J Sainsbury (LSE:SBRY) — Investor Presentation

0:01 Good morning, ladies and gentlemen. Welcome to the SAINSBURY's PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet company platform.

0:29 And before we begin, we would just like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to director of investor relations, James Collins. James, good morning, sir. Good morning, and thank you very much. So welcome to our presentation today. Thank you very much for joining us. I am James Collins, and I'm joined by my colleague Amy Morgan, our head of investor relations. We're going to share a brief summary of the year end results that we published in April, covering the financials and also the strategic progress that we've made during the year and a look ahead to to what we plan for for for the year ahead. Following this, as Morris said, we will be happy to take your questions. So just a reminder, this is the next level Sainsbury's plan that we set out in February of last year, so February 2024, with the kind of four key areas that that that we're focused on as a business.

1:28 First choice for food, loyalty everyone loves, more Argus more often, and save and invest to win. The presentation today will cover all of those with a particular focus, on the food business. So turning first to, to where we are now and, where we've been over the last four years. We've transformed the business, over the last four years. We've invested a billion pounds in lowering prices, and we now have a winning combination, of value, quality, and service in the market. And that combination is one that customers responding very positively to. We're obsessed with how consistently we show up for our customers week in, week, week out. And we say that we are food first and people first. So our people are at the heart of everything we do. We have a 141,000 colleagues, and we really value everything that they do.

2:24 And that's why we led the sector on pay in January for the third year in a row and why we've increased colleague pay by 58% since 2018. We continue to invest as well in the quality and resilience of our supply chain through building long term partnerships with suppliers, ensuring leading availability for years to come. And we've also built resilience, and create a sustainable competitive advantage across our customer offer, our operations, and our technology platform, through investing, in each of those areas. We're stronger, and more agile as as results, and we have the capabilities to win, in the current market. And these aren't capabilities that you can build, or deliver sustainably, overnight. We've been making balanced choices on investing since the start of our four year turnaround.

3:16 This discipline and balance has got us to where we are now, and we'll continue to guide our outcomes to deliver for all of our stakeholders going forward. So looking at, the core food business, we know that the key factors that really influence where customers choose to do their shopping are value, quality, and service. And through focusing our £1,000,000,000 of price investment where it matters most for customers, they now know they can trust us to deliver consistently great value. And because of this, value perception, as you can see in the left hand chart, continues to improve at a faster rate than it does for competitors. Our reputation for outstanding quality and innovation continues to strengthen, and we reached record levels of customer satisfaction on availability over the year, continuing to lead our key competitors on overall customer satisfaction as well.

4:12 And as a consequence, more customers are choosing Sainsbury's as their first choice for for where they do their food shopping. So the chart on the left shows that over the last four years, the number of primary customers, and primary customers are those doing the majority of their grocery shopping with us, has increased by 18%. That's a very different level to the rest of the industry, and those are really important big basket customers,

4:40 very important for for industry economics. And so in the last year, that's driven the biggest market share gains that we've seen in more than a decade, and you can see that progress through the chart on on the right hand side. We promised in the commitments that we gave in February of last year that that progress on sales would feed through to profit leverage, and it has. So that's delivered SAINSBURY's profit growth of over 15%, in the year. This is supported, as you can see on the right hand side, by our industry leading cost saving program where we're well on track having delivered £349, £349,000,000 of savings in the year. So we're well on the way to our target of 1,000,000,000, over the three years to March 27. This is a vital point of difference in a competitive market in the year ahead.

5:35 We're also committed to improving returns. And so while we are spending more capital on growth in the areas that I mentioned and on on on efficiency, The higher retail profit that we've delivered has fed through to improved return on capital employed, as you can see on the left hand chart. And we're delivering higher cash returns to shareholders, while keeping leverage comfortably in the middle of our target range. So going back to, those key commitments, that we made in the next level strategy in February 24, you can see we've made really strong progress against these ambitious plans to deliver across these balanced commitments. Across the business, our teams have done a brilliant job. We've delivered improving cuts customer satisfaction, food volume growth ahead of the market, and as a result, leverage from sales growth.

