Tesco's (TSCDF) CEO Dave Lewis on Q4 2016 Results - Earnings Call Transcript

| About: Tesco PLC (TSCDF)

Tesco PLC (OTCPK:TSCDF) Q4 2016 Earnings Conference Call April 13, 2016 4:00 AM ET

Executives

Dave Lewis - CEO

Alan Stewart - CFO

Matt Davies - UK & ROI, CEO

Trevor Masters - International, CEO

Benny Higgins - CEO, Tesco Bank & Group Strategy Director

Analysts

Sreedhar Mahamkali - Macquarie

Andrew Gwynn - UBS

Niamh McSherry - Deutsche Bank

Stewart McGuire - Credit Suisse

Bruno Monteyne - Bernstein

Clive Black - Shore Capital

James Tracey - Redburn

Rob Joyce - Goldman Sachs

Nick Coulter - Citi

James Grzinic - Jefferies

Bill Kees - JPMorgan Asset Management

Dave McCarthy - HSBC

John Kershaw - Exane

Xavier Le Mene - Bank of America Merrill Lynch

Dave Lewis

Good morning. It was a little encouraging for a little there audience feedback at the start of the day. About 16-17 months ago Alan and myself, and the leadership team of Tesco who are present here today set about trying to transform our business. Together with our colleagues we set ourselves a new purpose and we talked about what it would mean to put the customer right back at the center of absolutely everything that Tesco does. We right that purpose in terms of serving Britain shoppers a little better every day and we use it to guide everything it is we're trying to do as a business. I am pleased to say that over the first full financial year where we've been following that trajectory that we made a significant amount of progress. And what I am going to try and do in the first part of this session is share with you why I think we made a significant amount of progress and then what Alan will do is he'll share with you the detailed results.

I'll then come back and I'll share with you what I think the next step is on that journey because it's only one year of a journey of transformation, there is more that we need to do and we'll give you some insight into how it is we're thinking about that given the market situation in which we operate. What I'll then do because every year I ask the exec team to come to the results presentation, it gives you a chance to engage with them, but what we'll do is I will invite the three CEOs to join Alan and I for the Q&A so that you can get a chance to ask the questions not just to myself or of Alan but indeed of Matt, of Trevor and of Benny in case there is something in those particular operations that you like to ask for and I'll try and curate that Q&A so that we get the right balance of input and questions.

Is that okay? So to say a year of some significant progress, if you read the release and I am sure you have we talk about a broad-based improvement, you see the trajectory here over four quarters for the UK which we set into growth in the fourth quarter of last year and on a like-for-like basis significant improvement in the Republic of Ireland. In fairness to Europe four quarters of growth but strengthening as we go through the year and you see the turnaround that Trevor and the team in Asia have been able to deliver. So across all geographical segments of Tesco we made the UK a priority for a reason because we think the obvious but actually our improvement geographically is very-very broad-based.

That means therefore as a group that the turnaround in sales momentum so in the fourth quarter the group like-for-like was 1.6% positively. We improved at the same time is doing that we've improved the profitability and you see here the trajectory from the second half of ’14-’15 to the first half and into second half. As we have systematically invested looked for a return and then invested again that has been the cycle through the last year and it is a cycle we'll see happening in our business going forward.

We generated significant improvements in our cash. We talked about it at the half year. We have continued to do that 2.6 billion of retail operating cash generation is up nearly 40% year-on-year and very-very-very important the key stakeholders in our business customers, our measure of customer satisfaction is a 4-5 points higher year-over-year as people respond to the improvements and the changes that the team has made and really significantly colleagues what I've showed with you here as our internal employee satisfactions that is called what matters to you, we run it every six months and I've showed you the trend from 2014 to 2016. So a year of absolutely huge amount of change, some of which had dramatic impacts in terms of colleagues, numbers of colleagues, entitlements of colleagues actually what you see is the satisfaction of our colleagues working for Tesco and recommending Tesco has improved significantly over the last year very important for us in terms of the business.

And obviously our suppliers, our partners, we run a viewpoint every six months and what I've shared with you is where we started from full year last year 51% of our supplier partners being satisfied with the relationship that they have with Tesco to a full 68% now saying actually they see a significant improvement in where we are and a greater level of satisfaction more for us to do but a very significant bit of feedback from our suppliers in terms of what is they feel about working with Jason and that whole Tesco business.

As you know we set ourselves three priorities on which to garner our efforts and focus our time, regaining competitiveness in the UK business, protecting the strength in the balance sheet and rebuilding the trust and transparency in the Tesco brand. So what I'll update you in the way that I've done a few times about how we have progressed on those. We said our turnaround would be volume based all right so here you've got the volumes since Q1 2010/2011 and you see the trajectory. So in Q4 in the UK 3.3% volume growth continues the improvement since the second quarter of ’14-’15 so a very positive improvement in volume. A very significant increase in the number of transactions in the Tesco business and that's the reason why we talk so openly about more people buying more, more often in Tesco being what's driving the turnaround of our business but very-very happy with the trends that Matt and the team are driving in the UK business.

We've shown you these metrics in consistently every time I've been on my feet. Our service levels continue to improve, our availability continues to improve, our price deception continues to improve and our satisfaction with ranges continues to improve. All right so a consistence measure that we set out at the start about how it is we would track the improvement and our offering in the UK business, same questions, same consistency, tracked weekly that is the improvement of the team they have been driving through this first year of transformation.

The service comes from I've given you a new term here some of you are familiar with it, we talked about the 9,000 extra customer facing roles that we invested in it was a first thing that we did in the last quarter and lesser part of 2014. In Tesco we take all of the hours that we invest in our stores and we turn it into with another number of other things into what we call a productivity index when we started this productivity index it was 114 or so, which is Tesco 100 is supposed to be what you need for those who would take the model. Historically Tesco had always wanted to outperform the model way before my time it would target to be 104 and 105 of the, a good lean way of running the operation. We've taken that all the way up to 114 or 115 the investments that we made that has taken us back down to that sort of world-class level of 104. It is a real progress there as already said to you about what the colleague engagement is and the interesting thing is what we see in terms of our customer feedback. Customer satisfaction at full year, full 5% better than a year ago, so the customer feedback about their satisfaction of shopping with Tesco is definitely, definitely improving, and I've given you there where it was in October of ’14 as a benchmark of where we started from.

In terms of availability we have driven -- the team has driven availability to new heights. The sales-based availability, if you remember, first time I stood in front of you we talked about the fact that we were always measuring availability from our availability for grocery home shopping picking very robust base so the question was what does it look like in the evening on a Thursday so we talked about sale based availability as a more challenging time within the week when we started that it was in the low 80s and we've driven that sort of at 96% and that's just about where we would want it to be any more than that would have unintended consequences around waste so that's a significant improvement in sales based availability.

All of the work that's being done behind the scenes to put efficiency back in our operation we've done that whilst we have taken our stock down also significantly and you've seen that in our working capital and part of that is being -- the work that the team have done around ranging has meant that and again forgive the jargon, this idea of optimum shelf fill capacity is that how many of the lines that are on a shelf have the right amount of quantity in order to have 40% of sales weekly sales available without it needing to be replenished that was down at 82% before we did the range review and it has now driven about 94% so we are getting our operation to be leaner, to be simpler in order that we can serve customers better and so really pleased with what the team have done on availability.

On price I know that there was and there always has been this designing institutes talk about 100s of millions that you've invested in price. From day one I've always tried to share with you what I think is happening in price in a way that customers understand it, so the basket that we talked about in August of 2014 typical basket in Tesco would have cost you £46.98. If I look at that same basket same things in February of this year £44.73 that's a little bit more than 4% reduction in prices in Tesco through the course of the change. We said that we would take indirect money and we would put it into shelf at prices in the course of the last year we've issued 37% less coupons than we did the year before and interestingly when it comes to multi-buy promotions you see what we've been doing in terms of making our promotions more sparing and more specific and in the fourth quarter for example we ran a third less multi-buy promotions in our business than a year before. Everything we said about getting to simpler lower more reliable prices is what's been driven through the course of this year and it got us through a place where our shelf prices are more than 4% lower than they were in August of ’14.

We introduced a brand guarantee and our brand guarantee is unique and I'm sure you are familiar with it but when you look at it through the lens of a customer brands are incredibly important, you know how strong brands are in this market I mean these are all the markets that we operate we are a big supporter of brands and actually for customers knowing that irrespective of what might be happening in some of our competitors they will walk out of our stores never having paid more for their branded shop is really important and really unique and that fact that they get the discount immediately is seen as a very significant help and appropriate from Tesco so we are delighted with how it's working it's something unique and helpful from Tesco.

We talked about the range we set ourselves 33 categories for us to review we've done all of them on time and in full. The average range reduction that has come from that is around 18% is it in fact 18% after taking into account of a little bit more than 2,000 lines that are completely new and the new innovation for customers and you show in terms of satisfaction actually because we send it out, because we've given more space to the things that really matter to customers actually that feedback on our range is that is better simpler to shop and more appropriate for what that they want.

