Logo
Log in Sign up


← Back to Stock Analysis

Earnings Transcript for SBRY.L - Q4 Fiscal Year 2021

Operator: Good day. And welcome to the Sainsbury
Simon Roberts: Thank you. Well, good morning, everybody. And thanks for joining us on our preliminary results call this morning. I know it's a busy morning, so we really appreciate your time. I'm joined this morning by Kevin O'Byrne, our CFO. And I hope you've had a chance to read both the statements and see our presentation that we posted on our website earlier today. We've had a year of unprecedented change, and as a business, we've really responded to this. And we're a stronger and more agile business as a result. And this is only being possible through the outstanding efforts of everyone working across Sainsbury's, our entire team. And I want to register a huge thank you to all of my colleagues for their unwavering commitment and resilience throughout the last year. Looking to the year ahead, there will be further significant external challenges that will impact our business, our colleagues, and our customers. But we are well placed to deal with these. One year into our three-year plan to put food back the heart of Sainsbury's. We delivered significant improvements in grocery value, innovation, and customer service. And we're determined to continue this momentum building in particular, on the far stronger value we are now delivering to customers. We'll do this the same way we delivered the progress we've made so far, consistently putting customers and colleagues first, listening to what they want and need, and making bold decisions to fund and prioritize these. And this is showing through in our customer satisfaction and strong volume market share performance. We expect this to continue as we know we have more resources than many of our competitors to continue to improve our relative value position at a time when value matters more than ever to our customers. What I hope you will have taken away from this morning's statement and presentation is that we are confident that we can maintain our strong competitive momentum. And that confidence is reflected in our commitment to our shareholders. We've delivered strong cash flows, we've reduced leverage, and we're confident we can continue to generate strong, sustainable cash flows. In turn, as we set out in our capital allocation framework today, this means we can now commit to returning a higher proportion of our underlying profits to shareholders. So now I'll over to the operator and take your questions. Thank you.
Operator: [Operator Instructions]. The next question is coming from Andrew Gwynn, BNP Paribas Exane.
Simon Roberts: Hello, Andrew. Good morning.
Andrew Gwynn: Good morning, Simon. Good morning, Kevin. Thank you very much for the opportunity. So just -- coming back to the statement around the consumer, obviously, really beginning to see the worst of the energy increases coming through, what would you call out? Is there any pronounced change in consumer behaviour so far? And then just thinking about the two business lines, obviously, within the general merchandise business is being some very significant availability challenge news. Maybe over the year, they start to improve, but do you think that would be a significant tailwind to offset some of the macro pressures? Thank you very much.
Simon Roberts: Andrew. Thank you. So in terms of the customer, what we're seeing, well, I think there's already 3 areas I'd call out. And the first is, to say that clearly we're seeing a continued normalization post pandemic, which is characterized by more customers coming back into store, online, stabilizing around 15% of total sales, albeit still twice the number of online orders that we saw pre -pandemic. And clearly more customers are getting back to the office, traveling more, which is driving more food out of homes. That's the first thing. I think, in terms of the impact of prices and inflation, what are we seeing? Well, I think, it's early days yet. Clearly, this month, the first real impact were the impacts of the energy costs. And clearly we're staying very close to it, but I think, early to see any significant change in customer behavior, but customers clearly are watching every penny and every pound. And that's why, as you've seen in our strategy that we laid out in 2020, we've being really determined over the last 18 months to get our value in the position it's now in. Which means that we can demonstrate that we're growing share, but also that we're in placing behind all our key competitors on the key products customers shop bought. So in the anticipation that the impact and inflation will be increasingly on customers minds, we think we're really well positioned to be able to continue to present good value. And then, the third thing we're seeing in terms of customer behavior, I would say is that certain points customers are looking to trade in and trade up. And we've had a good Easter relative to the market. The same was true at Mother's Day. And then we think about the events in the year coming up. We see those as opportunities where customers will trade in. That's on the food side. On general merchandise to your specific question on availability, yes, absolutely. We had some real challenges into the peak periods over Christmas, particularly in consumer electronics, particularly in toys. That situation has been recovering, and we look at our availability as we starts now, compared to even 3 months ago, we've seen quite a substantial improvement, and one clearly we're continuing to push hard for. I think the outlook on availability, clearly we're watching the situation in China closely. Teams working really closely with our suppliers. I think it's hard to call yet what will happen there, but we've learned a lot over the last 18 months clearly and will be staying very close to it.
Andrew Gwynn: Okay, great. Thank you, I'll hand it over to somebody else.
Simon Roberts: Thanks Andrew.
Operator: Thank you. The next one is coming from James Anstead from Barclays.
Simon Roberts: Hello, James. Good morning.
