Executives: Dave Lewis - CEO Alan Stewart - CFO Jason Tarry -

CPO
Analysts: Edouard Aubin - Morgan Stanley James Tracey - Redburn Clive Black - Shore Capital Stewart McGuire - Credit Suisse Bruno Monteyne - Bernstein Dave McCarthy - HSBC Rob Joyce - Goldman Sachs Niamh McSherry - Deutsche Bank Sreedhar Mahamkali - Macquarie James Grzinic - Jefferies Borja Olcese - JPMorgan Nick Coulter - Citi

Dave Lewis: Good morning everybody. Thank you very much for being here. I suppose before I kick on to the presentation, I think, as I said on the wire call for those who were there or heard some of it this morning, I think Alan and I reflect on the fact that it's almost two years to the day that we stood in front of you sharing our very first initial views of the business. Alan had all of four weeks experience and I had the grand total of seven. We were clearly a business that faced a huge amount of challenges at that point and we set out for you three priorities that were going to guide all of the actions as we tried to stabilize the business before then obviously looking to drive a recovery.

What we're going to do this morning is share with you a little bit of what's happened against those three priorities. You would expect it to be so because that's what we've done every time we've met up to this point. But actually, that will be the last time that we talk about a business in those three priorities because what we’re going to do also after Alan shared with you the detail of the results is share with you the lens actually that we’ve been looking at the business through since that very first day. And we’re going to do that because we feel that we’ve got our business to a place where it is stable and competitive again, and we want to share with you what the ambitions are and the business that we’re trying to build through the lenses of those four key stakeholders on which everything we’ve done as Tesco is being built since that time two years ago. So with that as an introduction, I’ll touch very briefly on those three priorities.

Now, it was across all of the plans, the three things we picked out that we needed to demonstrate and do something about. And Alan will then take you through the detailed results, before I’ll come back and I’ll talk about how it is we’re trying to build long-term value into and for those four key stakeholders. And as through that lens that we want to engage with you going forward as we move from that period of crisis into stability and how it is we want to grow the business going forward. So, hopefully by now you are familiar. It was about competitiveness in the UK, it was about strengthening and protecting the balance sheet and it was about rebuilding trust and transparency in our brand and our business.

You saw today we announced our seventh consecutive quarter of volume growth, the UK clearly the priority. We talked then about a volume based recovery. This is the long-term trend, it’s the same chart that you’ve seen every quarter that we’ve announced and every results presentation we’ve made. That volume growth is being really quite impressive, it's been a fundamental bed rocking which we’ve been able to turnaround the business, and we see that being driven by the transaction growth. So across that period again seven quarters of increasing the transactions that are going inside the Tesco business.

Slightly different measure, if I look at the first half of this year and I look on IRI and I look at all of the categories in which we operate, this is the market outperformance. Volume stronger as you would expect it, but also some value improvements in different categories in different mixes and we’ll talk in the future to give you an insight in terms of how it is we think about the mix of the products we sell and the categories we sell, and indeed how it is we sell them and how is it we serve customers. But I thought it would be useful to you as you look at the performance that we announced this morning to see that across our whole business, we being actually really very competitive across all the main categories as judged by the IRI retail analytics. Our prices are 6% lower, so the volume based recovery being able to get operational leverage, which lowers cost, which then goes into price is what we’ve been driving. Since we took a basket that we had two years ago, we've kept our basket the same.

I’ve showed you all the way through as we done to actual prices, to actual people, customers are paying where more than 6% cheaper than we were two years ago. It's interesting in the first half of this year; if I take the Kantar Worldpanel, so you would have seen it. We’re talking on that same period of 200,000 more shoppers coming to visit Tesco. So penetration footfall, which have people use that measure interchangeably. But actually more people, our penetration is grown over that two year period in a way that quite frankly in the years before that’s actually we were declining.

And very significantly for us and based on all the questions that you’ve always asked me, the switching gains. So going from the place of two years being a donator of share to the marketplace, to a place where actually we see in the first half of this year some very strong switching from our competitors who are choosing now to shop in Tesco versus where they were shopping before. So lower prices -- that volume leverage, lower prices more people coming, seeing the switching data turn positive in the first half of this year. Balance sheet is more secure. We’ve gone -- we’ve talked a lot until we talk again about generating cash from our business, we continue that trend.

We’ve lower the net debt by 4.4 billion, and we’ve also been very active in property. And again we’ll talk about that when we talk about the future. But what I’ve given you there is an updated where we are in terms of property. So over that period, we’ve increased the group ownership by 5 points and in the UK by 7 points. As we seek to buyback very profitable store that we would want to own, yes, it costs us and there is capital involved in doing that, but also we get the benefit of avoiding upward-only rent reviews that were a cost pressure in our business.

I’m sure we’ll talk about pensions when we get to the -- and I'll let Alan deal with some of the technicalities of it. But, obviously, we've done something very significant in pension in terms of moving from a DB to a DC scheme for a very large number of people and getting our sales to a place where we agreed with the trustees a format and a formula for how it is we would make long-term cash contributions to the pension deficit. We think that’s the right model, we think that’s the right vehicle by which we can do with volatility in the marketplace. So, we’re confident in what we’ve done. We’re confident in what we’ve got, but obviously we'll address your questions around accounting definitions and what that means given some query which is definitely completely outside of our control.

And finally, in terms of rebuilding the trust and the transparency in the business, I kept this chart exactly the same as the YouGov trust monitor a number you in the room use it. And obviously, October 14th was definitely our nadir. It was a very difficult time. I remember standing here and preparing for that meeting two years ago. And I feeling is it was a bit different preparing for this meeting than it was preparing for that meeting.

But the thing this is really encouraging here is the feedback that we’re getting, and you’ll see it when I talk later from all of the stakeholders in our business, be it customers, colleagues, the prior partners. Actually, they appreciate all of the opinion that we’re getting is recognizing the value and the quality of what is we're offering is improving. And very importantly in our behavior actually that's being a different Tesco and that is translating into an appreciation of trust and what is we’re doing. More we can do that’s the best is being for full year, but definitely not happy with that. There is a wealth of opportunity, but again what we said we would do, we’ve managed to achieve that.

Be part of that trust in leadership. So, if I look to the survey of our employees, we do, we do it twice a year. It was a 61% in October ’14. And we just repeated the surveys now at 74%. The work that Jason and the whole of the Tesco team around supplier reengagement is fantastic, nothing short of fantastic.

Twice a year, we do a supplier viewpoint, in full year 2014 only 51% of our suppliers said they were happy with the engagement that they had with Tesco. Fast forward, in total that’s risen to 78%. I’ll talk a little bit more about it later, but in certain categories that's above 90% in terms of reconfiguring and reengaging with our suppliers. And we talked about transparency in our reports, and we have some very positive -- there is always more we can do, and I am sure there is one fact that we should give that we don’t give for somebody in the room. But we’ve had some really very strong feedback that the transparency that we brought into the report and accounts and the analytics around it is being very much appreciated by the market.

So there is some great work by Chris and the team and Alan and the team for that. So, I suppose we’re calling, we’re calling in terms of those three priorities were important in terms of stabilizing the business. I would argue with you I think quite convincingly that we have regained our competitiveness in the UK. It's not just one-off actually three quarters of like-for-like and Alan will show you more of the detail. We have protected and strengthened the balance sheet.

A huge amount of work is done on there. And we are indeed rebuilding the trust and the transparency in the business and it's all of that, that's going to allow Alan to talk about the half year results.

Alan Stewart: Good morning everybody. So, as Dave said, these are half year results to the end of August and you’ve seen them already this morning. Overall Group sales up 1.3% at constant currencies, we have had some currency impact in the half and that would continue through the whole year in terms of the reported numbers.

But really for us as I've always said, the constant currency is the important metric because that gives us the market within each market how we’re doing, within the competitive environment there. Group operating profit up 56.7% to 596 million, these results of course excluding Turkey which we treat as discontinued item and is separated in the detail pack you’ve got. We do have some exceptionals which I am going to come onto, and the mix of some credits and some debits comes back to 81 million overall and give us a statutory operating profit of 515 million which again is up and strongly year-over-year. So going into those in a little bit more detail, the segmental performance UK and as Dave said growth for the third consecutive quarter 0.6% is the margin growth, is the constant growth, margin up 105 basis points from this time last year. So a strong underlying improvement in our margin, volume is up as well in that and transaction is up.

International business is up 3.2%, different markets and different conditions there. Again, I’ll give you a little bit more detail behind this and the bank also saw growth in terms of both the sales and the operating profit. International operating profit is down slightly in terms of the year-on-year and overall the 56.7% improvement to 596 million in terms of the segments. If we now look at the UK and IRI, this is a format you’ve seen before very similar. But very importantly, the third consecutive quarter, this is the first time in almost 6 years that we’ve had three consecutive quarters of like-for-like growth within this market.

Irish market coming of a very low base in ’15 and ‘16 and continues to show growth. That market competition has been a bit stronger in the recent period, but we continue to deliver good growth in market. And I would also point out that the deflation in the market continues as well. So in the first quarter, we had 2.7% deflation. It’s slightly less than that in the second quarter in the overall.

In the half, it remains, in the UK as a deflationary market, and that's something which we continue to plan on. We expect to continue to remain competitive and there is more that we need to do to stay competitive in the UK. In terms of segmental, and this is now aligned with the previous slide. So, all of these slides are now on ex-VAT IFRIC-compliant basis. Importantly, you can see continuing strong momentum across all formats.

The extra store growth, superstores good growth, the express having continued to show good momentums have actually picked up in the second quarter, and the metros are pretty well as a breakeven position. So across all of our format in the UK our like-for-like and were encouraged by. In terms of the online small segments, you remember that grocery and shopping is about 7% of our overall business which very much change the way that we address that market. We’re looking at the sustainability of the offer. And our basket size in the online market up 3.8%, which we do thing is encouraging from that customer loyalty and what customers value is what they buy online with us.