And the final thing I thought I would say in that sense was actually around Christmas. And I was thinking about how I could capture this for you and every time I try to draw it, it started looking like an electricity circuit diagram. But we have done is we thought very clearly and carefully about how it is we work with our suppliers. So I am going to show you the KPI of that our forecast accuracy with all of our suppliers over Christmas was 10% better in Q4 this year than it was a year ago. As a result of that forecast accuracy improvement, the stock that we have seen more appropriate for it is we wanted. So as you walk through every single chain and piece of the supply chain into so and beyond we have improved the operation metric. Sales forecast accuracy up 10%, availability in store by all time high a full 4% higher last Christmas than the Christmas before with lower stock, all right, with significantly lower stock and not insignificantly delivering 500,000 more home deliveries as part of our Christmas offering. So one of these people say what's driven it, operational the simplification of the operation working with partners flowing it through has had a material impact in the numbers that you are seeing today we have more offers to do.

Second priority is the balance sheet. You know, we talked about the pension. The transition is complete Alan will take you through the numbers in a second. But that’s now completed the sale of Homeplus as you know. And we have been very disciplined in capital, we spend exactly as we said we would and driven the return on that capital much more aggressively.

Let me say a little bit more, the other thing that we have talked about is our strategy on product, you have a chance to talk to Steve if you would like. In March, we talked about the 21 superstores that we bought back. In October, we talked about actually what we have done in terms of selling some of those sites that we had decided not to develop. And in February this year we acquired actually two Joint Ventures which bought another 36 superstores and another 13 extras back into our own ownership and that allows us to control our future cost in the way that we talked you about before. And in fact, over this period we have increased in the UK, the proportion of our sales space which is freehold versus leasehold by 6%. All right, so we have invested in our future by buying back good stores so that we own them and give ourselves some insulation from those upward only rent reviews.

With our suppliers, we announced during the year a transparent open set of trading terms. We said any and we have got many suppliers who are 100,000 to 200,000 that we would pay them in 14 days. As of this last period I can confirm to you that 100% of our suppliers who are at this side have been paid in 14 days. Our on time payment across our whole business in terms of numbers of invoices is in excess of 98%, significant improvement. So we have worked with every one of our suppliers to get this right. And as part of Jason's push to simplify the commercial approach, a new partnership arrangement moving from back to front, moving from 24 forms of commercial income towards the destination of free.

We built the supplier network it has more than 5,000 suppliers in 50 countries. It's a way of suppliers being able to share their experience of working with us and actually sharing ideas much appreciated by them. We also offer supplier training, a gateway into Tesco helping suppliers understand how our business work. We are a big business we need to recognize that, we had help our suppliers to understand it. And as I say, there's encouraging progress in terms of the suppler view point in the last year. The feedback we are getting from our suppliers is significantly more positive than where we were a year ago.

When it comes to the brand and the trust and the transparency, you know about the charity partnerships it is something that’s very important to us at Tesco every colleague very, very active. A very significant partnership we have with Diabetes UK, British Heart Foundation. We've made a very big commitment in terms of our community food program. The commitment from Tesco is that no food which is safe for human consumption will be wasted in our stores by the end of 2017 we are the only people that actually issue a food waste in our own operation report, we have been doing it for a number of years. We are actually world class as a percentage, but a very small percentage applied to a very big business is still too much food waste, under the team, we don’t to do that and we built in a very innovative way, a way of providing food which we can no longer sell because it's reaching the end of its code is donated directly to charity and therefore is not wasted and is safe for you in a consumption. We have rolled it out to 100 stores it will be in every large store by end of this year and it will be through the state by at the end of 2017. And you will have seen our Bags of Help local community scheme where all of the money that comes from the bag levy is put back into local community projects voted for and chosen by customers in that particular store.

Now, people measure this in very different ways I have seen a number of you use different sources. I have kept this consistent with everyone we have used in previous it was all about the brand index store, which is an overall measure of brand health. If you remember from January '14, October is the dip, post announcements around the accounting issue that we have had. And what you have seen is through the course of this year all the way to February that we have managed through our actions, right, through the experience that people have at Tesco to start to rebuild back that trust. And we got ourselves to a place in February of this year, where we are ahead of where we started in January ’14, lots more to do lots more to do but considering where we started this in October of ’14 actually some indications that we're getting some things right some of the time.

So again those three priorities after regaining competitiveness in the UK we think we have the transaction growth you've seen in the fourth quarter, one indication of that of we protected the strength in the balance sheet that we -- Alan will take you through the numbers but our total indebtedness is down by 6.2 billion in the year by about 40% and that's after we took more than 1 billion onto the balance sheet as we bought back the properties that I've talked about. So a significant, significant amount of work and good work in that space and in terms of trust and transparency, customer, colleague and supplier measures of all improved through the year. So when we're saying the announcement is a year of significant progress that is broad-based as the UK its international it's all channeled and it's against the three priorities we set for ourselves that is the basis on which we make that statement.

And with that, I am going to pass over to Alan, who will take you through the full year results.

Alan Stewart

Good morning everybody and thank you very much. So have the priorities translate into the results? You've seen the numbers, I think first thing to say is that we're comparing against a 53 week last year which was our strategy week but whatever we need to adjust we'll compare on a like-for-like 52 week basis, but it is so therefore throughout all of this we will compare wherever we should in terms of profit and loss against the 52 weeks. The other thing is obviously, currency is part of our results and where necessary we'll compare against constant currency. The main issue and weakness we have in currency was the relative sterling euro change which happened during the course of the year.

So sales constant currency just up 0.1% and our profit is up 1.1% to 944 million, we have some exceptional items I'll come back and talk about them. A credit this year compared with a very significant debit last year and then we have our statutory operation profit which is at just over £1 billion. The EPS we'll come back to as well. So segmentally, we look at it across the three key parts of our business the UK and the Republic of Ireland, the international business and the bank. The UK and Ireland and Republic of Ireland had a marginal recovery, we have 81 basis points of recovery from first half into second half again I'll come back and talk to you a little bit more about that. And in the international we saw an even stronger recovery in the first half to second half with 138 basis points improvement from H1 to H2.

The bank results saw the impact or beginning of impacts of the interchange fee, we did talk about this at the half year and this is something which we'll go into the full year results and into this coming current year as well. And in terms of the impact of lower interchange revenue from the Bank perspective. But overall good performance across all parts of our business and in terms of what we see. Looking specifically at the UK and ROI segment, you see a strong trend a continuing trend, which Dave has spoken about. We moved into 0.9% like-for-like positive first time in many-many quarters in the UK business and equally in the Irish business, we saw like-for-like positive for the first time since 2012. This is by focusing on what the customer needs, the issues that Dave has spoken about in terms of service availability, range and price and a positive good performance in a market which continues to be deflationary.

We've spoken before about the format we continue to see good format performance the extras were almost positive in the quarter. You'll recall that in Christmas they were positive but almost positive in the quarter and good performance across and all other categories. And our Express convenience format continues to show strong growth albeit what we're seeing from customers is that when you give them a reason to shop in a single location our extra stores and that's where they very often choose to shop and we see it in the numbers.

In terms of some of the other smaller parts of the business, the online performance we split out here between grocery, clothing and general merchandise and we're focused on getting the right value equation from a customer perspective so the economics for us are important and we're making it a more sustainable offer which customers really value. We've seen some impact in terms of the grocery growth and still healthy growth at just under 9%, general merchandise, we're focusing again on profitability in the sector some small reduction year-on-year and clothing a good performance in our clothing market which externally we've seen challenges but our clothing performance focusing on full price sales, getting the right margin and availability rise we saw a good performance.

If we now move to the profitability, you'll recall that we set out to rebuild the profitability in the UK and this is the full year build trying to give you a sense of how the building blocks to rebuild and increased the profitability from the 498 million in ’14-’15 through to the 505 million in ’15-’16. We have invested very significantly in prices. You can see that this is always an estimate in your graphs, it is shaded out. In terms of here this is the best estimate we can get for what the lower prices that we've invested. Against that we see volume and mix benefit and we will continue to drive this. We also will invest in the customer offer a lot of what we're investing is in terms of service, we're looking at the costs of and the offer we took out fuel saves during the year, we took out some of the couponing, which Dave has spoken about and we’ve also made some quite significant savings in our overhead costs. So net-net, we get a small increase in the profits, but a very healthy underlying. In the other column that includes Dunnhumby which you recall we restructured at the beginning of the year with the change in the arrangements in the, with Kroger in the U.S., so overall a good year-on-year performance with some very significant price investment.

Much more importantly though is how did that move in the second half. Because in the second half of last of the prior year, we made a loss and it’s that base that we’re coming off. Continued investment in prices, in the second half a positive volume and mix benefit, and so we’re beginning to see some rebuilding of profitability with the investment in price. We saw some good cost savings the 400 million cost savings we set out a year ago, we’ve delivered what we set out to, we’re on track for the full 400, we about 300 million benefit in the year. On top of that, we also see some benefits in terms of some of the marketing spend, where we’re putting our money in terms of the costs. And then in other, we do get some small benefits on the retail side from the interchange fee, so we pay less, and we earn less in the bank, but we pay less in the retail business, but overall from a 45 million loss to 339 million profit and half and half. And this gives us confidence in terms of our longer term profitability and that we’re doing the right thing, not only for the customers, but also for the shareholders and the business.

Internationally, very, very much the same performance we saw market share gains in five of our seven markets. We’re doing the same things and Trevor can talk about that in the Q&A afterwards. We saw strong volume growth and we saw strong cash generation. Cash has been the key part of our overall business focused this year, operating cash is up 87% and the international business, it took six days out of our stock by focusing on the stock that we’re holding, where we’re holding it and how we’re buying to replenish.

