Tesco PLC TSCO
Q1 2013 Earnings Call Transcript
Transcript Call Date 06/05/2013

Operator: Good morning and welcome to the Tesco Q1 Call. Throughout this call, all participants will be in a listen-only mode and afterwards there will be a question-and-answer session. Just to remind you, this conference call is being recorded.

Today, I'm very pleased to pass you over to Philip Clarke, Chief Executive Officer. Sir, please begin your meeting.

Philip Clarke - Group Chief Executive: Good morning, everyone. Thank you for joining our conference call. I'm joined by Chris Griffith and by Laurie McIlwee, our CFO. I'll keep my opening remarks brief before we hand over to you for your questions. It is only seven weeks since we laid out our approach for growth and returns for the Group and we started the year on track. You'll remember I described the first priority for the Group as continuing to invest in a strong business and we've made further progress on our plans to Build a Better Tesco in the U.K. in the first quarter.

Clearly, the home market has been subdued and our performance reflects this. We have, though, continued to deliver improvements in every part of our offer and customers are appreciating these with perception scores increasing on all of our key measures.

But our headline performance has been held back by two factors. Firstly and most significantly, the accelerating work we're doing on general merchandise has been a bigger drag on our performance than it was in Q4. You know this is all due to our overexposure to categories such as consumer electronics, but it's now starting to affect our strategy to migrate to higher margin, higher growth categories. We have a lot more to do in this area, including the repurposing of space in many of our stores, which we'll start imminently and so we expect the drag to continue. It's, of course, the top line drag rather than the bottom line drag as you know.

Secondly, our performance wasn't helped by the horsemeat contamination. Although only four of our products were affected, of course, still four are too many, we were linked to the issue early on. As such, we ended up being impacted more than other retailers, even those who had many, many more products affected. Although the overall impact was relatively small and difficult to quantify, it's notable that the two categories that are linked to the contamination, chilled convenience and frozen foods, are the only two food categories where our performance was lower in Q1 than in the last two months of last year. Happily, sales in these categories have picked up in recent times and the work we've begun many months ago to move to more collaborative longer-term contracts with suppliers and the farmers has been accelerated by our focus in this area to great effect.

I mentioned the widespread improvements in customer perception scores earlier. The area we're seeing most dramatic improvement in the first quarter is price and specifically trust in price. Price Promise has been warmly welcomed by customers across the U.K., as it was when we launched it in Northern Ireland last year as a way of alignment to (lead price with the door) and not to worry about losing out if their favorite products happen to be a few pence cheaper elsewhere on any particular shopping trip. I'm pleased to say we got many more improvements planned for the coming months across the offer in the U.K. and we're confident that these two will contribute to improving performance.

Total international sales grew by more than 5% helped by favorable currency movements. Both Asia and Europe delivered a similar like-for-like sales performance in the first quarter and the last two months of the year, although there were some variations within the individual markets. I'll pick out a few that are noteworthy.

In Asia, Korea's like-for-like sales performance improved a little, although it was still negative. We were helped a little by the fact that we were able to switch some of the enforced store closures on Sundays to Wednesdays in the quarter.

China's performance, however, declined due to the combined bird flu and pork safety scares, which have depressed volumes in these categories across the market.

Thailand too saw weaker like-for-like sales in Q1, following two years of very strong first quarter performance. Whilst the Thai market as a whole has experienced a lower rate of growth, particularly in food, we've continued to put on share and we've increased our lead there by almost 1%.

In Europe, total sales were up slightly, helped by exchange rates. Like-for-like sales continued to be impacted as we expected and planned by the tough economic environment. Although overall conditions seem to be remain stable since the end of last year, Ireland, which you know is our leading market in the region, experienced a specific impact in the quarter, following the announcement about local property tax that's due to be paid right now, following (relatively little) notice and many consumers as soon as they got word of it immediately adjusted their spending habits.

We're not seeing any signs of improvement in the economic backdrop anywhere in Europe, but equally, conditions don't seem to be getting worse. As such, it's in line with our expectations for the year. As you know from our results in April, we've (validated) new space plan for Europe and so the teams are focusing on delivering the best offer for customers from our existing space, a focus exactly where we wanted to be.

Finally, lastly as you would expect, we'll not be going into further detail on the U.S. as negotiations there are still underway, I can reassure you, the process remains on track and we'll let you know as soon as we have more concrete news.

