving that through two key sources. The first is, as you know, our cost-saving initiatives, our structural cost-saving plans. Just to stress the point again, we're a year into a three-year plan. As we take cost out of the business, we reinvest it in the offer in the areas that matter most to customers. The other thing I would say, which is really important here, particularly in the challenges in the market, is as we grow volumes, clearly we're working with our suppliers to improve value. You know, this all comes back to, in our minds, improving the volume market share, presenting better value to customers, investing where it matters, and, you know, driving that cost saving program to underpin what we're doing. I hope that helps give some backdrop to your question. Kevin, do you wanna talk about the composition of the relative elements in terms of the profit number? Thanks, Simon. William, the improvement of about GBP 60 million, it's roughly about GBP 10 million from financial services, GBP 50 million from the retail business. On financial services, a combination of slightly better volumes than we expected in areas like credit card, loans, et cetera, and improved bad debts. Now, some of that is a release of provision on the COVID provision that we took last year. On the retail side, it's largely volume driven, you know, obviously operational leverage kicks in, but also combined with that is very tight cost control. You know, the teams right across the business did a tremendous job in the last quarter, just protecting every pound from a cost point of view. Thanks, Kevin. One last point, one which might be helpful on your question about value, which I think is a, you know, an important part of the equation, is our success in driving trade up. As we invest in value and improve perception with those secondary customers, and we shouldn't underestimate the significance of the trade up that we've seen happen. You heard me talk about Taste the Difference. It was our best performing product in two years, 13% up. We added a lot more new products into that. Coming back to this core principle, which is we present better value at the heart of the plate, and then we encourage those customers to shop across the rest of the store, and that's exactly what happened this Christmas. That trade up opportunity is clearly a really important one for us. Excellent. Thank you. Thanks. Thank you. The next question is from Victoria Petrova from Credit Suisse. Please go ahead. Hello, Victoria. Good morning. Thank you. Hello. Congratulations on guidance upgrade. I have only one question left. I'm looking at this GBP 60 million increase in underlying PBT. Obviously I understand all the moving parts, but if you were to split this GBP 60 million upgrade into external factors and completely Sainsbury's specific factors, I completely give you credit for taking advantage of external issues. What is the split? Victoria, really hard to call that one, but a very good question. Look, it has got to be some and some, hasn't there? I mean, there's no question in the volume upgrade, we benefited from more customers eating meals at home, particularly probably in the run into Christmas and the fact that people could then have a full Christmas and there wasn't a complete lockdown. There's definitely a tailwind from the COVID situation, which as we say, we think would be a bit lower going into next year. Yeah. I just one other point, I think just to build on what Kevin said, Victoria, which is just worth being, you know, really candid with you. When we spoke to you in November, seems a long time ago now, doesn't it? We were around 50 days from Christmas there, I think. You know, as you can see, we placed some pretty major calls this Christmas. We recruited 22,000 colleagues into the business to make sure that both in our stores and online, we could give the service and availability. That was the highest recruitment drive we ever did. As you can see in some of the key elements of product, we bought big, we made some really big calls, and some of those decisions happened in February and March last year. These were, you know, strategic calls we made early in the year. As you can see, we invested in a very bold value platform. And honestly, at that point in early November, we made the calls based on the insight and the opportunity that we saw, but we just didn't know how they were gonna play out until Christmas happened. The other point I would just say, just in a bit of backdrop to Christmas, it was a really interesting way in which the consumer behavior played out this Christmas. We saw customers shop early where they could guarantee certainty. Things like, you know, food ordering, online grocery delivery shops, customers secured those very quickly because securing availability was very much front of mind for the consumer this Christmas. What we saw happen in the peak Christmas week is it came very late. I think, you know, there was a real, let's call it apprehension, while everyone waited for any change in government guidance. Whilst