Again, looking at the two different segments in the international business, the same trends European business a good like-for-like from a low-base in third quarter of ’14-’15, you see continued growth in like-for-like. And in Asia a very strong performance in those markets Thailand particularly being the market which we have seen a very good response to be, focus on fresh, focus on availability and focus on the right product for the customer. Overall in Q4, we’ve seen continuation of those trends in the international business.

Looking at it again by our format across the international businesses, we look at store format slightly differently hypermarket, superstores and convenience. The hypermarkets internationally are around 75% of our business. So internationally that’s really where the bulk is and you can see strong growth there. The convenience sector is by far the majority of the balance superstores are a small part of it, but across both large segments hypermarkets and convenience good growth and superstores also.

In Thailand, to pick out one market as an example, we saw double-digit like-for-like growth in that market we are in 100 lines we invested strongly in quality and customers and you’ll recall at Christmas, we spoke about achieving the highest ever market share in Thailand in Q3 and we’ve continued to hold our position in that market.

If we look at the profit build internationally, we’ve also seen an increasing profitability. We have again invested in price we’ve seen lower prices we’ve seen a volume and a mix benefit this is on a full year basis. We have invested in customer in the customers whether that’s in areas like communications, whether it’s in the way we engage and target our loyal customers, we have some investments and we’ve taken costs out of the business, very significant restructuring in One Europe where we’re operating now and we’ve spoken about this a number of times over the last 12 months. We now are operating as one management team running those four markets. And in Thailand, we’re also focusing on efficiencies within the Thai operation. The supply chain is again in area where we’ve seen opportunity and we’ve seen some cost savings. And then in other, we have had some investments and in some restructurings particularly in the Turkish market where in the head office we took out about 50% of the people in the head office operation. So focusing on efficiency and but at the same time investing in the customer and driving volume and mix.

The Bank, which is the third segment I called out. A good performance, we have seen the profitability go backwards, but the underlying performance of the Bank remains very, very strong. We’re also as ever, focused on the customer. We launched an engagement and communication with the customers where we show them how much interest they’ve foregone. We will be the first bank to do this. We’ve given them free access to a credit report. We’ve won a number of awards from external commentators from Moneynet to Your Money in terms of customer service and how the bank is viewed. And increasingly, we’re very clear that in the Bank, the purpose is to be the bank for Tesco customers.

Active customers are up 1% in the year and lending has increased by just under 11% and at the same time, the core capital ratio, which in the Bank is a key part of it has continued to strengthen. And we’re now well ahead of 16% in terms of the core capital ratio. So overall, in a challenging and challenged banking environment the bank is delivering what for our customers what we set out to do with a very strong balance sheet and funding behind it.

Tesco in mobile is a business which we haven’t spoken about before and I think it's important for you to understand that it is a valuable asset, important part of our business, it's the largest MVNO a mobile virtual network operator in the UK, it's growing very significantly over a number of years and it's a successful joint venture with O2. We saw a 5% growth in customer numbers we are now well over 4.5 million customers in the UK and again from an external perspective it gets very strong recognition it's the recommended provider by of which for the fifth year running and it's got a good balance of business between the pay as you go which is the historic way that mobile operators worked and increasingly are now more than 50% of the customer base is the pay monthly market which is where the long-term values from a customer. It's operated through more than 400 stores in our network clearly there is an industry which is going through potentially some significant change and we are very well positioned within that industry not only to protect the business but also to grow the business and that change creates options and potential for Tesco and Mobile.

We now move to below the operating part of the results into the finance, income and costs and then I know this is an area where a number of you will ask questions. The interest payable is down year-on-year we saw a reduction in the interests paid on our bonds so a good reduction in interest paid on bonds that is offset in accounting terms by the interest element of the own risk lease discount, it's very technical very happy to take it and talk to you about it behind but the what you see as a 30 million reduction is an underlying stronger reduction in terms of cash but there is an accounting element which masks some of that.

There is movement in terms of the IAS 19 and 39, 32 and 39 numbers not a huge movement and then we get to the pensioned deficits. Finance costs this is set by reference to deficit at the start of the year and the rates market rates at the start of the year, so we thought about a 20 million increase in that year-on-year. As we go into ’16 and ’17 which we have now started I expect most of that increase we saw last year to come back so it's about and maybe even more in terms of because we've made a significant reduction in the deficit, so we should see some reduction in the pension interest finance cost as opposed to our results. It's not the number I focus on I focus much more on the cash that we are paying to the trustees and we are going to come on to that. And then finally in terms of the movements in the net finance costs, finance income came down by about £50 million primarily because of the way that swaps which are part of our hedging for our bonds are the swap accounting for that impact through this line as well. So some movement within the overall interest finance cost line underlying its interest payable was down and that's an important message. The other point I would make is that within the results today in the exceptional item we have recognized an accounting terms in 20 million charge on the translation of the sterling the proceeds receive inside of Korea it's a non-economic impact, it's an accounting technicality but it is within our results overall and there is no economic cost to us within the group.

Tax line again the interest here really is what's the cash we are paying for tax from your perspective and it's masked by I am afraid a number of different movements. So the problem before tax before exceptionals 280 million and so a 2.7% effective tax charge why is that so much different from the underlying rate where we had a number of things to change. The UK future rate for corporate tax has decreased to 18% and we have to take that to deferred tax as an adjustment it comes during in the annual charge and that's impacted. More importantly we sold assets which had a higher tax value than the book value so we have a differential between the book tax and the tax that we are paying and being charged on it and that gave us a benefit in terms of the effective tax rate. And then finally in respect to the exceptional item we've closed a number of early a years and we've agreed those with the revenue and that gave us a benefit not really in terms of the rates but we also got we managed to carry back the losses that we had last year and we've got some cash in terms of the tax cash. So looking into this year best estimate I have today, with as you can see a number of moving parts and we still have some years open but the best estimate we have today is a 30% underlying tax charge for the year that we are now in.

The exceptionals against just under 7 billion of exceptional write offs last year and we have few and you remember that what we set out to do as we don’t want to be operating with exceptionals but if there are items which are significantly large and significantly material enough to call out then we will treat them as exceptionals. We have a 408 million net impairment by far majority of this is around 270 million is moving to the single online platform from a customer perspective we've looked at the way we operate our different Web sites and we decided that it's much better for a customer and for us to move to operator one website that's a result of the net of 275 million write-off. We have also continued to look at some of the work in progress and we have got 133 million write-offs down in the carrying value, these are non-cash items, and I would stress in respect of that. And then the property transactions which Dave has mentioned have generated a profit against the book value that we are carrying them out of £155 million.

Finally we got a non-cash credit of £480 million because of the way that the actuarial deficit is now calculated on the CPI, consumer price index as previously calculated on the RPI and that’s the non-tax credit. But again as I would say it's very much an accounting entry but a recognition of that change, so net 102 million of exceptional items as a positive this year compared to the 6.7 billion last year write-off.

If we move to total indebtedness and I’ll take us through a number of different ways of looking at this, overall, we have seen a 6.2 billion total reduction in indebtedness as Dave had said. And the elements of that of the change in net debt, change of the discounted operating leases, significant reduction in the pension deficit, we sold Korea, we had the property transactions and we end up with closing net indebtedness -- the total indebtedness of 15.5 billion compared to the opening 21.7, but there are different parts moving within that.

The way that I think about the indebtedness and I think this is important that you understand the way that we look at this, is that there are different parts of it. There's the pension deficit, there's the discounted operating leases and there is the net debt. And each of those, we have seen a significant improvement year-on-year. So the pension deficit is down 1.3 billion. The discounted operating leases are down 1.5 billion and the net debt which is the balance sheet net debt is down 3.4 billion.

The movement in net debt which is a 3.4 improvement comprises the cash we generate from our retail operations, the improvement in working capital, and then what we pay at our front. So we generated 2.2 billion cash from our retail operations. We generated 350 million improvements in working capital. But within that there were some elements which were negative and really one-offs. We spent 91 million of cash on the exceptional charge we took last year. You remember at the interims we spoke about the change in the supplier payments and that the final part of the un-wind of those reciprocal deals was 230 million net out flow at the interims, no change in that. But we had an underlying 230 million out flow. Within the Korean business, we sold -- we generated up until the point of sale 280 million of working capital. And then which means that the net underlying working capital improvement from our business operations was just under 400 million in the year, which gave us the total of 2.6 billion, 2.81 retail cash generated from operations.

We spent just under 300 million of interest and tax and we spent 1 billion on our CapEx consistent with what we set out and to do. And then from the Korean disposal, we raised 3.3 billion net in terms of the third of that business. We brought on to the balance sheet, 1.6 billion of liabilities of debt with those properties that we brought back, economically the right thing to do. We saved 115 million of current value of rent and we have protected the business from the future RPI or upwards-only rent reviews on that. And overall, we generated 3.3 billion reductions in net debt.

So the property metrics, we haven't got a specific target in terms of improving the freehold, leasehold mix but whether you look at it by the selling space owned, whether you look at it by value and both of them are measures which I think are important to us. We have seen a really strong improvement. Dave referenced the 6% improvement in the UK business in terms of the property ownership and as I say, whether you look at it by space or by value, we have seen a strong underline improvement. And that’s the case internationally as well with the sale of the Korean business, we have improved those metrics. So heading in the right direction, good progress to make but as ever we will weigh the economic cost of what we are doing from the -- compared with the benefits of the rentals that we are saving.