James Anstead: Good morning Simon and Kevin. Perhaps a question for you, each if that's okay. You've talked about the investment you already focusing on, your top 100 lines and that certainly seems to be working if we look at the volumes that you showed us. How different would the price investments on the average selling price look if we saw the overall offer? I mean, again, the results in positive I'm interest just to know how different the pricing might trend on the back book has it were. And then perhaps a question for Kevin, which I'm sure a lot of people are trying to do the math, slight me. It sounds of profit bridge between the 70, 30 you've just delivered for PVC and the I think it's 90 to your guiding to for the year ahead. I just wonder if you can talk about some of the moving parts which are the big elements to be aware of. And 2 particular bits, I think you mentioned, if actually there's a $100 million profit benefit in the base year from elevated grocery sales. Are you expecting that to completely disappear in the year ahead or just step backwards? And just to be completely clear on general merchandise, clearly, you got these cost savings to offset the challenges that all goes as likely to face. But you're expecting all [Indiscernible] next to have a down year in terms of profitability. I accepting anything you said that this stage just subject to loss of percentage or changes in the following 12 months.
Simon Roberts: James, thanks. Okay. Why don't I take your question in terms of overall value position and then Kevin can take us through some of the outlook that we're thinking. In terms of value, you look as we -- I hope we've laid that on the presentation. Two key proof points. First, as you say that we are deflating on the 100 products customers buy most often. More broadly, the reason we think our volume share has responded as it has, is that our value has improved against all of our competitors in terms of the eye on the overall buff gear. And we've been able to do that because we've deployed already three key platforms on value. One, thanks to the quality, Aldi Price Match, products that customers buy most frequently, fresh products, 150 new products last week with a real focus on fruits, vegetables, salads, dairy, meat, the products we buy week in, week out. Second, our price lock program, the most extensive in the market, up to 2000 products; everyday staples, dishwasher tablet, tinned tomatoes, pasta rice, where we lock down prices for eight weeks. And then thirdly, the growing impact actually of net surprises where we are serving customers now, over 1 million customers are benefiting from this from the SmartShop platform, unique prices just be used. So when we think about all of that together, that's -- it's the combination of the three value platforms that we think is the driver between more secondary customers coming back into Sainsbury's and our overall value position improving. And I would just reiterate again, we've been on this for 18 months, and we continue to refine our approach clearly with focusing the value investment where customers notice it in value most. So on our algorithms and our insight towards, we're working very hard to continue to pinpoint this value investment, which is what gives us the real focus to make sure that we keep executing against this plan. So overall, of course, it's funded by improving volumes, but also our cost-saving program. And that's something that we think we've still got unique savings to go out, which gives us the firepower to invest back in price. And as you'll see in today's statement, we are absolutely determined to make sure we hold onto the value position that we put out there. In terms of us against the market, if it's helpful, we were inflating 1% to 2% behind the market. So we're slower in putting prices up, and that kind of level behind where market inflation is. Kevin, do you want to pick up the outlook?
Kevin O'Byrne: Morning, James. And as you said, it is very early in the year. And as you can imagine, we're running a number of scenarios. But if you think about going from the 730, to let's say the midpoint of the range we've given you, this will be 4 key things that we'd be thinking about. One is the level of unwind of COVID benefits in the year, and you mentioned 100 million, how much of that will we keep. Some of that increased food volume. 2. Operating cost pressures. And then, the final 2, which are the bigger elements, is the input inflation in food and our ability to pass that through to customers, and the general merchandise demand which probably is the most difficult to forecast at the moment particularly as we look into quarter 4 and increased fuel prices -- energy prices for consumers as we come into Christmas. And then, if you look at our base assumptions, we're assuming significant volume decline in general merchandise. And that will be offset by transformation cost savings and some price increases, so we're being cautious there. On the food side, we're assuming that small volume decline offset by small price increase, but the real critical factor in food is the food margin. And we obviously, have made a key commitment to sustain our relative value position. So we're assuming that food margin will be down slightly. And then, the range of forecast will depend at the pace at which we're able to pass on that inflation for us, that were passing it on more slowly. And therefore, that's in our base assumptions. So the two, if you were going straight from your set of 730, to let's say 660, the midpoint, the two big building blocks, lots of ups and downs, most of it playing a draw, but the two big building blocks is, gross margin on food and volume on general merchandise.
James Anstead: That's very helpful. One very, very quickly follow up on a slightly different topic. But the bank paying this £50 million dividend, I'm presuming that it would be a bit much to assume that the bank can afford to do that every year going forward. Should -- we wouldn't be encouraging us to state that in the model every year from now on.
Kevin O'Byrne: Oh, we're so sorry. Jim we're on a journey here. And obviously really, really pleased that we've gone from being -- putting cash into the bank to bank thing self sufficient from cash point of view. The bank is now distributing excess capital, and we would like to get to a point where there's a regular dividend from the bank. But I think we'd need to see a couple of years of sustained growth then I think we could assume that, but you're right. I wouldn't be putting it in your models for this year.
James Anstead: Pretty helpful. Thank you very much.
Simon Roberts: Thanks again.