6:26 And we have good line of sight on our financial commitments as we look ahead, and we're confident of delivery over the course of the three year program. So with that brief summary, I'll now hand over to Amy to cover some of the financials. Thank you, James, and good morning, everyone. So I will now cover the financial highlights for the fifty two weeks to 03/01/2025, and starting first here with a reminder of our financial framework. This lays out the factors that underpin our commitments to deliver profit leverage from sales growth, strong cash flows, higher return on capital employed, and enhanced shareholder returns. One year into this next level strategy, we're really pleased with our progress. As Jane said, we've delivered food volume growth ahead of the market, profit leverage, and continued strong cash generation.

7:12 We've returned more than £500,000,000 of cash to shareholders in the year through the payment of our dividend and a £2,000,000 share buyback.

7:23 Moving first to our sales performance. Sales in Sainsbury's grew by 4.2% in the year with grocery sales growth slightly stronger in the first half driven by higher volume growth against weaker comps. We continue to grow volumes in the second half despite tougher comparatives. Argos sales declined by 2.7% with sales behind our expectations in the first half due to a significant reduction in online traffic and a weak start to the summer. Performance strengthened in the second half as we took action to improve traffic and volume trend and sales returned to growth in the fourth quarter. This led to retail sales growth of 3.1% excluding fuel and 1.4% growth including fuel. Turning next to our retail profit.

8:12 Retail underlying operating profit grew by 7.2% year on year. This was driven by double digit growth in Sainsbury's operating profit, reflecting strong grocery volumes, the delivery of operating leverage, continued growth in the net to profit contribution and good progress on cost savings.

8:30 This was partially offset by lower year on year operating profits in Argos. Profit declined in both the first half and the second half with actions taken in half, one, improving the outcome in the second half. So looking ahead to financial year 2526, we started the year with good momentum across all our brands, and we expect to continue to grow grocery volumes ahead of the market. We expect to deliver retail underlying operating profit of around £1,000,000,000 and weighted more towards the second half than this year. This reflects the benefit of new supermarket openings and space reallocation activity being weighted more towards the second half with a higher level of disruption in the first half. Our guidance for the year ahead gives us capacity to continue to make balanced choices across our business and to to sustain our current competitive position.

9:25 This table here shows the key elements of the cash flow and movements in net debt this year and last. Retail free cash flow of £531,000,000 was down year on year, mainly due to lower working capital inflows and higher corporation tax payments. The movement in net debt excluding lease liabilities was an increase of £64,000,000 after returning $5.00 £8,000,000 to shareholders through dividends and share buybacks. Looking ahead, we are committed to continuing to deliver retail free cash flow of at least £500,000,000 in 2526. We expect the composition of free cash flow to be similar to this year as we continue to drive improvements in working capital and expect capital expenditure to be broadly in line with this year.

10:15 Cash contributions into our pension scheme will be around £20,000,000 lower year on year. We've included a slide on capital expenditure here. So looking ahead to 2526, you can see how our spend on efficiency is stepping up, underpinning our confidence in the delivery of our cost savings plan and further building sustained competitive advantage against competitors who are more cash constrained. We are tightly controlling our maintenance CapEx while ensuring standards across our store estate are good. And you can see here that our growth CapEx has been higher across 2425 and this continues in 2526 reflecting our plans for new space growth. This includes the cost of converting the acquired home base and co op stores.

11:03 Our guidance on capital expenditure remains unchanged. We expect to incur capital of ex expenditure of between 800,000,000 and £850,000,000 in the year ahead. Here, we've laid out our balance sheet metrics. Net debt to EBITDA has steadily reduced over time and remained flat year on year at 2.6 times after funding the step up in cash returns for shareholders. We remain broadly in the middle of our target range of 2.4 to three times. We were pleased to deliver an increase in return on capital employed of 70 basis points to 9% driven by growth in retail operating profit. And finally, on to shareholder returns. As announced at last year's Capital Markets Day, we are commencing a progressive dividend policy.

