J Sainsbury Stock

Hello, and welcome to the Sainsbury's Analyst and Investor Call. On the call this morning is Simon Roberts, Chief Executive; and Blathnaid Bergin, Chief Financial Officer.

I will now hand you over to Simon Roberts for opening remarks.

Well, thanks very much, and good morning, everyone. Really appreciate you joining the call with Blathnaid and I's short notice this morning. Thank you for your time. So I'm going to make just a few prepared comments first. And then, of course, Blathnaid and I will take all your questions.

So let me just recap on clearly what we've announced this morning. We've announced an agreement for Swift to acquire Argos. And we've announced this because it will enable us at Sainsbury's to fully focus on the heart of Sainsbury's our core food business.

Sainsbury's will be a simpler business with higher margins, higher earnings, higher growth and stronger free cash flow generation. The dedicated Argos management team of course, has already brought a sharper focus to the business and delivered tangible results with the Argos Transformation Plan with improvements to range and the digital proposition delivering volume growth, as you heard at our Q1 a few weeks ago. So we carefully considered what it will take to create the strongest possible future for Argos.

The Swift team bring, as you've seen in our announcement this morning, the retail leadership, the operational expertise the technology capabilities and the long-term investment alongside a deep commitment and belief in the future potential for Argos, Argos' customers and colleagues. And having spent a lot of time with Richard Trevor and Matt in the recent months, they really understand and value the Argos brand. They share our values, and we believe they can build on and accelerate the Argos transformation.

Argos will continue to trade through its established channels and both businesses will continue to work closely together through a series of long-term commercial agreements we put in place, including that Argos will continue to trade within Sainsbury's stores and income from an ongoing relationship with Argos with Nectar. So coming to the numbers, we expect cash proceeds of at least GBP 120 million. We expect to receive at least GBP 70 million of cash on completion, which we expect to be at the end of February next year, February '27. And the remaining GBP 50 million over the 3 years post completion. These cash receipts are expected to be offset by separation costs, and we expect to achieve full separation within 2 years of completion.

In terms of profit, we estimate the impact on underlying operating profit post-separation to be broadly neutral and for this transaction to be accretive to underlying EPS. With income from commercial agreements and reduced lease costs outweighing the impact of dissynergies and the lost profit contribution from Argos. Now as you know, we've spent the last 6 years rebuilding the core strengths of our food business, delivering a return to growth, market share gains and sustained strong momentum.

And this transaction we're announcing today will allow us to fully focus on the significant further growth opportunities we see ahead of us in delivering for all of our stakeholders. So I hope that summarizes the kind of key points of what we've announced this morning. So let's now get into your questions. Let me hand back to the moderator. Thank you.

[Operator Instructions]. Our first question comes from Fredrick Wild at Jefferies question.

Thank you so much for taking my questions and congratulations on the deal. So my first question is about the exit conditions. I mean are there any supply chain overlaps to unwind over the next few years? And ultimately, what are the exit conditions of the Argos concessions, if you said we want to repurpose some of the space there that other used over the longer term?

And my second question is -- there's been a lot of, obviously, corporate focus on Argos and the change program there. So how does this deal impact how you think about CapEx in the future and how you think about your investment plans?

And my third question, if I can get a third one in there, please, is about how it impacts your ownership of the Nectar data? And whether that will all stay with you whether, Argos will still be contributing to your sort of understanding of customers through Nectar?

Okay. Well, why don't I speak a bit to your first sort of question and a half, really in terms of the ongoing arrangements that we've put in place. And then Blathnaid I think can talk about what this means in terms of how we think about Sainsbury's and CapEx. And just more broadly, these long-term partnerships that we've put in place. Look, I think at the very heart of this transaction, one of the reasons we feel so confident this is the right thing to do is, clearly, this transaction has come at just the right time given the momentum we have in the Argos business for that now to be accelerated under new ownership.

And in answer to your specific question we've agreed long-term commercial agreements in a whole number of areas, which will provide ongoing income clearly to Sainsbury's as a result of this transaction. So the Swift partners, the team of Richard, Matt and Trevor are fully committed to the Argos model as it is today of Argos store-in-stores, stand-alone stores and the distribution network. That means in hundreds of locations across the U.K. as we have today that Argos will operate inside Sainsbury's.

And from Sainsbury's point of view and Sainsbury's shareholders point of view, we should be looking at this as a really good outcome because, of course, the store-in-stores use a very small footprint of space in our supermarkets. In the main, the Argos stores-in-stores are using stock from space-to-store the product. So we continue to take the advantages of the Argos store-in-store collection points in our stores. But clearly, going forward with rental income that reflects the value of being able to be in our stores. So we feel very positive about that. As we've always said, Nectar is just coming to the last part of your question, obviously, Nectar is part of Sainsbury's Nectar360, and we've agreed commercial agreements again. to make sure that the ongoing benefits happen for Argos customers.

But clearly, as you'd expect, we've agreed appropriate commercial terms for the value of Nectar, and we expect to continue to see that benefiting both loyalty but also Nectar360 as well going forward. Blathnaid?

Great. Thank you. So Freddie, we've guided GBP 800 million to GBP 850 million for CapEx this year. I'm not changing our guidance today, either on cash, on profit or on CapEx. We'll update our thoughts on that next year in the spring when we sort of give you a broader update on what next year might look like on that.

Our next question comes from Manjari Dhar at RBC.

I also just have three questions, if I may. My first was on the pension scheme. I just wondered if you could give us some color on, sort of, why you've chosen to retain the Argos pension scheme and what are the contractual commitments from Sainsbury's in terms of contribution funding going forward?

And then secondly, I just wondered if you could give us some color on, sort of, how we should think about the time line of the separation costs as they come through?

And then finally, I know that increasingly, Argos has been sort of separately managed from Sainsbury. I was just wondering, are there any remaining areas where there is still sort of integration in the wider business and that we have to think about in terms of separation?

Blathnaid, do you want to take 1 and 2, and I'll take 3?

Yes. Great. So look, on the pensions, we've transferred that scheme into Sainsbury's defined benefit scheme. It's -- there's a GBP 143 million surplus in that scheme. It's been in surplus for the last 5 years. We've not made any payments into the Argos scheme since 2024, and look, we're working through the strategy with the pension trustees as what the future for that scheme is, given it is in surplus and there is no cash payments going into that today.

On the time and on the separation costs, I'd broadly split them 50-50 across the 2 years. That's the way I would think about it. We made a little bit of a tail into year 3, but I don't think it will be material overall.

Yes. Super clear. And then just on the sort of last point more broadly about separation. Look, I think, Manjari, to your question, you'll remember, we've talked about this on our previous calls. We learned a lot actually from the engagement we had last year. As you know, we've already started to make choices in terms of pulling apart, for example, some elements of the technology stack that we -- we've always believed that Argos will need separately from Sainsbury's. So we actually come to this transaction, having done a lot of the prework which I think is really important in terms of preparation.

As Blathnaid just said, we're going to be really focused on achieving, for example, the full tech separation within the 2-year window. We've set 2 years for that. And we've got a very experienced team inside Sainsbury's who know what this looks like, know how to do it. And so of course, these are complex projects to achieve, but we're very confident we have the right focus and the right capabilities to achieve the 2-year separation. And of course, the job is to get that done, to get it done to plan.

And then clearly, for Argos some new ownership to do what Argos needs to do, but I just want to come back to the big point of today, which is the opportunity this presents to simplify Sainsbury's and to have all of the team in Sainsbury's totally focused on the Grocery Business and the opportunity we think that presents. So getting the separation done efficiently, expediently, with the capabilities we have.

And as we do that, getting clearer and clearer about how we're going to become even stronger in our focus on food.

Our next question comes from Rob Joyce at Exane BNP Paribas.

So thanks very much for taking the questions as well. So first one is just slightly elaborating what you said earlier, Simon. But just in terms of those commitments, and how easy it would be to exit those store-in-store locations for Swift? What are they looking at in terms of the signing up to leases on this, sort of, longer term? And how does it work if they want to exit those store-in-stores? And just linked to that would be, in terms of leases on the external Argos stores that Sainsbury's are still the head lease holder of, how many of those are there?

And then the second one is just in terms of your ongoing, in terms of cost savings number, which has been quite a key component of sort of investing in the grocery business, does this change anything with regards to the amount of cost savings available in the business and what can be used to invest in grocery?

Really clear, Rob. Thank you. Well, why don't I take the first one, maybe Blathnaid on the external leases and then I'll come back on the cost at the end.

Rob, I think it's probably just worth giving a little bit of context as to how these transactions come about, just to your question on the direction of travel on the store in stores and the commitment to that. One of the fundamental reasons why we're having this conversation this morning and able to share this transaction with the market today is that we've spent actually quite a bit of time over several months building up this deal, this transaction.

And what's become very clear to me and to the Sainsbury's Board is the commitment that Matt, Trevor and Richard Swift partners have to the Argos model. And fundamental within that is the commitment to the store in store model. And of course, as we've come through all the discussions we've had and we've really got to know each other, what's become really clear is that this transaction fundamentally has a long-term commitment to store-in-stores.

Actually, I was on a media call earlier with Richard, and he was talking about some opportunities in locations where Argos doesn't exist today, including making the point if we open new Sainsbury's wraps, wanting to be able to work with us on where else Argos might arrive. So the -- I guess the reason for sharing that with you is the direction of travel here isn't less store-in-stores. I think the new owners really see the value of that model. They really understand there and obviously the benefit of the footfall and customers that come with it.

So we've clearly made a long-term commercial agreement with them, which has a clear income stream based on the number of stores inside Sainsbury's and it's a universal agreement that's a fixed cost for the number of stores are there. So what I'm saying is there's are a direction of travel here which says the store-in-store model becomes less important, if anything, there's a real determination to bring more range and more focused to help grow Argos. Blathnaid?

Great. So I'm going to stand back from the leases, Rob, and just spend a few minutes on it because it is -- you just need to spend a few months to get your head around it.

So the first one is Argos is the headline landlord on a number of leases that go back many, many years. That is about 250 million. That comes off the group consolidated balance sheet and transfers into the Argos legal and it was already in the Argos legal entity, but moves out of our balance sheet as part of the transaction. That's your reduction in your net debt, the 250 million.

The second bucket are the properties that Argos operates out of today where Sainsbury's has taken on those lease obligations. They split into two. There'll be some store-in-stores, but they're predominantly local fulfillment centers, those leases, we would expect to unwind over the next 3.5 or 4 years, the majority of those as those leases come up for renewal, the Argos team will take them on and negotiate with the landlords and they'll come off our balance sheet, but they will pay us for those leases in the meantime. So they will bear the cost of them. It's just -- it makes more sense for us to kind of continue to operate those as kind of the landlord pass-through on that.

The third bucket is the store-in-stores. Now we are the headline landlord on that. So we can either be the freeholder or the leaseholder. We have put the store-in-store rent agreement in place. That's in place for a few years. It's a fixed rental amount for the first few years. There's some flex for Swift, if they want to add to that estate if they want to take away from that estate and reshape. But very limited, though what we'd expect them to do on that.

So there's the three buckets on it. So I think your headlines is reduction in net debt of 250 million, leases that are transferring to Argos, the other leases are a pass-through that will unwind over the next 3 to 4 years and then the cease rental agreement that we talked about on that. I hope that kind of helps bring it together.

Thanks, Blathnaid. And then roughly, last question -- I think just -- sorry, Rob, do you want to?

No, I'll say thank you guys. Clear on that one.

Just going to come to your cost saving points. So look, as you say, I mean, one of the benefits of the last number of years is there have been opportunities to take cost savings in Argos and to reinvest those in the grocery model. And I think back to the early phase of the food first was very much our focus. I think where we are now, as you know, we have a very clear cost focus in the whole business. We remain on track for GBP 1 billion cost savings by the end of these 3 years.