In terms of GM and clothing, down just under -- just over 13%, we did have our marketing activity in this part of the market. We introduce a £2 click-and-collect charge for all order under £30. And this is shown in the underlying metrics. The clothing market, in the first half we saw growth in the clothing market and some very challenging market conditions, so we’re encourage by that. In terms of the operating profit again, this is a bridge which you’ll now be familiar with.

The lower prices, this includes the farm brand investment, which we spoke about back in April. It was a key part of our activity in the first half, but this more of that we’ve continued to invest in all prices. Of that, we saw volume and mix benefits improving, and we also had quite significant cost savings. We’re very clearly saw to address the investments we’re making prices through cost savings and we’re now running at over 500 million of cost savings on annualized basis. The other is Dunnhumby and ongoing small movements, but overall a very significant increase.

As I said 105 basis points in terms of the margin and profitability rising from 164 million to 389 million. If we look at the international, again we see growth in all, in both parts of the market. The European market Poland and Czechoslovakia have faced very strong competitive market. Again, this is up against very strong comps. In Poland last year, we had more than 5% like-for-like.

And so we're up again strong comp, and we’re encouraged that we're still seeing like-for-like improvement there. Asian market time and remains very strong, we saw the highest ever market share in July, that’s against what we previously spoke about as the highest ever market share, I mean the run up to Christmas last year. And across the formats internationally, we continue to see the same improvements. Hypermarkets, good growth; and superstores, very strong growth, and convenience pretty much the same growth as we see in the UK and part of the market. So, overall encouragement despite different trading conditions in the different parts of our international business.

In terms of the operating profits bridge and investment in prices is an important part of it. There is -- this again is a constant exchange rate what we're showing through. The volume and mix that we're seeing in the international business has given us a strong benefit. We have made other investments in customer facing activities range and availability of what I'd call out here. So as we try to get that balance between what's right for the customer and what's right from an operating profit perspective, we're seeing some increased costs in that part of the market, and we're continuing to focus on costs and savings overall.

So pretty much flat in terms of the international, and we continue to see real potential in our international markets. If we look at the bank, again a cold part of what we're talking about. We saw 2% growth in active customer accounts in the half year. The underlying trading within the bank offset what we previously have spoken about in terms of the increase -- the decreased contribution from the interchange fees that the bank earns. And some of the key stats that I pull out is that our customer lending in the six months exceeded £1 billion for the first time.

We launched the mortgages through the intermediary channel and that's been well received in the market, and we also launched the premium credit cards which and for those of you who want to apply for it. And speak to Benny afterwards, club card points are an additional to it that you get, you earn more club card points. You can get an enhanced exchange rate in travel money, and you can get family travel insurance. All of this has been well received, and it's part of our overall focus on Tesco customers through Tesco bank. The operating profit is up 3.5% before exceptional, and most importantly from the bank perspective as you can see on the bottom right hand chart, the quartile 1 ratio and the liquidity position remains strong.

In terms of Tesco Mobile, this has now been in existence for fourteenth year, it's a very successful part of the market, it's the largest MVNO mobile virtual network operator, and it's the fifth biggest mobile provider in the market. We have 4.8 million customers within the market and if you look at the right hand graph you can see that the mix of pay as you go which is the dark blue and pay monthly which is the light blue is growing in favor of the pay monthly which has clearly more loyal more valuable customers to Tesco mobile. Couple of very important points, for the sixth year running it’s the which recommended provider and we have successfully building what customers like when they go on holiday, we had a very successful European roaming campaign during the summer. So overall strong position as we pointed out at the interims and previously this is a business which being linked with OT too is clearly part of that of what happens there but very successful and a positive business where we see a lot of value for Tesco customers and therefore for Tesco overall as a brand. If we now move on to finance income and costs, interest payable pretty much flat year on year against the some of the -- the increase here that we're seeing is because of the debt that we took on as part of our property buybacks, we took on some bank debt which is now consolidated within the business as was 49 stores and 2 DCs, capitalized interest continues to fall as we really build out the balance of the stores, net pension finance cost as said at the beginning of the year and given where the interest were at that stage is falling year-on-year and then finance income is a mix of cash and non-cash.

Within this number, the 40 million drop overall about 203 million in the half year cash interest cost. So around 80% of the net finance cost or cash interest cost which is important from a modeling and what’s happening with our cash. In terms of tax, the tax rate in the half was 28%. We expect our full year effective tax rate to be around 25%, and as we rebuild the profitability in the UK business where we see some of that higher effective tax rate being reduced as the profits come through. Overseas jurisdictions will continue to impact our overall tax rate and of course this year we also have a banking surcharge coming through tax.

So, there are some moving parts, but very significant reduction in the effective tax rate with dropping and overtime we would expect to see a drop in more towards a more normal tax rate for the whole of the group. We did have a small cash tax payment in the half of around £17 million and that’s really because we continue to focus on closing prior years and regaining tax and agreeing open years with the different revenue authorities. Tax and interest are both continuing focuses within the business as we look more towards the EPS part of our overall income statement. Exceptionals, just remind you we set out with the intention of not having exceptionals, we would want to run the business without exceptional. However, if there are items which are sufficiently large and significantly material, then we will bring them out and call them out separately.

The restructuring and redundancy splits around 70 million in the UK and retail parts of the business and just over 20 million in the bank where it’s a significant restructuring activity as the bank now sets itself up for the next three years as well. We’re in the bank as well where they have been the continued provisions made for the long running PPI and -- exposures and this now brings the bank in line where we have to expect these to end. There is not an end date on the PPI from a regulatory perspective. The profit and credit is something which given the size and scale, we have taken it out as an underlying access against the charges we’re taking and this relates to the sale of properties both in the UK and most particularly in our Czech business where we sold a mall in called Liberec in the Czech Republic. And this is against and no exceptional at this stage last year.

So overall in it and that's 81 million exceptional charge. If we look at the pension and this is something which has had a lot of focus for reasons which are understandable given the external environment and the way that this is measured, and I just remind you that what I said before is that the what we’re looking at here is something which we really don’t look at when we’re looking at the scheme and when we’re talking to the trustees, it's an accounting mechanism which measures the IAS 19 deficit and by reference to corporate yields. Those yields have dropped very significantly because of the quantitative easing. But importantly, there has been no change in the underlying cash which we’re going to be paying to our pension members. We’ve close the scheme as Dave has said, we de-risk it significantly as we look at the potential variability in the scheme from year-to-year through our asset investment strategy.

And that's progressing well in the market where the supply of the de-risking elements is relatively tight. We've done very well in de-risking. We have seen a 28% increase in the assets, an improvement in assets over the period. And that’s offset some of what we’re measuring here in the IAS 19. The most importantly the funding framework which we setup and I’m very happy to take questions on it afterward.

The funding framework that we setup with the trustee, which was designed to work through different market conditions and to work through triennial valuations remains in place. We have a triennial valuation next year of the March numbers, we'll we where we when we get there. But the frame that we set up is one which was setup and design to work through different market conditions and design to give a predictability to the cash flow, and we have that 270 million of deficit funding which remains in place. If we then look to the movement in net debt and again this is a format, which we’ve seen before. We generated 850 million from continuing retail operations.

We focused on the cash impact of expect shows, which we booked, we paid out 26 million and we generated 131 million from underlying working capital. We continue to focus having published our trading terms as to how we will pay suppliers depending on the category there in the size of the business that we’re doing with them. We’re very clear on that and we’re committed to that, but we continue to focus on improving the stock side of our working capital and we seen an improvements in soft days and our UK business and announce an offshore business. That generated 131 million of working capital 935 million of retail cash. We generated the small amount of cash from the Turkey’s business before in the half through the cash service is increases, it is continued, but as you can see £79 million, we’ve generated 964 million from operations.

We pay 220 million of tax and interest cost of cash and we spent 540 million on CapEx giving us a 203 million of free cash flow. We also generated 290 million from the disposals of Dobbies and Harris and Hoole. And we generated 236 million from the sale of property assets which I’ve already refer to and then we have some other rounding switch bring the reduction in net debt to £758 million in the half. So, the movement in net debt and the on balance sheet debt continues to be trending in the right direction with just under 800 million reductions in the half. And that take us into the total indebtedness, and I think this is important but, and you understand how we think about the total indebtedness whilst it's we’re very clearly said, this out as part of the way, we look at the business two years ago.

It is very clearly three different categories of debt. This is the balance sheet net debt which is the mix of our bank barrowings, the bond that we’ve issued in the net cash sitting our balance sheet and very significant reduction in that over the two years from 2015, 2016 and down two now. The second elements, again, a key part of what we spoken about are the lease commitment, we do seek to reduce these buying back properties where there available, where it make sense and where we want to trade from the properties and for a long period of time. So, we will continue to focus on that. And the period is pretty much flat from the full year to where we are now.

But again very different characteristics in terms of these commitments and compared with the on balance sheet element of our net, and very different from the pension deficit which is a very long term commitment will be met over the 80 or so years that’s scheme is going to be around. And as I've said, this is an accounting measure which doesn’t really bear much resemblance to the cash flows that we’re committing to with the trustees. So three different elements, three different categories, and we’re really focused on managing the pension deficits through the long-term funding agreement, managing the lease commitments through the way we look at our properties and reducing exposures, improving the quality of the property and then reducing the on balance sheet debt through the way you would expect. During the half, we did buyback seven stores and then in the second half of the year, we expect this point to be buying back another two stores. And relatively small amount involved, but as I have said before, it takes somebody who wants to be selling at a price, which we are wanting to buy and we continue to look for those.

So from liquidity prospective, we’re in a strong position from liquidity. We put £5.2 billion of available cash, behind that we have 5 billion of committed facilities. Since the period end we redeemed 1.2 billion of bonds, which matured over the next 18 months, we can and see another 2.2 billion of maturities coming up. And we’re focused on improving our definite tricks and remain of the view that we would want to be an investment grade issuer. So coming to the end of the financials, it’s been a strong half and we’ve seen good performance and broad sales growth across all of our markets.