11:53 Our proposed full year dividend per share is 13.6p, an increase of 4% year on year. Given the strength of our balance sheet, we have returned nearly all of our free cash flow generated in the year to shareholders through a dividend and a buyback. We have announced that we will buy back at least £200,000,000 of shares in the year ahead as well as paying a £250,000,000 special dividend relating to the bank divestment. Thank you. I will now pass back to James to cover our plans for the year ahead. You very much, Amy. So just a brief summary before I move on to the year ahead, in terms of what we've delivered, in in the year, that we've just, that we've just reported on. So we were really pleased. It very much this first year of the next level plan built on the success of the food first strategy.

12:45 So delivering continued market share gains, and significant operating leverage. So the investments that we've made over the last few four years have improved the grocery proposition, and we've built resilience and sustainable competitive advantage through strengthening the fundamentals across logistics, technology, and the way we work with suppliers. So as we look to the year ahead, we're starting with strong trading momentum across all our brands and the capabilities to win in this market and sustain our strong competitive position. So looking, at the momentum, in the business. Sorry. Slides. Looking at the momentum that we are carrying into the business and the momentum that we built over the last two years, this is really clear. So this is our two year grocery volume growth. So we're delivering for customers of freshness, availability, quality, service, and experience, and consistently great prices.

13:42 So all those components are necessary for being the first choice for our customers, and this is showing through in the consistency, of this performance. So more customers are confident enough to choose us for their big weekly shop. So a two year growth rate of 5% in terms of volume growth over the course of the year. This is a huge driver, of the economics and the operating leverage in our business. Looking at what we've done on value, we've invested, as I said earlier, a billion pounds in price over the last four years, and we found a value formula that really works through our customers. So whether that's through Aldi price match, nectar prices, your nectar prices, low everyday prices, it's a combination that is really working for for customers.

14:28 And as a result, we're in a really strong position versus all our competitors. The left hand chart shows the progress, and the improvement that we've made in our pricing position since November 2020, when we started this work. We're a partner of choice for supply more targeted personalized offers available through your nectar prices. And we've extended our Aldi price match again, so it's now on more than 700 products. Since since we did this presentation, it's now on more than 800 products, and that's a real point of difference. But it's not just about investing in price, and Sainsbury's has a fantastic reputation for quality and range.

15:24 And so this has been a key part of our focus over the last four years. It's been reinvigorating the passion for food within the business and ensuring we're delivering the best freshness, inspiring customers with new products, and bringing more and more more and better quality to the business. So over the course just of the last year, we've launched more than 1,300 new products, of which more than

15:47 600 were in Taste the Difference. And Taste the Difference sales grew 15% in the year with a particularly strong performance in fresh products where sales were up 17%. As a result, we continue to deliver the strongest premium on label performance in the market as customers look to us to deliver outstanding quality, at affordable prices. So my slides are moving.

16:13 There you go. Sorry. So so affordable prices, and, what we know is that customers look to to taste the difference and look to Sainsbury's for all the big events through the year and for every occasion where they want to trade up, to something a little bit different. And we have clear ambitions to keep growing, taste the difference in the year ahead as we celebrate its twenty fifth anniversary, and that is a a year in which we expect the brands to reach at least 2,000,000,000 of sales.

16:44 So there are lots of great things to come here, including more than 50% of our products innovation, for the the year ahead being in Taste the Difference. So watch this space as we celebrate with the biggest and best year, for Taste the Difference yet.

16:58 Now our deep confidence in where we've got to in the strength of our grocery proposition has driven our decision to open more new stores, bringing the best of Sainsbury's to more customers. And this is our biggest investment in space, in more than a decade. And to be clear, we've been very targeted in our our approach here. So identifying supermarkets or sites in long sought after spaces, where we haven't got a significant presence. And the home base and coop sites that we acquired during the year tick all of those boxes. So that means that we expect to open 15 new supermarkets in the year ahead, and a further 25 new convenience stores. And we're really excited about the opportunity we have to reach new customers in these new locations.

17:44 But alongside this, as we laid out in February of last year, we're also making more of our food range available in more of our stores, in our existing stores through what we call more for more, where we're rebalancing space away from general merchandise and clothing to really showcase the best of our food offer, so bringing a better customer experience and better trading intensities in our stores. And we're seeing really positive early early results in the investor stores where we're doing that. So we're adding another 90,000 square feet of space, in the financial year ahead, and we expect the benefits, to build.