The pensions we have closed with Steve, we have protected the benefits that we have promised in the past and we have introduced the new defined contribution pension scheme. We saw an overall 1.3 billion reduction in the deficits and that’s a combination of the credit which I spoke about, 408 million -- 480 million net in terms of the payment that we made on the transfer and it's also to do with the asset performance and underway the liability is measured. We are working with the trusties to ensure that the risk of the deficit widening overtime is significantly reduced. So we are trying to ensure that the assets that we have got will not significantly widen against the liabilities as we go through time. And that will mean that there is a much greater predictability on the cash flow contributions we make. And the one year range that the pension deficit funding plan we agreed with the trustees, we're pleased with the progress, they're pleased with the progress and it feels as if it's working out well.

We've got a strong liquidity profile again we've spoken about this in the past, at this year-end we've got 4.4 billion of available cash, in the balance sheet you’ll see more than that, you’ll see about 5.7 billion of cash, the way we look at our available cash is we've got around 5 million of cash in the bank and we've also got about 750 million of cash in our float and the tills around the business and which is cash in transit whether it's in the tills or whether it's cash it's cash in transit, we've got about 750 million. So, we view our available liquidity as about 4.4 billion and on top of that we've got 5 billion of undrawn facilities, 2.6 billion of revolving credit facilities and 2.4 billion of the bilaterals. And then if you look at the debt repayment schedule we've set out here in a graphical form where the bonds that are on balance sheet fall due for renewal and as you can see they're well spaced in time, there isn't a significant amount of liquidity that we have, we have what you would expect, and the element of debt which falls due over the next five or six years and then the balance is well spaced out but all of those are well capable of being funded either from the liquidity we have or by going to the markets.

And we've seen an improvement in our underlying debt metrics, now we remain of the view that we would want to be an investment grade credit, we haven't put a specific time on that and we -- but that's the way that we view ourselves and we recognize that the two ways of improving these ratios are by reducing the indebtedness and increasing the profitability in the business. The one which has the greatest impact on the ratio is the business performance but we will continue to focus on both elements of that equation, whether you look at it as certain indebtedness or as a fixed charge cover and we have made improvement year-on-year underlying the 1.9 is a slight improvement. These are our numbers and not the -- and the way we look at them, the rating agencies have their own ways of looking at them but this is the way we look at them and they're seeking to address the same calculations, albeit and clearly slightly different methodologies.

So, if we look at the financial summary over the year we've seen positive sales momentum across the group, we've rebuilt the profitability and particularly if you look second half into I think second half, we've seen a strong and improving cash generation, we've made significant progress in reducing our total indebtedness, we've got a strong liquidity position and the summation of that is that we've got a strengthening balance sheet.

I'll now hand back to Dave.

Dave Lewis

Thanks, Alan. Okay, so as we -- I suppose just to round it up we have in the last two result announcements shared with you the big six and the performance of the group in exactly the same way that we talk internally inside the business is something that is all the way across the Tesco business globally with Trevor reviewing with his team individual countries but at a group level I'm absolutely delighted -- absolutely delighted on the six things that we said are the sales, profit or cash flow or what it was we were doing for customers, colleagues and the partnerships with suppliers, we met or exceeded the targets that we set for ourselves in the year, I'm delighted for the colleagues inside Tesco that that is what together we've been able to achieve and that's what we’re sharing with our teams today and over the next few days in terms of the review of the performance of the business. So, that's why we started and that's why said in the results presentation we think it's a year of significant progress, it's very broad based across our business, it's volume driven by putting the customer at the center of everything that we do and re-gearing all of our business to serve them a little better every single day. And that's what we’ll do going forward as well.

What I thought I'd do now against that is tell you a little bit about what the next step looked like and I'm sure you're asking questions about outlook statements and Alan about the outlook statements in a second, so let me sort of try and lead into that. The one thing that you must and the reason I started this presentation so deliberately is in a uncertain market whatever happens -- whatever happens in the markets we operate the one thing you need to understand from me and my direct team and everybody that works in Tesco is the customer is the number one priority always, all right. Everything we do is geared by how it is we can serve them a little better irrespective of what is going on in some of the macroeconomic arena. What we’re trying to do and this is the reason that I keep saying that what we are doing is focusing on Tesco, everybody ask me competitive questions, we focus on Tesco is that actually what we are trying to do is remove any reason for anybody who shops with Tesco currently shopping anywhere else, that's the lens through which we have looked at it last year, it is the lens we’ll look it through this year for sure.

And we’re looking for those things that make Tesco more unique, I'll say a little bit about that in a second and as we do that we will build the profitability in the way that Alan has described this year and it's important we can see how we rebuild that long-term profitability but we do need to still invest in the business in what is still a very challenging -- there people in this room who have been in the retail industry much-much-much longer than I, it's a very challenging uncertain situation there is a period of deflation which is unprecedented. We don’t see that going away. Form a macro point of view R&D the need for us as Tesco to invest. One of the things we did last year and you came with us on that journey was we have to make some investments in order to drive the recovery. We’re still very much, still very-very-very-very much in that space and we’ll continue to be so.

Now what is that I’ve shared with you is what we’re doing in that particular space because that’s probably the most material thing we’ve done recently and will impact on our business in the year ahead. When we talk about serving Britain’s shoppers a little better every day our value equation the value equation that we really want to build is a combination of the following; brands, those things we should consistent where as you might chose to buy them we guarantee that Tesco will always be competitive on price on the things that are the same across the industry, that’s why brand guarantee is so unique and that’s why we give that reassurance to our shoppers about things that matter to them.

And we differentiated ourselves in the unique Tesco offering. Now part of that is obviously our own label, you can only buy it in Tesco so that range is very important to us. The service that we give very important, but also, a range of exclusive brands that aren’t available anywhere else, so that combination of if it's the same, be the best in the industry asset and then differentiate ourselves on those things which are unique in Tesco is what we’re trying to do.

Now, I’ve never shown a chart like this before. If I go back for a second if you remember when we talked about what was in the turnaround, we talked about the reasons why people were not shopping with Tesco when we arrived, and we talked about poor availability, poor service, poor range of architecture and poor price. We’ve bought all of our assets into doing that first. The other reason why they weren’t shopping with us was inconsistent pricing particularly around brands because they could understand what the price relativity was because they knew the brands were the same. So we’ve dealt with one bucket, we dealt with another bucket and then we come to the third which was there was this certain set of categories. What this chart does is it looks at what to use jargon over and under trade.

So, these categories that are in green, Tesco is a business we overtrade we have a share in excess of the average -- in access of our in those categories, so that’s for us to protect that’s where we do better. There are four categories on there where against the couple of competitors actually we under trade that means that our customers have chosen to buy those categories somewhere else. And this is trying to be very specific in saying these are customers that shop with us already, who have chosen to take part of their shopping machine somewhere else, how was it we can address and make it more convenient and bring that back into the Tesco basket, serving a little better every day, time, staff, people, needing to shopping to locations we want to do something about and that’s why we did this.

It's a very important set of categories for customers, it's a place where we were under trading particularly against the different side of the markets and we set ourselves a challenge to say what can we do about it, but those would be following closely. The first thing we did in the fourth quarter of '14 was focused on fresh produce, the examples I gave, I remember them all, we’re all about lattice and what it was we were doing to get that supply chain. We’ve worked with that supply base in advance of everything else.

Our supply base being really involved in creating these brands so, one of the results of the supply partnerships that we set out is being to sit down with our farm and produce suppliers and say how can we reconfigure what is we do together to increase crop utilizations, we increase the efficiency and translate that into an offer that can be consistent and great value for our customers. So we launched these seven exclusive brands.

Now, I’m not shy about the fact that all the marketing will always polarize so I’ve heard some of the debate, I’ve read some of the debate, I’ve listened to some of the debates that’s involved and I get it, I understands it. The only thing I would say to you is for somebody who I think can say is being in all the marketing for a reasonable amount of time whilst people will debate and most people on things what it customers think. So we developed these with customers. We developed them with customers and our partners.

So let me tell you a little bit just so I can inform you in this particular space as I do get some questions but I am sure Matt doesn’t you can ask him a question directly yourself when he get a minute is when we talk to customers what do they say. They tell me that they complete because I think some of the commentators don’t really give credits for how marketing savvy UK customers are I can say this with some certainly by far in a way the most developed marketing understanding audience in the world. Do they know that one single farm is not big enough to be able to supply Tesco, they do, they really do.

Do they know that one single farm does everything across all product forms, no, because they know something about what the crops are? So what they say to us when we developed this and when we have the conversation everybody is talking about which is actually what was really important to them is do they come from farms. Well, clearly they do. So they’re intrinsic to use the marketing jargon and the intrinsic product truth is all of this produce comes from a farm. Second thing that’s important is and it's about the marketing savviness is actually when you look for a brand name you look for something that can stand for a consistent offering of quality and value.

And here is where I make an industry come out, which is, we’re not the first and I suspect we won't be the last, where we've chosen to use a brand name and we've been very open about the fact that this is creation, we're creating and launching these brands.

And what we're doing is in some cases we've used brands that were owned by our suppliers to create this -- is to make Rosedene stand for a level of quality that is consistent. And any of the farms that support and provide for that Rosedene brand name must hit a quality specification that we set. And if you think about a lot of food brand, if you look at and think about the history of food marketing in this country, that's exactly the model that allows for a consistent branded value equation in how you build brands. That's what we did here despite what you might read in some places, more than 95% of all the commentary by customers is neutral or positive about what it is we've done and yes there are couple asking why did we do that. The only thing I'd say to the detractors is, please, and if you have a chance have a look around and what we put outside on every single one. We are absolutely clear about where that product is sourced from, right absolutely clear.