And clearly, as we've come through the last period of time, I said at the beginning of next level Sainsbury's, but Argos and Sainsbury are two separate businesses. And so very much as we've come into this strategy cycle, we've been focused on clearly the cost saving and efficiency effort in Sainsbury's, which is continuing to deliver a very focused as we look ahead and dissimilar in parallel track in Argos. So we don't see this transaction today as presenting any changes in the direction of travel or in the value we see in delivering efficiency in both businesses.

And clearly, in Sainsbury's as we look ahead, we're -- in our last year, our next level plan will be talking to you at the beginning of the next financial year, about the next period of time. And we're very focused as a team, as I say, on the big opportunities for Sainsbury's today is about actually doubling down on that now with the focus and simplicity this will bring to the business, and we'll be able to drive our performance even more as we look ahead.

Our next question comes from Izabel Dobreva at Morgan Stanley.

I had a couple of questions. The first one is, could you please explain the structure of the commercial arrangements. So should we think of this as an annuity-like fee stream that you will essentially be receiving every year on a stable recurring basis? Or is it structured more as a share of the profit of Argos. So how should we think about the volatility coming from that profit contribution? That was my first question.

Then my second question is just around the buy back. So I understand that there will be separation costs, which are going to offset cash proceeds. But at the same time, you are reducing your leverage profile. So how should we think about the scope for capital returns as a result of this transaction?

And then finally, could you give us a sense of -- sorry, to interrupt you. I just had one final question of could you help us understand the synergies point that you mentioned? What exactly are dissynergies and how have you gone about sizing them so that we can understand what is the level of risk that they may be higher or lower than you anticipate?

Great. So why don't I take those and Simon will help me and support. So I'll start with the buyback. That's an easy one. Look, we have a very clear capital allocation policy this transaction is kind of cash neutral to us. It will -- it will be cash accretive over time. We're not going to talk about that today. But our capital allocation policy remains exactly as it is today. These are arm's length kind of commercial arrangements. They will be kind of ongoing arrangements is what we'd expect them to see and they do offset the dissynergy.

So when you bring any two -- take any two businesses apart, we've taken cost savings with synergies over the years, we'd expect some dissynergy. So to give some examples of that, you'd have some shared teams and group functions, and you have to stand up your own teams on those and expertise. And that's kind of a big dissynergy in some of the tech, you have shared your tech stack as well. Lion's share of our separation costs are in separating out that tech, so we'll have to run our own tech stack rather than sharing the costs as well. But the commercial arrangements broadly offset dissynergies over time.

So, net-net it plays a draw as a way to think about it. The other one to sort of bring you down a little bit further into the P&L with the 250 million leases transfer across. There will be sort of a reduction in our lease interest payments as well. So you'll see that dropping through, and that's where we get our single-digit EPS accretion from on the transaction. Hopefully, that's answered your questions. If not, let me know.

Yes, Blathnaid, thank you. Maybe just one thing to add. I think Blathnaid has covered it all, but just to be clear to you quite bit, there's no volatility in the long-term agreements that we've agreed. They're not linked to changes in performance we've agreed on all sorts of issues, whether it be rental for store in store, collection points, Nectar360 the whole basis of this is a long-term agreement and it's not subject to any volatility that kind of plays into that.

I just had a small follow-up. So should we understand that the synergies will come on top of the separation costs?

So you've got separation costs of 120 million, largely offset by the proceeds. So you put that in one, kind of, bucket. There will be commercial arrangements that will generate income and they are the rental agreements and the Nectar agreement, they will offset the dissynergies that we're expecting to see. So when you think about the P&L to be broadly neutral across this transaction, and then you get the benefit from the lease interest on that, which gives your EPS accretion. So think of them as playing a draw.

And then within that, of course, Izabel, which I know you've got thinking about the focus coming in Sainsbury as we execute and see through this period of time. Obviously, one of the things we'll be working on is not only how do we achieve the separation to how do we use this focus on simplifying the Sainsbury's business to make sure that we double down on all the things that we're doing there. So as we come through this period, that's obviously an important focus we're going to be bringing. We'll talk to you more about that.

Our next question comes from Sreedhar Mahamkali at UBS.

Maybe just -- I realize I think Blathnaid, you said you don't want to change CapEx guidance. But if you perhaps, kind of zoom out over the medium term, how should we think about free cash flow accretion from this. It certainly looks like it's dilutive to free cash flow than accretive. So super helpful to understand your...

No, it will be positive. It will be -- yes. So the way to think about it, Sreedhar, is to be positive to cash flow over time. There'll be some lumpiness in year 1 and year 2, as you sort of get the phasing of the transaction, the proceeds coming in and separation costs, but over time, it's cash positive for us. There's also some working capital true-up. We'll have to work through that at the time when we close. So net-net, it will be positive to cash is what I would say.

Okay. I was just going to ask about working capital. If there was anything there that was planned in this year's cash flow. And if that still comes through, that's subject to final settlement, I guess?

It's subject to final settlement. But today, we are kind of reconfirming our guidance at least 500 million retail free cash flow. And we're also reconfirming our profit guidance. There's no change today to either of those on the CapEx guidance as well.

Got it. And very small follow-up, last one is Swift is acquiring a sourcing office in Hong Kong and Shanghai. Like how does that work for Sainsbury's GM sourcing and things like that?

Yes. So we'll have arrangements in place on that. So a lot of our, kind of, clothing is sourced out of Bangladesh, we have 4 offices overall in Asia, they're getting two of them. We'll work through the arrangements on the others, but we'll put arrangements in place for the GM. And if you look at this deal, it's got a Habitat agreement in there. So a lot of our Habitat home will be coming from Swift as well, and we're really pleased to be able to put that agreement in place that long-term agreement.

Exclusively as well.

Exclusively.

Our next question comes from Elizabeth Moore at Citi.

So my first question was just on whether the disposal will impact your plans for launching the marketplace proposition? And yes, just how the kind of discussions with Swift have gone around that?

And then secondly, I was just wondering if you could give us a bit more color around the disposal process. So how long you've been talking to the Swift team and then also whether it was a competitive process and if you were talking to any other parties at the time?

Okay. Let me take those and Blathnaid, obviously, will comment on that. Look, I think the first thing to say and it sort of really reflects my comments to Rob's question, which is that we've really learned over the last number of months why Swift Partners are the right future owner for Argos? And I say that exactly to your question on marketplace, which is they really buy into the unique model that Argos is and the fact that Argos has to carry both on its own ranges, but also through a marketplace, all the products that people want to buy. So they're very committed to the marketplace, actually very excited by it.

And I think one of the reasons this conversation developed at the pace it did is because we were already well underway in doing that. So it directly speaks to the kind of strategic positioning of Argos, doesn't it? Which is being able to get products to customers quickly online or in store and having access to the widest range possible. So I know they're excited about that. I think in terms of as we've come through this process, I mean, I would just reemphasize the point that we're having this conversation this morning for a couple of very clear reasons. First of all, you've heard me talk about the benefits we think this is going to clearly bring to the Sainsbury's grocery business as we put all of our focus, management time, CapEx focus, everything we do is going to be about driving an even stronger performance in core grocery.

And so therefore, as we think about this disposal, we've been really working up over a number of months why this transaction works? What our new owners are going to bring? I would just stress the point they bring deep expertise in many retail brands in the U.K. They really understand the Argos model, which gives us a lot of confidence that we can achieve this separation in the 2-year period really effectively. They're very committed to that, too.

And as a result of that, we come to this point with the right owners who have the right intentions for Argos that we can separate well and efficiently in the time frame so that as we come through this period, we can really double down in Sainsbury's and all the things that I've just said, and then to your point, I think you'll well remember the events of autumn last year. We concluded that, that engagement wasn't going to lead to the right future ownership of Argos. And I would just make the point that this is all about finding the right owner and an owner that we can trust to do the right things, and that's what we think we've got here. And so we weren't in a competitive tender, just to be clear.

Swift came to us. I had an initial discussion with them soon into this calendar year. It became clear, but there was a gem of something there that was very interesting to explore, Clearly, over a period of time, Blathnaid and I and a small number of our team really engaged in this opportunity. And over a number of months, as we've worked it through, it's led us to today, which is the right future home for Argos with an ownership model that's going to really work for the business, back with the right structure and a really clear intent to grow Argos, such as I say that we can double down in Sainsbury's at what we think is the huge potential of this brand and our food business.

Yes. I just have one build on that. But when we looked at this, it was about creating shareholder value. So finding the right future strategy and owner for Argos, but also on the Sainsbury side, creating shareholder value. And with that new focus, where we have a huge focus on food, but it will really help us to drive the momentum that we have today in the business forward. So there's a lot of shareholder value in this as well.

Our next question comes from Matt Clements at Barclays.

Good morning. Can you hear us okay? Yes. I think that's me talking. Have we got the next question there?

The question will come from Benjamin Yokyong-Zoega at Deutsche Bank.

Good morning.

[Operator Instructions]

Can I just check, is there another question there?

[Operator Instructions]. There are no further questions on the line. Thank you.

I just want to make sure that we haven't lost anyone on the flow there.

Okay. All right. Well, look, can I just thank everyone for joining the call this morning. We've really valued hearing your questions. It's been really good to discuss clearly what we've announced this morning. If there are any follow-up questions that we haven't been able to hear it on the call.

Obviously, James, Blathnaid and I are around all day. So very happy to do follow-ups wherever we need to. I hope the technology hasn't gotten the way at the end there. So I do reach out if you've got a question. And thank you again for joining us.

Clearly, a significant day today as we continue to drive our strategy forward and Food back at the heart of Sainsbury's, having exited our financial services in the way that we did and now announcing this transaction today as we continue to double down on delivering for our shareholders at Sainsbury's.

So it's been really good to talk today and catch up soon. Thank you.

Hello, and welcome to the Sainsbury's 2026-'27 Trading Statement Analyst Q&A Call. On the call this morning is Simon Roberts, Chief Executive; and Blathnaid Bergin, Chief Financial Officer.

I will now hand over to Simon Roberts for the presentation.

Well, thank you, and a very good morning, everyone. Thank you for joining us this morning, and welcome to our first quarter trading statement covering the 16 weeks to the 20th of June. I'm going to cover our trading performance upfront, and then, Blathnaid and I will be happy, of course, to take your questions.

But before we get into the results update, I just want to call out actually the immense job done by all of our colleagues, farmers, suppliers, refrigeration contractors, our entire team in last week's exceptional weather conditions, which came fully in the first week of our second quarter. We had a strong sales week last week in both Sainsbury's and Argos, but not without some operational challenges given the unprecedented temperatures across so much of the U.K. And it really was a phenomenal team effort with all of our team working around the clock to make sure we recovered as quickly as we could and into this week, of course, in preparation for another heat wave to come next week. So a big thank you to all of our team and all of our partners who supported.

So you'll remember this slide from when we last spoke together in April. When I shared it with you then, I said that we were well placed to navigate the year ahead and that through doing the right thing for our customers, colleagues, suppliers and farmers, we would continue to outperform the market and strengthen our business. Now 16 weeks in, we're doing exactly what we committed to do. We've made an encouraging start to the new financial year with continued volume growth and market outperformance.

We know how tough it is for customers out there. The cost of living is still very much top of mind, and customers are looking for value now more than ever. And so it's been key to maintain a relentless focus on value, giving customers reassurance that week in, week out, they can rely on Sainsbury's for their big weekly trolley shop.

But we know that for customers being first choice for where they do their big shop is about more than just keeping our prices low. It's also about delivering outstanding quality, inspirational and exciting product innovation and being the supermarket customers trust for consistent availability, freshness and service.

Now, we've made big progress across all elements of our winning combination in the quarter, and the operational momentum we have in the business is driving continued strong execution where it matters most to our customers. And this is underpinned by the investments we're making in refreshing our stores, by improving the digital experience with greater personalization, with the technology that's improving the shopping trip, AI and automation and driving efficiency in our operation and supported by the strength of our GBP 1 billion cost saving program.