We've rebuilt the profitability and we've seen further progress in that. We have a strong liquidity position and we have a more secured balance sheet. With that, I'll hand back to Dave.

Dave Lewis: Okay, so before I talk about the future, consistent with what we done before, we presented today, we will cascade to collogues around the world what the performance of the group is in exactly the same way. We used the big six as the way of articulating it.

If you were fortunate to go into a back room of any store or be in any one of our facilities around the world, you would see this as appropriate to that particular operation. What is means that the group level and the last time I presented, it was all six green. Actually, we've got two reds now at the Group level. So let me say two things on that because, not because the numbers particular important as you will see, but it gives a hope for there a little bit of insight into how it is we as the Tesco leadership team are behaving. Sales, Group sales, so you've heard the growth, we are what more than 1% growth.

We missed our target, our own internal target of where we wanted to be by the half year by £12 million. So it was, we're nearly 24 billion of sales, and we missed it by £12 million. It translates to a few minutes of trading, but it’s a missed. And I think it’s one of the things that as indication we did set ourselves ago, we got there and exceeded it in UK. We were ever so slightly shy of it in international as Alan had said.

And therefore what we'll communicate to our people is against the staging post we set for ourselves. We were 12 million behind were we said, we would be. The collogue recommendation is also interesting. We do it twice a year. We do it in January and we do it in the middle of the year.

Year-over-year, very significant improvements in both the UK and international and across the group in total, but we did it ourselves ever so slightly more as the staging post for the middle of the year. And so we cascaded to everybody the fact that we're not exactly where we want to be even though we've made great progress, and against external benchmarks we're actually, now we're in a very-very good place. But we said ourselves that we wanted to be a little bit better. And we didn't go all the way there. So there's more that we need to do in the second half of the year in order to address that in January.

But I say that to you just because it's the sorter conversation that I want to be having with colleagues around the world about how the business is doing. And I'll say and some of you asked me earlier, one of the reasons why we articulated what we have about the future is I want to have a complete consistency between how it is we talk externally and how it is we talk internally about our business. So with that, let's talk about the future then. Let's talk about these long-term value drivers for four key stakeholders. As I said at the start, we picked out three priorities that were germane to the crisis we found ourselves in two years ago.

But honestly as an exec team, we've looked at our business through these lenses since the very early days. So inspecting ourselves some long-term goals for the business, this is the lens we look through. The plans and the aspirations we share with you today are plans and aspirations that we've had for ourselves as part of the turnaround and now is the time for us to share with you. And this is the lens through which I hope the next stage of our communication together will be built. So everything I'm going to say to you now is about over the last two years.

And through the lens of that I'll talk about obviously customers first, colleagues, our supply partners and then the new bit which is how it is we think about our relationship with our shareholders. From a customer point of view and want to, you know we talked if you remember the very first thing we did, even though we were losing money and we clearly had some financial problems was recruit 9000 people in the UK and put them back into stores and serving customers. Over the two years being responsible for this turnaround we put 12000 more customer facing colleagues into our business. So the only thing I'd say to you is, as we do modify and as we reshape and change service models and you see that in the UK now please put it into context of 12000 additional roles that we added as well. We have significantly reduced those colleague numbers in the areas of non customer facing, alright.

But we have not -- we've invested a huge amount in terms of serving shoppers a little better every day. Little fact to you I always listen to every single bit of customer I get be it from customers, be it from the media, be it from some of you now and again and you always share your views and I listen. Over the last two years we've had 2.9 just under three million customer feedback through our customer viewpoint in that time. So on proprietary system it's by far and away the most complete customer survey I've ever seen. We get every week for every store, but I just you know as we talk about serving Britain's shoppers a little better every day, sort of give you a context in terms of how much we are listening to that level of feedback is gold dust you know, some of it is, thankfully some of it is now good but also they're pretty good at telling us of other things that we could improve and the other thing I thought I’d share with you for the first time is, what we call the front end of the store, for those who are familiar in terms of that, cashiers and those customer service experience specialists.

57,000 colleagues here in the UK have had enhanced training about how it is we want to exchange with customers in order to give better service. So we talk about price, we talk about other things, but I just want to give you a little bit more about what's driving the service agenda as we think about how it is we build value with customers. We talked about sales based availability, our Dotcom availability is off the chart, it's never been better, it really is running over a record level and that's why the customer feedback we're getting on online is fantastic. And why the subscriptions are so high, but our sales based availability i.e., that measure late at night, Thursday night, when you really want it, and we always talked it, and I'll talk some about that. But at 96%, we're really getting to a place much-much more.

We start to have an issue in terms of waste, but that balance and my improvement has just been fantastic especially when you look at it, there is this some of the stock things that I'm going to share with you in a second. Now, this middle bar, we've never -- I don't think we've ever really shared this with you before. We have another thing that we do, which is a -- what we call customer spotlight. So, the viewpoint is just our own shopping experience. The spotlight is one that we do competitively across the market.

So, every month we take 7,000, right. Those of you who are familiar with market research, 7,000 a month interviews about people that shop in Tesco and shop elsewhere within the UK. We then roll it up for three months, right. So, 21,000 samples fall, what it is we're getting in terms of customer experience across all the competitors in the UK, right. Now, for reasons that you'll be clear, I've not named the competitors.

But what you'll see is we go through here is as we're not very proud about the fact, that two years ago when we asked about everything available we were seventh, right. We were seventh. Where we're now neck-and-neck leading in terms of availability and I'll show you little bit more data on that in a second. But that's how we judge whether we're making progress. You saw in the announcement when I said we're making clear gains against competitors on the things that matter most to customers.

This is the data on which that is based. The interesting thing is that increase in service, increased availability and increase in customer satisfaction would come by reducing the stock in the business by more than 16%. All other things we talked about in terms of range reset, all we talked about in terms of putting our business together and the way that we work with our suppliers everywhere from demand forecasting all the through has allowed us to improve the quality of service, improve the price to customers and lower the operating cost and the stock and working capital tied up in the business. In terms of more stable pricing, 6% lower, we kept that basket -- I've always been keen on not talking about 10s of all £100 millions in investment, it's not at all what customers see or appreciate. We've always looked at the basket and we've always looked at what it really cost people when they walk out of our store and that's more than 6% down year-on-year.

Our promotional count over those two years is down nearly 40%. We stripped out that indirect pricing and we put it into base pricing and for those who've eagle eyes and have been around as it rolls out, you'll see also that as we moved and invested so much more in getting our prices competitive, that translates into a more confident, clearer, articulation at shelf of what the price is to very simple things, like the shelf edge labeling that we do. For those who do watch this in detail would have seen some very complicated overly confusing shelf edge label and we will progressively improve our price communication for customers as we change. Look, the -- we talked about the range, we talked about the fact that we move to a simpler, more relevant range over that three year period, that's the 23% reduction in total. We've managed to invest in and increase the space that we put to a higher quality own label offering.

That's also a very good value enhancing experience for our customers. And for those who always ask me about range reset. Does that mean that there is somehow a dearth on innovation and newness? Actually, 3194 to be precise new innovations, new products are being introduced during that period. So there is no lack of innovation as we’ve made those ranges better for customers. This chart you’ve never seen before, alright.

And I pick this chart in here because in a way if I was to pick one chart that articulates almost everything we’ve been trying to do for our customers would be this one. So the same spotlight information and for those of you who were looking at the competitive and trying to take a color and equate it to who the competitor might be, don’t, we mix them up alright. So there is nothing to be done there, so I know the game you will try and play. But what this is, is again some customers clearly says where we were a couple of years ago was everything you wanted available. Again how customers judge it, how, with everything you want available, we were here and for the redline in Tesco.

And what you see is as we have in Jason and the team and Tony and the team and Matt and the team have changed range, simplified the range, change the service model. All the things that we’ve been talking about you see that actually our availability is gone from being the worst in the marketplace to the best in the marketplace. And that’s how we judge the progress that we’re making, alright. If I take that one step further, in terms of customer recommending, so people are having experience of those and we’re then recommending towards the people whether that is something that they also enjoy from the sale, net promoter score up 13 points, huge lead in that time period. And on the same measure better shopping experience on the bottom of the pack to joint third, not where we would want to be, so whenever I say, there is much more we can do, this is what I am talking about.

Its progress but there is much more that we can do. Helpful colleagues, six out of seven, now third out of seven and if I were allowed, if I were to let my team just have one period rather than the rolling, they would point to the fact they are over Christmas, we will by far and away the most helpful retailer for UK customers. So we can be, we want to be as part of the brand, part of the proposition but that’s what we said for the half year. Alright, those are the things that we’re trying to drive as we build value for our customers. And on top of that we have some little help.

Not so little sometimes that guarantee unique means that people have peace of mind but they never walk out of our stores because of the big four with a brand of chocolate they paid more for in wherever they might have brought it in the big four. You’re seeing -- for kids, we think it should just be for kids so there is something you outsize, so do me a favor and pick one up on the way out because otherwise we’ll they’re not for it. So that’s another example of how you know one of the things customers tell is, can I get my kids to eat more healthily, how do I keep them entertained if I take them around the store, actually giving them a piece of fruit for normal experience and great feedback. I am interestingly an idea that came from a colleague and the store that was picked up, everybody liked it and is now available across stores. So and for those of you who are in more to the technology, we introduced PayQuick in collaboration with the bank which is our own payment systems that links to loyalty card and is now available in all of our large stores and rolling out.

So that’s what we’ve been doing to build value for customers. For colleagues, a great place to work and we want our colleagues. We’re facing some very difficult things in terms of sending the business around. The interesting thing is that still that period, the engagement of our colleagues is sharply up. The motivation to go the extra mile and actually colleagues recommending as it’s a great place to shop significantly up.