So customers definitely get it. So I thought I'd say that so it might answer some of the questions you guys later but [technical difficulty] as well, you can get his point of view on it also. But I thought I’d share with you though is just so -- it is very -- I've always struggled with people, struggled to see this before and after in a way that's easy to compare because obviously we replace one with the other. So what we've done, everybody talks about the farm brands and I get they are a significant investment, I'll give you a clue to that in a second. But what they don’t talk about is what we've done here, right. So the architecture in Tesco which is Good, Better, Best is an architecture which has served as well and it will serve as well into the future. But as we've worked with our supplier base to add value in terms of Redmere Farms here, we've also invested in our own core, own label in the way that you see here.

So basically and I'll show you a series of picture they're all set up in the same way, what was every value in terms of their exclusive farm brand, what it was in terms of our core in terms of the re-launch that we've done. Okay, so that's carrot, potatoes. Now if you really want me to, I'll go into the marketing about the design but I don't think we've got time. And where we're in terms of mint, where we're in terms of apples and what customers are saying to it is they understand both of those expressions, they understand the care that's going into the core, they understand what it is we're doing in terms of Rosedene Farm and they see the price tiering much-much clearer than it was before.

Around meat in terms of pork in this case, and then what I thought I'd do, I am going to introduce this chart very specifically. There are 76 lines that we've introduced as part of this for exclusive farms range. And what I am going into a minute is I am going to show you a basket and I am going to show you a basket which takes I think is 51 of those lines for which is a direct competitor alternative in our cheapest competitor.

Okay and I am going to show you what that looked like before we made this investment before we launched this range and what it looks like now. Okay, so before if I take the everyday value and the range that we had, those 51 lines if you bought every one of those lines would have been £103.11, nobody buys 51 lines, this is hypothetical to give you a sense. If you bought that in our cheapest discount alternative, those lines would have been £89.06.

If you take the 51 lines and you look at what we've now offered as a result of partnerships with our suppliers and the unique brands that we put in, actually you could buy that basket in Tesco £86.35. I've always resisted to talk about the investment we've made in price in terms of our all 100 of millions and always wanted to talk about in terms of what's in it for the customer. This is what's in it for the customer in those two categories where I showed you we under trade historically and we're trying to deal with that in a way which allows our customer to shop those categories with us in order to make it more convenient, so we've designed the range with them and our partners to meet that opportunity. We’ve just done it, it's by far in a way the most significant thing that we've done so far we're few weeks into it, results are encouraging but we’ve got to -- let see how customers behave in a longer term basis.

All parts serving Britain's shoppers a little better every day and my last slide is to summarize which Bob [ph] brought base improvement across the group, I hope you agree with that and I am pleased. And people asking, am I pleased, yes I am pleased. But as a CEO you never completely satisfied, my team will tell you about that as well, but we have made significant progress across all of the key priorities. We've delivered or exceeded on everything we said we would do and as we want to build confidence in our business that's an important step for us. Most customers are buying things more often in Tesco and I've given you some of the stats, our team and I are reinvigorated around the purpose and the direction that the leadership team and myself are asking them to support, but the market is challenging it is deflationary, it is uncertain and as we keep making the investments we think we need to make. What we're trying to do and sharing with you about our business is to be considered about actually what those investments return and the timing with which they return. I think our biggest concern here is that based on what I think everybody would accept is a lot of progress in one year that we draw that wonderful smooth, straight line of improvements as we go ahead. It won’t be like that. It’s never been more challenging to be in the market and we’re investing in that deflationary cycle. So what the outcome is the uncertainty and we’re just sharing that with you.

What we are doing and the most important thing is that we continue to invest in a way which we think the medium and long-term shareholder value is the right thing to do and is a sustainable model. Right. That’s it from Alan and I. What I’m going to do now is ask that’s Matt, Benny and Trevor to join us. Take a seat fellers and we’ll do some Q&A.

Now what I’m going to suggest is we’ve had some feedback some of the previous questions, which is the positive was you liked the fact that we answered every question that was in the room. The negative was maybe it took a little longer than it might. So what I’m going to try and do is I’m going to try and curate. If there is a question for me I’ll try -- I’ll take it, I’m going to give you some experts, if that’s the question, I’ll pass it to them.

What I am going to suggest is, if it’s a question of a very technical nature. If you are sitting there desperate to know what the IAS 19 impact on the numbers Alan said were, I may in the interests of time park that with Mr. Griffiths, because he’ll be better able to do it, but I won’t for those sorts of very specific technical questions and then try and channel those to Chris and allow us to talk perhaps more at the strategic questions elsewhere. Is that, people are nodding, because that’s the bit of feedback you gave us. Maybe we got a little bit too technical in that.

So I’m going to ask you to try and keep it one question please and then I’ll directly to the person. That’s the hardest bit of this or us. And I’ll direct to who I think is the best person, either the guys here or indeed any of the execs who are in the room. Okay? Cool. So I’m going to do this systematic way. Gentlemen right to the back.

Question-and-Answer Session

Q - Sreedhar Mahamkali

Alright. So one question it is then. Sreedhar Mahamkali, from Macquarie. Alan, I can get where you’re coming from in terms of the profit bridge and I can see, David, your points on the investment you’re making in farm brands and stuff, but help us perhaps reconcile second half profit bridge. Why is that not a good representative way to think about for ’16, ’17? What am I thinking about specifically? I’m thinking about the PI, you’ve talked about which is where it looks like it should be. And your volume growth is continuing to build. You’re continuing to do pricing, but to me, designing something for a lower price doesn’t necessarily equate a price cut. Correct me if I’m wrong. So why isn’t that -- and you’re cost saving continue to come through. So why isn’t second half the right way to think about ’16, ’17? That will be my only question.

Dave Lewis

I’d say, it’s a great question. I think the significant difference. I think, so first of all our aspiration to grow profit year-on-year is absolute there. So it’s a question about what the degree is. And it’s also about what the shape of that is. I think to the point about the investment that we’ve made now, which I said is one of the most significant we’ve made. I think it all depends on what the impact of that is. And you might design for it, but you don’t always get it initially. It depends on what the volume and the outturn is. So that’s why the uncertainty is actually what does the market and how does the market react and what will the mix be across the different layers. So that’s where we need to see what the impact would be. So it’s right what you say, it’s just maybe there is an issue in terms of the timing of how it’s delivered. Alan, I don’t know if you want to --.

Alan Stewart

I think that’s it. If you look at what we said in terms of the outlook, we’ve spoken about the longer term, we’ve spoken about the current year and we’ve spoken about the first half. And those the elements of it. But and there is a wide range out there.

Sreedhar Mahamkali

But is there anything specifically you’re seeing in the first half that we should perhaps pay more attention to?

Dave Lewis

Well, the continued investment that we have in the offer. The farms brand is by far and away, the most significant, but other things that we want to do and continue to do. And if you track what we did last year, we made a whole series of investments and choices and we have to repurposes money and it always, we talked very openly about volatility last year and that was about how we changed the promotional mix and what have you. We have a different sort of uncertainty as we chance the offer and we invest. So Matt and the team have other things that they would want to invest in, but we have to make sure that we generate the space to be able to do that, so longer term we have a trajectory profit, which we think is the right one. So it’s more about timing and uncertainty of delivery rather than medium term ambition.

Sreedhar Mahamkali

Many thanks for your time.

Dave Lewis

Thank you.

Andrew Gwynn

So it’s Andrew Gwynn from UBS. I suppose 1A and 1B very cheeky. Presumably

Dave Lewis

I’m not surprised. I’m not.

Andrew Gwynn

Presumably it’s nothing to change on long-term view of industry leading margin.

Dave Lewis

No.

Andrew Gwynn

That’s 1A specifically. 1B would be different in terms of the gross margin outlook. I get what you’ve just said to Sreedhar it is maybe a little bit of investment here, but what’s a long-term view in gross margin? What are the key moving parts?

Dave Lewis

We don’t give any sort of guidance on gross margin. I suspect Matt’s not going to change that by attending today. I think the critical thing for us the mix around price and the ability we’re able to negotiate for the range and the way we were, with our partners and we started a whole different way of doing that, so for those are long-term studios of Tesco, this ability to work with partners to reduce costs that allows us to invest that back in the customer is at the very centers of what we do and that's what we are going to carry on doing. So price, working with partners and the store operating are three big leaders and we've got something that we still want to change in the way that we do that, I donno Matt if you want to add anything at all too that?

Andrew Gwynn

How far are you through that program of renegotiating with suppliers?

Dave Lewis

You saw some of the feedback in terms of their satisfaction already, I think in certain area we started at different times and different places, to be honest we’re never through, if we do this right there are long-term relationships where we commit ourselves to long-term improvements and I've been, honestly I've been delighted with the way that our suppliers -- particularly because we started there in terms of produce and you see some of the results of that, they work with us hand-in-glove in terms of thinking about how it is and to when we can reduce the supply chain waste in order to be able to put that into an offer for customers which is more compelling and more competitive in the past, so we will continue to do that and will never get through that, I hope we just continue to do it year after year after year.