The strength of our customer offer is evident in our sales performance for the quarter, with grocery sales growth of 3.6%, reflecting slightly lower inflation quarter-on-quarter and continued volume growth against a particularly tough comparative period last year. Tu Clothing and Sainsbury's General Merchandise sales were down year-on-year, reflecting very strong performance last year. Tu outperformed a soft market, and we continue to benefit from improved availability and improved style credentials, while general merchandise sales were impacted by some seasonal weakness, but more significantly by our ongoing and planned program to tighten ranges and reduce space allocation in favor of food. And encouraging volume growth in Argos was offset by the impact of lower average selling price with sales marginally down by 0.5%.

So looking here at the Nielsen EPOS route of market share. In a quarter which has been characterized by a number of headwinds, a more cautious consumer and a comparative impacted by cyber issues and seasonally less strong weather, we have continued to outperform the market. Our outperformance narrowed a little this quarter, but we fully expected this, and we continue to expect to outperform the market by around 1% this year.

What this really demonstrates is the continued strength of our customer offer across value, quality, availability and service and how well we have executed our plan for customers. And this has been particularly true in the moments that really matter, the key events and occasions where customers are choosing Sainsbury's to celebrate.

It is these moments that really played to our core brand strengths in fresh food, in innovation, in quality and in service. Now, when the sun shone and demand was at its highest, we fully captured the benefit with outstanding fresh food availability and lots of summer newness across barbecue and sharing plates. As a result, alongside these key events, we outperformed the market during the May heat wave. And as I've already said, we have had a positive start to the second quarter last week.

We continue to remain tightly focused on giving customers the confidence that they can trust us for reliable value. And you can see here our price position at the end of this first quarter versus the end of the '25-'26 financial year. As a reminder, the value index we are showing you here is across the widest comparison we can make. Although worth noting, it doesn't reflect the additional value we're offering to customers through personalized Your Nectar prices.

The orange line is showing price parity. And as you can see, we have strengthened our value position versus most price competitive retailers. It is the consistency of our delivery on value that customers are really responding to with value perception improving year-on-year. We've maintained the biggest Aldi Price Match in the market for over a year now, and customers continue to respond positively to the breadth of range available in both our supermarkets and our convenience stores.

And more and more customers are benefiting from the great value of Nectar Prices, now in around 11,000 products, and of course, personalized Your Nectar Prices. We now have almost 1 million more customers regularly using Digital Nectar to access savings in Sainsbury's and across the full coalition. And as you know, this is the fuel that powers our Nectar360 Retail Media business. So this increased participation is also helping us to further accelerate growth there.

Now, we've delivered another strong performance in Taste the Difference this quarter with growth on growth against an outstanding quarter last year. Our passion for innovation remains a key point of difference. We've launched 380 new products this quarter, 50% of which are Taste the Difference, expanding our delicious deli and picnic ranges as well as extending our restaurant quality Discovery range to barbecue to make sure customers are well set for every occasion this summer.

And our work in innovation is also supporting our strengthened 2030 health commitment, which we launched this quarter, as you saw in the video at the beginning of the call. We know that customers are increasingly focused on making more conscious healthy food choices. And so, we are going further to make healthy everyday essentials more accessible and affordable with a real focus on fiber, fruit and vegetables.

We're launching a number of new and reformulated products, and we've introduced Full on Fibre labeling across more than 500 products, over 100 of which are included in Aldi Price Match or Nectar Prices.

Now, so much of our progress here on leading innovation and our outstanding quality and freshness is only because of the strength of our long-term partnerships with farmers and suppliers. They are the driving force behind our surety of supply in some of favorites such as delicious British berries. And this means we can deliver consistently great quality at great value for our customers.

As we amplify our strengths in quality and extend our premium ranges, customers are noticing. This quarter, we've moved closer to the quality perception of our premium competitors. And with the brilliant work of our innovation team and our strong pipeline, particularly on Discovery, we are confident we'll make further progress here.

What is equally good to see is that we're extending our lead on quality perception against the rest of the market as well because quality isn't just about Taste the Difference, it's about the standard of our products across the full basket, our range and the strong availability and the freshness we maintain right across the shop. And it's that that's really resonating with our customers.

It is this combination, our winning combination of value, quality, availability and service, which is driving our momentum and continued outperformance in the market. We continue to lead on customer satisfaction in supermarkets, widening the gap again this quarter. And we've improved our service in groceries online as well. This really reflects the strong operational momentum we have in the business and the end-to-end focus we're now achieving, having brought together the leadership of our stores, supply chain and logistics.

This is now delivering a step change in availability. And we've been really focused across the entire business this year on improving all aspects of the shopping trip for customers. We know that the amount of change we have been making to a number of stores has disrupted customers over the last 18 months. So we set out this year to ease some of the pinch points as we make changes, but also on helping customers recover faster after we make change. And the stats here across key customer perception scores show good progress in key areas, particularly availability.

Now, we talked in April about the fact we put in place a fully dedicated Argos management team. There is sharper focus and a new energy in the business. We've made good progress, extending choice through more supplier direct fulfilled additions, improving the digital journey and driving higher app participation. And we've introduced AI-led stock forecasting and routing for the first time, already delivering significant benefits.

We've also launched Argos Pay through our partnership with NewDay. More than 100,000 customers have opened accounts since the February launch, and we are underway with transitioning existing Argos Credit customers across.

As you can see from the chart on the right-hand side, we've delivered another quarter of volume growth despite some significant drag in seasonal areas like garden furniture with a much slower colder and wetter start to the summer. We did have some benefit to sales of fans in the May heat wave week, but the main drivers of volume growth have been homeware and toys.

Now, as we've highlighted before, these are lower ticket categories. So alongside continued pricing pressure in a very competitive market, this is driving average selling price dilution to sales growth. So in conclusion, it's been an encouraging start to the year. Against a lot of headwinds, we have continued to outperform the market, and we've grown volumes in grocery and Argos.

We've kept a super tight focus on value. We've executed well with a really strong operational performance, and we're continuing to accentuate our real points of difference across quality, range, availability and excellent service. And this is reflected in improvements in customer satisfaction and very strong colleague engagement. So we're confident we will continue to outperform the grocery market. Our guidance, profit and cash, is unchanged. I'm sure you'll have plenty of questions about that, and there's a good degree of caution still in there.

This reflects the fact that consumer sentiment is not strong with a good deal of uncertainty on how things will shape up for them. And there was a lot of uncertainty still in terms of exactly how the impact of the conflict in the Middle East will impact the economy and consumers. Our guidance range gives us the capacity to make the right balanced choices to support our customers. The consistent momentum of our business has proved time and time again that it is right for us to do this, building a stronger business that delivers for all our stakeholders.

So thank you for taking the time to listen. And with that, Blathnaid and I will now be very happy to take your questions. Thank you.

[Operator Instructions] The first question is from Manjari Dhar at RBC.

I'll keep it to one since we were asked to. I was just wondering on Argos. I guess, given the volume growth you've seen and the productivity improvements coming through, does that change your view on profit expectation for that business this year? And how should we maybe think about it heading into the coming years?

Okay. Blathnaid?

Why don't I take that?

Okay.

We're encouraged with the volume growth at Argos, but we're only 16 weeks into the year. We still have the summer and peak to play out. So our guidance at the moment is profits flat year-on-year, and let's see how the year plays out on that.

The next question is from Izabel Dobreva at Morgan Stanley.

I have, I guess, only one question. Could you comment a little bit on the competitive environment in each of your businesses? Because in grocery, industry data suggests promotions have been stepping up for over 30 consecutive periods now. So how would you characterize the level of promotional activity in the grocery market? And what return you're getting on those promotions in terms of volume elasticities? Are you seeing any change in the competitive intensity there? And then, also in general merchandise, you've noted that ASP is trending down. Is that the usual consumer weakness? Or are you seeing a step-up in competition in that segment as well?

Okay. Well, let me take grocery, and then, we'll talk on general merchandise. Look, I think maybe a couple of key themes are very clear. Look, I think the first thing is, as we've seen, volumes in grocery have stepped back, volume down in the industry over this period, volume a bit up for us. So I think it's very clear to see that the continued focus on very strong value offer is incredibly important. That's been the route which we've secured volume growth again in the quarter.

The market continues to behave very rationally as well to your question for all the obvious reasons. I think there's a really clear focus on providing customers with value for money. And that's meaning that whilst volume is down, promotional spend is up a bit. I think the branded manufacturers are very keen to make sure, obviously, that volumes are protected as much as possible.

Having Nectar Prices is incredibly important for us as a platform because it means we can give customers both value in their shop, but also personalized value as well. And we work very closely with our suppliers to make sure that, that promotional investment goes in the best place to support volume, but also give customers clearly what they want. So I don't think we're going to see any lessening of the focus on value over the balance of this year. Consumers are very concerned about the cost of living.

As you've seen in our statement today, value for money is absolutely at the front of mind for customers. And so our job is to make sure we work closely with our suppliers. We have the right promotions in the areas that customers value most and that customers continue to feel a very strong level of trust in the value they can save week in, week out.

I think in terms of inflation, the question is where do we see inflation go from this point? That obviously has a bearing on volumes as we look ahead. Look, I think the reality is inflation actually stepped back a bit in the first quarter compared to quarter 4. There's definitely pressure in the system. I guess the question is, to what extent will we see inflation tick up over the months ahead. We certainly think by the mid-summer, we'll start to see some of the pressure building from the fresh food supply chains. But I think overall, encouraging to see a lot of the trade bodies adjusting down some of the estimates that they suggested in the year, and that all links back to what will clearly happen with volume.

In General Merchandise, a different situation given obviously a much more subdued customer. What we saw in Argos actually was volumes up in the quarter, which we were encouraged by. We had a strong plan for the quarter, and the team did a really good job to make sure we were where customers were and we met customers with an offer that was going to work for them.

Categories like toys and homeware saw strong performance, but higher ticket item more challenging, particularly furniture, high-ticket item electricals despite a bit of a pickup on TVs into the World Cup. So I don't think we're going to see a change in the GM market. That's the reason why, as Blathnaid said earlier, we are very focused on driving the transformation for Argos, but we broadly see profits flat year-on-year, given promotional intensity in the market and given a more subdued consumer outlook.

The next question is from Rob Joyce at Exane BNP Paribas.

Just I'm trying to understand now where we sit versus the full year sort of group guidance. If we continue at the levels you've seen in the first quarter, are we tracking towards the top end of the range of that guidance? And just within that, the pricing improvement versus the rest of your peers, has that been driven by you? Or do you think the market has come towards you?

Thanks, Rob. Look, I think -- I mean, maybe just a couple of statements -- points I would make just before getting into the full year. Look, I think we've seen an encouraging start to the year. We're pleased with our momentum. I think we've outperformed again, and we've taken some share, and that's been despite some considerable headwinds. So I think, look, where we are as we look ahead is exactly what we said in April, which is we can see a clear route to growing retail operating profit year-on-year. We've shared with you already, we expect an additional profit flow from financial services around GBP 20 million.

And so that leads us to a retail profit growth year-on-year with the GBP 20 million, somewhere around GBP 1,045 million, we can see a route to, which clearly is towards the upper end of our guidance. Now, we've clearly got a range, and that's because there's still a lot of uncertainty out there, how consumers will behave, the situation in the Middle East. And so pleased with the momentum, but too early at this point in the year to be able to predict how the second quarter and the rest of the year will play out, which is the reason why we've held our guidance where it is.

Just if you had time on the price -- the relative pricing going ahead, notable improvement there, just guess what.

Yes. I mean, look, I think, as you know, we've been incredibly focused on our value position. And what we've done in the quarter is stay very focused within the trend lines of what we've set out to achieve, biggest price match in the market, Nectar Prices on around 11,000 products. And what we've done there is continue to execute that plan with a strong focus on the center of the plate, which is enabling us to win the big basket. And it's working very well with customers.