Really important now, colleagues are some of the most knowledgeable customer we could have. And a number of the initiatives that we’ve done, we’ve launch to our colleagues first, so they experience it. Before it is, they give the experience to the customer and have a guess what as they speak what is, we’re doing for our business actually those become much more prevailing in terms of the willingness and they’re recommending Tesco replace to shop. We’ve invested in colleagues, as well as back again talking about the number of colleagues, they were some prior to say, that was some basics that we need to invest and actually translated to thing the simple two years ago was investing in uniforms and in presentation and in all of those things. We continue to do that with that and a lot to what is colleague need in order to serve Britain's shoppers a little better every day.

We had a very difficult first year where we have no inflation in our payroll, because of where the business or also everybody inside the business took ahead in that sense. But they because of the performance benefit from the turnaround bonus and as you know we’ve agree the two year deal, which is a 3.1% increased in base. So I actually now our colleagues are feeling some of the benefit of business improvement and I think here is important and sustainable wafer is to be taking going forward. And we’ve done some other things in terms of value reward. So actually we’ve enhanced historically families that only have one privilege card, we’ve extended that there are two privilege cards, so there are privilege cards, so husbands and wives can both use.

So we listen to how it is, we can make the value of working for Tesco can go further, and we continue to listen and invest in that. In terms of close to the customer and that purpose we talk about. Interestingly here, a survey of 245,000 colleagues in the UK and three numbers there are I understand the purpose for the organization. I motivated by it, I get it and I can see what is I can do to contribute, alright. I’ve been involved in some change programs in my time.

The scale of the change program in Tesco is enormous. But a number of you have fed back to me how much you’ve appreciated, what a change you felt in our stores all the time. And this is what’s driving it. All of our colleagues have training directly in that purpose of serving Britain’s shoppers a little better every day. And the feedback in our survey this time is 96% of them get it and motivated by doing it.

We’ve been much more consistent in our management structures. Whilst we put colleagues and we’re being most of our challenging about what the right way to run stores is in the management group. And significant for us is a new scheduling system. And what that does is it gives colleagues much greater for warning and what the plan is coming down the tracks that they can, but get that store already for coming. Historically you might not find that until the last minute, but now this big Tesco they I have a four week window whether know what’s going to be coming.

And they allow them to pay the stores just better, so small changes, little changes, but their all designed for colleagues to be easier, simpler and more effective in serving Britain’s shoppers little better every day. I’m also asking, we know talk about this before about employment, I’ve talk about in total, but over this two years. We’ve done, we’ve granted and we run 3,000 partnerships in Tesco. We’ve taken on 450 graduates here in the UK. Tesco is always been a place and now something start by me, but always going to replace where people who get on.

And it’s interesting that what we’re talking about here is nearly 4,000 colleagues have been promoted as we gone through this change program. We support the movement to work, so for those we’re not familiar this is long-term unemployed. And we’ve done 1,000 new starts as part of that program as we redevelop and as we open stores we’re very active in that space. And that great place to work, it’s only I’m personally very committed, you know that we’ve moved something actually been out to visit us at Welling and see how it is to see more comes together. Feedback from collogues has been really very positive to that and we have for those who asked me the question, we have sold the old Cheshunt building.

That's one of the property things that Alan was talking about. And this drives to build one Tesco team. We’re not competing with each other. We’re not, we're going to serve customers a little bit better by all coming together and how it is we linked different parts of the business. For those who are very familiar with inside of Tesco, we will appreciate how much of the change in different studies.

And the other thing that we've not talked before but we -- we spent two days again last week talking about how it is we build a more inclusive culture, aright. It’s a very broad church in that sense with 320,000 collogues here, but 0.5 million collogues around the world. And one of the things I thought I'd share with you is we have an organization LGBT, organization in Tesco called out at Tesco. We have the largest LGBT network in Europe that work and active inside the organization. So how we building volume for collogues, either through simplicity or in being in terms of development, that’s what we been working over the last two years.

Now, apricot, suppliers; under Jason’s leadership obviously this is one of thing that was somewhat a bone of contention when we met two years. We fundamentally, radically over hold completely changed our approach to commercial practice with our suppliers. I can’t put it more fundamentally than that. The approach says, we’re going to move from 24 forms of investments in our relationship to three. We've done already with our enable supplier, we're there already.

With some of the brand to manufactures, we said we go from 24 to 5 on a step to three. Pretty much everybody is on that journey and we are happy. Without once indicate anything this comparatively sensitive that way, remember a talk a way back about the amount was back margin and front margin. Of the back margin, that is there, we had a very clear target where we wanted to be in order to move it. So we didn’t want conditional money, we wanted unconditional money in base prices in order to be able to give it to customers and drive the volumes.

Over two years, we move 91% of that back margin into the front. As if for now use ask me questions but then about, how the hell you’re going to manage to do that, what will it mean for the relationship Jason and the guys have been absolutely brilliant, by the way so of our suppliers. So the promise in terms of coming with us and seeing, that the benefit supposed in Tesco rebuild volume is beneficial to everybody. But that is a hell of achievement. We’re we did and we published our standard payment terms right? I think we’re still the only large food retailer in the UK to do that.

And you will see in the second we're completely compliant with those trading terms. There is a lot here. We have a supply, we set up and we invigorated the supply in networks that we have a network with 5,000 supplier partners who are members. We setup a help line because they told the time Tesco a complicated place to deal with two years ago. There were been a little bit more than 500 calls this far and we all have a good metric in Tesco.

So we’re 99.95 result within seven days, so our commitment to any suppliers in ancient terms is how it is we work is, that would, they have a direct line in that can solve the issue. We did have the supplier protect the line in the same way we have collogue protect the line. We had 20 issues raised with this. All of them are been sold, as we gone through the change in the financial practice that the Jason has lead. We trained 1,238 people from the being forces run, which educates our suppliers to how it is Tesco runs and therefore they can engage with this better.

And approximately 8,978 courses are been completed in terms of buyer training, over that time I guess the new way of working under Jason's leadership. And I just thought I'd put in here, I checked again and I looked at it every month. When we said that all small suppliers to Tesco under a 100,000 would be paid i.e., I actually receive their money in 14 days so they're a 100%, alright. So if you talk to our smaller suppliers about what it is and how it is to deal with Tesco that's what's driving some of there the feedback we've had. That feedback is here, simple, transparent and easy to deal with, with 36% in 2014.

Now 61, more that we would want to do but big progress communicates 44 and now 72 and treat fairly 55 to 73 that's in total. Jason happens to be. He's in town you can ask him the question later, but I suppose blushes. If I take the UK, our loan to UK is stronger than that, if I take the UK and I break it down as to where we started the first place we started you'll remember was in fresh and actually the relationship we have in fresh. And if I were to put that together for all of the supplies whether it's in fresh that number would be 93%, alright.

So 93% of the people engage with us in the turnaround in the produce area, I mean I'll talk about produce in a minute, would say that Tesco treats me fairly and be very positive about what that relationship has been and I pay tribute to the people have changed that. So an outside recognition you would see this recently but in the annual report the adjudicator made the following comment in terms of the feedback they were getting, so not via us but from suppliers about the improvement that they were feeling. And Tesco by far and away the most improved and indeed in terms of following up on the adjudicator, I think there's a press release recently about the follow up. We did our own inquiry they substituted their own there was a series of recommendations we report on them and following that there was a report from Christine Tacon about actually the level of satisfaction of what it is we're doing. Right, I thought spurred by Chris and some of your feedback is, give me an example.

How does that all actually play put? So, his produce and with their permission AMT, one of our partners is in this group, it's a partnership that Tesco predates me. It's a very good illustration of where it is we would want to be in terms of end-to-end partnering. They're basically I'll keep it simple if you allow me there. They are citrus supplier. They're our citrus supplier.

We work with them on varietal development. In fact Jason and I had the pleasure of going out opening one of their R&D centers in terms of how it is we work with them on new variety development. We work them on global supply, so they're not just in Spain they have other facilities around the world. They work with us in terms of crop optimization. We've done a lot of work on packing and consolidating the stores, we joint risk manage.

We have an open book arrangement in terms of what the input costs, conversion costs, transportation costs are so that we can optimize the business together it's completely open. AMT is you know knows I am Tesco, and we do category leadership with them together. That relationship is what drove two days by changing the model end-to-end. We gave to our customers two days more freshness on shelf. Massive, great for customers, great for operations great for our suppliers, the supply chain savings that came from that change, about five million shared between and the sales growth 11%.

So by changing the way you work with us the volume growth and the way of working means that you can lower prices for customers and enhance the profitability of both businesses. We do across I'll cut you all to produce reducing the surplus production key and important element of reducing waste, I've got also maximizing the retain from the crop. We had our -- [John's] in the room, but we had the Board recently standing in a lettuce field in Peterborough as we walked them through the supply chain to show how it is. We're working and sharing demand forecasting literally down to when is we decide to harvest that field, versus that field -- versus that field in order that we do not drive waste into the supply chain system. And that's what's lowering the system waste we see here and ultimately improving the quality.

And an example -- a couple of examples I love, I don't know how familiar you are with crop flushes. We did it once in the first year. We've done it six times or so, in fact slightly more. And this is what they say it is, for those of you who're familiar, and all new to me over the last two years is hitting a demand forecast for the farmer is difficult. It's really difficult.

You don't know when the sun is going to shine. You don't know when it's ripe and what the crop will be. So, we have a demand forecast and everybody doesn't want to show that so they always produce it more, if only take what the demand was then, you got some waste. So, what we do is we work with our partners to say and these are examples of when just after that period in fact actually it was that period that the Board today, there was a huge amount of iceberg lettuce coming out of the fields early. We work with them, in very short order, these things happen in days.

This might be a Monday conversation or a Tuesday conversation. We open upon that what we buy all of the crops. There's the marginal cost to the crop. The farmer gets to sell everything, no waste. We manage to take a small amount of margin as we go through, the customer gets a hell of a bargain but nothing is wasted.