In summary, our plans are on track. They're delivering improvements to customers, but there's much more to come. We'll continue to build on the progress we've made since we (discussed) our plan to Build a Better Tesco in order that we meet objectives of improving performance and delivering sustainable disciplined growth.

Laurie, Chris, and I would now be happy to take your questions.

Transcript Call Date 06/05/2013

Operator: Andrew Kasoulis, Credit Suisse.

Andrew Kasoulis - Credit Suisse: Two if I may. Firstly on the U.K. Can you give us, if not specifically, some sort of broad indication of the food and non-food like-for-like split in the quarter and presumably if you're going to re-launch the core range of general merchandise in the U.K. you still expect like-for-like to be negative during the rest of the year, so maybe an indication of where you expect non-food to be for the rest of the year? And then secondly, in international, for Europe your like-for-likes in some of the key countries I guess are disappointing, even given the markets. Presumably, you've got lots of plans. Can you share some of those plans with us as to how you are going to try and reverse the like-for-likes in countries like the Czech, Poland and Turkey, please?

Philip Clarke - Group Chief Executive: I'll hand over to Laurie. He will take the question on the U.K. and then I'll do Europe.

Laurie McIlwee - CFO: The like-for-like on food for all of the categories with the exception of chilled ready meals and frozen foods improved and were more positive in the first quarter than they were post the Christmas period. But unfortunately the impact of horsemeat DNA issues on those categories did almost neutralize the growth in food. So we're about natural for our food like-for-like. And then general merchandise got worse in the quarter than it was in the fourth quarter. So, at the high end of single-digit negative. In terms of what will transpire going forward for general merchandise, obviously, this isn't a short-term fix as we move out of some of the low growth but importantly low margin categories (total lead) times and reconfiguration at stores. It will take a while for that category to turn positive. We'll start to see evidence of our new initiatives in the Superstores in the coming months and then later on in the year, you'll see the reconfiguration of both the range but the layout as well in the bigger stores nearer the end of the year and of course, all through that closing will be positive.

Philip Clarke - Group Chief Executive: Thanks Laurie. In Poland and Turkey – I'll take Turkey first. As we said, our focus there is about getting the model right before we push on. We put that into the same group of countries as China and India. Clearly, the hypermarkets are currently not the strongest performers in the market. The format has moved local. In truth, our pricing and promotion strategy wasn't quite right. We've now got a much better promotional mix and our performance, whilst negative, is really where we planned it would be as we make these big changes. So, it's all about getting promotions, price, and quality right, and that's what the team there are focused on. We're not opening very many stores. We're saying to the team there come and show us that you can start to get a sustainable return and profitable business before we go faster. In Poland, we took a very big step just at the end of the quarter. We effectively reset our marketing and trading mix, and we're very pleased with the improvements that we're seeing. Again, only opening convenience – only opening the convenience that was already in train in the first half of the year and getting the business focused in improving its hypermarket operation. We've had a couple of visits there and we've been pleased with what we've seen. So, we expect better from Poland in the second quarter, although, as you know, the economy there is challenged as most of the Eurozone is, and Poland's really gone into recession for the first time since the fall of communism over 20 years ago. Thank you.

Andrew Kasoulis - Credit Suisse: Sorry, quick supplement, if I may. Any indications to how much smaller your core range in GM will be in the U.K.?

Philip Clarke - Group Chief Executive: Oh, yeah. I see the presentation seven weeks ago, you might remember I showed that diagram adding the circle and the center of it food, and then wrapped around it, health and beauty and then clothing and then wrapped around that, the new GM. The new GM doesn't have very much consumer electronics. That was in one of the new stores that opened last Friday in an 80,000 square foot hypermarket, about the biggest that we do. And basically speaking, general merchandise space is two-thirds of what it was. And that third (bit) release goes into either clothing or into food or into health and beauty which have tended to suffer a bit as we've pushed more GM in. And then GM itself are looked at the new merchandising and ranges on Friday morning and it's basically stationary, entertainment, cook, home, dine is where we major. And so, the ranges are much, much slimmer than they were before and the space is down a lot. And we're going to get the chance to show you – you're going to get the chance to see that in the summer when we open Coventry Arena Extra's remodel, Watford's remodel, and Purley's remodel where all of those changes have brought to bear in one place, and then, of course, all our new stores are already reflecting those space changes. So, it's going to be a drag because we're getting out of all that stuff which quite frankly dragged our margins. So, that's why we're confident about the bottom line operating margin percent, because these are all terribly dilutive and the new ranges won't be. The new ranges are consumable general merchandise, our flooding into the smaller stores now. So, that will be done by the half year. That will be good for us to the bottom line too. But the big, big change, Andrew, is in the big stores, and as you know, there are 650 also of those that are going to need to be done.