I made the point last time we talked that customers are really responding to the fact we've got a proven formula, and we continue to stick with it. And so customers, when they come to Sainsbury's know exactly what they get. We haven't chosen or specifically decided to move our price position relative to others. We've done what we set out to do. And that's what you can see in that pricing index.

As a result of that, our position continues to be strong, and we continue to execute exactly what we've always committed to do. I make that point linked to your first question, whilst our ongoing commitment to grow retail operating profit year-on-year, we continue to be very strong value, but we expect to see profit up year-on-year, and we're very focused, and we have a clear plan to deliver to that.

The next question is from Matt Clements at Barclays.

Just on Retail Media, a quick one. Have you seen a material step-up in activity into the World Cup? And if so, is that kind of optionality in your outlook? Or is that something you've factored in?

So maybe on Retail Media, Blathnaid, we can just give a bit of a sense of how we're feeling about our progress on the Retail Media plan, and I can maybe come back a bit on some of the World Cup behavior.

So look, we're really pleased with the progress in Retail Media. We committed at the start of this plan to deliver an incremental GBP 100 million profit. We're well on track with that. When we gave the guidance at the start of this year, we knew there was going to be a World Cup. So that was factored into that guidance as well and our thinking around what the opportunity there was for us.

Yes. And I think, look, it's obviously a really significant opportunity with not only the World Cup, but a big summer of sports to make sure that our product offer is really meeting customers with what they expect, but also opportunities for more customers to buy into Nectar Prices and Your Nectar Prices. And what we've seen is, as I mentioned earlier to Izabel's question, a real opportunity to work with our suppliers and key partners to make sure that we bring the offers and promotions that are most attractive to customers at the moment. And that obviously is bringing more customers into the Nectar ecosystem. And therefore, the value of that is clearly one of the key drivers of what we then take into Nectar360. So lots of really strong momentum there. And this summer, we'll continue to accelerate that.

The next question is from Will Woods at Bernstein.

The first question is just on the U.K. consumer. Obviously, you've said that volumes were down in the quarter. The clothing market was a little bit softer. And obviously, your Taste the Difference sales have slowed down even though that's on pretty tough comps. Do you think you've seen any slowdown in the consumer through Q1? And do you think there's any kind of bifurcation in the consumer behavior?

Thanks, Will. Maybe just I think a couple of key points in our statement today. I mean the first point to make is we grew volume and took share in the quarter. And I think that shows the strength of our offer relative to the wider market and how it continues to really deliver for customers. And actually, to your point, we saw clearly volume growth. But on Taste the Difference to your specific point, when you look at the level of growth year-on-year on year-on-year, we're delivering, which was something over 18% in the first quarter last year. So we're delighted with our Taste the Difference performance.

If you look at that alongside also the further improvements in quality perception to others, just shows the strength of how that brand is coming through. So I think in the Grocery business, clearly, volumes stepped down a bit because the comps last year presented some tougher comps in places. But overall, we're pleased with the performance when you take in around all of the headwinds of last year and the wider consumer situation.

I think on General Merchandise and Clothing, a couple of things to say there. Look, I think on General Merchandise, we have a very clear and planned program to take space from GM and invest that in food. And that's one of the things, as you know, we've set out to do over the last 2 years to next level. That's really working for us, and that's one of the reasons why the GM sales level stepped back a bit. But also, clearly, GM was held back a bit by seasonal year-on-year, very strong quarter 1 last year with the weather, softer this year. So that pulled a bit of sales out of the GM performance.

And the same on Clothing. Actually, we took share on Clothing in the quarter again. So the strength of the Tu performance compared to others came through. But obviously, the overall market in clothing was softer given the weather and given some of the other factors. So net-net, when you stand back from this, actually, we're really encouraged with our relative performance to the market. And as we get our offer stronger and stronger and more and more customers do their big weekly shop with us, we continue to convert more customers into the brand.

The next question is from Sreedhar Mahamkali at UBS.

A quick one then just to go back to your point, Simon, on Argos transformation. You talked about a sharper focus in new energy under Graham's team. You talked about a couple of efficiencies. Maybe just a bit more of a midterm question, not this quarter, not necessarily even this year. Does that give you a greater confidence in transformation in terms of cost and also the top line over the medium to long term?

Yes. Thanks, Sreedhar. I mean I think I'm sure between Blathnaid and I, there's actually some really important progress starting to build here. And I think the 3 big points are that we said we would commit to improve our range, assortment, Argos super important for customers. And we've added thousands more products on supplier direct fulfillment. And obviously, we're building up our marketplace preparations for this year.

On digital conversion and giving customers a much better journey in Argos as more customers come into the Argos app. And then specifically on your question, I think as we put a really dedicated focus on efficiency and cost, we're seeing more opportunities than we saw before to become more productive, right, Blathnaid?

Yes. And look, Simon mentioned in his script a little bit about some of what we're doing on availability, some of what we -- how we're using AI that will help us drive a better customer proposition in the locations that our customer wants it and really get the availability going on Argos as well. And then, you add to that Argos Pay, which we launched earlier in the year, it's doing incredibly well. New customers coming in, a more modern offer, and it's really appealing to our customers, enabling the sale. So when I stand back and I look at what we've done on Supplier Direct Fulfilled, what's about to land on marketplace, how we've augmented that with the financial services offer and the focus on the team on cost and efficiency, the dedicated management team is sort of really starting to come into its own. So really pleased.

From Xavier Le Mené at Bank of America.

So you delivered another quarter of, we can say, strong growth and market share gain. But can you just give me a sense of how much is structural? What is linked potentially to range availability, loyalty versus potentially price investment? And talking about price investment, do you think that -- or would you change potentially we invest more whatever the cost savings you've got on the other side if the competition was to get tougher? Or do you stick to the cost savings to invest in prices?

Thank you. Okay. Well, let's take the kind of broad picture of what we've been doing on value, and then, specifically, what do we think has driven it in the quarter. Look, I think, as you know, we've invested over the time of our Food First and next level plan around 1.3 billion in food value. And we made that investment much earlier in the plan, and we continue to see the benefits of that in customers trusting the value offer with the biggest price match in the market, as I say, and the strength of Nectar Prices.

I think what we're seeing in the quarter that we've just reported is the benefit of that ongoing consistency in our value. And then, in addition to that, a real step-up in product availability, we've really been seeing fantastic response across the business in raising our ambition on availability. And we're seeing now the best availability that we've seen in a long period of time consistently. So that coming alongside the value position is giving customers more and more confidence they can not only get the value they expect, but they can get everything they want each time they shop both in-store and online.

And then, combined with that, the innovation and quality position that we talked about, Sainsbury's brand has always been famous for its quality. And I think what we're seeing is, as we get value and availability stronger, the strength of our quality position becomes even clearer to customers. And you saw in the charts how much we're gaining further advantage compared to the rest of the market and the premium retailers, too. So I think it's a combination of all those things, which means that we're winning more of the weekly shop. And that's the core underpin of our growth in volume again in the quarter.

Obviously, a tougher market volume. Our volume also stepped back compared to where we were in the previous period, but growing year-on-year. And as I said in the opening comments, we continue to expect volume outperformance of around 1% for this year. That's what we've planned for. That's what we're on track to deliver. And it shows our plan is very much focused on delivering for customers. But then, to your second question, it's very much about having the right balance between investment in value and delivering a growth in retail operating profit this year. And that's what we, as a team, are very focused on doing. We expect to grow retail operating profit year-on-year, whilst at the same time, delivering customers the value they expect and trust from us.

The next question is from Clive Black at Shore Capital.

I'm in the middle of nowhere, so I won't put my camera on. In terms of food supply chain and your noise today, you're talking today around well-being, health and well-being, to what extent are they linked? To what extent is this a new development for Sainsbury's? And what does it mean for shareholders?

Thanks, Clive. Look, I think a couple of key things here, maybe just to your question. The first thing, you've heard us talk, I think, pretty consistently now about the importance of our long-term supplier partnerships, particularly in fresh food. And I think what we've seen in this quarter is how critical they are continuing to be in underpinning our performance and what we can deliver for customers. And when I think about the breadth of those partnerships now across so many of our fresh food supply chains and the big step on availability that we've seen, those 2 things are clearly absolutely connected.

We've had record weeks in a number of key categories that we just couldn't have got the surety of supply before. And that's now something consistently that we're doing, in meat, in poultry, in fruit and veg. These are really important foundations that we now have in place, and a fantastic job actually done by so many of our farming partners in helping us deliver that.

And then, to your point on health, look, I think as you saw in the video upfront with our team there, we really want to demystify what it takes to make healthier choices and give customers real confidence that the accessible options on healthier choice are available for them at Sainsbury's at a price that's really affordable. And as you saw in the film, there are just so many opportunities for us to really lead on this. We think the Sainsbury's brand is expected to take this kind of position. Our customers are really looking for it, and we've had a really strong response already to Full on Fibre.

Clearly, there's a direct link back to the partnerships with our farmers and being able to source the products that we need to be able to really deliver against healthier choices. And so this really is all about stronger fresh food supply chains, a real focus on availability, giving customers what they want and then increasingly giving customers access to healthier choices that they can trust Sainsbury's to deliver.

The next question is from Benjamin Yokyong-Zoega at Deutsche Bank.

Just one on space reallocation and maybe one on food inflation, if there's time. On space reallocation, are you able to comment on the quantum of the drag within general merchandise and clothing? Or perhaps to ask another way, has there been any step-up in the pace of that space rebalancing?

And then, on food inflation, you mentioned that pressures in the fresh food supply chain may feed through over summer. Has this largely been a function of higher fuel, energy and freight costs with your long-term suppliers? And has there been any meaningful impact from plastic packaging costs to date?

Okay. Let's start on the GM question. I mean, I think the key point here is we're delivering exactly the plan that we set out to do, which was in many of our supermarkets, we had very extended GM maps of space with not good enough trading density. And so what the team have been working through here is how do we redeploy that space into food. That program has been a really important part of our next Level plan. And space reduced in GM by a bit more than 3% year-on-year to give you a kind of sense of the quantum.

Now, there's still more stores to go through this program. We're taking real confidence from actually our ability to improve trading densities in the store, improve sales as we switch the space from GM into food. It's a bit disruptive because it takes time, obviously, for the new layout of the store to bed down. But we've learned a lot over the last year about how to take some of that disruption time frame out. And so, yes, roughly 3% of GM space moved into food in the year, more stores to be converted as we come through the rest of this year. And obviously, benefits to food as we convert the space.

And then, I think on the sort of impacts of inflation, as you described, look, I think it's super clear, as we all know, a big component of the cost of food is energy cost. And so as the cost of energy is being under more pressure, hence, the inflation pressures in the system.

As we said at the start of the call, I think still a lot of noise on inflation. Inflation a bit lower in the first quarter than in the fourth quarter, but still a lot of pressure in the system. So we'll have to see where that comes through. But I think importantly, it won't reach some of the higher levels of forecasted inflation perhaps that was suggested earlier in the year by some of the industry bodies. So I think the balance between inflation not lifting too much and keeping a strong or a stronger volume performance really clear to us all.

And then, in terms of the other issues you talked about, plastic packaging, all of the components are driven by the impact of the increase of oil are obviously on our mind. The work the team are doing is all about trying to make sure we contain inflation as much as possible and working closely with our suppliers to do that.

The next question is from Elizabeth Moore at Citi.

Just wondering on the Argos and GM performance, obviously, you've got that headwind from space, but even assuming that, that was about 300 bps on GM, why you think Argos sales outperformed general merch so much? Just any color there would be really helpful.

Yes. I think we would say, as you know, we're well down the track of the focus on the Argos plan. And I think what came through in the quarter, it was clearly not a strong seasonal performance in quarter 1 compared to last year. Last year, the sun shone for many more weeks than it did in quarter 1 this year. And so actually, the Argos performance was perhaps even more encouraging given the weather comp that we faced last year.