So, these are six examples of crop flushes that we've managed by working with our partners together in a completely different way. Bottom right hand corner avocados, those of you anybody in the South Africa will know there's been a drought. A lot of avocados come from South Africa, there's a size specification everybody would want for an avocado. Because of the drought, avocado was just smaller this year all of them will be outside of the quality spec. I never forget sitting with Jason and the rest having boxes of avocados on the exact table.

I kid you not as we went through looking at. Quality was fantastic, absolutely fantastic. So, we did a deal, we bought of the small avocados because otherwise they would have gone to waste. At the time, correct me if I am wrong Jason, avocados in the store were 75p, we sold all the small avocados at 49p. Farmer got to sell the crop that otherwise would have been outside of the spec that we had set.

We had a benefit, customer had a benefit. Just to try and illustrate how it is we're working together with. Farm burns, Alan talked about it, really happy with the success, have actually be more successful than we thought, it was a very big investment for us. In the end, it wasn't as much of that because actually the volume was better, the prices were better and actually the mix was better. And so, actually that’s one of the reasons why we did well in the first half.

More than 80% repeat rate, so we test in every week versus a competitive benchmark to make sure that the quality is good. And in terms of in meat and produce those are there amounts category price went down. And the thing that might be interesting to you and I've always hesitated in terms of the competitor commentary. But if I take over the six months that we've launched them, and on the way to look at those farm brands and those categories and I look at the same offer in our five other competitors. We've been achievers.

So, by working in the way we do plus the investment we do we were able through the farm brands to be the most competitive offer in the marketplace over six months. That's what driven the outperformance in meat and produce, we were further ahead in produce, we had multi-corrected meat, so they were on a slightly different levels but the volume outperformance is being really very impressive. Right, so the new bit, look no surprise to you, we talk about it every two years, business model, volume led recovery, positive volume growth into the operational leverage and hopefully we’ve given you enough examples on how that works. First call invest back into the customers to be competitive and serve them better, and then allow some margin recovery, which is what you’ve seen in our numbers, but in that sequence and in that order. Now, the strategy exercise that we did two years ago, and again every year.

We identified six strategic drivers for our business that we’ve been working on. And what I am going to do now, you saw it in the release, and I am going to give you some headlines for each of these, so you know what we’re thinking. And later today, from Chris, you’ll receive an invitation to an investment day in Welwyn Garden City city on the 16th of November where what we’re going to do is, not just myself but with the team, is take you through some more detail on each of these six. So what I am going to do now is I am going to give you a flavor to set up for that, because actually to understand them in detail will take some time, but it’s also a chance for you to come to Welwyn, engage with the team and get some real substance around what these six are. But I’ll give you the headlines now.

A differentiated brand, you want to do this academically. Brands long-term add value for shareholders. It’s as simple as that. There is an opportunity I am absolutely convinced for us to add more value through the brand. How are we doing that? The purpose is huge for us.

This is huge for us. Every little help serve Britain shoppers a little better every day. Everything we do pass the ladder up to that. Every little help and serve Thailand shoppers, little better every day, everything that happens in time and pass the ladder up to that. That is important.

That element of helpfulness is a key differentiator in the Tesco brand and I’ve given you some feedback on the UK in terms of how well that started to be embedded in the business. The proposition, you’ve seen this before, the brand guarantee, anything brands that are the same, competitive always. And then we look to invest in those things, which are unique and different, Tesco and Label being one. Lots of other elements to that brand guarantee is unique to us, the range that I talked about, and I showed you in the chart, market leading on range. Getting to a place to being market leading on service and helpfulness, and much more competitive on price.

We have club card. We have exclusive FNF. We have the bank. We have mobile. That’s the element of differentiation that we can bring to the relationship with our customers.

And a lot of investment in own label, and here we’re taking one example. But going back to that entry level, the core, the finance, good better and best, for those who are historians of the business, we think that’s a very important part of the unique offer of the Tesco brand and is one that we will continue to invest in. And those who are eagle eyed will see as we go through category rests. How it is the own label brand is being when we launched and invested in. So, that’s number one.

Number two is how we’re going to reduce the operating cost by a further 1.5 billion over three years. There are three buckets. And again I’ll give you some insights to them in terms of store operating model, logistics and distribution goods not for retail. One of the reasons I want you to have this, every time, one of the things I’ve experienced is, every time I talk about cost, not so much in the analyst community but certainly in the media, everybody goes to restructure and staff. And actually a huge amount of the cost that we have to take out is not headcount.

It’s just about reshaping how it is we run our business and the efficiencies. And you’ll see that as we walk through here. But in terms of operating model, you’ve seen some of it. So there is some becoming more agile. We have, on a basis keeping round numbers of just over 400.

We’ve taken the 24 hours of around 150. Because actually it’s not economic to keep the store open overnight. So we changed the model. We’ve brought the selling on today, and changing of the shift pattern. That’s the consultation that you read about now.

We still have 250 stores that are open 24 hours, whether they demand and any for it. So, we’ve looked at consolidating -- customers hate the fact. If they have an issue they go to this desk for that, this desk for another, that desk for another, by consolidating you’ll have a better experience and actually it saves your money. So it’s not a bad thing for us to do. Scan as you shop, a very good change in the model.

And those, you will have seen, if you’re watching the advertising that for the first time ever we advertised the benefit to customers as scan as you shop just recently. In terms of logistics and distribution, a number of things in this space the things I talked about. If we manage to take 16% stock out as we’ve worked with our supply chain differently, then that has potential ongoing efficiencies that allow us to think about logistics and distribution differently. So the partnerships and sales forecasting the forecast accuracy this is to me hugely important. Our fulfillment cost need to continue to come down, and we can see ways of doing that as we integrate the supply and the logistics.

We have an opportunity to leverage little bit more internationally than we’ve done in the past, and that will lower cost for everybody. And those giving interesting say, there are some packaging solutions, which we’ve not yet adopted. One of the things I’ve learned supplying Tesco years ago was the concept to direct product the cost and direct product profitability. And the cubic space of what is the product had. As I look at what’s happened, both in the supplier base and our own retail operation, actually there is waste in space and we need to deal with the waste of space and that’s what drive some of the improvement that you’ll see in there.

And here we thought its good enough for retail and our different competitors call it different things. So basically this is purchases we make in order to run our business, be it total roles or be a service provision that we obviously don’t sell on. And we’ve never bought that as effectively as we like, the big piece of work has been done on that around a single procurement policy. There is some transformation in finance and IT systems that are going to help this. And there is a functional roadmap to get to a place where we get the leverage of our scale into this area.

And it’s not a small amount of money. It’s not small amount of money that we spend running our business in the space, and we’re clear that there is 500 million opportunity. So, that’s where the cost opportunity sits. You picked up the 9 billion cash from what it is we put into the target. Obviously, there are things that drive the margin improvement, play an important part into the cash.

The stock reduction that Alan has touched on and the working capital and what you see is capital discipline. We were very tight. We’ve given you some. We’ll continue to be 1.25 for this year. But as we walk through the change program there is some additional money that we will invest in order to make the changes I’ve just talked about.

So, our three-year average on CapEx will be 1.4 billion through the life of this plan. One thing of the ways of generating cash from the operation is to stop investing capital in loss making businesses. This is the history from ’09. And as you can see from ’14, ’15, we’ve taken a slightly different approach to that. And you have my guarantee, it will continue, because I don’t want to be loss making businesses and we still own a capital associated with them.

Now, what we call matching the mix. And what I am going to do is share with you an insight in terms of how it is our thinking mergers in Tesco, which is we look at it through lens, a geographic lens. Actually the profitability of one country is better than another. So, that should play into how we make investment decisions, all other things being equal. Profitability of channels is different, right.

And the profitability of different products and category groups is different. So, how do we think about that as we look at how it is we can figure ourselves what we sell where? We through it matched in the mix. And this is the illustration of principal. So if you take for this state, let’s take this as a UK example, large stores, small stores, and online, which is how we run the business now inside. And we have four key categories.

The absolute margin for our business is the bottom green, not be a total surprise I haven’t put specific numbers on for each of those boxes, I hope. No surprise -- that good. What I’m trying to illustrate is the average is the X, and there are certain boxes, which are above the X. So the challenge for us is how is it we think about the overall large store operating model in a way that lowers the cost for all categories. So there are certain initiatives that make large stores more efficient, more effective.

I’ve talked to you about some of those already. And there are certain things, which are very specific to a category in a particular channel. And we look at our initiatives in terms of their ability to influence the mix. So, that’s what we talk about in terms of matching the mix, deciding how it is we invest and how it is we think about what it is we sell where. We took some property.

Alan talked about what we bought back. Our total retail insulation over last couple of years is 120 million. So it’s not an insignificant amount of money as we’ve avoided those rent increases. We have looked at property asset optimization. You’ve seen in terms of some of the sites that we’ve sold in the UK.

I apologize for the fact that there is a cartoon of a store. There are two reasons for that. One is every time I put up a store in the context of this. I get someone asked me, well that so and so. Does that mean in that store.

No, we’re not there. I don’t want that sort of speculation around, that’s not what it is? And where we do have property asset optimization with partners, actually there is some confidentiality about showing that particular development before, it's being really held elsewhere. So that’s why you have to toy time graphics, so just to explain that. And Alan has already touched on it, and we have looked at, how it is we can realize value from non-core assets. And Steve has done an absolutely stunning job on exactly that.

And the final one from us is innovation. There is a whole stream on innovation, and this is the one that you like the most, because I’ve talked to you about brand guarantee, talked to you about brand. And I haven’t talked to you today about food waste, definitely market leading in terms of food waste and what we’re doing there, something we’re extremely passionate about. We are committed, but no food that’s safe being and consumption will be wasted in Tesco’s retail operation by the end of next year, and we have done a phenomenal amount on that, all large stores by the end of this year, brilliant achievement, and what you’ve seen in terms of technology. But there is more to come.