Operator: Philip Dorgan, Panmure Gordon.

Philip Dorgan - Panmure Gordon: Just quick questions and it may be instituted. But you said that the general merchandise performance was affected by the work you were doing on the ranges and stuff. I mean, isn't that more the work you're doing behind the scenes on the ranges and haven't yet pushed through, because I'm just puzzled to understand how physically that can affect the sales if you're improving them.

Philip Clarke - Group Chief Executive: Well, you know, the (GJM) has been a drag to our performance in the U.K. for 8 or 9 or 10 or 12 quarters, because the truth is our ranges didn't improve as much as we expected them to. We've had a couple of false domes disappointingly and I'm disappointed. We haven't been pushing very hard on our consumer electronics business at all, either in store or online, because what's the point of doing it if at the bottom line it doesn't make much of a difference to us. And so that's where the first and largest and most significant impact was. This time last year in the running to the summer when people were buying more TVs and the brands were pushing very hard on them, that magnified the effect in Q1. Also in that 400 smaller stores, we've been de-ranging general merchandise to bring in the new ranges that I just referred to in my earlier answer. So, just as we planned general merchandise is a drag to us and will be for some time. But it's absolutely part of our plan.

Operator: John Kershaw, Exane.

John Kershaw - Exane: Guys, do you want to perhaps finish answering the previous question, but I'll just start in, two for me. Help us understand what has happened on price perception because you're clearly pleased there. So, where the price perception stand vis-a-vis the competition because naively assumed that people already thought you were quite good on price to get such a good response from just the marketing program that says, we're as cheap as the others; A, I'm quite surprised by? And then a broader one, just on clearly the U.K. is going to be dragged by non-food. Internationals still weak. If there's a scenario where perhaps the Group can remain in negative like-for-like for the whole year and sales not grow ex-currency, is it feasible for you to advance Group profit this year?

Philip Clarke - Group Chief Executive: Well, price perception is always a big question on these calls, and understandably. We spend, as you know, quite a long time comparing ourselves to others. And the consumer – our customers start to say, why do you keep on saying your same prices, X, Y, or Z; why do all the retailers do the same thing, why don't you just say what you are. And so, we worked on this idea of the Price Promise, which takes, products – equivalent products; branded, own label, and fresh foods, in the three largest competitors and immediately offers a refund if that basket of groceries bought by that customer would have been cheaper if they went to any one of those three, including promotions. And that's a promise and customers like promises, particularly when you fulfill them. And, of course, when we launched in Northern Ireland, they came to realize that they could leave the question of price of the door. It's most important, of course, in this market where you're trying to keep your customers' loyalty in times of great austerity, when they might be tempted by other retailers' claims and promotions and so on. So, we were very pleased with the performance in Northern Ireland. It improves the perception that Tesco is working hard to make sure that pricing is right for every one of our customers. So, that's why we are delighted. I have to say though it's much more than that. This work that we've been doing since January 2012 was all about making sure that our offers were not misleading, that our shelf-edge labels and our shelf-talkers said the right thing that we didn't move prices as often, that we got stability, that our hierarchy was right, price and range hierarchy and architecture. So, this is the culmination of 18 months of work and it's beginning to pay off. Our position is; we're the best value retailer, combination of price, quality, range, and service. That's quite a big change for the organization to think in those terms and then of course to underline it, underscore it, with a promise at the (tilt).

John Kershaw - Exane: Sorry, just one final thing. Can you separate – give us an extent of the quantum of improvement in the perception and also how you separate and perhaps the extensive factoring that's been going on in the market that might sort of distort the number?