Operator: Next question is coming from Rob Joyce, from Goldman Sachs.
Simon Roberts: Hello Rob, morning.
Rob Joyce: Hi! Good morning. Thanks for taking the questions and I'm afraid that kind of just a little bit more sharpening some of the previous from James. But so the first one, just a pretty clear on the moving parts in the guidance. So to be clear, in terms of the general merchandise, are we looking at sort of go back historically, you can see, I think in the 11,12 real income squeeze, Argos like for -- like was down about 9% EBITDA was down a 100 million or so. Is that obviously excluding the cost savings benefit, which I know you have or is that the kind of thinking we're looking out for this year? Is that the basis for how we look at this year on the GM side of things. And then the second one is, again on the other part of guidance the input inflation. I'm I right in assuming, I mean, all the external data tells us that you guys are maintaining, if not improving, your price position. And the market seems to be broadly passing through inflation. Is the guidance embedding a change in that you have to start absorbing more of that input cost inflation than you currently are? And then the final one, again, all from James, on the bank. I mean, paying a dividend and then guidance and bank profits go up, but the guidance seems a little bit more bearish in the rest of the business. I'm just wondering how you reconcile with those 2 messages. Thank you.
Simon Roberts: Rob. Thanks. Maybe if I pick up your GM and say question and then Kevin on the bank to look, I mean, as you've just done, of course, we've you look at the history. So within the discussion that Kevin just shared with us, high single-digits impact on GM. GM is what we've looked at our model and obviously it's early in the year. I think we are particularly thinking about the quarter three October period onwards when impact of fuel and energy comes again. And so it's not and at to your question. That's the way we're thinking about the GM at this stage. I would just say that you've seen what's happened. And in the exit point of this year would improvement in the trends more encouraging sales, availability improves that we'll see what it looks like. But without now more challenging and therefore, that would be our assumption,
Rob Joyce: Is only kind of operating leverage though, do you -- do you think there's still similar operating leverage in the business by then, is that the right analogy?
Simon Roberts: I think we should, let's just remind ourselves of what we're doing in terms of transforming the operating model in Argos. So we are about halfway through delivering the value benefits of our Argos transformation program. A 105 million you remember of costs down in the changes in our store model. Clearly all of the change in logistics as we bring that together as part of a much bigger cost saving program. And of course, as more customers are shopping digitally in Argos, now 80% of the sales now that's happening digitally, that's enabling us to keep driving efficiency. So what I would take us back to the kind of core elements of our strategy which is to reduce costs, improve margin discipline, make sure that we get the fundamentals of availability, really optimize digital, our conversion really optimized. And obviously as we take those costs out, holding onto the sales, the way we're thinking about how that will play through on, clearly a more challenging outlook on the top line. And then on [Indiscernible]. I think looking our first principle, we will maintain our relative position on price. We worked hard to get to what we've got, so you can say what that's meaning in terms of our volume position. As you say, you can see that were inflating behind others. As I said earlier, to [Indiscernible] question, 1% to 2% behind market inflation is where we are today, and putting the value where customers really notice it. But we of course are looking at what others are doing. The food market we think so far has being rational. We're being prudent in our outlook on food. Obviously, we want to make sure we maintain our volume momentum. Make sure that the value is really clear in the offer. And now I would say again, the cost saving program that we've built and we're now 18 months into, is driving, one, a lot of momentum. And two, a lot of unique benefits in costs that we think we have that others don't have. So whilst the outlook is clearly more challenging to make sure we can deliver value, we think we've got a lot of tools in our armory to deploy as the year unfolds. On the bank, Kevin?
Kevin O'Byrne: Rob, I'm not sure I fully understood your question, but I think there's two separate things
Simon Roberts: Yeah. Maybe just beyond the other point to add, Rob, just in terms of the Financial Services proposition itself clearly within the environment that we're in your question on general merchandise. The teams that would have been working really hard end to end to make sure that we're improving the product proposition of Financial Services, products to support things with all those customers that within the context of the more challenging GM outlook. And if for example, the loan [Indiscernible], new monthly payment plan is a really key element of a serving in the GM customer base more effectively in the way they want to shop, but also taking advantage of our Financial Services platform to grow its performance as the consumer outlook changes.
Rob Joyce: Okay [Indiscernible] Thanks.
Operator: Our next question is coming from James Grzinic from Jefferies .
Simon Roberts: Hello, James. Good morning?
James Grzinic: Good morning. Good morning, Simon, Kevin and James. I had a couple, I guess, mostly for Kevin regarding the financial side of things. Can you perhaps talk us through why you decided to increase the payout ratio rather than going for stepping up the rate of the leverage, and then, redeploying that optionality on exceptional cash distributions? Should we think that you are just -- it's a signal of sustainably higher level free cash flow that you see in the business? And second one, is can you perhaps go again through the details of the $800 million lease liability recapitalization that will unwind in 2 years time? Trying to understand the mechanics of that will obviously, makes a big difference in terms of the 3.1 years already, 2.7 underlying. Okay. Simon.