the 23rd of December is always the biggest day, you know, it was a bit of a nail bite that week, honestly. It came very late. What we saw happen therefore was all of the calls we placed in terms of fresh foods. You know, really gearing up the organization and the operation to do that really came through. I would just finish that point in terms of the upgrade. It was a really awesome team effort. Our teams in our stores, online, supply chain and logistics, all of our commercial teams, all our technology teams, all of the support in the organization really lined up to drive this plan. You know, Kevin talked about the momentum of the business. We felt a new surge in our momentum Christmas week as we landed that offer, and that was a key part, clearly, of how our performance came through. Thank you very much. Thank you. Thank you. The next question then comes from Clive Black from Shore Capital. Please go ahead. Morning, Clive. Morning, Clive. Morning, guys. Happy New Year. Very well done on your update. Two quick ones from me. I mean, Aldi and Lidl have been out in the front foot trying to put the fear of God into you in the last couple of days with their trading statements. I just wondered psychologically how you feel about the trading environment going into the much vaunted cost of living crisis that is gonna hit us. Secondly, just in terms of customer behavior and what they put in their baskets, you've talked about mix a few times around Taste the Difference, but it suggests that across the business shoppers actually look quite confident and were buying quite high value items as opposed to trading to the bottom. Just wondered more color on that point, please. Yeah, sure. Thanks, Clive. Look, how do we feel as we look out in terms of the consumer environment? I mean, I think, as I hope you hear in our tone and in our messages today, you know, we're very focused on the value positioning of Sainsbury's in grocery. It's, you know, a year into our plan, you know, if we can continue to drive confidence in that secondary customer, we see a lot of opportunity in front of us to continue to get that customer to wanna buy across the wider store. That's, that absolutely is, you know, at the heart of what we're trying to do here. That's what happened this quarter. While there will clearly be inflationary impacts out there, presenting relative better value so we can drive volume share, more customers, more frequently buying more of their food with us is at the heart of what our value play is. Look, this Christmas, it really worked. I mean, I would just say that the, you know, the Sainsbury's Quality, Aldi Price Match plan, the team did a, you know, a really brilliant job bringing that together, and it was a real cross business effort. You know, the week before we launched that, the whole organization was joined up in how we were gonna land that. Look, you know, we think it was important to give customers the certainty of that value, so they bought across the rest of the store. When you think about the discounters, as you saw in the presentation we've just shared, now you can see on the top 100 SKUs in quarter three, the discounters have actually inflated fastest. Yeah on those products and we were deflationary. That's the way we think about it. Look, the cost saving program and the volume play is an absolutely key underpin, so we continue to do that. As we look out, you know, we're determined on value, Clive, to make sure that we put best foot forward and we continue that strategy. On your second point, you know, maybe a couple of data points that might just help give some sense and color to what happened. Customers were looking to treat themselves this Christmas for all the reasons that I think we all expected. First time starting to get together, bigger groups. You know, we saw in elements of our trade up 13% up, as I say, on Taste the Difference. 25% up on two years in meat, fish and poultry, 16% up in produce, 12% up in bakery. We saw our biggest ever period for champagne and sparkling wine. In fact, New Year was interesting. Actually having closed on Boxing Day, we reset ourselves for New Year, which we thought was important. You know, we saw our biggest ever New Year and again, trade-up was important then. I think, you know, the core of the strategy for us here is get real confidence at the center of the plate. With an assortment that we have across the store, customers shop, you know, shop that broader assortment. That's what happened this Christmas. You know, importantly to say as well that the great thing about retail, isn't it? That you learn a lot every year and, you know, we think we've got more opportunities to keep pushing into that space. More opportunities to keep driving the trade up and to extend, you know, how customers treat themselves when they shop at Sainsbury's. Just a quick follow-up, Simon. Are you particularly worried at this stage about, given the rhetoric around cost of living crisis, et cetera, about trading down in the future this year? Well, I think, look, you