Philip Clarke - Group Chief Executive: We've been tracking particular aspects of price for 24 months now, so nearly about two years. And we look at individual attributes, and we've seen a significant improvement in them. And I mean significant so much so that we saw that in Northern Ireland and that's what encourages to do it here on the Mainland of Great Britain. So, we're very pleased and we expect that to continue because you get to the (tilt) and you get about you're saying, you've saved GBP1.80 from shopping at Tesco or actually you could have got this shopping 80p or GBP1.30 cheaper somewhere else. If you want to go online you can see exactly what the lines are and you get the promotion prices and others too, so it's great really. And I hand over to Laurie to take that question about, can the group remain in negative like-for-like and still make progress in profits.

Laurie McIlwee - CFO: The plan obviously is for like-for-like to improve through the year. GM will be negative, but will be less of a drag as our improvements come through. But as we've said our food would have been nicely positive without the horse DNA issue and we expect and can already see improvements coming through on those categories. So, we should see a gradual improvement in like-for-like as the year goes on. And of course some of our major international markets such as South Korea the impact of the regulator will start to lap as the year goes on. So, it will be less of a drag.

Operator: (Edward Oba, Morgan Stanley).

Edward Oba - Morgan Stanley: Just to follow-up on John's two questions. You just mentioned that your price perception has improved, but you also mentioned in the release that customer perceptions caught across all aspects of Europe have improved so. I'm just curious in terms of the KPIs could you just elaborate on availability, quality of private labels, does that help from there sorry and just give us some color? Just to come back on the margin question, stepping back, are you investing as much as you should in your customer proposition in the U.K. and I guess to be blunt isn't in time for you to drop your 5.2% EBIT margin guidance and focus more aggressively on driving top line growth and market share gains instead?

Philip Clarke - Group Chief Executive: Morning, Edward Look, our plan is very much on track for the U.K. We're very pleased with the improvements. And we've been measuring a number of customer metrics for 15 years here in the U.K. and around the Group. We use the balanced scorecard to this, and when we say our customer metrics are improving, customer perception is improving, it's about those that we've been tracking for all that time. And they are availability – our availability is at the highest level that we've experienced in all of that period of time. Thanks to those big investments, we made in the supply chain over the last decade and a half, and just relentlessly pursuing it. Now, we're colleagues in stores after that big investment last year and making a big difference. Our own label penetration, which is another measure and perception of quality has improved. So, both participation of own label has improved and perception of quality has improved as measured in that way. It's not helping us, we showed the results only seven weeks ago of that on that customer viewpoint measure, that's flowing through into the balanced scorecard. And you can see in store. So – I mean, dangerous protesting too much here. So, we're very pleased. I'll let Laurie take the second of your questions about the 5.2% margin and whether we should give it up.

Laurie McIlwee - CFO: The 5.2% margin is obviously a recurring question, and we do feel confident that that is the right margin level, and we do feel that we've got the right level of firepower to support the U.K. business. There are many initiatives happening now as we're seeing with Price Promise and many to come through the balance of the year with ranges re-launching and stores being refreshed. Actually, the performance through the first quarter of all the food categories are the ones affected by horsemeat DNA have been nicely positive and that would have come through. And of course, as we've talked about general merchandise although negative, it's actually the work that we're doing, it's actually accretive to margin. Now, we're not expecting margin to go up, but that benefit is getting reinvested back into the U.K. business. So, we're happy where we are.

Edward Oba - Morgan Stanley: So, you're investing enough in your U.K. business?

Laurie McIlwee - CFO: We think so, yeah.

Operator: Clive Black, Shore Capital.

Clive Black - Shore Capital: A couple from me, if I may, as well. Firstly, can you give us a bit more detail on the profile of the store refreshment program that you're engaged in and perhaps some color on it by format and how much of the estate you'd expect to be in the shape you'd like it to be, say, by the end of the financial year? And I guess just as an adjunct to that, does that imply more disruption coming into your like-for-like sales as that starts to accelerate? And then secondly, I apologize for coming back to margin, but with your like-for-like sales performance at the moment in the U.K. if we strip out inflation, you must be experiencing reasonably negative volumes as is the trade, but what does that mean for your productivity programs in just supporting a business that's got lesser going through it, how do you cope with rising labor cost rates and rents to the extent that margin isn't impacted negatively?