Niamh McSherry

Niamh McSherry with Deutsche Bank. Given I’m limited to one question, I'm going to ask about and a pact to reinstating a dividend. I think you've mentioned before that investment grade in itself is not an absolute necessary for reinstating the dividend, but now that's balance sheet is stronger and the business is more stable maybe you can give us some criteria that you might look at for that?

Dave Lewis

And it's a great question because the dividend and the investment grade, it should be absolutely clear, one doesn’t have in front of the other and the other way around. But they are all linked because we have shareholders and we have investors and the one thing that we wouldn’t want to do is to get into a position that we are paying a dividend, which has been damaging the long-term health of the business because of the capital structure being inappropriate. So we balanced those and we've seen really good progress in terms of the balance sheet strengthening, we've seen the rebuilding of the profitability particularly in the UK business in the second half and we feel that the buildings blocks for both of those elements are ones which we've made good progress on. But will get to those at the right time to talk about them. So I can't be more specific but we absolutely keep both of those in mind as we think about it.

Niamh McSherry

Okay. So even though they're not dependent on each other, you might consider the company -- the metrics to be in a similar case perhaps?

Dave Lewis

Just to add one of the metrics is within our -- one of the decisions is within our control, one of them is absolutely outside of our control. So we put up the way we look at the metric, but ultimately the rating that others give us is a function of their view of us. We can have our own view of us and we can try to do that. But it is and rightly so, it's the rating agencies who determine that view. We look at the commitments we've got whether that's lease commitments, the pension commitments or the net debt, we look at how guys are viewed and we look at the earnings and the cash in the business and the liquidity, and those are things we have to read. But we are wanting to be in a position where we have viewed externally as an investment grade credits, it doesn’t have to follow that one that dividends investment credit follow in a particular order.

Niamh McSherry

Thanks.

Stewart McGuire

Stewart McGuire from Credit Suisse. Like-for-likes in the UK up 90 basis points, well done. When I look at the breakdown, extra, super store and metro all negative like-for-likes in Q4. Can you give us some color as to the way customers are shopping why express is driving those like-for-likes and the online business which where does the online growth get counted, does that get counted within the separate stores, is that separate and --.

Matt Davies

So first take the format and you are right in terms of it and what you say around and sort of the individual formats, but let’s not lose perspective especially from an extras perspective in terms of where extras were and where extras are now. So we don't need to go back to far and right to the south of that chart, we see a format which is going back at the rate of 6% and we actually drove positive growth over Christmas and we're at a great place at positive now. So we're really comfortable with the progress that we are making of reestablishing our extras as a destination and for to people to shop at. And a lot of the work that we are doing is all about and supporting our customers being able to guess everything they want under one roof.

You then sort of move through to convenience and we continue to generate good single and digit convenience market convenience growth in a market which is actually pretty tough, there are some operator out there that are doing a really good step change [ph] job at operating a convenience business and delivering their convenience preposition and from an online perspective, as we talked about we are very much balancing and the growth that we are and aspiring and for against a long-term profitability that we are looking to achieve in that channel and you see that very clearly coming through in terms of our non-food performance online where some balancing is going on and that’s causing us the less aggressive around some categories that we were more aggressive about historically. So you are seeing a little bit of negative growth just sort of coming through that. Online remains a fundamental part of proposition sort going forward. Clarification.

Stewart McGuire

Not, it's not a second question. It's the same question. So does online get allocated to the extra stores, is that where the sales are counted?

Dave Lewis

Yes.

Stewart McGuire

Okay.

Bruno Monteyne

Good morning, Bruno Monteyne from Bernstein. If you think about the last 12 months, you did price investments, loads of staff investment initially in very tough conditions, you also had cost savings and good volume growth and that allows you to have two consecutive half years of 80 basis points margin improvement twice in a row. This year from everything you described, isn’t really that difference, might be a little bit staff investment with more into farm lines. And you have material tailwinds, you have a less rent to pay because leases your bought back, you did some write downs, you probably have lower operating cost from a smaller ranges, higher volume growth. So how come as you certainly go from two, twice 80 basis points up sequentially to going flat, what has really changed in the next 12 months that suddenly stops that margin improvement coming forward and why would it certainly come back later again?

Dave Lewis

Why don't I start and then I'll pass to either Alan or Matt who might want to add to it?

I think -- Bruno, I think it all comes down to timing and ease. So I think -- I don't think we feel that the headwinds have got less. I think we would add to your list. We talk about where wage inflation is coming in. We talk about what the rates review may or may not happen. We would see a need for us to offset some of the investments we have by further cost initiatives, but they're not as easy and as straightforward and as quick as the 400 million that we delivered this time.

So it's a question of investment ahead of being able to generate the return in a time period that you might like to report on, and therefore, we're just being clear about the fact that we're not waiting. We're going to start the year with a quite significant investment. It is a significant investment, and that will have an impact in terms of the delivery. So it doesn't change our aspiration to grow the profit, but the range that's out there in terms of your views about the profitability I think is one bit of feedback that says, actually, the market understands that there's quite a lot of uncertainty about what the investment return would be. And we've just tried to give some contribution to that debate in terms of we don't think it's a straight-line improvement in the way your question suggests.

I don't know if Alan or Matt or any of the other guys want to add to that.

Matt Davies

I pick up your word feel and talk about the three emotions that I feel sat here today. Number 1, I feel immense proud for the 0.5 million people across Tesco that have worked relentlessly to deliver the numbers that we're talking about today. [Multiple Speakers].

Number two, I feel very confident actually around a lot of the initiatives that we have underway across the business to support what we're talking about. But then the other emotion is one of wariness, because the market is incredibly competitive, it's deflationary, and we're very, very clear that we are going to continue to do what we believe is right for our colleagues and our customers because we believe that's the right route to drive medium and long-term sustainable value for our shareholders. So that's where we are.

Dave Lewis

Very well said.

Clive Black

Clive Black, Shore Capital. Can you tell us what your strategy is with respect to non-food at Group level?

Dave Lewis

I think -- well, I'll give a little and then I'm going to ask Trevor and Matt to speak about it.

Look. We're really clear that what we want to be is an offering which is food, and to use your words, non-food. So, actually, we think we've got a very good business there. I think, Clive, if this is where your question is going, are we happy with the profitability that's in that part of the business? No, we're not. Do we think there's more that we could do in the way that we buy and the way that we operate? Yes, we do. It's some of the improvements that Matt was talking about. So it's a big and important part of our business, but it's also a place where we think that there's more that we could do to improve it.

Trevor, why don't you say a little bit about --?

Trevor Masters

Yes. I think there's two things. So in international, there's definitely an opportunity of buying GM [ph] more with the UK, and in Malaysia and Thailand actually buying a lot of that together. So I think there's some real buying synergies still to be had.

The second thing is we've done quite a lot of work understanding where the growth is going to be on non-food and how do we go faster with that; and also, where the growth is going to deteriorate. So we actually need to make sure we correct the size and get that part of the size in the store, just to make sure we get the right profit mix.

Dave Lewis

And, Matt, from the UK?

Matt Davies

We're working collaboratively across the global Tesco business on delivering the right non-food proposition for our customers. A lot of that flows through an offer that we'll deliver ourselves, and there's some finessing going on there. Another element of it flows from some of the work that we're doing around repurposing in some of our larger stores. And you look at some of the work that we're doing with Arcadia and how we're supplementing, and the F&F business in our stores, that's also part of how we're thinking about our overall non-food offer going forward because that's what customers are telling us that they're looking for.

James Tracey

Hi, James Tracey, Redburn. The question from me is on operating cost. Could you please tell us what your UK operating cost base is and also where the biggest areas are to reduce that in future?

Dave Lewis

No. Might as well be -- I'm not. You should know by now anything that I think is competitively sensitive I'm not going to talk about in the context of here, and I certainly wouldn't ask my colleagues to either.

Do I think that there are opportunities for us to lower our operating cost base? Yes, I do. But consistent with that we've done over the last 16 months, we'll deliver and then we'll report, but I'm not going to give anything out that I might think is competitively sensitive. So I'm sorry. It's not a number I'm going to give.

Rob Joyce

Hi, good morning. Rob Joyce, Goldman Sachs. So my question is on the long term strategy for the bigger stores; just a clarification, basically. It looks like you're buying back some of the bigger stores, but then the press are reporting that you seem to be looking to exit the stuff that you were going to put in the bigger stores to drive footfall. So I'm just wondering what your vision on the longer term is of how these big stores will look, and whether you'll have the same number of those stores in, say, 5-10 years' time.

Dave Lewis

I think there's two parts to it. So, actually, the gentleman in front of you to your left is Steve Rigby who is our Group Property Leader. So let me tee up something I'd like Steve to talk about, and then we'll come to the mix of what's in the store from maybe Matt, because I think your question is more a UK-driven one.

So, look. The first thing is, consistent with all we said 16 months ago, is we need to think about property differently. It's been a very significant part of what we've been doing over 16 months. We've brought to that a completely different, commercially savvy lens in terms of investment and return. We have been prepared to walk away from things which were not profitable or couldn't be made profitable. And that means --. So some of the dynamic that you see in terms of buying back stores and closing others is about the team, principally led by Steve, looking property by property and saying, what is the value of this store? And, actually, if it is something that we've leased, sold and leased back but actually is a store that we'd ideally like to own, for the right consideration we're interested. Right? That doesn't mean that actually when we have a store where we can't make that work we're not prepared to walk away from it. We think that's a different approach.