know, I mean, we would all, of course, caveat everything I'm saying, where there's no room for complacency right now. You know, the consumer environment's gonna be challenging for all the reasons that we know. In the end, customers will be looking for certainty of good value for money. You know, our objective here is to be really determined in what we're pursuing on value and to give accessibility to trade up. You know, I think we can do both, Clive. I think we can, you know, accentuate our value credentials. You know, the team and I are very clear that we can also, you know, extend the reason why customers choose to shop at Sainsbury's. No complacency in that at all, but a real determination to push forward on both fronts. Clive, it would be one of the factors why we'd put some caution into next year, I guess, is just that uncertainty. Because there's no doubt, you know, we see in the general merchandise business, we can see people moving to more premium products, you know, larger TVs, 65-inch TVs, higher spec laptops, that kind of thing. Yeah. Inevitably be using some savings they've had over the past couple of years. Yeah. You know, we expect that to change. Yeah. I think that's an important point, the distinction between the grocery business, to your first question, and as you say, Kevin, in general merchandise and clothing and making sure we've got, you know, a plan that's right for both markets, 'cause it will be different. Yeah. Cool. Thank you, gentlemen. Thank you very much. Well done. Thanks, Clive. Thank you. The next question then is from Nick Coulter from Citi. Please go ahead. Morning, and happy New Year. Morning. Hi. Morning. Hi. That's just to follow up on Clive's trade down question there. Just to check that you're not seeing any evidence or forward-looking feelers with customer panels or any data that suggests you're seeing a trade down either in grocery or in general merchandise at this point in time? No, I mean, maybe try and give as much color as we can. What we've seen happen this quarter, and I think, you know, a key sort of feature of this is establishing stronger confidence levels on our core price offer, as I say. As we've built up the credibility of Sainsbury's Quality, Aldi Price Match, we're coming up to nearly a year now since we launched that. You know, as you've seen, what we're doing here is continuing to improve it based on customer feedback. The reason I would highlight that is because, you know, 90% of the volume going through that platform is now fresh, and that's where customers are buying into those products and then buying a wider assortment. We're not seeing, you know, that drive a trade down because what that is a, you know, a price match to Aldi that's then getting customers to put more items in their basket. As you've seen us report on the Christmas activity, we actually saw customers, more secondary customers, shop across the rest of the store as they bought into those price match products. If anything, I think, you know, the focus for us here is you know, create real certainty for customers, improve their confidence in our value perception, and then make sure we present both assortment and availability and service so they shop across the rest of the store. Yeah, no, I get that. Obviously, inflation is very uneven and we're seeing probably some very strong inflation coming through on particular lines in different areas. You're saying you're not seeing people trading across and substituting between lines. Essentially it feels like you're saying the consumer at this stage is very robust. Yeah. I think, I mean, you know, clearly we're all looking at a set of Christmas trading results here where the consumer has been looking at trading up and has been looking at all the things that are consistent with the Christmas period. I guess what I'm trying to describe is as we look out over the medium-term outlook and the inflationary pressures that are there and the pressure on consumer spending, we're very cognizant of that, which is why we're putting so much of our energy into value. I would say on the general merchandise and clothing business, you know, I think clearly the rules are different between food and general merchandise, as Kevin was saying. You know, we're paying very close attention to make sure, you know, that whilst there are inflationary pressures in that part of the business, again, we focus more on all year-round value. Look, this is a day-to-day, week-to-week focus. We listen to our customers week in, week out. I mean, our every meeting we have in our business starts with what our customers are telling us. Yeah. Look, so we'll be very attuned to these dynamics as the quarter and the first- Yeah Second half of 2022 opens up. That's why I'm asking. I wondered if there are any customer panels that you're doing at the start of the year that are kind of giving you pause for thought, but it doesn't sound like that at this stage from what you're saying. No, no. Absolutely. Just to assure on the point you make, I mean, one of