Philip Clarke - Group Chief Executive: I'll take that second question first. Well, as we've planned 2014 and 2013, we are very confident that because of the changes we're making to our mix, to our space, gross margins don't need to be threatened and operating margins don't need to be either. Our productivity program in the U.K. by the use of technology is the biggest productivity program that we've embarked upon, because there are still many, many opportunities to automate processes and systems. We had a very interesting phenomenon that we found about 18 months ago. We never really reflected the changing pattern of trade in our stores by changing the hours that our people work. So, we've been going through a massive consultation program, changing the hours of work of many of our colleagues in the stores, which we have already changed for five or six years. Now, that's worth in our productivity model this year 5% productivity improvement at no cost to us. We have nearly completed all of that work now. We had to consult many, many of our colleagues and what I'm really saying is, you've got a business that's moved more to the weekends in the evenings, but in stores that you and I would know, we'd all know, people were working Monday to Friday 9 to 5. So, we made that big change and a few people have had to leave as a consequence of their unwillingness to change. But you've got to have more flexible labor and I'm absolutely delighted with the response of the majority of colleagues. We're opening two new distribution centers this year for the South East of England and for London, Reading and Garford. In fact I'm going to go and see them in operation in a very short while, closing three very much older distribution centers, which just don't have the capacity and don't have the productivity and the efficiency; Harlow DC that opened in 1985 and Weybridge that opened about the same time, and Chesterfield. So, these are big and important drivers of productivity. And we've made a big change to our (staff) management (we think as well in store), which not only improves productivity; it improves working capital and availability and that's rolling out now. So, that's why we're confident - and then there's the general merchandise and then there's the clothing. So, that's why we're confident. And it's all part of our plan that we set out to Build a Better Tesco, which wasn't just going to be about taking the operating margin down to 5.2%. It was also reinvesting some of all of this back in, so you got more colleagues in stores to help (some of) our teams to do the jobs that we want them to do for customers. On the Refresh program, well, I mean the first thing is we're opening fewer stores this year; fewer bigger stores, and those that we opened on average are going to be smaller. And that's really a clue to what we're seeking to do with our program for 2013 and then for 2014. Many of you will know about the work we did in Bishop's Stortford and Chester and (Bradford) last year, which was – created the blueprint for the Superstores. Our Superstores this year; we're going to do 70 Superstores in the U.K. We trade out about 500. So, we're going to be 15% of the way through by the end of the year. And then, on our big Extra hypermarket, we've begun the downsizing program of some of them. Stockton-on-Tees will be the most notable one this year. But new stores that have just opened in Gateshead are smaller than we had originally anticipated. And in fact some of them that opens in four weeks' time was originally going to be 120,000 square feet, then it's going to be 100,000; now it opens at 72,000 with the space repurposed. The three big hypermarket changes this year – it won't be a year of big hypermarket remodels in a large number because we're focusing on repeating the three of last year Superstores and three Extras and that in Coventry, Purley, and Watford which will be opened towards the end of the summer and they start to incorporate those new features, Giraffe, Harris and Hoole, Euphorium, and in every case a tighter general merchandise as I was explaining when I was answering Andy's question earlier. And then Express, we've already refreshed 40 Expresses in the first quarter of the year. We're going to do 25% of London this year and you may have seen some of those if you've seen (Marylebone) and John's Wood. And then these create the models for improvement in the years ahead. This year it's about Superstores; next year it's about Extras.

Operator: Alastair Johnston, Citi.

Alastair Johnston - Citi Investment Research: Just two questions from me. The first question on Central Europe. Just like with the U.K. it would be interesting to have the kind of food, non-food split and then as a starting point maybe what a proportion of general merchandise in Central Europe is and I presume that the non-food is doing verse than the food there. That would be my first question. And then second question concerns the U.S. You published your annual report a couple of weeks ago. And it looks as if about 750 million of fixed assets were sold. That's a loss in the U.S. over the last two years. I was wondering if you could just tell us kind of what those assets were and where they went.

Philip Clarke - Group Chief Executive: We're all looking a bit stumped by your second question. So, again, we'll have to take note of your question and come back to you.

Alastair Johnston - Citi Investment Research: I mean there was a loss I mean the Annual Report there is a loss of I think 296 million in the Annual Report and then the cash flow from investing is a positive number for the U.S. So it looks to be as if there's been assets sales in the U.S. So, it will be interesting to know what those sales have been or whether it's just kind of short-term investments or something…

Philip Clarke - Group Chief Executive: The reason we're looking stumped is we haven't sold any assets in the U.S. So, we'll have to come back to you.

Laurie McIlwee - CFO: I think it just reflects the write-down of the assets to a discontinued business Alastair as opposed to physical disposals, but we'll go back and check.