18:20 So at the same time, we're making big process, changes to our stores, driving growth, availability, and improving efficiency. So if you put all of these things together, what do we expect to deliver in the year ahead? So a more efficient and better customer offer, but also 3% more food space over the course of the financial year.

18:43 Now I've touched early on a little bit about about Nectar. And Nectar and particularly Nectar prices have been really transformational for our business in terms of strengthening the grocery proposition, and driving improved value prop, perception for both Nectar and also Sainsbury's. So I took referred earlier on to more than 9,000 products, that are typically now on Nectar prices, saving an average of £13 for customers on their big weekly shop, every week.

19:11 And as a consequence, we've delivered a a huge step up in terms of Nectar participation. So the number of or percentage of sales where people are registering their Nectar card or or, like, indeed using the app. And that really strong foundation where we've moved people primarily away from being a card based loyalty scheme to a digital one is huge in terms of what that means that we can do in terms of delivering value to customers, but also building our Nectar three sixty business.

19:44 And this is a really important growth area for us. So the really strong loyalty scheme drives effectively as the fuel for the net what we call Nectar three sixty. And that's a business which works in loyalty, in insights, and media services. And media what was commonly known as retail media is a huge growth area. We now have over 900 clients here and a number of really key or the biggest key media agencies part partnering with us. We set a target

20:15 in February of last year to deliver a 100,000,000 of additional profit from this business over the three years of the plan, and we've made a really strong start through, through growing the retail media business in areas like connected digital screens, and we're going to invest, to drive this at scale. So that 100 millions, we we we sorry. A 100,000,000 target, we've delivered 39,000,000 in the first year. So a very, very strong start, and it's a vital part of of our of our growth plans.

20:47 Looking to to Argos, it was a tough year last year for Argos. We had some significant headwinds, but we're encouraged by the progress we've made, firstly, through the course of the year and in terms of putting together, a sharpened trading plan, delivering better momentum. But if you stand back and think about the, you know, the the wider priorities for Argos, those haven't changed. So what we're really focused on is making Argos, what we call more Argos more often, so making Argos more relevant, encouraging customers to shop more often, and driving bigger basket spends when they do shop with us. So whether that's in expanding ranges, which we're doing both through working differently with suppliers and also bringing in what we what we call supplier direct fulfillment where where we're offering more products on our website without actually carrying that stock within our business,

21:47 whether we are working better on our digital proposition in terms of how easy and appealing it is to shop through the Argos website or the app, and also just very focused in terms of how we market. So all of those are really giving us some encouraging headway. So so no fast fixes here, and we are very keen to ensure that we build this business to deliver sustainable profitability. And that's really our focus with Argos at the moment.

22:20 So if we then stand back and kinda think about the year ahead, we are going further with our business. So we're not satisfied with where we were. We've delivered a fabulous performance in terms of of how we've moved the business on.

22:38 But we're going further with our plans for product innovation. We're going further with scaling our plans or scaling our personalized Nectar loyalty business. So bringing more personalized loyalty benefits, to customers.

22:55 And in Argos, as I said, taking strategic action to make sure we have the best range and proposition for our customers. And this isn't just done at a at a customer facing level. It's underpinned by the investments that we're making in technology, which drive efficiency, deliver a better customer experience, and enhance the platform so that we can deliver the growth. So as we look to the year ahead, we think this puts us in a really strong place. And with the guidance that we set this year very much takes us into account, so it will enable us to make balanced choices, and navigate, a competitive environment that exists around us. So delivering for, all of our stakeholders, as we focus on the Sainsbury's next level plan.

23:40 So I hope that was a useful presentation. Thank you for your time. We will now take, any questions.

23:47 Perfect. James, Amy, if I may just jump back in there. Thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that have been submitted already, just like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can all be accessed via your investor dashboards.

24:11 James, Amy, as you can see there, we have received a number of questions throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. But, guys, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that'd be great. Thank you.

24:29 Great. Thank you very much. And, yes, as we heard that there are a number of questions. Thank you everyone for submitting those in. And, James, I think we should start with one, here on guidance. So how can we be confident that we will continue to grow market share, and are we going to be prioritizing this over delivering profit leverage in FY twenty five twenty six?