the things that as a team we're very focused on is clearly listening to customers, as you'd expect. We have, you know, a whole range of mechanisms with which we do that. As you can see in our presentation again today, our in-house measurement of customer satisfaction across a whole range of measures, availability, assortment, service, value, ease of shop, and a whole host more are you know absolutely at the kind of focus of our day-to-day, week-to-week focus in the business. Everything that we do is driven from understanding that. Yeah, absolutely as this year unfolds, we'll be very close to what our customers are seeing, thinking and feeling. Nick, just to give you a bit more comfort, you'll see in this quarter that we've just started, you'll see us investing more in value. You'll see us being more loud about that in our marketing, et cetera. We're doing that anticipating the customers will be looking for more value against the backdrop that you're talking about. Great. No, thank you. On GM, and apologies, it's a bit of a picky one on slide 20, but just to try and help understand the profit bridge. Are those charts on the right-hand side on gross margin and cost of sales a zero axis? I assume that they're not a zero axis on slide 20. No, they're not. Okay. Well, I mean, it's I guess they would be illustrative at best then. Illustrative, yes. We do want With no numbers and no zero axis, it. Yeah it's tricky to interpret. Yeah. That maybe that was the intention. Look. No, joking aside, Nick, if what we're trying to say here is, you know, Argos' cost of sales has materially reduced in the period we're talking about. If we look at the total GM and the gross margin, and whether we're looking at gross margin across the categories within Sainsbury's, clothing in particular or across Argos, you know, we've been trading in a more disciplined way, and hence we're pleased with the margin delivery. Yeah. Okay. Right. It's just gross margin up, cost down, and that's as much as we can take from those charts, I guess. Yeah. I guess with the profit uplift sort of supports that it's coming through in the bottom line. Yeah. I mean, just one maybe ancillary point if it's helpful just on that slide, and just back to my earlier comments on costs. You know, we're one year into our three-year cost transformation program in Argos. If you think about the changes we're making on the store from standalone stores and also the logistics network. Again, just to I guess underline the fact that what you're seeing there in terms of the cost changes is at the first part of a three-year plan. That's great. Thanks. If that was your axis, it would be pretty impressive, but clearly not. Okay, last one then, maybe if I can. One of the newspapers reported that supermarkets might consider entering the potential or reported auction for Boots. Can you comment in any capacity and maybe generic thoughts on M&A, or if you'd rule out any interest, and why? I guess, Simon, I know the Boots business is obviously one you know very well. Thank you. Yeah, thanks. I mean, I think a couple things that obviously, of course, lots of speculation in the market. We've all seen that. I think, look, clearly, you know, a lot of strengths in that business and as you say, a business that I have some knowledge of. I mean, what I would absolutely say is, as you can hear in our plan this morning, we've got a lot on our plan and we're very focused on it. We're incredibly focused on putting food back at the heart of things, Bruce, and we're in year one of a three-year transformation of our business and all of our focus is on that. Got it. Okay. Just from an M&A perspective, obviously, Sainsbury's did do large scale M&A with Argos. There obviously are a set of criteria that you would use for large scale M&A. What would those broad criteria be? Yeah, I mean, forgive me for repeating myself, but I am gonna just repeat what I've just said, as you'd expect, which is, look, honestly, we as a leadership team, we're, you know, 12, 15 months into a real focus on what we think this business is capable of. We've relaunched our strategy. We've got a bold transformation plan to really shift the gears of what we think we can do. As you know, we're very focused on putting food back at the heart of business. We're seeing the early and encouraging signs of what we think that can do, but we're in, as I say, year one of a three-year plan. That's what we're focused on. That's great. Your repetition is informative. Thank you, sir. Thanks. Thank you. The next question then is from Xavier Le Mené from BofA Securities. Please go ahead. Good morning, Xavier. Yeah, thank you. Happy New Year to you. Three quick one, if I may. Just the first one on inflation. Back to the trading down and question you already have, but is there potentially a level of inflation, food inflation, where you would be potentially a bit concerned, you know, and its impact on purchasing power? Do you think, I don't know, above 4% potentially the market is struggling or the consumer will be under