Kevin O'Byrne: No problem, James. You've kind of answered the question, the first one you just have. You're right. We felt that shareholders would appreciate a predictable improved dividend. And if you think of the last number of years, I mean, we've made substantial progress in deleveraging the group. But of the £2.8 billion of free cash flow that we've generated in last five years, we've paid about 60% of it to pay down debt. We're fast approaching a situation where we don't need to pay money out to pay down debts. So clearly, we have access to free cash flow, and we felt the first protocol would be to increase the proportion of profits that we gave to shareholders. It just, I think, demonstrates our confidence in the sustainability of the cash flow and the predictability and shareholders can rely on that. The other point I'll probably make, if you look at our allocation framework that we laid out on slide 24, we said first and foremost, invest in supporting our strategy, in accelerating our strategy then a solid investment grade because we think that's really important, that gives us great financial flexibility to take advantage of opportunities as they arise and protect the business. And then thirdly would be included in the payout ratio. This year -- we've said we'll actually do it this year, even though we haven't technically hit the solid investment grade target. And that's just, I think, again, a sign of our confidence in the ability of the group just to continue to generate strong cash flow. So hopefully that helps on that front. And on the$800 million this, we've got this 2 structures, got hybrid and Dragon that were entered into many, many years ago. Leasing is about 26 stores were in the structures. And the way we're a joint venture, we have about 50% of the shareholding and with the second another party, the way it was structured was if we stay in the venture. We had 2 choices. We could either leave a store and just exit the lease at the end, or we can lease the store back, but we can only leases on passing rent and on a 20 year lease. And we looked at some of those stores and we thought -- we don't think the passing rent as necessary, the right rent. And some of those stores, we don't know. I want to 20 year lease on them. And because of the strength of the balance sheet now and the position we're in with exercise the option to actually acquire 21 of those stores. So we're going to leave some of the stores that we don't want. And then with those 21 stores as we acquire them, we will retain a small handful because they're commercially interesting. It gives us some flexibility commercially orders. Mixed use development opportunity with a number of those that will hold on to. And then we will sell and lease back the majority, but we'll do them on leases that we want the right length, the right rent, etc and the right terms on the lease that will take the leases and we can exercise and take action during '23. But potentially, we're -- the process could take through till FY24 because there's going to be some arbitration negotiation with the joint venture party on the price of some of these stores. So we think the whole process will be completed by FY24. And then you will see our leverage come down because a chunk of that $800 million will be removed.
James Grzinic: Can I just ask -- thank you for that, Kevin. Very, very clear. But can I just ask what the net cash flow impact all buying to the freeholds relative to surrendering leases would be? So what would be the net aside from the £800 million removal?
Kevin O'Byrne: James, I can't give you that at this stage. There's going to be some cash inflow from this process, but it all depends on and it just depends on the number that we retain and the sale at the margin between the sale and leaseback. And clearly we're not trying to maximize property profit here. We're balancing property profits and having the right lease structures for, if you like, the next-generation in 10 years time. Though clearly we could maximize cash today by putting 20 year leases at RPI on all of these stores, we're not going to do that. So we're just going to get the right balance. So we'll have to come back to you as we go through those negotiations and give you greater color. But there's no cash outs. There will be a small amount of cash in, but it will depend ultimately on the final lease structures.
James Grzinic: Thank you. Can you just ask a super quick one follow-up on actually, Argos. Perhaps if you can clarify what the rental line would be for Argos this year compared to period that Rob was referencing back when we had a big squeeze on top-line because I presume it's very different now?
Kevin O'Byrne: It is very different. I don't happen to have that number right now, but it's rates as well. I mean, rates inflation has been hard and rent inflation number years in Argos stores. So James can come back with that later. And but it's clearly very material because we've put 400 stores inside Sainsbury's stores where we're we don't have additional rent and
James Grzinic: And Jeremy, if it's helpful on 55 of our presentation, you can see the key cost saving programs laid out and specifically with reference to the August transformation, both the store rationalization and fulfillment centers, but also as you can see, the big program in logistics, bringing together by Sainsbury's and others logistics. If we contrast that with the operating platform we have before you can see back to Rob's earlier question, just how much operating leverage is coming through, is that cost program flows and at a psych, still half of that to come.
Kevin O'Byrne: And, James, maybe just building on Simon's point. And we take out the rent and rates of the stores, we go into our stores where we don't have any additional rent and rates, but we do put in a small amount of rent and rates in local fulfillment centers, but we're replacing retail rent. A number of stores with one local fulfillment center on logistics for the shared rent.
Simon Roberts: Thank you, James.
James Grzinic: Thank you.
Simon Roberts: Thank you.
Operator: Thank you. [Operator Instructions]
Simon Roberts: Hi. William, good morning!