There is more to come. And I suppose, this is the date that when if you were to come and see it on the 16th of November. You might go away, and this is slightly disappointed because I will give you some indications of what we’re going to do. But you will appreciate this is the one that we’re now going to lay out, what we’re going to do over the next three years, because that’s where we get to the competitively sensitive stuff. Six drivers, importantly, I suppose what people ask me, Dave, why you’re doing this now? Why are you giving some clarity as to what it is to you aspire for the business now.

I will give you two, or three just the feedback on that, which is that we’ve now got ourselves to a place which is, think the crisis is over. We stabilized the business. We’ve made progress on the three priorities that we set. Now we feel is the right time to set for all of the stakeholders, but particularly for our shareholders some of the aspiration that we have also held for our business, but we see it in a place where we have more confidence. We don’t we have all of the answers and we don’t know for sure everything that happened.

But on a very balanced view, we have a good perspective of what it is we’re going to try and achieve over the next three year, and we wanted to share it. The third thing is I want to share consistently inside and outside the business. Because as I share this with you and a share it with colleagues inside, it engages around what is we are trying to do to the total business. This is part of the approach that we are trying to build, and the ownership. And the way that we reshape our business to deliver what it is, key stakeholders need from us, in terms of their commercial return.

So now seems the right time for us to do that for all of the stakeholders that are in the business, and that leaves me to the last shop, which is, I think we say to you over two years is a broad based improvement across the Group. We’ve made the progress on three priorities. We did invest in the fresh food brands and it's succeeding for us and indeed for customers. We have six strategic drivers that we will talk to you about over the three years as we progress. And we believe that they’re delivering value for those four key stakeholders in the way I’ve hopefully given you an indication for.

And so market is tough. It's not getting any easier. You know all of that. But we have a confidence that whatever that market condition is, we at Tesco, can indeed farewell within it. So with that, I’ll stop and take any questions, so Alan and I take any questions that we might have.

So why don’t we start down here and we’ll move across the front and then go backwards, how is that?
Q -

Edouard Aubin: Good morning. Edouard Aubin, Morgan Stanley. So, in April, you told us that your UK margin would fall sequentially in H1, and it expanded by around 20 basis points, as you said. So I guess what happened, is it just related to Farm brands? And more importantly, I guess your full-year guidance implies for the UK and EBIT margin in the second half of around 1.6%-1.7%, so why the more cautious trajectory regarding the margin in the UK? Is it just lowering the bar so you can beat it?

Dave Lewis: No, it's not. It's about reflecting, and also this is about reflecting into the marketplace, the forecast that we have inside the business.

It's as simple and as straight forward as that. Look, when we -- so I’ll give you some details that we haven't given before about the first half year. When we sat and made the decision on the farm brands, in totality, with assumptions that we have there, it was a £420 million investment. Not a small investment given where we were. And we didn’t know what the outcome was going to be.

And that was the big uncertainty for ourselves uncertainty for us in that first six months. Because of performance, because of mix, because of a number of other things, it didn’t cost us that, it succeeded and they didn’t cost us all of that. And as a result, the sat down that we thought we might have from that investment in the first half of year didn’t come, great, and therefore you the performance that we have. In giving you some guidance about where we go for the balance of the year is just a pure reflection of the investment plans we have for our business, right. So that was what happened there and it relates directly to that one thing, but I think I have always said.

I see lots and lots and lots and lots of opportunities to keep investing in the business in order to drive the wheel that I talked about before. And we are going to continue to invest in the business as we go forward. And that investment yields a profitability balance as we sit now, of 1.2 billion, and that’s what we have shared. So, it's about our willingness to keep investing. And we’ll get ourselves back to 50-50 spend in terms of profitability this year.

It's what Tesco historically did. We thought we would have a curve that will be uneven, and actually because the farm brands have worked. It's been better in the first half. But we're going to continue to invest in the second half year it's not over, right. And as you saw from that volume first, invest in the customer and then margin recover.

If we get 1.2, we’re nearly 30% profit year on year improvement. And that's probably a sensible level in terms of how it is we set forward to make it sustainable. Why don't we just -- I'll keep it practical and move that way so that we don’t have a problem with the mic, how's that?

James Tracey: James Tracey here from Redburn, two questions from me. The first one is on the 3.5% to 4% margin target. What sort of like for like sales growth assumptions are embedded within that? And why not reinvest the excess margin back into the customer proposition, or have you already have you done enough, in terms of the customer proposition that you wouldn't want to, rather like for like more?

Dave Lewis: So, let's answer the first one as candidly as I can.

I'm not going to give guidance in terms of what I think the like for like is. We have a number of scenarios as to what might happen in terms of market pricing. But it's extremely subject to the assumptions that we make, so we're not into a place. We obviously have an assumption, but we're not going to put that out, because that's definitely the one thing that is outside of our arena in that sense. In terms of -- we've invested a lot in the customer proposition.

So the opportunities now are very much more specific. It is possible to have an initiative that doesn't yield. So, the big challenge for the UK team but all of the teams is picking where it is we make the investments. And on what time and what place with what support, and that's just the planning of when is we lay down particular activities. So we shared the forecast based on the operating plan that we're going to run.

And a bit like last year, if we see other opportunities and if we were to get ahead then there are things that we can invest it. But that's just the balance, that's the way that we operationally choose to make the call inside the business.

Clive Black: As we've been told by a lot of retailers, margins or output. In that respect two points. Firstly, what do you think that deflects you from hitting your target over the next two or three years? And where the supply relationships to be, what supply chain fitted in your aspirations? Because you talked about OpEx, lower OpEx and logistics.

Is there much more to come from the supply chain?

Dave Lewis: Let me take the second one first. When I talk about supply chain and logistics, actually it's end to end, so I've given the wrong impression, that's not. So that’s this, in terms of margins and outcome. But as I talked before one of the things that I'm very keen for the whole of Tesco to have is a view of the aspiration of the business both inside and out. It's spreading some of the way that we go around, some of the decision making that we make.

It actually forces into our thinking different ways of how it is we run the business model. And probably makes us and encourages us to face into some changes that we need to make that otherwise we wouldn't. I suppose the one thing just be absolutely category, just by setting some margin aspiration, the idea that we go back and change our approach on commercial income -- not at all, absolutely not at all, we're going to do that in a structural way. But so by being clear about it, Clive, it actually engages everybody in what it is we're trying to do in terms of restructuring and reshaping the business. What could knock us off? Look, it's never been more uncertain in terms of what the future would be.

I know people laughed at us in April when we said who knows what happen over the last six months, over the next six months and nicely about prediction. There were quite a lot of things that people didn't think could happen. Come to some deflation over a perfected period of time with a lot of pressure through the model. You know it well. If there were to be an irrational customer, competitor activity, we'd have to deal with it.

So, it's not a promise, it's not a guarantee, it's an aspiration. And if there was something material that happened out there that forced us to respond, I'd come and explain it to you in the way I've explained everything over the last two years. But everything we can see, everything I look, exchange rate or other, actually our relative position versus other retailers in the UK is actually quite strong. We have an international hedge against the exchange rate that others don't have. So, actually we've got to get confident, that whatever the weather is, we can actually be one of the best performing businesses in the UK market.

And we've some confidence that we’ll do it. Do you want to pass it down this gentlemen here.

Stewart McGuire: Good morning. Stewart McGuire of Credit Suisse. Two questions from me.

Number one, the uptick in CapEx, is that going to translate into space growth at all, or is that into purely the operational aspects? Second question, online in your mid-color metrics, online is red-red, red-red-red. What are you going to do to make that…

Dave Lewis: You have to come on the 16th of November for that. And that's tantalizing a bit. So, Alan can add on the CapEx. There's some space expansion, modest in the UK.

It's modest in the UK. But it's in the UK, couple of large stores, 26 or so express stores, it's more in places like Thailand, so we still have space expansion aspirations in that part of the fast growing market. But quite a lot of it is in some of that infrastructure and the productivity improvements that we want to drive that actually contribute to the cost savings that we've announced. So, the delta is more -- relating to that change program the cost savings whereas the other is relating to 1.25 we have before. And look, the fact is if I look at online and I look at it particularly in general merchandize, it is.

By the way it doesn't say loss making. It says it's a margin that's below the average of total. So, the question goes, how do we step it forward. So, everything can make a contribution by being better tomorrow than is today even if it's below the average. So, we'll tell you a little bit about what is we're going to do.

And if you're familiar with what we've done in Fenny Lock, you'll see some of the things that we've done on general merchandizing, GM Online, as a precursor to where we're going. Bruno?

Bruno Monteyne: Bruno Monteyne from Bernstein. Three for me, so…

Dave Lewis: No, we should have one each. That we've gone -- I didn't say that, go Bruno quick. I'm sure they’ll be short and very easy to answer.

Bruno Monteyne: You've talked about the extra footfall in the business. There's not the increased frequency you were looking for customers that only had a few shops with you. So do you see the change in shopping behavior, bringing all the baskets back? The second one, international profitability, never was too seasonal and it's clearly a big step down in H1 from H2 last year. Are you saying there's seasonality in international profitability, or that has been a big step back and if so, why? And last one but not least, given the reinstatement, given your margin guidance. How much cash you're generating, how much further out is that?

Dave Lewis: I'll take the first two.

Why don't you answer the third, Alan? Is that alright?

Alan Stewart: Yes

Dave Lewis: What we're seeing in terms of metric is more people, and there's some indication that is coming more frequently, to your point of frequency. But actually the big -- and the reason I pulled it out is actually it's the delta in terms of more people coming back, which is what's driving the switching behavior that you see. So, there's some more frequency, but actually the most important thing is actually more people coming back into store. Actually, I've looked for 10 years, because I was looking at this myself. Actually international has always been more second half than first half.

It's only in the very recent past that we’ve changed that, and I think part of that was about adjusting and trying to help elsewhere in the Group. So, actually it's always been to look over 10 years, more seasonal than UK, the UK has been the one that's actually historically been 49-51 type thing. So actually there is nothing fundamentally different apart from getting back. I think in fairness to the international team. They are confident about their phase in first half, second half, and other things that have changed in Poland around legislation or the things that came with that.