24:52 K. Thanks. The, I think we were we were kind of very deliberate about the way that we described our priorities for the year ahead. It is a year in which, we expect the competitive intensity, to step up. We've seen a small amount of that so far this year. Our absolute priority above all else is to maintain the strong competitive position that we've built. So over the last four years, we've made significant cost savings, and we've really focused on reinvesting those back into the business to improve our value proposition above all else, additionally, make sure that we are delivering on service availability

25:29 and innovation and quality. So so the really vital thing above all else is, obviously, we need to make balanced choices. But above all else, the key thing is that we maintain that competitive position and the strength that that we've built. So, you know, we we we kinda quite deliberately said that that that is our priority, and we expect to continue to win market share as a consequence.

25:55 And and our guidance reflects that. So we do expect, you know, within the guidance that we've given, we have the capacity to invest in order to to maintain that strong competitive position. Okay. Thank you, James. I'm gonna move next to some questions on cost savings. So the first one is around how we're balancing our short term cost savings initiatives with long term investments in growth and customer proposition. And while we're on that, I'm just gonna combine that with another question we've had around, the investments in particular that we're making in technology. What are the major drivers we can see and the benefits of that? Okay. So there's quite a lot in in both of those. Yes. So so so in in terms of short term cost savings initiatives, I'm not sure I'd agree that that we really have any short term cost savings initiatives. And I think this has been really key, actually, because when, you know, we've been talking to investors and analysts about the year ahead, it's a year in which there are a lot of cost pressures, you know, more more than has been the case in the last couple of years, particularly in areas like national insurance,

27:06 some regulatory new cost pressures, as well as, you know, the ongoing cost of of paying our people more. And we've had a few questions about, you know, whether we would increase the level of cost savings or find new cost savings to pay for those. I think the only way that that you really functionally deliver cost savings is by having long term programs. And so the the cost savings programs that we have are now very well developed. We've we've been running those programs for the last four years. And so we delivered 1,650,000,000 of savings over the last four years, and that has more than doubled the rate of the progress that we were making in prior years. And these are plans that are put in place for multiple year delivery.

27:54 So so firstly, you know, I would I would sort of say say that there are no short term cost savings because good cost savings are done strategically and deliver over time and, obviously, are done with the customer proposition in mind. And that, again, refers to the balance. So we expect still to be able to deliver growth. We're investing in terms of capital to make sure that that we have the right technology, the right infrastructure to deliver growth. So all of those things go into, the mix of capital investment and sorry, my dog. And, and strategic investment that we're making, in the in the business.

28:40 Perfect. Thanks, James. Now I think there was a question about technology there as well. Yes. So just specifically around where we are investing, in growth in technology, the kind of the the major drivers we can see and and the benefit that we're deploying there. Yeah. So, so I'd I'd split that into two areas. So so number one is in customer facing areas. So significant amount of the efficiency, that we gain is in areas, like the checkout process and encouraging people to use apps, and encouraging people to use a technology like SmartShop. And and, you know, you will only encourage customers to, to to switch to those technologies if they are very you know, if they function very well and actually if if customers grow, you know, to to like them over time.

29:31 And so there's significant investment that's gone into the technology there. But, obviously, behind a business like ours where there are millions of transactions every day, it's really important that we have incredibly robust technology infrastructure. And so we've been investing in, you know, if you like, the the kind of core networks that sit beneath the business and in investing in how we can deliver things more efficiently. So and so both in terms of the front end and the infrastructure, these are really vital areas. And when we laid out our our plans in in February 24, we talked about a priority being save and invest to win. So so we're saving money to reinvest to to to to put that back into the customer proposition, but also investing because by putting in place good infrastructure, good technology, that's how you drive a more efficient business and build an efficiency advantage versus our competitors.

30:28 Thank you, James. And I'm going to move to a couple of questions now on Argos, if that's okay. So first one being around just what the assumptions are in terms of Argos' profit outlook in, FY 2526. Yeah. So so in terms of the the August profit outlook, so so within our guidance where we've guided that that we expect to deliver about a billion of of resell underlying operation profit this year, we said that we expect the August profitability, excuse me, profitability to be broadly unchanged year on year. Now we have had some queries about whether that is being quite conservative because we know that we had a lot of headwinds last year, particularly with the poor season.