I don't know, Steve, if you want to say anything more in terms of how it is we look at the buying and the selling part of the property portfolio?

Steve Rigby

In terms of buying back our stores, we're clearly looking at the profitability of those stores. We're also looking at how long the lease is and the rent review mechanisms, whether they're fixed uplifts [ph], RPIs, or open market in terms of determining which ones we should buy. This year, we've spent a lot of our focus on buying joint ventures which have -- the stores in those have those qualities, and also, that helps to simplify our business operation.

Rob Joyce

Sorry. Just one quick follow-up, quick come-back. Are there many stores that still have that kind of profitability that you had when you [indiscernible]?

Steve Rigby

Well, we obviously have a significant rent roll in our business, and there are many more stores that are leased that we would like to buy. And we'll buy them as they become available and as we have the money to spend on them, so we constantly look at that.

Dave Lewis

And as long as the deal is attractive; if it's a good financial deal is the other side of it. And, actually, I'm going to go -- Trevor, in terms of how it is we use the space, do you want to say a little bit about some of the stuff you've done in Thailand in terms of repurposing large stores? Because you've actually got more large stores as a percentage than anybody else. And then, Matt, if you want to make a comment on top, then great.

Trevor Masters

Yes. The history in international is that when we opened the first hypermarkets, or the first 15 years' worth of hypermarkets, they were always big stores with big warehouses, because actually, a lot of the deliveries were direct. And now, 20 years later, it's all centralized so we don't need the stores or the backrooms to be so big.

But also, we've spent quite a lot of work in international looking at the way we do the supply chain. So by half year of this year, probably about 67% of our SKUs will be single picked, so where you've got a slow-moving line, things like health and beauty, we'll be single-picking, which is a big change in international because the case sizes tend to be twice the sizes of what you'd see in UK and Ireland.

So the infrastructure-wise, there's lots of opportunities, and we've got about 1.8 million square feet of space that we think over the next two to three years that we can actually repurpose. So what we've been doing in Thailand is we've done about 22 stores now, we've got the ideal store size which is around 60,000 square feet. That frees up about up to 40,000 square feet per store and we've done some -- two things really. We've got a little bit of a partnership with Decathlon. So they have come along and taken 40,000 square feet of the store. It's a really good rent opportunity for us, but actually, what's really important, it gives us the opportunity to use a really big player to bring a halo effect to the store.

So what we're seeing is a halo effect to the overall shoppers to the mall. We've got some big malls in international. We say a halo effect onto our own store. And what we're fast seeing is the customers are seeing a really good Tesco store, the right size, and a really good anchor, more anchor tenants in the mall all comes together with more income as well as more customer satisfaction.

So as I said, we've got an opportunity for about 1.8 million square feet, and that's in Central Europe, Malaysia and Thailand.

Dave Lewis

And, Matt, for the UK?

Matt Davies

It's about supporting the destination status of our largest stores; focus on food and freshness and loving and living food. And then two words, both end in ship. One's ownership, one's partnership. And we're very, very clear that we don't need to own everything to support the destination status of our stores. So we'll continue to explore partnership opportunities as well as ownership, and that will help us provide and the overall compelling proposition that our customers are asking us for.

Nick Coulter

Nick Coulter from Citi. Could you talk about how you see the hierarchy of own brands evolving? I don't know if Jason's here today, but I think he recently spoke on that. I'm guessing your thoughts are aligned. He certainly commented that he didn't see it as simplistically as good, better, best going forward.

Dave Lewis

He's actually the one of us who's on a much-deserved holiday, so he's not here. So to sit in for him, I think the thinking, we use good, better, best on the point that says, actually, we think the segmentation is right, but how it is we've satisfied good, better, best, we think there are different ways of doing that. So will we develop uniqueness in partnership with our suppliers in order to replace where we think we think we can do a better job than where we were in value? Yes, we will. Will we continue to invest the finance at the other end? Yes, we will.

So we do see that there will be three tiers in the own-label offering from Tesco. We also see that we will look at exclusive brands like F&F which are unique and differentiating for the Tesco offering in total. So that's where -- and that's what Jason was saying in the presentation you're talking about.

Nick Coulter

And do you see the balance between those brands or levels changing?

Dave Lewis

No. As I said, the value equation for us will be a combination of brands which are consistent and readily available everywhere. We'll be very competitive. And then, we'll develop our own unique offerings, and then depending on what customers and store, the mix will be different depending on -- but that's the way we'll put our value equation together. Okay?

James Grzinic

Good morning, it's James Grzinic, Jefferies. I had really a follow-on clarification from Nick's question so I won't count it, and then I had my own question.

Dave Lewis

So, we might.

James Grzinic

Okay. Fair enough. The tiering on price and what you relaunched, how did you change the better and best? Because you said you made it a lot clearer. Be great if you could be a little bit more specific in how the pricing gap has changed, what's changed.

My own question was, can you be more specific about the Phoenix and the BA transaction dynamics because they were very different from the British Land one? Basically, that's buying back an annuity as opposed to the British Land. Actually, you surrendered some development potential, and presumably, there was a knock-on impact on the yield you got for that.

Dave Lewis

So if you do the farms brand and I'll do the --.

Alan Stewart

Yes. Why not?

Dave Lewis

Look. I think -- so what we did in the seven brands that we talked about, a rough average if you take the basket I gave you, it's about a 17% reduction on our entry tier exclusive brands. That's what we did. We kept about the same the investment in what we call better, so the core, and the ranges that I've told you around where we were before. So we opened up a gap that was not as wide, historically, by the launch of a cheaper exclusive farms brands range. That's what we did in those cases of the 76 lines.

Alan Stewart

So in terms of the properties, you're right. They were different. But the way we think about them, thought about what we are acquiring, is really the same. So the British Land we happen to have -- there were two JVs. One had predominantly stores, one had predominantly shopping centers, so we did a swap. They paid us 100 million and we got 21 stores, and we disposed of another JV which had predominantly shopping centers with, I think, nine stores in it. But the way that we started by looking at them is exactly the same is that we -- it starts with, as Steve and Dave said is, is this a store which we would want to be owning or want to be trading from for a long time because it's a successful store? If the answer to that is, yes, and it's subject to upward only or RPI link rentals which over time will potentially put pressure on the operating performance of our business, and we can buy it back at an attractive rate, then we are interested in buying it.

With the two that we did in February, they came -- because they were bundles of assets, they came with some existing debt against those assets. So we brought onto the balance sheet, and we were conscious in this that we did bring on to the balance sheet 1.5 billion of borrowings which were sitting behind that asset base. Now it's a very conscious decision. We're swapping in this case 80 million of rental savings on those two assets for bringing on longer-term certainty as to no more rent, but some debt which sits against the properties. Now the properties have value; because we are going to trade from them they have value.

But that's -- it's not an easy necessarily simplistic equation that we're making because you are trading short term with potential upwards-only rents for debts which over time will also be need to be repaid and/or refinanced. But that's the way we look at it and we're very clear that economically we've made the right decision for the business, even though there is a 1.5 billion. Flipside is that the 6.2 billion of reduction in total indebtedness would have been 1.5 billion less had we not brought that debt -- greater had we not brought that debt on. So the underlying improvement in the absence of that would have been a lot stronger.

So we're making long-term decisions for the good of the business and the good of the shareholders at the expense of short-term indebtedness in that equation.

James Grzinic

So the two sides of the equation are 80 million and 1.5. Is the 1.5 the full EV for those two transactions? So it's around 5% yield. I'm just trying to understand. And I know that in time that yield will go up inevitably because you are avoiding future --.

Dave Lewis

What I am going to suggest is why don't you pick that up with Chris and go through the detail in as much detail as you like. He likes that detail. So we'll let you do that, Chris. But in the interests of time I'm going to ask you to pass the microphone.

Bill Kees

Bill Kees, JPMorgan Asset Management. I was just wondering a clarification on the farm brands. You said that suppliers have to match a certain consistent quality specification to be included in those farm brands. Can you just give a sense of whether that quality specification is the same as the previous quality specification for the opening price point products, or whether it now matches Aldi and Lidl on the one avocado or whatever that they have?

Matt Davie

Effectively, we've started from scratch and we've challenged ourselves as to what is the right specification and what is the right price point looking across the market, and then delivered products accordingly.

Bill Kees

It's a competitive benchmark.

Matt Davie

Yes.

Dave McCarthy

Dave McCarthy, HSBC. I'm interested on how you measure deflation because your answer is going to tell us some very interesting things about your Company. Where do you include the impact of brand match? Because every measure of inflation that's done externally, everyone by your competitors, doesn't and is unable to take account of any rebates that you give at the till. Last year, you were giving vouchers. 25% reduction I think was the figure you gave. Now you've got 100% reduction effectively for that rebate. So are you under-stating what your true level of deflation? Or if you've included it, then clearly, it doesn't have that big an impact on the basket.

Dave Lewis

Yes, I understood,

Dave McCarthy

You can't have it both ways, is what I want to say.

Dave Lewis

[Indiscernible], but Brand Guarantee, do you want to say a little bit about how we account for it and how it impacts on assessment of deflation?

Alan Stewart

Yes. So Brand Guarantee is money off at the till so it's effectively a reduction in the revenue. We're paying -- what you would have paid is effectively just never there because it's a reduction and so it serves -- what we don't do is to work out -- is to gross up and say that that's an element of it because that's -- you're getting into a world which is a bit like an opportunity cost.