As I said, we did particularly well in areas like toys and homeware, which were good -- really good value, good availability. So I think the team did a really good job in making sure we have good availability and good value where customers wanted to shop.

I think the GM offer in the supermarkets was definitely as we delivered our planned change in space. Clearly, it was held back a bit by that, but also the seasonal impact. We have a big seasonal dependency in Sainsbury's GM on very warm weather as well. And so the impact of the year-on-year comp there brought some softness in the GM number too.

The next question is from François Digard at Kepler Cheuvreux.

Just a follow-up on the space reallocation. You mentioned 3% of reallocation. Is it just that General Merchandise had 3% less space, but is it from the total store? Or is it simply duplicable? Do we have to understand that it is 3% more space for food? Or is it a bit more complex than that? And can you quantify the food sales uplift and profit density benefit from this space reallocation versus the lost GM contribution?

Okay, Francois. I mean, just to be clear, the 3% reduction in GM doesn't equate to a 3% increase in food space because the space of GM is clearly much smaller in the overall store. So we've reduced our GM space by around 3% in the year, and we'll continue through the course of the rest of this year, actually, particularly in some of our larger stores to move space from GM to food. It's a program that's really working because, obviously, as customers change the way they shop, we can tighten the ranges in GM. Actually, we can achieve a higher sales density on a smaller committed amount of space. But also, we can invest that space both in ranges in food, but also in giving more space to higher selling SKUs in food, which helps our efficiency plan. So that's the overall picture of what we're doing here.

But broadly to your question, we've seen actually benefits to food in 2 areas of space. Obviously, we opened some new stores in the period. And we said last time we talked to you that our new stores program is adding about 0.5%. And then in food, obviously, dependent on the store, as we move space from GM, we invest that space in the core areas of the food offer that we think are going to be most able to drive both the profit density and the improvement of the offer for customers. And so that's what we're continuing to do. Overall, in the 3 years, we will convert north of 100 stores. But as I say, it's 3% reduction in GM space is the key number there.

Do you have the dependence in the sense that 3% less in GM equals to how much more in food?

Yes. I mean, I'm not going to give you a specific quantum to that. But I mean, broadly, what you can see is that we're reducing space in GM. We're investing in food. We're investing in fresh food. And if you were to go to our supermarkets, you can see broadly the proportion of space. So in most of our supermarkets before we began this program, broadly 2/3 of the space would be food and about 1/3 would be clothing and GM. And within the clothing and GM space, about half GM and about half clothing. So from that broad picture of our space, you can get to somewhere towards 1% improvement in food space, but it's just dependent on the stores that we convert.

The next question is from Izabel Dobreva at Morgan Stanley.

I wanted to come back on the topic of the guidance. So having listened to everything you have outlined, it sounds like towards the top end, the guidance implies growth in the retail profit somewhere between 1.5% and 2.5%. But at the same time, you've mentioned that you aim to outgrow the market in terms of sales by 1 point. There's the benefits of Retail Media. You've said that the market pricing is still rational. So how would I then reconcile that versus the guidance? And the reason I ask is because if I try to see what your guidance implies for the Sainsbury's margin, excluding Argos, it implies that it's probably going to be down unless, of course, you have a much more muted assumption on volumes for the market. So why would the margin be down? And is that the right interpretation? Could you just help us reconcile that?

Thank you. Well, I mean, let me say a couple of things here, and then Blathnaid, if you want to comment, of course, and add to it. Look, I think 3 points I would make as well to your question. The first thing is we're 16 weeks into the year. So we're still at an early point in the year, and there's still a lot of uncertainty, which is why the guidance we set out in April and how we describe that is absolutely the case today. We expect to grow retail profit year-on-year. We've given a clear picture of what that looks like. The GBP 1,025 million outturn last year plus financial services gets us to around GBP 1,045 million, and we have a plan that's very focused on delivering that.

At the same time, we're seeing strong volume performance relative to the market, and that's the combination of obviously our focus on value and the other elements of the offer, and we expect to outperform the market by around 1% this year. And clearly to deliver retail operating profit growth year-on-year, we expect to deliver a positive margin outcome. So we've got a lot of the year still to come. And I would just make the point about balanced choices being so important to us in the environment that's out there, and we'll continue to make balanced choices in order to deliver the profit outcome we've committed to. But at the same time, continue to grow our volume.

Blathnaid?

Yes. Great. And just to build on that, margin will always be diluted by inflation, particularly kind of the fuel price inflation as well that we see coming through. So that's some of the dynamics you see coming through in the P&L. But to Simon's point, we will make balanced choices as we travel through the year. What we've committed to is growing our retail operating profit year-on-year with the incremental financial services income as well on that.

The only other point, Izabel, we haven't mentioned in that sort of draw together, obviously, is the continued delivery of Nectar360. And as we grow our volume, and as we talked earlier, one of the things that's important there is we continue to convert that increased Nectar participation into the strength of Nectar360, and we're very encouraged with the continued progress there.

And just one quick follow-up, if I may. In terms of the ability to absorb the headwinds from the balance choices through cost savings, am I to understand that a lot of the cost savings will be allocated into the Argos P&L this year?

So what we've guided in Argos is flat profits year-on-year, and we will make the choices as we travel through the year on how we deliver that and where we invest in the Argos proposition on that. So there'll be some and some. We haven't disclosed the exact split on the cost savings.

Yes. And I think more broadly, the GBP 1 billion cost saving ambition, we're very focused on what we need to do in this final year to achieve that. And that's clearly resulting to your question on strong plans in Argos and in strong plans in Sainsbury's, too. I'd reflect that in the first quarter of the year, we're on track in delivering our cost savings at the same time as we've seen an improvement in our customer satisfaction performance. And I think that shows exactly the balance that we need to achieve, which is improving what we do for customers, finding cost and efficiencies and delivering improvements in our retail operating profit across the whole business this year.

And I think the other thing as well, if we stand back from Argos, we've got the dedicated leadership team in place, and this is a real setup year for them. So they've got good momentum at the moment on what they're doing on the range, what they're doing on the proposition and how they're really getting after the cost saving program as well. So let's give them some space to make sure that they put in a really strong foundation and deliver well for the future on that.

And the final question is from Sreedhar Mahamkali at UBS.

Simon, just to go back to the value index. This time, it hasn't improved versus all of your competitors, but I also realize this doesn't include the personalized investments. If you could just talk through that, like I think historically, maybe last year, not necessarily historically, I think you talked about 1/4 of -- 1/4 or 1/3 of the price investment through personalized investment. Is that still where that is? Included that, would it have improved the value index? Would it have improved across all of the peer group?

Yes. I mean just -- thanks for that. I mean just to reiterate to the earlier point, we didn't set out to improve our value performance against competitors in the way that the quarters put out. We set out to deliver the value commitment. We've always delivered against, and we've done that because that's what our customers best respond to. So when you look at our performance here, what we've done is we've clearly made sure that we have managed passing through inflation in the best way that we can because we need to get inflation through to the shelf, of course, where there is inflation through, but doing that in a way that makes sure customers continue to trust the offer that we have.

I think then specifically to your question, yes, within the range that you talk about, that's broadly right. A proportion of our value investment continues to go into personalized Your Nectar Prices. Actually, we're finding the traction of that becoming even more sticky with customers, particularly as we come to a further period of time where you can access Your Nectar Prices at the main bank and supermarkets as well. And as you've seen, we've seen more customers using Your Nectar Prices. So it's a very important part of our value equation, and we flex it and invest in it at different times of the year to make sure that in the total picture of our value, we're getting the best return in how we invest in value and in how customers respond. So yes, around 1/4 to 1/3 is a good basis for the way we think about that.

Okay. Just to check, there's no final questions.

That was our final question.

All right. Great. Well, thank you very much, everyone, for joining Blathnaid and I. Good to be able to share the first quarter results with you. Obviously, we're into the second quarter now after a really strong start last week with the weather, so more hot weather to come. Let's hope some more good results in the football to come, too.

Thanks for your time this morning. Catch up soon.

Good afternoon, ladies and gentlemen. Welcome to the Sainsbury's plc investor presentation. review Investor Meet Company platform. [Operator Instructions] I would now like to hand you over to James Collins, Director of Investor Relations. James, good afternoon, sir.

Thank you very much for joining this afternoon. Thanks for the introduction. As I said, I'm James Collins, Director of Investor Relations. I have my colleague, Amy Morgan, Head of Investor Relations, alongside me. What we're going to do today is in hopefully relatively short measure. We're just going to do a little bit of an introduction in terms of just where Sainsbury's is strategically. Hopefully, as a business, we're quite well known to most of the audience. But just a few kind of topics in terms of where we sit strategically and what our priorities are. We'll also run through the results, the full year results that we covered that we published last week, which covered the year to March 2026.

And we'll talk a little bit about how we're feeling about the current environment as well because obviously, we covered that in our outlook for the year ahead. So moving swiftly on. So first off, just this is the strategy that we laid out in February 2024. It was a period -- so in February 2024, that was just at the end of the first 3-year strategy under our current management, which was our Food First plan. And we're now 2 years into the second plan, which we call -- next Level Sainsbury's. There was a lot of consistency with the prior plan in terms of what we talked about here. So across the top here, that's the business' purpose, so making good food, joy for accessible and affordable for everyone every day. Looking then at the kind of priorities that we have as a business, the kind of key things on that strategy. Number one, we aim to be the first choice for food for customers in the U.K. So our objective was to attract many more people to come to Sainsbury's as the first place that they choose for food, but also to make sure that we're doing things the right way. So also play a really leading role in creating a sustainable food system in the U.K.

That's not just an objective in terms of making sure that we're doing things in a way that customers would expect us to. There's also a real commercial imperative here because food security is more and more of a challenge in the U.K. and making sure that we have a really resilient and thriving food system supporting our supply chains is really important. So that was priority number one. Number two is building a world-leading loyalty platform. So Nectar is our loyalty scheme, and that has a really important role, firstly, in terms of how we engage consumers and how we reward loyalty and recognize and deliver personalized value to customers, but also as an additional revenue stream where we take the power of our first-party data, the knowledge that we have with customers, and we help our big FMCG clients to address those customers in a very targeted way. more Argos more often. Hopefully, again, you'll know the Argos business. It's the second biggest general merchandise retailer in the U.K., a big retailer of consumer electronics, homewares and domestic appliances, toys and seasonal items. And that business has been quite challenged in terms of the kind of sales and profit trend, but particularly the profit trend.

And we're really focused on making it more relevant for more customers more often. So it's a very well-known brand. Lots of customers use it, but not frequently enough. And so we're working very hard on the digital proposition and the range in order to make it more relevant to more customers. We've had some real success with that in terms of customer numbers and volumes in this last year. And then last priority, S investor win, really important part. we do compete in a very tough and very competitive industry. It is important that we try and keep our cost base as tight as possible. And therefore, in this current 3-year strategy, we are targeting GBP 1 billion of cost savings, operating cost savings, that is. And we call it save an investor win because it's not just about taking costs out. It's about investing in infrastructure and technology in order to make sure that we're doing that in a structural way that permanently reduces cost. And as I say, technology and the right digital platforms are a really important part of that. So that's the intro. In terms of what that delivers in terms of the financial framework, this again is something that we set out in 2024.

This leans into some of the objectives that we'll talk to later and some of our commitments. So our objective is that we turn food volume growth. So we aim to grow food volumes versus -- we aim to grow food volumes versus the rest of the market. If you link that to a reduction in our cost base and making sure that we are remaining competitive, both in terms of value, in terms of quality, in terms of customer service, we think we can get that balance to deliver profit leverage from sales growth. So ultimately, over time to grow profit higher than sales. The next kind of key priority from that is we take that robust profitability, that sort of good kind of steady growth in profit over the medium term and put that alongside very disciplined capital investment to deliver good, sustainable, strong cash flows and also aim to improve our return on capital. We then take those strong cash flows and we have a very focused capital allocation policy to deliver enhanced shareholder returns.