31:18 As I hope most of you can see right now, the weather is good, and it's been good for the last few weeks. And so people are saying, well, listen. If the the season starts well for you, that's that's good as a business. I would agree that potentially is helpful for the business. But what we are aware of, number one, is we're only ten weeks into the new financial year. There's plenty of year to go for yet. And second, you know, we are really focused on making the right strategic progress with our goals rather than just focusing on short term profitability. So it's really about delivering a sustained, a sustained, kind of profitability within that business. Thank you, James. That actually leads nicely into the next question, which is around around the sustainable growth beyond short term recovery in Argos. So kind of structural changes that we're making within the business that ensures, that outcome of kind of a a more sustainable kind of delivery of the Argos business?

32:18 Yeah. So so I think as you would probably hope to hear, as is the case with any retail business, it's got to be focused on the top line. So so, you know, we have delivered significant efficiency benefits from Argos over the period of our ownership, and particularly over the last four years where we have moved more of the business to stores within Sainsbury's and closed a lot of the historic standalone Argos stores. So that's been a kind of real focus, and we continue to to believe with there are kind of further efficiency savings. But, really, what this is about is making our Argos more relevant to customers more frequently. So the the business, Argos, is very is shocked by a huge proportion of the population, but, frankly, not frequently enough.

33:05 So it's a very, very convenient business, and that's what customers really value it for is knowing that if your kettle breaks this morning, you can order one online today and and probably pick one up this afternoon or have one delivered again potentially within four hours. That's that's an unrivaled proposition in The UK. But what we know is that customers use it for those convenient moments. We would like customers to use it more often, and that's about making it more relevant in terms of the the ranges that we carry, continue to be super sharp on value, and making the digital proposition and the app a real go to for customers. So that's why we're really focused on kind of building the the strength and the dynamics of that business to build a more sustained sales space.

33:54 Okay. Thank you, James. And and just while we're on Argos, we've had a question about tariffs and the impact that that might have on the business, particularly Argos. Yeah. So so I'd say we, in terms of of tariffs overall I mean, actually, covering covering two for one in terms of the the answer. So so firstly, grocery, we expect very little impact because we don't buy much from The US. And primarily, you you know, where we buy food from overseas, it's primarily Europe. So so we didn't really don't expect much by way of of significant impact on the grocery business. In terms of general merchandise and specifically August, I'd say it's a little bit too early to tell clearly, there's there's a lot of uncertainty in terms of how tariffs will settle.

34:44 I think, you know, there is potential for some tailwinds or, firstly, in terms of sourcing where goods that's come out of, China in particular that might have been destined for The US, come to The UK instead, and that might, you know, basically deliver an opportunity to, to lower the cost of goods. I I wouldn't I kind of bank that as a a kind of massive upside because I think that will happen as an industry level, and those benefits will likely be passed on, you know, through the industry rather than kinda necessarily being banked through profits. But it's nice to have a tailwind rather than a headwind. And then there is a small threat in the the likes of Temu, etcetera, where The US is is increasingly a closed market for them, might focus their efforts again more on a market like The UK.

35:41 And so we need to be aware of that, and, and and that's that's something which might provide a little bit of an offset there. But, but all around, I think, you know, both in terms of sourcing, cost of goods, cost of freight, there are some some tailwinds there, which I think could be quite helpful. Thank you. So I'm gonna move away from Argos now and onto the, Nektar business. So question here around our confidence in scaling, Nektar three sixty to reach the £100,000,000, incremental profit target. And do we see any risks to being able to achieve this target? Well, so I'd say our confidence is very high. So so we have a three year target to deliver an incremental 100,000,000. We delivered 39 in year one, and we've always thought that the trajectory actually should be the increment, should be building in outer years.

36:36 What and and what what are the risks and what I mean, what why why are we so confident? Well, basically, number one, this is a scale game, it's also a game where, you know, having built that business over many years, you know, Nectar has been around a long time. It's a very strong coalition business that we bought that we bought into SAINSBURY's a few years ago. But first, in terms of the connections through to our key clients, media clients, FMCG clients, the big advertisers, that those networks are very, well evolved. And we know, and we continue to invest because where we invest in network basically delivers the strongest returns on any investment that we make in the business.