So it is a reduction. We know what we are paying. We do know what we are paying, clearly, because we can track that. But it's important. And I think the important thing about the Brand Guarantee is that before we launched it, what we wanted to do was to ensure that we were competitive. So the important thing in launching it is not to show how much we're giving back; it's how much -- how well we are doing competitively in any event. So to get the product pricing right beforehand, then to give the underpin of you won't get this brand more cheaply elsewhere on the day that you are shopping is the important thing.

So it's that trust in terms of the brand that Dave speaks about rather than the quantum that we are not recognizing through revenue, which in a coupon accounting world would get into all of those IFRIC 13 adjustments and all of that.

Dave Lewis

Anything you want to add?

Matt Davies

Just the power of Brand Guarantee and how valued it is by our customers. So the frustration of 50% of the time losing that coupon and moving to a point where all the time customers understand the Brand Guarantee is there as a defensive mechanism. So our focus is being right to start with in terms of the pricing of brands across our business, and we're doing a really good job of that, but because of the way promotions move all the time, what customers are telling us they really value the fact that they don't have to go and shop across different stores to get the best promotions because it's all available in one shop at Tesco.

Dave Lewis

Does that give you specifically what you are looking for?

Dave McCarthy

No, it doesn't, because I get all that and that's well understood. But what I want to know is that reduction that the customer gets, they've got a bill for £100, say it costs £98 in Asda, £100 with you, you're giving them £2 back, Asda are looking at this and saying, hey, we're cheaper than Tesco. Your customers are saying, no, you're not, and it's great for us because it's £98.

Last year, you didn't do it the same way, but it's got to be accounted for in some way because you're giving more. So is it in your -- are you understating your volume because your inflation is not the right figure? Because as you just said, Alan, it's not allocated anywhere. And I think it's a really important point if you're understating your volumes.

Dave Lewis

And I think what we should is again give some real detail. But what we see and what Matt sees is we see what the cost of Brand Guarantee is. So the customer sees it as a revenue reduction, but we actually track it as a budget inside in the business in terms of how much we're having to invest at any one period of time depending on what the baskets are that we're selling. But I think there's a bit more technicality behind it, so I'll point you in Mr. Griff's area.

Alan Stewart

I think the short answer is, its deflation.

Dave Lewis

It is deflation, but --.

Dave McCarthy

Is it included in your deflation number?

Dave Lewis

Yes.

Alan Stewart

Yes.

Dave Lewis

Yes, because we’re looking at what’s actually paid.

John Kershaw

John Kershaw, Exane. I'm going to do the same follow-up and ask a question. Can you tell us what percentage of baskets actually qualify for Brand Guarantee? Because, obviously, you need 10 items, so just to follow up from Dave's question. Coming to the farm fresh, the farm brands, talk us through a bit more big picture on it.

First of all, is the 76 items it or is there much more to come? And it looks very much targeted at what Aldi and Lidl, particularly Aldi's push in fresh, but in many ways you need to go up the basket to cover off your A and B competitor sets. So talk more broadly on how you grow that rather than just -- or is farm just it?

Dave Lewis

I don't think we've ever said -- I'm looking, but I don't think we've ever said about the number of baskets that qualify for Brand Guarantee, have we?

John Kershaw

That's why I'm asking.

Matt Davies

No. For me, it’s commercially.

Dave Lewis

So no to your first question.

Matt Davies

It's commercially sensitive. All I would say is --.

Dave Lewis

It would be commercially sensitive, I think, so I think we'll reflect on it. If we come back, we'll make an -- but I don't think we will. I'd just rather be straight with you, John.

Look. I think what I'd answer to this, just in the interests of time, I think we'd say it's the first step on a journey. I think it comes back to the point which is we see ourselves wanting to offer. John, it's customer centricity. I showed what it was we were doing in terms of under or over-indexing. We clearly had an issue in terms of the entry price point in these particular categories, and they're big categories, so we've started there. And what we have, first in the UK but Trevor would the same for international, do we have a commitment for investing in our own label so that we can offer to what you call the AB customer as well? Absolutely.

By the way, there's actually quite a lot of the AB customers buying the farm brand. Right? So it's not as linear as price to social class. I know you know that but it's just worth saying. But will you see us invest in the things that differentiate us as Tesco and are unique as us? Absolutely you will. So that's the bigger picture, and we'll take it step by step. It comes back to the comment I was making before. There's more we'd like to do, but the timing and the sequence and the deliberateness with which we do that is one of the things that we'll be navigating.

Xavier Le Mene

Xavier Le Mene, Bank of America Merrill Lynch. One question actually on online. It seems that you have been increasing the basket to qualify for low delivery prices. You're also increasing the prices of delivery. So it seems that all the signs we've got imply that it's not a profitable business and you're trying to make it more profitable, potentially at the expense of the customer. So what are you trying to do here?

Matt Davies

We are balancing growth and profitability to support a sustainable medium and long-term business. So I think the three things you're talking about is, yes, we have introduced a minimum around click and collect. Yes, we have put a revised minimum in place, 30 minimum around a grocery basket. And we've also done a very, very small amount of finessing around our pricing architecture. But we'll continue to challenge ourselves as to what's the best way of operating that business, supporting customers, get incredible service, but at the same time making sure that it's sustainable for us as a business.

Xavier Le Mene

Just maybe one quick follow-up. You're doing that at a time Amazon seems to be pressing more on the full market.

Matt Davies

Sure. So I think it's a great question, which is why I very deliberately used the word finessing. So if you look at what we are doing around our pricing architecture on deliveries, there's some very small finessing and we will clearly reflect the overall competitive environment as we take that business forward.

Xavier Le Mene

Okay. Does finesse mean up or down?

Matt Davies

It means both actually.

Xavier Le Mene

Okay.

Dave Lewis

It does. It means -- the finessing is -- I suppose just to supplement what Matt says is, left to our own devices, and your second part of your question means that we may not be left to our own devices, do we think that there's a simpler, more straightforward value equation that should go across whether customers come to our store and do the shopping themselves or whether we pick it and deliver it at home? Yes, we do.

So we want to get ourselves back to being clear about what the value equation is to customers across the whole offering, and that's the finessing and changing that Matt talks about. But that's notwithstanding there may be competitor -- it's a very dynamic market. Things change an awful lot.

I think what we did say is, left to our devices, a single-minded pursuit of exceptional growth in that space in a way which maybe is not adding to the profitability of the business is not something we're seeking to do. We're trying to be much more measured about how it is we do that. Right?

Unidentified Analyst

A quick question for Alan on cash flow. So in the first half of the year, you had a fairly significant improvement in terms of your working capital. I think it was above £400 million, much less so it looks like in the second half. If you could just come back as to why so and what should we expect in terms of working capital inflow for next year -- or this year, sorry.

Alan Stewart

Yes, Edward [ph]. A couple of points in terms of the working capital. As you can see, there are different moving parts in it, and in the first half, we did still have the 280 million from the Korean business in that working capital, which was a benefit. And what we've seen across the business is the combination of the business performance combined with the stock improvement, and that's effectively getting a better stock turn. And that's where we will continue to focus. We do believe that there is opportunity and good opportunity in working capital management in terms of the cash generation.

The one thing I would point out though, and this is just a function of the way that the accounting works, is that because we have certain onerous leases which shield our profit because we took the impairment last year, our profitability and our cash generation has got a drag on it. So cash generated isn't necessarily the same as profit because of that onerous lease within our operating profit line. Against that, of course, if you're growing your business, what we all know is that we're in a business which has got a positive working capital cycle so important that we grow the business from an overall working capital perspective.

Net-net where does that end up? Good and continued focus, not only on cash from operations but working capital, and it's a key part of the business focus, not only in the UK business but international. And international, as we saw, had six days stock turn improvement in the years, so a real opportunity.

Unidentified Analyst

And in terms of figures, sorry, for the current fiscal year?

Alan Stewart

Look. Last year was a good year. We had a good business focus. We had a good performance. I think, it will -- in terms of your model, it will really depend on what you put in for your own parts of the business, but we're focused on it. And you'll remember, it is one of our long-term measurements is cash generated, which is a function of operating and working capital. We made good progress in the first year. We're not going to take our foot off that particular focus as we go into this year.

Dave Lewis

Okay. Thank you, guys. Thank you very much. Benny, nobody had any questions for Benny, but I've got a few for you, but I'll ask you later. Look. Thank you very much indeed. What would I say in summary? I think where I started from really. I think we do think -- in fact, we know it's a year of significant progress. We've put the customer at the heart. Volume has recovered. We've allowed ourselves to grow our business again, recover our profitability, generate some cash, pay down our debt whilst protecting a little bit the future of the business, and we continue to invest.

Now we've been considered and deliberate and wary, to use Matt's word, about what the next few, next six months holds for us. Our aspiration has not changed. We do want and we are confident that we can be an industry-leading margin again. But we're just being really candid and objective with you about the investments we're making and what they can mean to the trajectory, the gradient and the speed of that recovery, as we seek to invest in what is a challenging, uncertain and deflationary marketplace.

Final thing I'd say, I hope it gets picked up, is 500,000 people have worked really, really hard over the last 16 months to deliver the results that you see there, and it would be completely inappropriate if I didn't finish by paying tribute to every one of them in a year of massive transformation. It would not. We would not be sharing these results with you if they hadn't been quite simply outstanding.

So thank you very much and we'll see you soon probably.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!