pressure? The second one is just promotional participation. Going forward, do you think you would have potentially to resume promotion in a more challenging consumer environment? The last one, just on Argos more specifically, are you able to track, you know, the loyalty and the number of regular customers you had before the pandemic, or was that during the pandemic and maybe today? Is it going up, down? Any color on that would be quite helpful. Okay, no problem. Well, let's try and without repeating myself and ourselves too much, try and speak to inflation first and then promotion and then Argos to your question. I will be a little bit repetitive on the first point, but I think, as I say, look, you know, I'm not gonna predict what I think food inflation is gonna do this year. I think there are a lot of factors that make that, you know, an unclear picture yet, but it's clear the pressures are there. You've heard us say this morning that, you know, one of the key features of our Christmas trading update has been the positive impact of improving our relative value. You know, that's exactly what we will do in the challenges of the environment ahead. You know, I'm very clear, we're very clear as a team that consumers are gonna face more pressure in their personal wallet. Our job is to make sure as that happens through energy prices and other factors, that we put very best foot forward on value. That's why Sainsbury's Quality, Aldi Price Match, forgive me for repeating it, Price Lock are such essential parts of our program and why, you know, as a team, we're so focused on making sure that we shift value perceptions because in any scenario of an inflationary cycle, customers being confident they'll be able to access better value at Sainsbury's is gonna be key in how we navigate through that period of time. In terms of your second question on promotion, I mean, I think, I mean, as you can see, you know, we're very focused on the price on the shelf, the price on the shelf available to all customers. You know, we're pleased as we've put in Sainsbury's Quality, Aldi Price Match and Price Lock that customers are responding to that price. We've also importantly launched Nectar Prices this quarter, over 95 million permutations out there every week as customers can access, you know, individual prices uniquely served up for them. That launched early in the autumn, and that clearly has come through in the period as well. You know, our focus is on those key value programs. Sainsbury's Quality, Aldi Price Match, Price Lock and Nectar Prices. Then on your third question on Argos, I mean, I think one of the things that was important to us, and we're pleased that we did, is we launched Nectar in Argos, you know, just on the way into the pandemic. That's meant that we're able to get much more of an insight as to how those customers are shopping. Of course, Nectar is a source that links together all of the, you know, insights about how customers are shopping both in Sainsbury's and in Argos. Nectar is the way that we keep an eye on that. Look, you know, I put a big emphasis this morning on our profitability and our cost programs in Argos and general merchandise. You know, of course, we're very focused, too, on the proposition and making sure as the pandemic situation hopefully changes over the course of the year ahead, the areas that we think we can push forward on. You know, we think we've got opportunities in areas like home and furniture as we roll out Habitat. You know, we're very focused on improving availability. Clearly, the challenges in availability will continue in Argos in the short term for sure, as the wider industry. As availability improves, we think that will be important for customers in driving their stickiness. Of course, we're rolling out the local fulfillment network, as you'll remember, which will improve availability as more of the fulfillment goes through that model. A lot in front of us to deliver there. I hope that gives some kind of backdrop on the Argos picture as we look further out. Yeah. Thank you. Thanks. Thank you. The next question then is from Maria-Laura Adurno from Morgan Stanley. Please go ahead. Hello, Maria. Hello. Happy New Year. And to you. Thank you for taking my question. The first one is with respect to clothing and the fact that you actually had a higher proportion of items sold at full price. I was just wondering if you could comment in terms of how you view this evolving into this year. The second question I had is looking at it slightly differently around the comments you made on inflation. How are negotiations with suppliers going for the year ahead? Have dynamics changed versus last year? Any comments would be helpful. Thank you. Sure. I mean, let me just try and speak about clothing, and I'm sure Kevin will come in on this one as well. I think, look, you know, as ever, as you'd expect, we're making choices based on the environment that we're in right now. Of course, you know, the environment in clothing has been different through the pandemic, which has