37:22 So we already have a significant scale advantage, a significant longevity advantage. So, you know, if there is a threat, it is that other people look at this big media income pool and the degree to which, it might grow, and seek to come into the market. But we know that it is a that those connections, the scale, and the longevity of the our understanding and the algorithms and the way that we make this business work gives us an incredibly strong competitive advantage. Thank you, James. And the question here just with some concern actually around the level of shoplifting theft that's being, reported in the media, asking around what we're doing to reduce the kind of threat of that in our stores and also, in particular, how we're protecting our staff.

38:09 Yeah. It's, it's it's unfortunately, it's a very, very relevant question for for all of retail because, you know, I think I think quite often, it it it's, it's considered to be the consequence of a cost of living crisis or people with, you know, with with challenges with income and consequence of of inflation, the reality is that there are very, very significant organized crime that that that that that drives a lot of the shrink from stores or shoplifting. And and so it it is a significant issue for for for all retailers. In terms of how we're addressing it, you know, our number one priority in this is protecting our colleagues because, we do know that particularly with organized criminals that that we need to be super clear that that we can't put our colleagues at risk. And so whether that is putting in extra protective measures, particularly in convenience stores, which tend to open longer hours and have fewer colleagues.

39:13 That's been a real focus for us. And inevitably, you know, we will focus on the areas where we know that the risks are highest. So that will be our number one priority. After that, really, it states the balance between, protecting our stock from theft versus other con you know, impacting convenience for customers. So whether that is through on self checkouts where we insist on regular checks and in some stores have a barrier gate that you need to scan a receipt before you get out. And in an ideal world, we wouldn't do that. But in in areas of higher risk, it's necessary, and we hope that customers understand that that is necessary because, ultimately, otherwise, it's a cost that all of resell will bear.

40:02 So so that would be number one. And then number two, we are using technology more and more. And this is in in a number of areas, but most obviously, using AI technology to to recognize unusual behaviors. So so not kind of identifying individual customers, but identifying unusual behaviors and being able to intervene in a confrontational way in stores in order to try and prevent any theft occurring. So so, yeah, it is a huge challenge. It's a very significant focus for the business. It is one way we've been making some headway and investing in technology to to try and offset and and prevent some of the worst of this.

40:49 And, Jess, while we're on the topic of security, but looking at it from a slightly different, angle, we've been asked a question around the strength of our cybersecurity and SAINSBURY in light of kind of recent, recent attacks. Yeah. So so, inevitably, it is a question that that we are being asked a lot at the moment. It is a huge focus of the business. So right from the PLC board level downwards, it is something that we test on a very regular basis. We carry out a very significant test using third parties to to to to effectively see how strong our cybersecurity is. And as you would expect, we have very significant procedures that that we, again, test and go through dummy runs to work out how we would respond in the event of a of a cyber attack.

41:42 So so I'd say we are confident that our cybersecurity is strong, but we can never make a 100% guarantees. You know? And and, you know, we obviously have a huge sympathy for those businesses that have have been the subject of attacks. And we've been sharing information as an industry, as you would expect, in order to try and, kind of improve, the cybersecurity for all of us because it's in nobody's interest that anybody suffers any of these type of attacks. Thank you, James. Pretty clear. And going back now to just talking about kind of current market conditions, a question here around, expectations for The UK food retail market to remain rational throughout, 2025.

42:37 And specifically in light of recent developments at ASDA, are there any specific actions that we're taking to kind of here, it's talking about preventing market share erosion, from our side. Yeah. That's a good question. Thanks. The, so so number one, as I as I said earlier on, our number one priority, in this environment is to make sure that we're maintaining the very strong competitive position that we've built. So so that that's kind of, you know, really deliberate. And as I said, within the guidance that we've given on profit this year, where we expect to make around about a billion pounds of profit, we have the capacity to not only maintain the position that that we've got right now, but, you know, we do anticipate and give ourselves the capacity in the event that that there is more activity that happens in the industry over the course of the year. So we've very much incorporated that in that in our thinking.