So we're not going to give a great deal of detail in this presentation. But broadly, we aim to deliver at least GBP 500 million of free cash flow every year. Roughly GBP 300 million, a bit more than that goes on dividends, where we have a progressive dividend commitment. So the commitment that the dividend will at least be flat year-on-year and ideally rise year-on-year every year and then to return additional free cash flow to shareholders, which we've done over the last 2 years in terms of share buybacks and where we've promised another GBP 300 million share buyback this year. So over the last 2 years alone, we've returned GBP 1.3 billion of cash to shareholders. And we're talking with dividends and this year's buyback another GBP 600 million. So it's a really important part of our investment case. I'm just quickly going to cover the results that we published last week. So obviously, grocery is our biggest business by a very substantial amount, both in terms of sales, but particularly in terms of profit. And last year, our sales in grocery grew by 5.2%, slightly lower in general merchandise and clothing. That reflects the fact that we are deemphasizing general merchandise in a lot of our stores and putting more space into food and making our food proposition better.

Clothing continues to grow very strongly. But overall, that balance, and you can see the relative scales of the business delivered growth of 5% for Sainsbury's. Within that, around about 3% volume growth -- sorry, 2% volume growth through the year and around about 3% inflation. Argos, you saw lower growth. So we had a strong first half, helped by good weather against poor weather in the prior year. But in the second half, with quite subdued consumer spending, it really impacted sales of big ticket items. And so we grew volumes throughout the year. However, that average selling price was reflected in the relatively low level of total sales growth. Alongside that, lower fuel sales, primarily fuel sales growth or decline year-on-year reflects the movement in fuel prices rather than much in volume, and it's not really meaningful for profit. So as a profit driver, the ex-fuel sales growth of 4% is the more important consideration in terms of driving profit. So then looking at operating profit this year. So actually, it was slightly down year-on-year, so down 1%. And you can see the split of operating profit there showing that Argos operating profit was actually flat year-on-year, but clearly at a very, very low level, a very low margin compared to Sainsbury's. And then so Sainsbury's, in terms of why the profit was down year-on-year, 2 things really.

Number one, we had a very high level of operating cost inflation courtesy of 2 big things. Number one was the higher national insurance contributions that the government put through in the budget of last year. So that cost us GBP 140 million, just basically a cost of employing people, and we are a business with about 141,000 colleagues. So that was a big cost for us. And additionally, there was a new packaging tax called EPR, which again was another cost that we and the whole of the industry needed to pass through. Now that was largely passed through because together, those were more than GBP 200 million of costs, but not fully passed through in a year where you also saw quite an elevated level of competition with -- sorry, with trying to reestablish a pricing gap in the industry. So it did sharpen the amount of value investment that went in. So a small decline in operating profit for the year. Just worth touching on the guidance in the box on the right-hand side. So we have guided for the year ahead. We've guided quite a wide range of outcomes this year, and we've guided with, I think, quite a bit of protection on -- or cover on the downside. And this is because there are a lot of unknowns ahead of us from the conflict in the Middle East and the impact that, that will have on consumers in the U.K. economy. Therefore, our central case, our central belief is that we will grow operating profit this year from that 1025 base. And actually, we expect to grow it from a slightly higher base, including financial services. So we -- our central case is towards the top end of that range, but we acknowledge that there's a lot that we don't know in terms of what happens with the conflict in the Middle East and the impact that might have on consumers and the U.K. economy. So that's reflected in that number.

So just kind of standing back and this is a chart that we use a lot just kind of describing our priorities and the way that we think about the environment in which we're trading. And the first 3 blocks on, if you like, on the left-hand side of the chart are really the focus, the nuts and bolts of what it takes to be really good and compete, as I said earlier, in a very competitive industry. So strengthening our competitive position is obviously not only about value where we've really repositioned our price position over the last 3 years. and 2 years before that, but also making sure that we are delivering the best range and the best availability to customers where we are making investments in our stores to bring more fresh food range in and deliver the best of the Sainsbury's range to more customers in more locations. And alongside that, alongside value, the Sainsbury's brand is associated with quality. It's associated with interesting and innovative products in private label. And so premium private label through Taste the Difference is really, really important. And we've had some fantastic growth, good double-digit growth now for the last 3 years in that. And that basically is enhancing both the sales, but also to margin versus standard private label products. But then on the right-hand side, this is the balance where we do make choices to invest both capital and also revenue expenditure in making sure that we are basically building a really strong business for the future. So investing in loyalty and the capacity of our retail media business, where we monetize some of that customer data that we have in terms of helping FMCGs access those customers through retail media.

That's an investment for us where we make really good returns. So that's really important. And then the last 2 blocks are where we are -- I talked earlier about investing in technology and in infrastructure in order to make sure that we save money, but we save it in a way that is -- that doesn't impact the customer experience. So in a business which is very heavily on labor costs in replenishment, in checkout, et cetera, more and more of that is being done through technology. And likewise, where we have very significant logistics and infrastructure costs in depots, we're introducing more automation. We're introducing a lot of machine learning and AI in terms of the way that our supply chains work and all of those are improving our cost base, reducing stock and working towards delivering that GBP 1 billion of cost savings that we've targeted over the 3 years. Just covering a few of those pieces that I talked about on the left-hand side of this -- of that chart.

So value, super important. This shows our price position versus our key competitors. One of the key questions that the market had for us over the last year was Asda is or was very public around about a year ago about its intention to kind of really make some headway in terms of reasserting a strong price position versus the rest of the industry. As you can see on the right-hand side, actually, we maintained our pricing position versus Asda and versus Tesco, our 2 biggest competitors over the course of the year. And in doing that, we actually sharpened our pricing position versus Little and Aldi and Morrisons. And that partly reflects the fact that when we do make price investment, we're very, very focused. So we're focused on what we call center of the plate items, so meat, fish, produce, -- and what that does is we clearly invested some money there, but what it's delivering, as you can see in this chart here on the left-hand side is that we, in the last 5 years, have won significantly more primary customers in the market than anybody else. Our primary customer is a big basket customer who does the majority of their shopping with us or more shopping with us than they do with anybody else. And so our objective in this in sharpening our value position was through making sure that we're super sharp on the items that matter most to customers, they have the confidence to shop a fullrolly Shop with us. So that was value. But alongside this, I talked about Taste the Difference. So Taste the Difference has been the fast-growing premium label in the market this year and I think the year before. And that's from a position where it's already disproportionately high as a percentage of our sales. So it does reflect where the Sainsbury's brand sits in terms of sitting more in the South and Southeast, having a slightly higher average affluence of our customers. And right now, this is important because when consumers are worried about the cost of living, we are seeing quite a bit of benefit where people are trading out of eating out in restaurants and pubs and looking for premium food that they would eat at home instead because it's a cheaper option versus eating out where inflation has been much, much higher than is the case in retail. And you can see that, that's been really successful for us over the last 5 years where we've broadly doubled the size of Taste the Difference.

And as well as we talked earlier on about taking costs out of the business, but we are super focused on making sure that we continue to deliver really good service. And so this metric shows that Sainsbury's customers consistently rank us above customers of other big businesses. And this is in all aspects of service. And so that's really important to us. And we've had really strong improvement on a lot of those key metrics over the last year, including value for money, which in a year where inflation was quite high, is a good metric. And I think reflects some of the longer-term progress we're making on value because it takes quite a while to feed through to customer perceptions. So that's super important. I talked about the primary customer stat earlier on. And I talked also about the fact that we are aiming to bring the Sainsbury's proposition and the best of the food offer to more people in more locations. So we're investing in releasing more space for food in our existing stores. And we've done significant work in 70 stores over the last 2 years. We're doing another 30 in the year ahead. And where we do that, where we add more food products and become a better food store, we are outperforming the rest of the estate, improving our trading intensity. And so this is a really core part of what we're doing. And in a very targeted way, we're also adding new stores. So in the last year, we've added 10 supermarkets, tend to be quite small supermarkets, and they're primarily where we're buying competitor sites where we bought some from the co-op but also converted some former home-based stores.

And we'll be doing a similar level of new store growth in the year ahead. We are a big business, but we are second biggest supermarket in the U.K. and there are significant numbers of locations where the Sainsbury's brand doesn't exist. So we do have quite a few opportunities on a very selective basis. And the consequence of all of this, if you look at our market share, so really since we had a management change and the Food First strategy in 2020, we've made some good headway on market share, a bit of interruption through the kind of COVID years where we had a big ramp-up in 1 year and then flattening out. But you can see the progress that we've made in the last 3 years, in particular, where we are consistently growing volume ahead of our competitors. and that is reflecting broad gains from across the market. And as I said earlier, impacting or benefiting from getting a lot of those big basket customers, and that's really vital to the progress. And I think Amy is going to cover a couple of the other bits of the business shortly.

But just looking at this last year, just an important bit of context here. So industry volumes in the industry, as you can see, is the purple line there in the market. They have slowed in the second half of last year. So they were -- they benefited at an industry level from better weather in the first half of last year with very good weather across pretty much all of the spring and summer. And then in the second half of the year, I think what you're seeing is a bit of that weather benefit starting to drop out, but also some impact from consistently high inflation. So typically, you'd expect industry growth -- volume growth to be around about 0% to 1% and inflation to be 1% to 2%. Inflation has been at elevated levels. And I think you're seeing customers slightly trade down and adjust their spending habits to try and dial some of that inflation out of their baskets. As you can see, we've actually consistently performed very well in terms of our volume and extended our outperformance through the second half of the year. I think that partially reflects the nature of our customers, plus also, I think some of the organic self-help where we are continuing to win share from competitors as more people trust us on the total value proposition over time. So that's a kind of cool run through Sainsbury's over the last year. I think Amy is now just going to give you a bit more detail on Nectar.

Yes. Thanks, James. So our Nectar business has 2 elements. It has our customer-facing loyalty scheme and our Nectar 360 Retail Media business. Our customers really love Nectar. They're engaging more and more, and they're getting more value than ever. And so through our Nectar Prices, which is on more than 10,000 products, they're saving almost 20% on a typical big weekly trolley shop. And then they're increasingly benefiting from your Nectar Prices, which is our personalized value offer, which is selected for them on a weekly basis. And the strength of this great value that customers can access through Nectar has driven a further step-up in participation now at more than 85% and digital engagement with the Nectar app has reached record highs in the year. So this is great for customers, but it's also key to our ability to power Nectar 360. And we believe we're really setting the standard, not only in the U.K. but globally when it comes to retail media. We're already a key strategic partner for more than 900 brands and client agencies, and we're increasingly becoming a first choice partner as brands want to work with fewer, higher-quality networks. Really key to this has been the launch of Nectar 360 [indiscernible], which we launched in the autumn of last year, and it's the U.K.'s most advanced unified retail media platform. We designed it in-house, and it's delivering great returns for clients already.

The key kind of differential with this is that it really gives the clients that we're working with great visibility of the returns on their marketing investment. So it makes it much easier for brands to run sophisticated campaigns with real-time feedback on how those campaigns are performing. Alongside this, our connected digital screen network now consists of almost 3,000 screens across our supermarkets and convenience stores, and we have plans to install a further 3,000 screens during the next year. And we continue to bring more value to Nectar customers with more opportunities to -- for customers to earn and spend books across a bigger network of great brands in our coalition. Turning next to Argos. We remain focused on strengthening the Argos business. We're very much investing in the product offer and the digital proposition to make it a business that customers visit more frequently and when they are visiting us buying more. As Jason has kind of already mentioned, it was another tough year for general merchandise retailers with subdued spend and intense competition, but we've made some good progress with higher customer numbers and higher items per basket. And as a result, we grew volume in the year, but this was offset by a lower average selling price, which just reflects weak markets in bigger ticket items and intense competition putting pressure on prices.