Alastair Johnston - Citi Investment Research: I mean there was cash flow from investing in 2008 and '11 as well, not just 2012, so, yeah, it will be good if you can come back to me on that. The second question was on non-food in Central Europe?

Philip Clarke - Group Chief Executive: So, actually non-food in Central Europe has performed okay. It's not been as much of a drag as it has been in the U.K. and clothing in particular was quite strong. The challenge in terms of Central Europe is more on food and food margin, different around the region. For instance, Hungary stronger, but in the Czech Republic and in Poland and they have been more challenging. Now we're in the process, as you know, of revitalizing our business in Central Europe, particularly (indiscernible), but the story is different from the U.K.

Alastair Johnston - Citi Investment Research: So, non-food actually like-for-like might actually be better than average across Central Europe, yeah.

Philip Clarke - Group Chief Executive: Particularly, clothing which is having its fourth, fifth year now of strongly positive contributions sales and the profit. We know that the consumers, as you all know in the Eurozone countries are feeling austerity and what really has happened is competitions intensified on price just at the time as consumers are feeling that they might get more difficult, not easier. And if you're in Poland or even the Czech Republic, those economies have been extremely hard indeed. And there's no surprise to us that Hungary went through this a lot earlier; is a stronger business. We're very pleased by the way. When we take our focus off just growing more new stores, you seem to get much more focus on the existing business from the teams on the ground that got a bit less occupied themselves. So, that was why we said, Central Europe, our medium-term strategy is to get more from the assets that we have rather than push hard on new store openings. And we think that's going to be just the right strategy for investors and for the medium-term. Anyway, thanks very much…

Alastair Johnston - Citi Investment Research: Just to follow-up…?

Philip Clarke - Group Chief Executive: We'll get back to you on that question you asked about the U.S.?

Operator: David McCarthy, Investec.

Dave McCarthy - Investec: A couple of questions. First of all, on the like-for-like in the U.K., I noticed that you said you'd plan for sort of a negative like-for-likes in Turkey of minus 15%. How do you plan to have negative like-for-likes in the U.K. during the first quarter? And then the second question is that you withdrew from the U.S. saying that you couldn't see yourselves earning an acceptable return in an acceptable time period. Your returns in certain parts of Europe like Poland are pretty disappointing after 15 years. So, what's an acceptable timeframe for Europe or maybe some of the Asian countries before you consider withdrawing from there?

Philip Clarke - Group Chief Executive: It's always tempting to say that we expected like-for-like to be negative in the first quarter in the U.K. We expected the market would give us a bit more and we didn't expect without that little drag that we talked about from horsemeat in frozen foods and in chilled convenience with pasta and then we did expect the general merchandise would be a drag and it was. But we're confident that the plan that we've got is on track to improve general merchandise and to improve the U.K. business. On that, what about Europe, what about Asia, well, I'll start with what's good about all of those markets outside the U.K. Ireland is a profitable, high-returning business. Thailand is one of the best businesses that exist outside the U.K. for many retailers of our type, market leading, strong growing, multi-format and multi-channel. Malaysia market leading, only allowed to open hypermarkets, but doing very well, thank you. Korea, if it wasn't, as you know, for the blow of regulation that's affected all retailers, it's a high returning business and of course, those three, the last three in Asia have all got opportunities for significant growth in the future. So, very much what investors would like. I think the Eurozone is – those markets in the Eurozone in terms of Europe are more difficult. Something happened in 2008 that none of us were planning for at that time. We focused a lot on continuing to build out big new space. And you know that I don't think that's the right thing for the future. So, we're focusing those markets on getting more from the existing, on being multi-channel, on doing more together. (We're here not) for the prices in the global economy. We'll be having a very different conversation, but we take that on the chin and we get on with it. And I think that those businesses in Europe, particularly Slovakia and Hungary they speak for themselves and clearly, we've got work to do in Poland and Czech and Turkey, which we're getting on to doing, so thank you.

Dave McCarthy - Investec: But even before 2008, you were not making a good return in – and I'm thinking of Poland in particular here, there's other countries…

Philip Clarke - Group Chief Executive: That's true. That's true, David and but of course before 2008 the plan was very much, we'll grow the top line, we'll build out the network and the rising tide of growing disposable income amongst all those consumers will allow the business to lift. We've – you know what we've now done, you and I talked about this separately, they are dragging back the new space growth, the space race is over, now we're going to get more from the existing businesses by as we categorize those international markets, we've put them into three groupings, pretty clear about what we're going to do on all of them. And now it's not easy, but then few things are.