43:35 And I've gotta say I have I have a kind of particular point about the word rational because I think that all all businesses behave rationally all the time. And so whether that is a competitor who has struggled, whether it's rational for them to take a profit hit in order to try and rejuvenate their sales growth, I think that's entirely rational for that business. And I think it would be entirely rational for for competitors like us to give ourselves the capacity to make sure that, you know, we maintain our competitive position on a on a on a a kind of stable footing. So so, you know, I think, you know, the industry is in a place where you have had some weaker competitors.

44:21 I actually think it's in the interest of the industry that those competitors do see some stabilization of their businesses over time. But what we know is that both from a balance sheet point of view, from a customer proposition point of view, we're in the strongest position we would ever be in to to to to face into a market where those competitors start to perform better. So, you know, it's not just about price. It's about availability, customer service, the quality of the in store experience, all of those kind of things that we know that we are in a very, very strong place and that our business is very well invested, enables continue to drive efficiency. And that's very important when you consider the resources that we have available as a business to to maintain the very strong proposition we're delivering for customers.

45:09 Perfect. Thank you, James. And I think we are reaching our final question here, which is just and actually ties into that. So with, price activity where it is in the market, do we still expect that the industry will pass on, cost inflation coming through? Is that already happening, and what's our expectations for the level of food inflation in 2526? Sorry, James. Did you miss that question? I think we might have had a blip in the Wi Fi. Yeah. Sorry. I I think I dropped I think my Wi Fi dropped out. Sorry about that. Yes. No worries. Let me continue. So I was just saying in terms of level of price activity being high in the market, do we think this gives, a risk to the level of cost inflation that might be passed through this year?

46:03 Are we already seeing any cost inflation being passed through, and what are our expectations on the level of food inflation in 2526? Yeah. So so we we we were very clear last year that that particularly after the budget and where there was a very unexpected increase in national insurance contributions that all businesses face, and it particularly hits businesses like ours with a lot of colleagues who do shorter hours, you know, to kinda suit their lifestyles. So that would be a significant additional cost for the business. And we said at the time that we thought that the industry would pass that through to customers simply because, you know, the businesses like ours are set up to try and offset the cost inflation that we are facing on a normalized basis, whether that be through high colleague wages, regulatory costs.

46:57 But that additional cost of view is that the there was no way that the industry could absorb that. So that was the expectation that we set out in November. And I would say that we are seeing pretty strong evidence that the industry is doing that. And it's happening on two levels, but firstly, on the the higher operating costs that we are facing as a business. But, also, a very significant number of our suppliers are also facing those higher costs through National Insurance. So it's coming through in the cost of products that we sell And, you know, not on a on a a kind of cliff edge type basis, but we are seeing and have seen since the the tail end of last year, we've seen inflation accelerate. So where last year, food inflation was typically between 12% is now heading into the threes.

47:47 And, you know, we we continue to expect an elevated level of of inflation this year. Now, again, I would focus on the fact that we we will make sure that we remain super competitive within this, But at an industry level, we do expect the industry to solve for these high costs. Thank you, James. James, Amy, at this point, if I may just jump back in there. Thank you very much indeed for being so generous for your time then, addressing all of those questions that came in for investors this morning. And And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But James, perhaps before now, really looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that'd be great.

48:33 No. Well, thank you very much for your time today for for listening to us and and for providing some really good questions. I think they were absolutely at the heart of the things that that we are thinking about as a business at the moment. In terms of information, you will find plenty of information about SAINSBURY's on the investor relations part of our website. But, again, if you have any additional questions, queries, or comments, then we are we are always very, keen to hear those. You can either contact through through this platform or, otherwise, there's a direct contact on our website. In terms of when you'll hear from us next, so we will publish our q one trading statement, on July 1. So that will cover sixteen weeks, so basically March through, through to the fur to, to to the end of June.

49:21 And other than that, I would wish you a very good, hopefully, weekend, and I hope to see you in our stores, over the course of the weekend, buying your barbecue and summer goods. So thank you very much, and, look forward to speaking to you again. Perfect, James. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations? Will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of SAINSBURY's PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.