I think we would be -- we would have still managed the tough market, as Alan says, in line with our plans but that was a something that came outside our control. So I am not concerned about the international profit deliver. You remember actually international last year there was some threat of potential taxes in one of the European markets, which didn’t actually come to risk. So there was an element of credit in the second half of last year, which we were still accruing following the first half. So there has been an element of that store potential challenges in some of those markets today.

As regards to the dividend today, too early to talk about the dividend, nothing has changed in terms of our, what we said before, which is just to remind you, we don’t necessarily put investment grade rating and dividend in any particular order. Clearly, there is a linkage between the intention to pay dividends, which are sustainable, whenever we return the dividend. And equally we would want to be doing that in a way which didn’t damage wherever we were in terms of that investment grade whether we were there or not yet there. So nothing changes, but it’s too early today to talk about dividend. Clearly, we’re focused on cash.

We’re focused on the net debt on the balance sheet and our cash commitments, and improving business performance drives all of those and creates better conditions. Now as you pass the microphone, I can see now why Chris is now scouting me, I was supposed to say the feedback last time that was by asking people to speak to one particular question that was appreciated. So the risk of incurring Mr. McCarthy's, could you pass over there. Dave you’ve got one questions for me?

Dave McCarthy: Yes, the question is how many questions can I ask?

Dave Lewis: I deserve that…

Dave McCarthy: Just simple question really.

You talked about the margin being 3.5% to 4% at Group level. Looking at the way things of your business and we know the question there. So is it fair to say that the UK will be at the minimum of the top of that range, and possibly above with Asia, high in that range and Europe, which is bigger than Asia being below that range? Or how is that make up going to be different?

Dave Lewis: Look, I think, we won’t. You know the answer to that one, so I won’t give segmental guidance on margin, but nice try. I think the fact is our international business as we see it today as a margin which is ahead of UK and Ireland, and that’s a function of many things that we can go into.

And based on the plan that we see, we actually see an opportunity to improve the international margin as well. So, actually, we’re looking for both to make a very positive contribution to the 3.5%-4%, but I am not going to give you the breakdown.

Dave McCarthy: But do you think Asia can move its margin forward as well there?

Dave Lewis: I do.

Dave McCarthy: Okay, thanks.

Dave Lewis: So, I am going to go backwards.

So if we could, just one question…
Xavier

Le Mene: Xavier Le Mene from Bank of America Merrill, Lynch. One quick one from me. Just looking out to 2020 guidance n for the three years plan, what kind of assumptions do you have in terms at least of inflation? How do you see that going forward because quite important actually…
A –

Dave Lewis: It’s very important, I get it. But I will borrow what Alan said. We’ve had deflation and we assume that deflation carries one through the course of the plan.

Now, what changed in market place, we don’t know. But the way that we’ve built our thinking is that there is a need for us to enhance the competitiveness of the business. So, we stay in a place, which is looking to sharpen our competitiveness. And therefore we assume a level of deflation. We won’t give a number.

But you should know that we think that actually there is still more to be done. Just pass it one row back I’ll just keep moving backwards if that’s okay. Seems like an way of going ahead. Here we go.

Rob Joyce: Rob Joyce, Goldman Sachs.

Just on the cash flow, so just want to work out what the retail cash guidance mean in terms of free cash flow. So my number is 9 billion is roughly 3 billion a year, it’s pretty easy. And you’ve got 1 billion of interest pension and tax on a normalized basis, 1.4 of CapEx, or we got into still free cash flow of around 600 million. Is that the way to think about that 9 billion?
A –

Dave Lewis: I think a couple of comments the waiting isn’t necessarily equal each year. And as the business recovers, you’d expect the cash flow generation to be higher towards the back end than the front end.

In terms of the underlying metrics, we certainly could see a position where we continuing to generate strong cash flow through the plans. So I am not going to answer the specifics. But yes, we continue to think about that. Equally, we need to recognize that we’ve always said that this business when performing well is strongly cash generative. So we do need to think about the overall balance sheet and capital structure in the light of that as we evolve and as we build increasing confidence about that recovery story.

But I think the way you’re thinking about is absolutely one that I’d agree with.

Rob Joyce: Thank you. A –

Dave Lewis: I’ll pass down to the end of this.

Unidentified Analyst: [Indiscernible] Goldman Sachs. So how much did UK lease expense fall in the first half versus last year?
A –

Dave Lewis: There are two moving parts in terms of the lease expense.

Are you talking about the commitments or the actual balance -- what’s going through the P&L?

Unidentified Analyst: The P&L…

Dave Lewis: In terms of the year-on-year, it’s some offsetting that. There is also underlying rental increases, which are inflation linked, and so we see that. It’s not significant part of the cost saving drivers that we see in this year. But overall when you look forward, the 121 million, which Dave had on the slide was the annualized basis on which we’ve reduced event. It will increasingly become important as we go forward.

Unidentified Analyst: Hi. Good morning, all. [Indiscernible] from Exane, I’ll be the pension ball, and I’ll go for it here going to be. What do you think as a fair measurement of the pension deficit, so putting an IAS deficit to one side? What do you think the fair measurement of the deficit is, be it pre-deferred tax, if you can. And then, why are you so happy on the 270 million? I mean, you’ve said that that’s obviously agreed with the trustees.

But are you pretty confident and that will be the amount that stays for next five years?

Dave Lewis: I think maybe it will be helpful if I give a little bit of background and thinking into the way that I and we and the trustees have talked about the commitment we’ve made to the pension fund. So we have a liability, a commitment, which has been entered into and which will last over many years, many decades, in fact. As we look to meet that liability, the liability actually evolves in annualized cash payments, annual cash payments, which are made to the members as and when they fall due. The intention is to have assets which will meet those liabilities, and those assets deliver cash on an annual basis as well in order to meet them, as they for due. The potential for variability between the asset performance and the liability on an annual basis can be very high depending on your assets mix.

So we’ve set out a framework whereby over a period of time we want to get to an expected return on the assets, which is not too risky in terms of your asset investment strategy. And which we think about in terms of the Gilt Plus return compared with the market gilt. That period is many, many years from now let’s say 20 to 25 years from now is where we would like to get there. So I think about four different valves we have in that journey towards asset being invested at a relatively safe, if you like, from the variability prospective of Gilt Plus and how we get to that. The four valves are firstly the time period by which we’re getting.

And there is not a specific point in time. It’s a period of years, 20 to 25 years, say for example. So that’s valves one, the period by which we’re going to get there. Valve two is actually, what is the Gilt Plus that we’re choosing, and that will be linked to the way that we expect the assets to perform, but equally with that an assumption, which is some way out, so that’s valve two. The second -- the third valves is the period from now to when we’re going to get that position.

And we can’t change that. So the time period over that, above which we’re making deficit contributions, is valve three. And valve four is the quantum of deficits that we’re making. So, if we look about all of those, the framework that we have today even taking today’s gilt, which will come back to us and not as relevant, taking all of those, the only valves that I need to change potentially as we look at the next valuation is the length of time that we’re making deficit payments, nothing else has changed. So, we haven’t changed any of the other valves that still in position when we talk to trustees about that 270 million being paid, maybe for a longer period of time, nothing else has changed.

So the reason why the IAS 19 is irrelevant is because it’s measuring a liability by reference to something which isn’t what’s going to be paid out. Our actual cash payments to be made to pensioners haven’t changes at all. They have actually dropped from February to where they are now because of pension members transferring out, different elements of some of the assumptions around mortality. Those things change. But actually we have a less cash to pay today than we have in future, than we thought we had to pay back in February, and yet the deficits has changed.

So it’s very emphasized measure, perfectly understandable from an IAS prospective as to why it was relevant at the time it was entered into, because it was a proxy for the assets -- for the return from the assets but it’s no longer the relevant proxy. And there is an article which makes to say interesting reading by Anthony Hilton a couple of weeks ago, which really just points to the measurements being emphasized calculation of what the actual liability is. So to come back to -- we will discuss with the trustees and it’s their decisions and we will discuss in a basis of the March numbers. But we very clearly set out a level of deficit contribution, which was designed to last through changing market conditions and was designed to be predictable and stable as we went through that. I don’t know what we’ll agree, but that’s where we are today.

And I recognize that conditions have been pushed to a level that’s measured looks very stressed but from an actual ability prospective, no real change.

Unidentified Analyst: So just to summarize that, you essentially think that your trustees will give you longer to pay down the deficit?

Dave Lewis: Well, I don't want to put words in the trustees' mouths, because the trustees have responsibilities, which are theirs. But we will talk to them. And one of the things, which I would certainly think and I’ve always been clear that the period over which we pay this deficit isn’t fix. One of the key valves that I would be wanted to talk about is that period over which we're paying the 270 million.

Unidentified Analyst: And then just on the question, A, which was how big is the fair measurement of the deficit? If IAS is wrong number, what is the wrong number?

Dave Lewis: Well, the way that I look at it is on an annual basis the cash flows that actually will be likely to be paid. You can then choose how you discount those back, and how you will seek to measure them. But it's actually is the only answer I can give you is that in 2052 I am going to have to pay X million, in 2053 X plus or minus. And then how you measure that today, very, very difficult, but that’s the way that it will be delivered. We have within the front more than 15 years of cash if we look at what -- without selling any assets today that we could meet these.

So these are annual commitment, which we are choosing to measure at a point of time. Do a favor and pass the microphone back. We've got about half a dozen more questions.

Unidentified Analyst: Yes, it's…

Dave Lewis: Another pensions question…

Niamh McSherry: No it's not. It's Niamh McSherry, Deutsche Bank.

However, I do have a clarification question, I am afraid. You said on deflation that you basically are assuming a level of deflation through the course of the plan. Can I just make sure that you are talking about deflation until the year 2020?

Alan Stewart: That’s right. So I think what we are trying to -- what I am trying to be clear about is no elements in recovery of the 3.4 to 4 is based on a return to inflation in the marketplace, which is I think was implied in the question.

