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TWST: Can we start with an introduction to Sainsbury’s (London: SBRY.L) and an overview of how the company is positioned today?

Mr. Matthews: Sainsbury’s is a top fifty UK group with a market capitalization of around GBP5.5 billion. The Group’s turnover for the last year-end March 2003 was GBP18.5 billion with underlying profits before taxes GBP695 million. We’ve got three businesses: our UK supermarkets where we still have a number two position in food sales in the UK and about 11 percent market share of the total market; our second business is Shaw’s in the US where we operate in the New England market and are the number two player. We have around 200 stores and a 20 percent marketshare and Shaw’s represents about 20 percent of the Group in terms of sales; and thirdly we have Sainsbury’s Bank, which is a small part of the Group where we are extending financial services to our customer base in the UK and it is a business which has excellent growth prospects.

TWST: Bringing it back to the UK for a moment, can you talk a little bit more about the competition and how the consolidation theme is impacting the environment?

Mr. Matthews: Clearly, it’s a very competitive market here in the UK with Tesco, Asda, Morrisons, Waitrose, and Marks and Spencer being our principal competitors. But, as you say, the interesting element at the moment is the acquisition of Safeway by Morrison. So, that’s quite a significant change about to take place in the marketplace and will create a larger fourth player. I think the opportunity for us is that there will be three value-oriented players, Tesco, Asda and Morrisons, and we will differentiate ourselves very much on the quality of our products, the choice and service. We have to offer that at competitive prices, but we’re not an everyday low-priced operator. We certainly think there’s an opportunity to differentiate based on quality and choice.

TWST: What have you been doing to make sure the company is well-positioned to be successful in this competitive environment?

Mr. Matthews: I think the important thing for Sainsbury’s is that we’ve put a lot of investment into our UK business over the last three-and-a-half years since we launched our strategy for our Business Transformation Programme back in October 2000.This really corrected a number of years of under investment and was designed to restore profitability, modernize infrastructure and re-platform information technology and lower our cost base. We’ve gone through a huge change program of modernizing our systems, opening four new fully-automated distribution depots and also upgrading our store portfolio with a high number of extensions and refurbishments. So as you can imagine, that’s been a huge change program, but something we had to do, to put us in good shape for the future. Obviously one of the objectives is to lower our operating costs going forward and enable us to be more competitive. So what we’re looking to do now - and we have very openly signaled this - is to complete that program by the summer of this year and move on to the next phase, which will be very much moving into business as usual but looking to trade the store portfolio harder and make further investments in both quality and price.

TWST: How would you like to see the next 12 to 18 months unfold? What is your overall strategy and some of the headline objectives?

Mr. Matthews: The next six months is very much about completing the transformation program, which we’re committed to doing. Beyond that, it’s much more about up-weighting our quality program and you’ll see quite a lot of activity with our very strong sub brands where we have got Taste The Difference (Premium range), Be Good To Yourself (low fat range) amongst others. And, we will be emphasizing other areas of strength around our fresh offer and convenience offer and on our non food offer, which we re-launched back in September of last year. So you’ll see progress on all those fronts, with the overall objective of refocusing on top line growth and like-for-like growth. Certainly within an 18 month period you should start to see some improvements coming through there.

TWST: How strong are you from a financial perspective? Is the balance sheet where you need it to be?

Mr. Matthews: Yes, we have a very strong balance sheet. We run the business very prudently. We took some very early steps to strengthen the balance sheet with the sale of our Homebase business soon after we launched our strategy in October 2000. That raised just over GBP1 billion. This year we’ve also sold off a small development company for just under GBP200 million. We’re underpinned by about GBP5.5 billion of freehold properties. We have a modest balance sheet gearing level of around 40 percent, which is lower than other UK competitors. And, as I say, we’ve actually pre-funded, in many ways, the finance that was needed for the investment program. So the balance sheet is very strong and our cash flows remain very healthy. The other important point really is the capital expenditure has obviously been high during the period of investment, but that’s already started to reduce. This year it will be about GBP1 billion, down from GBP1.2 billion last year. But underlying that, the UK capital expenditure will be down from a billion last year to around GBP700 million this year. Therefore, you can see how the capital expenditure’s coming down and we’re aiming to be in a cash flow positive position from the Group perspective by 2005/2006. So, all in all, that’s in good shape.