meant that we've chosen to run less promotional days, and that's worked for us, as you can see. We've been able to deliver 38% more full price sales in the period. We've been very clean in terms of markdowns. It's, you know, important to say actually, you know, that some of the global shipping challenges have impacted clothing as well, you know. We had products that we would have liked to have arrived a lot further before Christmas than they did. You know, I certainly saw Christmas jumpers arriving quite close to Christmas. There's been some impacts there, which is why when we talk about the overall performance of the clothing business, we think less promotion has been the right thing to do. The team have done a brilliant job, you know, navigating what's been a pretty uncertain environment in terms of, you know, products, you know, across the world and into our business. Look, I think, you know, we'll look at how the environment plays out. What I would say is we think we've got a great brand in Tu. You know, customers really like the brands. We think there's, you know, there's real opportunity to continue to drive it, and we'll adapt, you know, as the environment opens up. You know, less promotion has worked for us in this period, and we're confident we've taken a lot of learnings from that. Anything on clothing? No, no. Just the only thing to add, Maria, a general direction of travel is fewer promotions, sort of focus more on everyday value. That's sort of the general direction of travel. Of course, you know, trading is dynamic and, you know, we would flex depending on the circumstances. I guess more broadly on value, and I think we've hopefully tried to give you as much color as we can on value. You know, I say, come back to the sort of core principles. We're investing in value at the heart of the plate. You can see our relative improvement against competitors. You can see what we've done, you know, in the grocery offer to make sure that we're putting best foot forward there. You know, one of the features of that has been improved availability. You were asking me about suppliers, and I think that, you know, I just couldn't underscore enough the importance of, as we improve value, the partnership and the way in which we've been working with our supply base. If you go back to September, four and a half months ago, and think about the challenges in the U.K. food supply chain at that point in time, we were coming out of a big staycation that had really impacted volumes. We had, you know, challenges with CO2. We had major challenges in the availability of the workforce in the meat processing and poultry industry. We had big challenges with having enough drivers to move product around. You know, to get to the outcome that became possible, not just in Sainsbury's, but across the industry, that has been a monumental effort of collaboration across the supply base, suppliers working together to drive the outcome. You know, back to the first principle here, we wanna grow volume in partnership with our suppliers so that, you know, their business wins and our business wins. Thank you. The next question comes from James Grzinic from Jefferies. Please go ahead. Hello, James. Thank you. Morning. Happy New Year. And to you. Just two quick ones. Sorry to go back to inflation again, but I guess would be helpful to understand what your Q3 grocery inflation was. Take your point, you were deflationary in the core hundred lines, but if you can give us a broader picture. In your mind, is the peak of that probably going to be a Q1, a fiscal Q1 2022 dynamic, from your perspective, in terms of inflation pass-through? The second one is around temporary costs. Can you perhaps help us understand the scale of temporarily elevated costs that the business has been facing more broadly across the supply chain? James, just on the overall inflation in quarter three was around 1%. Those core lines that we pointed out, we deflated, but overall food inflation was around 1%. Thank you. We don't break out the temporary costs. The only thing I'd probably guide on is, you know, COVID costs. We can go back at year-end and give you more detail. Obviously, it's just a trading update, but we talked about sort of 10%-15% of last year's number. It's gonna be at the higher end of that given the recent outbreak and some of the additional costs that we had to incur because of that. Thank you for that, Kevin. More broadly on the supply chain, you know, special rates that you had to pay for drivers, et cetera, et cetera, I mean, there's been a lot of dislocation and inefficiencies in the supply chain above and beyond COVID, so I'm trying to understand how big that is. Yeah, we're not breaking that out this morning, James. We took a number of actions, you know, we gave retention payments to our grocery online drivers. We gave a mixture of some pay raises and some retention payments right across our logistics infrastructure. We're not breaking out that number this morning. Understood. Thank you. Thank you. Thank you. The next