Looking ahead, you can see some examples here on the slide of some of the different areas of focus. So expanding our range through supply direct fulfillment and the launch of the marketplace later in the year, further strengthening of digital and a greater usage of the Argos app, which encourages further frequency of visits and added value services such as Argos Pay our flexible credit solution and then also driving further cost reduction through the business. And we've actually established a dedicated Argos management team to help accelerate the pace of change. So moving forward these actions and driving further cost reduction, which will support the investments that we're making in Argos-speific infrastructure and technology platforms. And then finally, just to touch briefly on our cost savings program, which, again, James has mentioned to you briefly, but we really see this as a key competitive advantage -- we set out our target to save GBP 1 billion in costs 2 years ago, building on the significant savings that we've made in the prior 3 years and very much supporting our investments in technology and infrastructure to improve productivity and make meaningful structural reductions to our cost base. In a year when we were faced with significant cost pressures, we relied on well-developed programs to deliver savings rather than just find new ways to cut costs. And it really showed through in the consistency of our execution and the customer experience over the year. And if you think back to the slide that we showed on customer satisfaction, you can see that there. So we've delivered another GBP 330 million of savings last year, and we're well on track to deliver our GBP 1 billion target. And I'll just hand to James for some conclusion remarks.

Thank you, Amy. So the -- the outcomes, again, that we talked about when we stood up in February 2024, we're kind of super keen. I've highlighted already the kind of main areas of the strategy. I've highlighted the financial formula. But ultimately, a business like ours, we talk a lot about making balanced decisions. And this, if you like, is the sort of balanced scorecard where this is something that we focus on every single time that we report, and we focus on it internally, and we measure ourselves all the time consistently to say where are we on this journey. So these are the things that we've consistently said this is how we're measuring ourselves. So number one, growing food ahead of the market. We've been doing that really consistently. We're very happy with where we are. Customer satisfaction, actually, you saw the charts earlier on, they look very good. But we know there are areas we could do better. When we get down to some of the granular detail, we know that there are things we could do better. Colleague engagement, very, very high scores. We obviously measure this a lot. There is a huge amount of change we put through our business, but we do really, really work hard to invest in our colleagues. We have led the market in terms of pay.

And we additionally really make sure that we engage colleagues in the change that we make and try and deliver kind of higher added value in roles in the business. So that's reflected in good colleague engagement. plan for better. So this is some of our commitments around carbon reduction, around plastic reduction. Again, we've made really good progress, but there are areas where we know we could do better. And a lot of what we achieve here depends on achieving things at an industry level, but it's something that we work hard on from a campaigning point of view and working with the industry and our suppliers. Delivering profit leverage from sales growth. So obviously, earlier on, I talked about the fact that our profit -- operating profit this year has stepped down a bit. So our sales growth was higher than profit growth. So not a good year for that in that year. In the prior year, we delivered very significant profit growth. So that's one where we're not quite where we would have intended, but the industry circumstances have been quite unusual over the last 12 months. And then GBP 1 billion cost savings, we're well on track to deliver those on the 3 years, and we are well on track to deliver more than GBP 1.6 billion of retail free cash flow. That's super important in terms of delivering that good consistent dividend and being able to buy back shares. And then lastly, high return on capital employed. Again, it took -- broadly, it's gone sideways this last year, having made a big step forward in the prior year. But we are confident that still the prospects of improving our returns are very good. So thank you for listening to that. I will now take some questions.

[Operator Instructions] First question, James, I think we should discuss is how long will we continue benchmarking Aldi Price Match? Does there come a time when you feel confident in a pricing proposition, which doesn't reference a competitor?

That's a really good question. And I think it plays to something really important, which is that there is always a very significant lag between the change that you might make in your price reality versus competitors versus how quickly that flows through to price perception. And so with Aldi Price Match, we stood up in 2020, and we admitted that we were not where we needed to be on price, that we were too expensive, and we saw it reflected in the way that customers shop. So basically, customers too frequently were just coming into the shop, just buying a few things that they really want to get at Sainsbury's or just buying a few things because we were convenient on the way home from their office or a school or whichever. But what they weren't doing was having the confidence to shop the whole basket. And so Aldi Price Match was really important for us to be able to say to customers who frankly had observed over a long period that we were not in the right place price-wise. Once we've invested in those kind of really core items to say, listen, you can trust us now on the things you buy day in, day out. So across milk, bananas, breads, chicken breast, mint beef, whichever it is, those kind of core items that make up the kind of the large part of basket over time. And in doing that, giving that assurance, people over time, I think, have trusted us more across the whole basket. And so I think it was really important at the time -- but even then, we introduced that and we kind of really made significant headway in our price position from 2020, 2021 onwards. It wasn't really until '23, '24 that we started to see perceptions on value start to improve or really significantly improve. And so we are still seeing that benefit coming through. So it takes a long time to change people's perceptions. I think it's a great ambition that over time, people will trust us without needing to benchmark and talk about Aldi in our stores. But I think it won't be happening in the very short term because, as I say, there's still that lag. We still know that perception hasn't caught up with the reality of us being significantly more competitive these days.

And I think sticking with pricing and margin, to what extent can we expect to recapture margin in FY '27? Or is the current margin structurally lower due to competitive intensity?

That's also a good question. So I think probably what the question reflects is the fact that our operating margins in the kind of core retail business stepped back last year. And ultimately, our intention is to deliver operating leverage, so for margins to be at least flat every year and possibly rise a small amount. And within our current range of the guidance that we've provided for the year ahead, our belief is that we will grow retail operating profit. That's our central case. Clearly, as I said earlier, there are a lot of unknowns that we don't know how the world is going to shape up and what that means for the U.K. consumer in particular. So that's where we are slightly nervous of being more confident in terms of kind of tighter range of outcomes this year. But as far as we're concerned, the industry, I think, has shown a very good -- the grocery industry has shown a good few years now of behaving very rationally. We've had a lot of operating costs and a lot of cost of goods sold pressure through those that the industry has passed on very consistently. So if the industry continues to behave that way, that should mean we get back to an environment where we should be able to grow operating margins. So I think as long as we're not in a very, very tough situation with the U.K. consumer and a much, much tougher economy, then you should get back to that situation where as long as we're delivering on all of the elements that we talked about, so growing food volumes versus the rest of the industry, saving costs at a higher rate than the rest of the industry, that should give us capacity to get back to margin improvement.

Thank you, James. And another kind of question on the topic of value at this time, asking around whether we are seeing customers mixing value and premium within the same shop and how that is influencing our product strategy?

Yes. We are seeing that. And I think it's a great proof point of the fact that we are helping customers across the whole basket. And so I think it's very important. We don't just have customers who are interested in the premium products. We don't just have customers who interested in those products where we are delivering the kind of the strongest assurance on kind of everyday staples. The reality is that most customers do both, trade up for special occasions and people are really super focused on not spending too much on everyday items. So I think we put a stat in this presentation that -- or in the presentation we did last week that said more than 70% of customers during the year actually had an Aldi Price Match and Taste the Difference products in the same basket. So we're really succeeding with that, and that's really important for us because even on the kind of premium taste of Difference products, we think they're great value. The great value versus some of our high street competitors and they're certainly great value versus people eating out for the kind of same restaurant quality food.

Great. A question here about the long-term farming agreements that we have talked about. What does the kind of pricing and cost flexibility in those agreements look like?

Well, so the really important -- well, there are lots of important aspects of these agreements. And we talked last year about -- sorry, last week about the fact that we are putting in multiyear agreements with a lot of our supply chain across some key products and food types across dairy, across poultry, across beef and some key fruit and veg supply chains as well. So firstly, in putting in those long-term agreements, we are giving the capacity for those producers to become as efficient as possible. It means that they can basically use that confidence that they know that they will have our contracts over the longer term to go out and invest in better technology in better infrastructure, in better milking capacity, whichever it is, basically becoming more efficient. And at the same time, we know that actually people -- a lot of the producers are also investing in better welfare standards because we can give them assurance that we will pay for that and that they can know that they will have us buying that product over the longer term. So that's why it's really important. In terms of flexibility within cost, a lot of the time, we're actually taking out the flexibility on cost, and we're saying to these producers, listen, we think it's only fair that if you are going to invest and commit to us long term, that we commit to a kind of cost of production model. And this works really well for both of us because rather than a conflictual arrangement where a supplier comes and says, well, listen, cost of fertilizer, the cost of feed, the cost of energy is going up, I need a higher price. And we are stuck on the idea that we have a very kind of limited cost price. We basically say, well, listen, we'll have complete transparency where those higher costs exist, we will pay a cost price that reflects that. And it gives a resilience and a confidence and a quality through our food supply chains that we think is really important. So inevitably, there will always be a degree of flexibility in most contracts, but those cost of production models are really core part of a lot of those long-term agreements.

The question here is just around our financial policies. And if you could just outline a few of the different pieces. So in particular, our leverage targets, investment hurdle rates, our policies on dividends and buybacks and then any short-term refinancing needs that we have.

I didn't write down the -- so in terms of leverage targets, we are super clear that our capital allocation framework starts with a leverage target of 2.4 to 3x net debt to EBITDA. And why -- how do we define that range? We define that range because that gives us the greatest flexibility in terms of financing. So that gives us an investment-grade credit rating. So that's really vital that 2.4 to 3x. And that dictates -- right now, we're at 2.6x and that will dictate the amount of cash that we're able to return to shareholders. So that's leverage targets. In terms of investment hurdle rates, so you will have seen our return on capital is relatively low. So I think 8.9% this year. Our intention is that, that will get up into double digits over time. And so when we're looking at hurdle rates for projects, clearly, it will differ depending on the type of projects that we're investing in. But typically, we would expect double-digit returns and particularly when we're looking at some of those longer-term projects building new stores, for example, we'll typically be expecting returns in the teens. So that's hurdle rate. Dividends and buybacks, I think I said earlier, so we've got a progressive dividend policy. So we have a payout ratio at the moment, which is quite high, around about 60% of earnings, but we intend to grow our dividends, our dividend per share every year. And then from a buyback point of view, broadly, unless there is an additional use over and above our capital -- our kind of normal capital envelope, unless there is kind of an extraordinary opportunity with very high returns, we will return our additional free cash flow to shareholders in the form of a buyback. As I said, the core level of buyback in the last 2 years has been GBP 200 million. We've enhanced that last year with additional returns from the sale of the bank, and we're enhancing it this year with another GBP 100 million of bank proceeds. But that core GBP 200 million has been supported now for the last 3 years, so GBP 200 million, GBP 250 million and then it will be GBP 300 million this year. Amish computer died. So I think I'll be asking myself the question.

I think you'll still be able to hear me, hopefully, but no longer be able to see me, apologies. So the next question we had, James, was around Taste the Difference. And if there is a new sales target now we've exceeded GBP 2 billion target.

Yes. So yes, so in short, we're already talking within the business about a GBP 3 billion target. So again, we won't stretch the brand further than is right for the business and for the mix within our stores. But I think we've proved to ourselves, particularly over the last 2, 3 years, -- but when we do innovate, and we have the most fantastic innovation team here internally. So when we introduce new and interesting products, we do have customers who are inclined to trade up and trade into those products. So we've already introduced a tier slightly above Taste the Difference called Taste the Difference Discovery, where we're leaning into some of the products which, again, you typically wouldn't have found outside of a restaurant or wouldn't have found outside of specialty butcher. And we're delivering those at much, much better value than you would find in a specialty shop. So I think we will keep pushing ourselves in terms of innovation and in terms of what we're prepared to offer customers, and we are pretty confident that we can keep on growing that brand.

And then a question about Smart Charge, James. So we talked to growth of 136% in Smart this year. Can you give any more context on the drivers of that growth?