William Woods: I had a couple of questions on pricing. Obviously, you're showing volume growth above the market. But from Kantel, your value market share is down. Are you seeing any changes in customer behavior in terms of net switching gains, winning net switching gains from your peers? And I suppose, secondly, on the hearts and minds of pricing, how is price perception changing for Sainsbury's as a result of things like that? And then, a final point on price. Are you able to quantify the investment of price? Is it as simple as you're not passing on 1% to 2% below the market? And therefore it's 1% to 2% of sales? Thanks.
Simon Roberts: William, thank you. On your first question on what's happening on the share, we were very clear at the outset of our plan. We judge our performance on market share on volume because that's the absolutely clearly read of how much food people are buying. And it's also reflecting the value we're putting into the offer. So that's why you can see our volume market share is growing where it is. Because we are inflating slower than others, in fact, on the 100 biggest [Indiscernible], you can see are now pack on 35 behind our direct competitors. Again, that's the key enabler of the volume market share growth versus value. In terms of what we're seeing from customer behavior, I think, as I hope stressed earlier, this isn't something that we started to do in recent days or weeks, it's something we've been working on for 18 months. We were really clear at the start of our Food First plan that we would be more competitive. And the culmination of all the work over the last 18 months is meaning that more secondary customers are coming back into Sainsbury's, both from the other big four, but also from the discounters, to shop into those products they can now be sure of the value of Sainsbury's. And that's why we're absolutely determined that we will hold on to our relative value position and why the cost saving program is so key in doing that. So the one thing I would say is that we are being very focused where we placed the investment. I think there's a lot of noise in the market at the moment and we're deploying our value where we have from our customers that really want to see it. And as I said, that's in fruit and vegetable, that's in meat, that's in dairy products and the items that go into the basket every week, bread, potatoes, and so on. So I think it's the real focus of the investment that's getting the cut through, which means we can balance how much it's costing us and the return that we're getting on it. In terms of the overall position against the market, because I've said before, we are holding back inflation helped by our scale, helped by the relationships with suppliers, helped by the volume drive that put in place, as I say, fundamentally underpinned by the cost saving program. And in terms of what we're seeing on perception, just pointing to our pack for a minute, you'll see that one of the things we wanted to pull out for you is what's happening in terms of customer feedback. And when you look on 33 in the pack and what you can see there is that we are seeing value perception shift for the first time in a long while. These things, as you know, take a long time to move. But value perceptions are up on 2 years ago. And interesting, all seven areas like Nectar pricing when we give customers personalized value, the value perception shift even more substantially. So older focus on maintaining what we're doing, all the focus on maintaining relative and strengthen our value offer, and continuing to execute against what we're learning.
William Woods: Great. Thank you.
Simon Roberts: Thank you, William.
Kevin O'Byrne: Thanks, William.
Operator: And the next question is coming from Xavier Le Mené from Bank of America Securities.
Xavier Le Mené: Yes. Good morning. Two questions.
Kevin O'Byrne: Morning, morning. Hi.
Xavier Le Mené: Morning. First, on inflation. Outstanding exactly what you're doing for this year. But how do you see inflation going forward more mid to long-term? So do you expect food inflation to stay for the long term? And linked to that, what do you make about the recent announcements, would you expect the competition to get potentially tougher? And is it part of your guidance? So you said the market has been rational, but do you expect in your guidance the market to become potentially less rational? And last one if I may. On the cross-selling targets that you've got of 200 basis points for SG&A cost reductions, given the labor cost inflation, the energy cost inflation, do you think that the target is still achievable? And what do you expect potentially for this year in terms of reduction?
Simon Roberts: Okay. Thank you. If I take the questions on outlook on inflation and competitor and then I'll hand over to Kevin. It's look, I think when a couple of things to say clearly at the macro level, we can all see some of the drivers of inflation in the food, not lease being amplified by the geopolitical events, alignment, increased cost of production, fertilize, fuel. I think these factors clearly are on everyone's mind. And so the impact of inflation, you might think we would expect to be over a longer period than we would have certainly seen 2 or 3 months ago. I think clearly within that, as we have been working, we're doing everything we can to hold back the impact of inflation to the consumer through the combination of clearly working very hard with suppliers, I have to say to the pandemic. Our supply base have done a fantastic job and we're working day in, day out very closely within the commercial teams doing a great job working really closely to make sure we can find the right balance on value, but also support what we need to. And I would just say in certain areas, we're really leaning into support, for example, on pork, the UK pig industry, it's a challenging time the moment we've looked to our model, we've changed it, we've invested further to support farmers. They're the same in milk, the same in eggs. So in the parts of the industry that are challenged, we're also doing what we need to be doing and doing the right thing to support against the context of this inflation environment more broadly. I think, what it means when we look ahead is, that it will last a bit longer. But our job is to continue to do what we're doing, which is to, as far as possible, ensure that we are passing less on to our customers than our competitors are. And to do that funded by our efficiencies and cost saving and scale. In terms of what that means for the competitors, look, as you'd expect, I'm not going to speak about individual competitors and what they're doing, but I think as I say, there's a lot of noise in the market on price and promotion. We can see some retailers using a lot more promotions. We can see lots of prices moving around. In the end, I think customers are already savvy about these things, and they can see all of that. So our strategy and our plan, is to make sure that the shelf edge, you can absolutely say consistently a trusted position on value that customers believe in. And that doesn't mean it changes in January compared to the alternate. It means that throughout the year, on the products you want to buy, that matter most to you, you can trust our value. And that's one of the reasons why I think our volume share and our switch of secondary customers has been happening. Kevin, do you want to pick up the second point?