question then is from Sreedhar Mahamkali from UBS. Please go ahead. Hello, Sreedhar. Hi, good morning. A couple of quick, maybe last ones then please. Firstly on Argos. As you look forward, I know you don't want to give us anything just yet in terms of outlooks and things like the full year ahead, but just as you look ahead, do you plan for some consumer headwinds this year as the supply chain eases, though you still have the benefit of easier comps, but from a demand point of view, should we be thinking there'll be some headwinds, especially in the discretionary categories? Again, sticking with all this for a second, I'll be interested in, you know, if you were able to share what you're learning from the rollout of the local fulfillment centers. I know you target about 32 local fulfillment centers, so that'll be very helpful just on Argos. Secondly, I guess a little bit related to James' point a second ago on pricing. You've clearly said very helpfully top 100 SKUs, but the overall chart, will that look broadly the same if we look for prices across the full stores? Thanks, Sreedhar. Well, let's take the questions in turn. So first of all, just in terms of the, you know, the GM&C, let's call it the demand outlook, given inflation, I mean, I think a couple of things I would just come back to. You know, the reason we're so focused on our margin discipline and cost transformation plan is because we see the importance of those in mitigating the input, you know, impacts of demand over the medium term. So, you know, clearly there will be impacts as inflation passes through on discretionary spend, and therefore delivering on, you know, year two of the cost transformation plan. Making sure we're really disciplined in our margin choices on promotion will be an important, you know, factor in ensuring what happens at the top line. We can mitigate that if there are impacts. We're planning for some, of course, and you know, we're confident in what we've learned through this quarter and the second half of this year is preparing us for that outlook. I would come back to, you know, one of the key parts of the Sainsbury's GM&C business and Argos is clearly to make sure we present good value. In that environment, given that customers are back in supermarkets more than they were a year ago, you know, we're seeing a higher return, as you've seen, to customers in the store. That's a real opportunity to make sure that we put best foot forward in terms of value and availability as availability improves. We are, y ou know, we're very alive to the impact, as I say, of discretionary spending and making sure that we're managing cost and margin to mitigate that as far as possible. I think on the second point you raised, we are in the early phase of the local fulfillment center rollout. So as you say, 32 by the time we get to the endpoint. So we've opened in Bristol and Leeds, and we're pleased with how the program's going. You know, as you say, the key feature of this is not only the reduction in cost as we become more efficient in our distribution, but also over time as we get to more live locations, improvements in live availability same day. You know, as a team, we're really focused on this 'cause of course availability is really important to the Argos customer. Let's hope the supply chain challenges, globally, improve as we get, you know, further into the year. Combined with this rollout, these two things together we think will be helpful. You know, when we look at what customers say, availability is, you know, the biggest driver of the reasons they choose to shop with us. We, you know, we see opportunities as we roll that out to get those benefits. Then I think in terms of, inflation more broadly, I mean, we've tried to answer as far as we can, I think this morning on what we see. As you say, you know, the value platform in grocery is essential. What I would just say is, you know, I draw attention again to the two key slides in the pack, our relative value index against our key competitors and the improvement year-over-year, both in the overall basket and at the center of the plate. As you say, Sreedhar, you know, on the 100 items we've been deflationary and you know you can read into our results there. The fact we've grown volume market share on a one- and two-year basis ahead of the market points to the fact that customers are seeing better value in our offer. Thank you so much, Simon. Thanks a lot, Sreedhar. Thank you. Okay, I think we've come to the end of all the questions, so thanks very much for joining us this morning. I hope we've been able to answer your questions as far as we can. Look forward to picking up again very shortly. Just finish the call by saying, you know, a huge team effort from the whole team to deliver what's been, you know, a pretty challenging environment out there this Christmas. The results and the upgrade, pleased to share today, and we're taking that momentum into this year. Speak soon and thanks for joining us. Thanks, everyone. Thank you. This presentation has now ended.