Dave McCarthy - Investec: So how long will you give?

Philip Clarke - Group Chief Executive: How long will I give.

Dave McCarthy - Investec: Poland for example, before you would consider other options, another five years or…

Philip Clarke - Group Chief Executive: All other things being equal which is you always have to answer these questions, I feel, I know you very long time.

Operator: Marc Speville, Redburn.

Marc Speville - Redburn: A couple of follow-up questions on Poland and also Thailand. So, firstly on Poland you said you – I think you said you've reset the marketing. Does that mean just the price promotional mix or you're actually making new net in the gross margin investment there?

Philip Clarke - Group Chief Executive: It was always our plan in Poland this year to make a much broader reset of the business there and that's what we plan to do. It's the typical things that you see from Tesco; price position, quality, range, and service. And it took effect about three weeks ago there. And it's quite a significant difference, because it's the first time that market – those consumers have really felt the (pressure). They avoided 2008. You see from the economic statistics what's going on there. And, of course, customers in those circumstances, they run for local retailing. They don't go to the big out-of-town store. So, we just felt we needed to do a lot more and the team has been working for three or four months on that program. It's just coming to fruition. We don't need to do it in Hungary or Slovakia because the (indiscernible) is different. And the Czech Republic is battling hard in what is for them a very difficult economic time.

Marc Speville - Redburn: So, would you say you're doing more than – (then here obviously) everyone is battling for custom, but your reset is more than the average it would seem?

Philip Clarke - Group Chief Executive: For us, yes. Yeah.

Marc Speville - Redburn: And then just two simple questions on Thailand and Turkey. Would you expect an improvement – would you expect Thailand to go back to positive like-for-like later this year, and would you expect – when would you start to expect some meaningful improvement in Turkish performance?

Philip Clarke - Group Chief Executive: Well, we think we could have done a bit better than we did in Q1. There's lot of work for us to do and it's being done on our promotional mix on Clubcard and on Club pack. So, we expected to improve. The market's a bit softer, particularly in food. We have about two years of extremely strong performance, as you know, there, particularly in Q1. So, yeah, we expect it to get back to improving. Market share is also (indiscernible) which isn't bad given that like-for-like performance. What was the second part of your question?

Marc Speville - Redburn: Yeah, Turkey, when would you expect to see meaningful improvement in…?

Philip Clarke - Group Chief Executive: As we said only seven weeks ago, our focus is on getting the model right before we push on. Hypermarkets aren't the strongest performer in that market as we all know. We've got quite a bit to do and (indiscernible) we're doing it. So, yeah, we expect to see our performance improved, not helped by the riots in Izmir the weekend, that's in Q2 not in Q1. Fortunately, hardly any of our stores have suffered any effects, although two damaged by fire when the street was taken out in Izmir.

Operator: Mike Dennis, Cantor Fitzgerald.

Mike Dennis - Cantor Fitzgerald: A couple of questions on format. You alluded in the statement that your online grocery growing faster than the market. I was wondering if you could tell us how fast it's growing. And the same feel C-store business, if you could give us a feel in terms of the like-for-like growth in that or the contribution it's making. And one last question. I don't know if I heard it earlier, but did you say what your food price inflation was in the U.K.

Philip Clarke - Group Chief Executive: We'll let Laurie take the food price inflation in the U.K. question. On online growth, we tend to look at Kantar Worldpanel and that shows our online growth as being very strong. And I'll leave it for you to have a look at those specifics. On our convenience store business, Express and One Stop in the U.K. like-for-like is positive and improving in both cases. And on food price inflation, Laurie?

Laurie McIlwee - CFO: Well, inflation did fall Q4 on Q1 for both food and non-food. I think our inflation does run lower than the market anyway, but as I say, it fell from Q4 to Q1.

Operator: As there are no further questions, may I please pass the call back to you Philip to close?

Philip Clarke - Group Chief Executive: Well, thank you very much everybody for your questions and for your attention. We look forward to speaking to you again in a few months' time when we meet for our interim results. Have a good summer. Bye-bye.

Operator: This now concludes the call. Thank you all very much for attending. You may now disconnect your lines.