Kevin O'Byrne: Yes. We're very -- very focused on taking cost out so we can invest in the offer and we've got detailed plans to do that. And you're right in saying this, the environment has changed. We didn't anticipate this level of inflation when we laid out a plan that's for sure. And in the current year, we will make further progress, but less than we would have originally told because of the inflation. So our cost-saving plans are very clear, but the inflation is hard meet since [Indiscernible], but you'll see on slide 54, we still expect to make progress and we're very confident in our cost-out plans. And then when we talk about the LFC years, there's more to do, obviously, we're focused on delivering '22, '23 at the moment. And the only I'd point out is obviously a basis points movement. Yeah, those two factors in there as we all know, what happens to the sales line and what happens to the cost line. And while they'll be inflation in the cost line, we'd expect some inflation in the outer years in the sales line as well, which will come in the mix. So we will obviously talk in more detail as we get out of this year into next year.
Xavier Le Mené: Thank you. That's very helpful.
Simon Roberts: Thank you.
Kevin O'Byrne: Thank you.
Operator: And next question is coming from Clive Black from Shore Capital.
Simon Roberts: Good morning, Clive?
Clive Black: Good morning guys, are you okay?
Kevin O'Byrne: Good morning.
Simon Roberts: Good to hear your question Clive.
Clive Black: Well, I'd to just ask about online, which hasn't really been the problem today against the backdrop of Illinois. In recent times. First of all, where do you see Sainsbury's online grocery participation growing? How does the evolution the business involve your stores online till the big lotto fulfillment going forward. [Indiscernible], do you think online can be particularly vulnerable or otherwise in the general merchandise side of what's coming down the line. You mentioned being concerned from October in particular, and then just isn't a jump to that. Can you give us an indication work a portion of your Clothing sales or online, please.That will be great.
Kevin O'Byrne: Thanks, Clive. Yeah, sure. So let's talk online [Indiscernible] on the grocery side. And if it's helpful, just as everyone's looking at results this morning on 41 and 42, we just tried to lay out in our pack what's been happening. So to your question, Clive, specifically on participation, you could say when we got we got to a peak of north of 800 thousand over the week that was north of 20% participation, and you can see through FY '22 where that's got to a more stable position. So we exit the year around 15% compared to just ahead of 20% at the same point last year. And what we would see here is a real returning to store. So a lot of the customers that were shopping online are coming back into stores as shopping trends normalized. And so, 15% there or there about for this year is, I think, a decent planning assumption. Of course, over the longer term, to your second question, we'd expect this to increase, but we think this is a good resting point for us because it means that we can continue to drive 42, the benefits of our instore model. And whether that be on ice and pick rate per hour or drops per hour, fan utilization, or indeed on our ability to pick the basket size that customers are shopping into, you can see the efficiency benefits we are guessing. So I think a more stable picture in terms of participation and a longer trajectory to grocery online participation increasing again,
Simon Roberts: which I think your second question then says, look 2 key objective here for us. One, how do we optimize, as I said, the store model and our team's doing a fantastic job in this space to make sure we give improving service and good service and improve our productivity. And also, the same time, really think about what's next. Then I think what it would say is that, of course, we've got to look at new fulfillment solutions and as you'd expect, we're looking about all the time, but I don't think the rush is on as much as it might have been 12 or 15 months ago. I mean, that's a good thing because we can really drive our in-store model, we can take our time to work out the most efficient long term solutions. When it's hard, we got 600 supermarkets, hey, just under 300 that we fulfill online in. And we can optimize the use of those great locations to do a better job front of store, and also backup store too, so hope that gives you a picture on the ongoing situation. In on GM, I think clearly the outlook is more challenging for all the reasons we've discussed. And in that context, I guess again, coming back to the situation in 2011, '12, I think it's an advantage. We've got such a developed online platform in Argos on in GM because it means that customers can get access much more readily than last time to where products are available and also can see value as well. So in many ways, I think we've got a product to our advantage. That's what we're focused on availability right now, and really focused on value too. And so how do we use 80% plus of the sales in Argos coming digitally through our advantage, particularly in the context of customers wanting to pick up and get convenience quickly. And that's what we'll be doing in that spike. And then on Clothing, I'm hopefully in the pack we've given some sense of what's happening on our Clothing business. And just if you look at 50, you can see how much the online sales have grown and online Clothing fell the 13% of the total sales now that we're 9% in '19, '20, and you can see the size of the growth that we're guessing in. But we're encouraged with our Clothing performance with a really strong offering to, you can see how much the full price mix is continued to grow in the team. Really focused on how as customers come back and still we continue to strengthen our Clothing offer. Thanks Clive.