Niamh McSherry: That wasn’t my question.

I meant actual deflation. So you're not assuming actual year-on-year deflation for the next four years?

Dave Lewis: Niamh, if you’re talking about absolute sales, we're not going to go to what we are thinking about in terms of our total sales but we do think that we should be more competitive, and there is more that we can do in terms of our competitive position.

Niamh McSherry: So you’re in relative price position, not deflation?

Dave Lewis: Yes.

Niamh McSherry: And then the question that I had was actually on the portfolio. So is it well, and is it fair to assume that the group margin aspiration that you’ve given is based on the current portfolio and also the current store base, i.e no further store closures in the UK? Or apart from that one?

Dave Lewis: Yes.

What we have as a group is the group today, and that’s what we plan going forward. We don’t have any specific store closures that we’ve got in mind. But clearly one of the ways -- what we have always said is that if we come to a lease expiry, and the economics of the store turns and we can't agree yet a rental with the landlord at that lease expiry, which makes it's -- the right decision for us to extend the lease then we will make a decision, which is the right economic decision. But we don’t have any of those planned at the moment. And in that terms the answer is there is nothing planned within that that we have given.

Niamh McSherry: Great, thank you.

Dave Lewis: We go back one more row and mic over to the gentleman at the -- in fact there is one behind you. Let's change the microphone. Here we go.

Sreedhar Mahamkali: Sreedhar Mahamkali from Macquarie.

Just hopefully a simple question, you’ve talked a lot of about fresh rightly so it's very visible in the stores. In that sort of end-to-end supply chain work, where are you in grocery, how far down the line are you core grocery? If fresh if you say you are 80%, 90% of the way there, it doesn’t work you want to do. Just give us a scale of where you are in terms of grocery?

Dave Lewis: Numerically, I am going to look at Jason as I say this, so on similar scale, I would say about half of the way that we would want to be. And that’s as much because when we did a lot of category resets in our large stores, we were only now doing those category resets through the express format. So we’re introducing there.

And the category resets that go with are to January, and the February. So actually we will not be able to say that we have made all the progress on core grocery in a way you say until we’ve done the express elements of it. So, we’re not as sour on as we are in fresh. Okay.

Sreedhar Mahamkali: And to get to way, it is another year, 18-months time…

Dave Lewis: From a category point of view, we'll get there by the end of February.

And in terms of what it is we want, I think then there are different opportunities with different supply base in terms of how it is we can do some of the real end to end stuff. There are some that are really well advanced and there are some for whom it's a bit challenging, because they were in that business in a way which is not thinking just about how it is engaged with Tesco, so that takes -- it tends to take a little longer. If you want a big multinational brand of player to change the way they work with us in order to simplify the size, it's actually more of a change for them sometimes than it is for some of our own label suppliers. So it just takes a little longer in the grocery space.

Sreedhar Mahamkali: Okay, thank you.

Dave Lewis: Right to the back, three more. So one, two and…

James Grzinic: It’s James Grzinic from Jefferies. I'm afraid, I have two one for Alan and one for Dave. Alan, going back on the makeup of the margin guidance, that does not include future benefits from field repurchases. Clearly, there will be in the future given how your balance sheet to and the way I'm seeing it.

Is that the case that that is not included in the margin guidance?

Dave Lewis: Again, we're getting into really specifics. But within our overall plans, we do have some targeted further properties, we don't know what they are but we would be looking to buy back from properties. So as you saw the UK is now running at 48%, and we expect to get some. Whether they get there, whether they turn up or not, we will see. But there is an element.

It's not a significant part of that improvement that we're looking for. But there is some element that we're targeting. And if I said no to that, then Steve would be let off something of what his objectives are.

James Grzinic: And that's not included within the 1.4 billion CapEx guide, those potential opportunities?

Dave Lewis: No it's not. And I don’t think that's an important point.

But when we look at it from an overall perspective, the CapEx that we're talking to is about the CapEx for running the business and in terms of running it today. So turning to around to the way you asked the question, there's not a significant element contained within it, which you should think about in terms of the CapEx guidance.

James Grzinic: And just to close a specific circle. Can you perhaps talk about the way you think about lease adjusted measures, and what is the appropriate capital structure, particularly given that there might be issues in terms of IFRS 16 changes how that is accounted for otherwise?

Dave Lewis: I think about it, and we're spending a lot of time trying really to work through the intricacies of IFRS 16 for the moment we think about in the way that we always have. We capitalize in the way that we set out in our notes.

IFRS 16 has got a lot of complexity, not only in terms of the going forward implication but the actual point of implication. And it will change very significantly the way that all of us look at the balance sheet and the P&£, as a result, no change to cash clearly, because it's a no economic change. But it's too early for us to talk in detail about what that is. We're spending a lot of time thinking through it. And we are going to have to work with your selves and with the agencies to help our thinking and their thinking get to the point that we each are looking at it from the same perspective.

James Grzinic: Thank you. And Dave, my question was really. Can you be more clear about what was better in half one relative to what you expected? Presumably, farm brands being very successful would be a margin depressor. So how’s it worked that has meant that you got 30-40 bps more margin than you thought?

Dave Lewis: Well, a number of things have worked. So I think the fact that it wasn't as much of a depressor as we thought it was when we made the decision to invest.

It's been a positive, the work around maxing the mix has been a positive, the benefits that we've seen in changing some of the store operating model has been a positive. The way that we've worked with our suppliers in terms of how it is we’ve driven some efficiencies in the operating model has been a positive. So, the positives, as Alan showed, are significantly greater than that but we've chosen to keep investing back in the offer. And the outcome is the bps improvement that you've seen. But it's a balance of all of those things.

James Grzinic: Okay, thank you.

Dave Lewis: I am going to pass to gentlemen in the middle, and then I’ll finish just here when that we’ve done it all.

Borja Olcese: Hi, it's Borja Olcese from JPMorgan. One for Alan, sorry for the specific question, but I think it's important. Seemingly, you saw year-on-year lower UK depreciation in combination with year-on-year lower operating lease in the UK as well.

Can you please confirm this was the case and why this would be a trend we should be extrapolating going forward?

Alan Stewart: So, just to make sure I understood the question. Year-on-year drop in depreciation?

Borja Olcese: In the UK, and in the rental bill or operating leases in the UK as well?

Alan Stewart: Well, some of it will be because of what we've bought back and the other is that we did have the impairments, which we took and that we see the full year impact of that then we get a benefit from that. We had some asset impairments, which you'll recall we took. So does that answer the question? So in terms of the trend, well we'll talk to you the next year when we get to the April in terms of it from the first half into the second half that trend we would expect to continue.

David Lewis: The final question, sir is all yours.

Nick Coulter: Hi, it's Nick Coulter from Citi. I am sitting down, one down from Jason. But could you, jor perhaps Jason talk more about some -- seeing you up there, sorry. Specifically about farm brands, and the why the shape of the investment was perhaps different to what you had anticipated? And what that told you about your offer just as an observation when you go into store you can see quite different penetrations by products for the farm brands?

David Lewis: Yes, I'll say one thing and Jason then fill out. I think it's -- when we made the investment decision, we had a number of variables, which was around what element have trading down and might be in terms of price points, so what the mix would be across those three different tiers.

And we’ve made an assumption at the time going in. And as Jason will tell you, the reality was somewhat different. But mate, why don't you talk about why?

Jason Tarry: Yes. So, what you saw at the same time is the launch of the farm brands, there’s relaunch of other ranges within those subcategories, because what we wanted to do is to be able to give a distinct and segmented offer to customers, so they understood how farm brands sat and to redesign and re-launching of Tesco brand and Finest. Now assumptions around mix, where we felt more of the business we’re going to the farm brands didn't come out the way that we expected it to.

So, farm brands are very positive. But actually as you saw from the volume out-performances that Dave shared, overall those categories performed well.

David Lewis: And I think the important thing build on that is that's about how it is we uniquely can play three tiers in the Tesco brand.

Nick Coulter: Is it like you say for example, carrots, you had a really high penetration, -- sorry for being a geek. But just to pick up…

David Lewis: If carrots is your thing let's go to carrots.

Alan Stewart: No, but it being a carrot versus potatoes or whatever, a lot of that -- he's nodding [Multiple Speakers]

Jason Tarry: It's absolutely variable somewhere ahead, somewhere behind. Overall, it was -- that trade down wasn’t as high as we expected, overall. Yes.

David Lewis: And the important thing is, for me if I take the aggregate, is the fact that the outperformance versus the market on volume and value is the ultimate test of what we did for the whole portfolio was that right or not. Yes.

Did it make us more competitive? Yes. And that’s why I took an un-weighted basket of where the pricing was to give you an idea of how competitive we were. Right. Thank you very much for your attention and your questions. It’s been a bit longer than before, but we’ve obviously shared a lot with you.

I suppose my closing remarks would be its two years. We started in a place where, let’s be honest, there were some pretty big challenges sitting on the Group, we have faced into those challenges, I think I believe that we’ve done what we said we would do in terms of addressing the three priorities we set for ourselves. It's time for us to shift gears and think about how we rebuild on that. And what the market stays uncertain and the difficult, we have some confidence about what it is we can do as Tesco in those market conditions to make the business more competitive and indeed more valuable for shareholders. The last thing I want to do, and probably is the most important thing is, I am standing up here, we’re sharing with you results.

If you want to know its 500,000 people that faced into that reality two years ago. And it’s a whole bunch of suppliers were faced into that reality and came with us, and it would be completely, completely wrong if we were talking about the results here, and I didn’t let you know the biggest thanks I could give to anybody are those 5000 colleagues who have done and made the results possible of what we’ve done and give us the confidence to talk about what is we might try and do over the next few years. And so to those colleagues and to the partners who have come with us on that, I’d just like to register publicly my thanks to them, because they’ve been absolutely awesome. So with that, thank you very much indeed.