Operator: The next question is coming from Andrew Porteous from HSBC.
Simon Roberts: Hello, Andrew. Good morning.
Kevin O'Byrne: Good morning, Andrew.
Andrew Porteous: Hi, team. Thank you for. Taking the questions. A couple from me. Firstly, can you just talk a bit about CapEx? I think you talked to the statement about £700 million to £750 million going forward. I think that was the plan for a few years, but I think your original guidance was for beyond 2024 for CapEx to drop back to £600 million. Is that still the plan or are we likely to see a higher CapEx going behold that? And then a second question, really, I guess related to Clive 's, just when you're seeing that transfer of sales back into store from online, is that a net positive from a profit perspective for your business or not?
Andrew Porteous: What doesn't Kevin pick up the first question then we'll come back and talk about online, Kevin.
Kevin O'Byrne: And that's right. We have raised the CapEx in our assumptions and our plans going forward, we've kept it at the 700 to 750 level and at the moment, and this a base level is around the $600 and the additional CapEx is going on the Argos transformation on the logistics transformation largely what we've assumed is and I think for planning purpose and for cash flow planning purposes that we maintain that level, a couple of factors there. One is just we would imagine that there'll be other areas of investing in the future as we digitize the business that we'd want to focus on. Two, there's going to be some element of inflation in underlying CapEx costs and hence we think it's the right sort of level to ensure that we're maintaining the both the physical and the digital infrastructure of the business and investing in the right areas and we can still deliver the 500 million plus per year while doing that.
Andrew Porteous: Thanks, Kevin. I think -- and just in short to your second question, clearly, customers fulfilling in-store versus online is a positive outcome in terms of our ability to fill at level cost. That's why we think the 15% gives us access to a whole lot of new customers shopping with us online, but also they come back into store, that improves the operating efficiency too. Thank you very much guys.
Kevin O'Byrne: Thank you.
Operator: The next one is coming from Nick Coulter from Citi.
Simon Roberts: Good morning, Nick.
Nick Coulter: Hi. Good morning. Congratulations on the bank cash-out rather than [Indiscernible] is indeed a well shed moments. [Indiscernible].Three if I may I picked up on that comment around continuing your volume market share performance and to what extent you'd expect to lease a great level of switching to the discounts as in this sort of environment. I appreciate that. Thanks, space. That's the first one.
Simon Roberts: Yeah, sure. Thank you. Let me take that one. Look, I think -- I mean, the first and most obvious thing to say is there's no room for complacency on anything right now for all the obvious reasons; very competitive market and everyone's looking at their share and what they need to do to make sure it's where they want it to be. So I guess my comments would be that our volume share guidance has been the results of being bolder in our price investment decisions and where we've deployed them, and we would expect to be able to reinvest more than our competitors through the size of our cost-saving program. We think we've got net substantial cost-out still to go out, and that's very much in our plan this year. I should say that we would expect our cost savings in our plan this year to be a higher level of inflation. So we'll take out more cost from the cost of inflation, which is a key measure of our ability to deliver on cost. And the other thing I would say is that we intend on a committee to be very consistent so that customers can see week in, week out where there was value in the Sainsbury's shop. So absolutely no complacency against others. I'm sure there will be lots happening in the market on price. There already is, but we're just going to absolutely stick to our plan and make sure our relative value continues to be really pleased customers.
Nick Coulter: Will we expect the same site -- shape or switching as you're seeing at the moment, a kind of -- a net win or hope but obviously. mix versus competitors.
Kevin O'Byrne: I think, in terms of my key point, which is we're going to invest value in the parts of the shopping trip, to sure that customers continue to say, the strength of the value when I offer, I think of course, there'll be -- there'll be news backwards in focuses the offer, moves and others, but that sounds absolutely objective and we built a plan and a forecast this year that underpins our ability to do that.
Nick Coulter: Like a great that's helpful. Thank you then secondly, by boldly, what sort of pricing licensees the expect to see in your general merchandise categories? Not I guess the clothing category as well. Simply be interested to hear how you're thinking about this. And I guess the follow-on, how key facts that being the results of volume. Considerations into the buying cycle and also into your sold and I guess it's the trying to preserve price points. A lot of the same peak planning is probably fund and SAMSA. At this point in time. Thank you.
Kevin O'Byrne: Yes. I mean, I think as you say, there's lots of factors here that we're obviously looking at; looking at the history, looking at the trends we're seeing from customers. Obviously particularly in the market you mentioned in clothing, we've seen a lot of customers come back into store and obviously given the size of our clothing offer that comes from our physical footprint, we're learning a lot about how customers are shopping that. I think -- look, it's very early to say in terms of you're left to see at this point in time, as I said recently, obviously lots of factors are driving particularly general merchandise, obviously discretionary spending is a factor. Obviously the weather and clothing is a factor, big seasonal period ahead. So we're looking at all these factors as we plan the outlook for the year. We think we've got a strong offer. On a time when customers are watching every penny and every pound in their purses and wallets, having a strong clothing offer that's based on good value is a good place to be and it's one that we'll be deploying again. As we look towards the second half of the year, we'll learn a lot over the next two or three months and we'll be making our choices for quarter three and peak as we see how the customer behavior changes?
Nick Coulter: But have you built any additional flexibility into your buying patterns for the year, given the lead times involved and given what's going down the track?
Kevin O'Byrne: We have a pretty flexible model actually. And given the way that we did, it's obviously our supply base we've developed over a long period of time and I mean, I would point you to how we've managed this through the COVID periods. And clearly we're placing our commitments a decent timeout, but we are also being flexible and working closely with them to manage the situations that happen. And so at this point in time, I would say, the key principles here are staying very close to customer behavior, making sure values in the offer it needs to be, most importantly of all, making sure we got the right ranges and the right products that customers want to buy. And we'll stay closely linked to how the demand curve moves and make sure we're responding accordingly.
Nick Coulter: Okay. That's helpful. Thank you.
Kevin O'Byrne: Thank you.
Operator: The next question is coming from Sreedhar Mahamkali from UBS.
Simon Roberts: Sreedhar good morning.
Kevin O'Byrne: Morning, Sreedhar.
Sreedhar Mahamkali: Good morning to both of you, thanks for taking the questions. Maybe just a couple of super quick questions, please. We've talked about volume outperforms -- fairly large volume out performance versus the big 4. Maybe explain a little bit on that in terms of what does that do to your negotiations and leverage with suppliers, that's the first one. Secondly, how do you build from there. What's the path to value share gain, like what's the lead times on when do you start to see times you share gain. The forecast will be super helpful to talk through. But secondly, very quick follow up on GM we've talked quite a lot about sales and costs, but I think in the year gone we've also talked about gross margin being up in the segment. Can you give us a sense in terms of how are you thinking about the drivers for gross margin for the year ahead in GM specifically, please. Thank you.
Simon Roberts: Okay. Thanks. So why don't I take the volume question, and then maybe Kevin take the GM gross margin question? So I think -- without repeating myself, I think maybe just two points to state. I mean, the reason we're so focused on volume market share is clearly -- that's also a reflection of our relative value compared to others. And so clearly you wouldn't expect me to say that we would want to grow our value share ahead of our volume share because we're so focused on getting our volume share as our point of difference more customers shopping with us. So when we look to what's happening here with suppliers, couple of things to say. We have a long standing and trusted relationship with our supply basis, one of the things, I think, makes Sainsbury's unique in the way we have built with over a long period of time. And our team -- our commercial teams are spending a huge amount of time with our suppliers. I spent a lot of time of our suppliers too this year, really understanding what they're trying to achieve, what we're trying to achieve. And I think in the middle of that is really where our collaboration and partnership is really driving strategic value because as we make the Sainsbury's brand in food more resonate with customers, so we grow volume, and so we are able to also create value for our suppliers. And so clearly as inflation is in mid-single-digit in the industry, there's more still to come through the pipe because we are working so closely with our suppliers and because of our cost saving program, that's why we can make sure we are holding our prices back 1% to 2% from that position. So I think in terms of your outlook question here Sreedhar, we intend to keep doing that. And as I say, absolutely no complacency in our position, but a real determination to continue to leverage our scale, our supplier relationships, our commitment to value, and to deliver of our cost saving programs so that customers can keep being confident in the value they're going to get when they shop with us. Kevin, do you want to pick up the gross margin point?
Kevin O'Byrne: Yes. With our working assumption in gross margin in general merchandise is that across the range it will be down slightly in the year as we sort of focus on affordability and categories. However, it's small in the scheme of the volume is the big lever. And thus, we're more concerned about, and it's causing the sort of behind us at a range of comes that we're talking about.
Simon Roberts: Thank you. Sreedhar.
Operator: Thank you let's take the last question for the day.
Simon Roberts: Okay. So they aren't any more questions. But just to say, thank you, everyone for your time. This will I know. It's a busy morning for you. Look ahead. I hope you can say we're very focused on the consumer, very focused on our strategy 18 months then I would just stress again, only 1 year into a 3 year plan and the whole team, we're really focused on how do we delivered a plan to share and what's going to be a different outlook to last year, but I hope what you can see is we're focused on customers and we're very focused on our shareholders too. And make sure that we can deliver for both of those key stakeholders this year with a team already behind that. So we'll see soon thanks for joining us this morning and thanks for the question.
Operator: Thank you Simon.The presentation has now ended.