Yes. It's pretty extraordinary growth because we didn't add much by way of new Smart Charge facilities this year. So that was only a very small part of the growth. So we got more than 100% of the sales growth was actually like-for-like sales growth. So i.e., more people charging through our current facilities. And that's just a maturity aspect. So it's not just more people having electric cars, and that will clearly be part of the growth. It's also people getting used to Sainsbury's getting used to the fact that we only have hyperfast charging. So it's a very high-quality charge, very good value charge and clearly very convenient for lots of customers who aren't necessarily able to charge at home. that they can do a really super fast charge whilst they're doing their shopping or take advantage of the location that we're in and also take advantage of Nectar. So we're really making some headway. The other thing we've done, which I think has really helped build the sales and also the profit of Smart Charge is that we're now more linked into some of the networks. So clearly, depending on what type of charging model you have, what kind of car you have and perhaps for big company car users and company van users, we're linking into a lot of those networks, and that's driving a lot of repeat spend. And remember, we -- the vast majority of our big superstores are in very, very good locations, quite often near busy road networks. So they are great locations, not only for people doing their grocery shopping, but also taking advantage of that passing traffic.

Thank you, James. A question now on Argos. So do we still see Argos as a core long-term growth driver for the group? Or is the focus now more on stabilizing performance and extracting cash flow?

Yes, we've been pretty clear in the last couple of years that our intention right now is basically to strengthen the Argos business. So rather than immediately improving profitability or immediately improving the sales trajectory, it's really about strengthening the business, so strengthening the digital proposition in the way that we show up on websites, the way that we show up on the app, where we've made a significant amount of development in the app. So I think -- so number one, in that kind of the way that we show up to customers, but also range. We have a curated range. We're not Amazon with millions of products potentially. but we are basically a more targeted, focused, easier shop with fantastic fulfillment where we can deliver a lot of products same day. We have a huge free click and collect network, but making sure that we have the right range behind that is a big development. So short term, we're not overinvesting because we don't want it to be a business that detracts from the very strong cash flow of the business. And we are clearly at least looking to kind of deliver stable profits while we're doing that. But I think we've delivered stable profits last year. We've talked about our simple case this year being stable profits. I think we would hope to start to see some progress beyond perhaps this year.

Great. Thank you, James. Question here around shrink. So I've seen in the headlines that shrink is increasing at a significant rate. Is that something that we would recognize?

Yes. So just to be clear, so when we talk about shrink as bit of a retail term, we're talking about stock loss and the vast majority of that comes -- some of it comes through wastage where products -- fresh products go off over time, but the vast majority is through theft. It is a huge challenge for the industry. You would have seen as amount of coverage in the press in weeks, months in the last couple of years, both in terms of organized crime, but also customers or frankly, not customers, people either come through violence or through wantingly ignoring self checkouts, et cetera, choosing not to pay for their items. So yes, it is a challenge. It is something which we are addressing in a strong way as we can. And a lot of how we're making significant progress is through technology. So on our self-scan checkouts, we've improved -- number one, we've improved the recognition of camera technology where cameras can recognize what customers are doing in terms of what they're scanning and what they're putting in their basket and perhaps assist those customers if that doesn't quite match what's actually going through the till. So that's produced some very, very good results, and we're using AI technology to kind of marry what's happening at the TL versus what the camera sees. And at the same time, we're the first U.K. supermarket to introduce facial recognition. And this is where we are just extending trials of a system where we have a register, which is managed by a third party of of individuals who have a history of violence or theft in our retail stores, and we recognize them or the cameras recognize them as they walk into the store, and we encourage them or we ask them not to enter the store. And I think one of the kind of key challenges with shrink is avoiding moments of conflict. This is a potential moment of conflicts, but the simple fact that we are addressing those customers, telling them that they do have a record, and we obviously have all the legal aspects in terms of kind of giving that assurance, it's been very successful in terms of those individuals turning around, not entering our store and more importantly, not trying again to enter our stores. So it's having a huge impact. And this is as much about colleague safety as it is about shrinkage because unfortunately, crime and retail violence is a huge impact for us and for the whole of the retail industry. And in doing this, we are effectively introducing a system where if part of the challenge at the moment is that individuals don't see much risk of prosecution or kind of adverse outcomes from shop lifting, then I think that, that is slightly different where we're starting to show them evidence that they are being recognized. They're encouraged not to come to our stores, and we think probably over time, it will extend to more retailers.

Thank you, James. A question here around any plans that we have to grow our vegetarian and vegan range of food, especially in Taste the Difference. And is this an opportunity that we've not fully taken up?

Yes. So well, so number one, in terms of the parts of the food market that are growing right now, it's really interesting. And I think partially reflective of an increasing focus on health, increasing visibility and knowledge of what types of products are good for you and you should be eating. And to a very small degree, possibly as a consequence of GLP-1s, all of these things are feeding into the fact that fresh foods are growing much, much faster than packaged goods. So packaged goods, clearly, a large part of those aren't necessarily the healthiest products. and people are avoiding processed foods to a greater degree these days. So fresh foods are performing better. Protein is a real focus. So that's feeding through to dairy to meat, fish and poultry. And additionally, fiber is becoming a real focus. Vegetarian food, I think I would put this in the same bracket as I would attempt to help customers with more options on fiber, more options on protein. Clearly, all of the constituent parts that anybody with a vegetarian diet or a high-protein diet or somebody looking to enhance of fiber, all those things are available in stores, where I think we have a real role is making that easy for customers. Now I think vegetarian has been a focus for a number of years. And so I think probably our range there is good. I'm interested in the comments about Taste the Difference and vegetarian. -- we'll feed that back to the development team. But I think you will see a lot more development around those areas where, as I said, we are helping customers with those protein choices, with health choices and with fiber choices and making that more visible in terms of what we're doing with our products.

Yes. And I think one thing to build on that actually is that where previously there may have been a trend of vegetarians wanting to eat kind of nonmeat alternatives, so sort of meat products. Actually, people are really looking to scratch cook and they want to be inspired about recipes they can make from scratch where they swap in various pulses or vegetable options instead of meats. And so we've been encouraging that through healthy choices challenge that we run through our Nectar app, which is really driving greater purchases of fruit and vegetables as well.

Yes. And it's worth saying some of those, again, where the industry, particularly with vegetarian and vegan food, tried to help customers with easier choices. And for example, some of those meat products, they weren't necessarily the healthiest. So I think that that's -- we're in a bit of a hinterland right now where we're trying to solve both solutions, so making it easy for customers. but avoiding some of those kind of high -- quite often, a lot of those products were high salt or have a high degree of processing in them. And so again, it's trying to help products without some of those adverse consequences.

I think, James, we've got time for one final question quickly. So just very quickly, the portion of grocery sales that are going through online and what does the trend look like in that space?

Yes, good question. So it's around about 14% of our grocery sales are online. And that is -- post COVID, that number has been gradually increasing. So pre-COVID, that number was about 6% or 7%. during COVID, when clearly a lot of customers couldn't or didn't want to shop in stores, that rose to 21%. It then trailed back to 12% post-COVID, and now we're seeing it growing fast. So last year versus our grocery growth of 5%, online sales grew about 13% -- now about half of that growth is not what we call core conventional groceries online. So the kind of big basket shops that you see delivered in Sainsbury's fans. Instead, it reflects what is the fastest-growing part of the market, which is what we call food on demand. So this is rapid delivery through somebody like Uber Eats or Deliveroo. So we fulfill a lot of those sales through our convenience stores and our supermarkets. It's premium price. The delivery is taken care of through one of those third parties through Uber Eats or Deliveroo or -- just Eat. And it's a kind of fast-growing part of the business for us. And ultimately, what we aim to do is match customers' requirements, however they want to shop with us. And right now, that food on-demand business, we think that we have the biggest food on-demand business in the U.K. So it was a bit more than GBP 700 million of our sales over the last year.

Great. I think that's all of our questions for today.

Perfect. James, if I may just jump back in there. Thanks very much indeed for addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But James, perhaps before really now just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great.

That's great. And thanks again very much for your time. So I'd just close very quickly to say really our investment case, the investment proposition that we have investors is about good consistent delivery of those strong cash flows and the way that those can flow through to cash returns to shareholders. I think over the course of this year, right now, we're in a position where there are, as I said earlier, a lot of unknowns ahead of us. Over the course of this year, we will be updating the market, hopefully being able to give a little bit more certainty as the situation in the Middle East and what that means for the economy. And hopefully, we'll be able to give a little bit more progression in terms of the messaging that we're giving over time. So happy to update at any time. And again, thank you for your attention today.

Perfect, James. That's great. Thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. It's going to take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Sainsbury's plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.

Good morning, and welcome to our '25/'26 Preliminary Results Presentation. Thank you for joining us today. I'm going to start with an introduction before handing over to Bláthnaid, who will cover the financials. I will then share more detail on the progress we've made during the second year of our Next Level strategy and our key priorities as we look ahead.

Now over the last 5 years, you've heard me talk time and time again about our approach to making deliberate balanced choices to support all of our stakeholders. I'm really pleased with the further strategic and operational progress we've made. Central to our strong momentum and consistent delivery is our relentless focus on delivering our winning combination of value, quality, availability and service for our customers.

We've made focused investments in keeping prices low on the items people buy most often, in strengthening our food offer with leading quality and innovation, in making more of our food range available in more locations and in delivering leading customer service and a big step on in availability. As a result of the investments and choices we've made, we have sustained our strong competitive position, again grow market share and more and more customers are trusting us as their first choice for food.

At the same time, we have maximized the clear opportunity we have to invest ahead of others. We are refreshing our stores, investing in technology, AI and automation, improving digital experience with greater personalization, committing to long-term supplier partnerships and building resilience and driving efficiency in our operations. All these are underpinned by the strength of our cost-saving program.

These investments reflect our long-term approach, strengthening our relationship with customers, colleagues, farmers and suppliers, building a business with the capabilities needed to win in this market, both now and in the future. As you know, customer satisfaction is the key measure that we look at each and every day to evaluate that we are making the right choices for our customers and our business.

We continue to lead against all our full choice competitors with strong improvement across key metrics, and this is particularly notable in a year which has been characterized by continuing cost of living pressures and significant externally driven cost inflation. This level of customer satisfaction truly demonstrates the hard work and commitment of our entire team in consistently delivering for our customers.

And I want to take a moment to thank all my colleagues for their hard work, dedication and care. Our team have done such a fantastic job this year as they've stepped up again to really deliver for our customers and support each other. As more and more customers are choosing us each week for their big trolley shop, we are growing our loyal customer base with 1.2 million more primary customers than when we began our Food First plan 5 years ago.

This is the key measure of our success, and it's what's given us the confidence to invest in growing our food footprint, rebalancing space towards fresh food in existing stores and opening new stores in key target locations to bring the best of our ever stronger proposition to more people in more places.

When we look at what this strong performance means for our position in the market, we have achieved our highest volume share in 10 years, having delivered food volume growth ahead of the market for the sixth consecutive year.

Now this data is consistent with how we have presented food volume market share over recent years. However, one point which is important to call out here. When we look across the different volume and market measures available to us, we know that this view understates the actual volume share progress we've made over the last year. By any other measure, including our own internal volume growth numbers, we grew market share just as much this year as we did last year. As you know, volume growth versus the market is a key measure for us, and hence, this is something we're discussing with Worldpanel.

To give you some further sense of this, the orange bars here are our actual grocery volume growth through the 4 quarters of last year. And the purple line is Worldpanel's measure of the rest of the industry's volume growth. This shows our volume outperformance extending over the course of the year and perhaps most importantly, our volume growth holding up strongly as the industry tailed off.

And what really distinguishes our performance in the second half of the year is that as the volume performance of the industry weakened, our increase in big trolley customers enabled us to deliver growth in average items per basket, while it remained in decline for almost all of our competitors.

Back in November 2020, when we set out our priority to put food back at the heart of Sainsbury's and to start winning in food, I said to you that at its very core, this would mean better value and range at the center of the plate, meat, fish, poultry and produce. These everyday essential items that matter most to our customers are when the consistency of our investment in great value has truly resonated. Winning the center of the plate has enabled us to win the whole shop with many more customers.

We are known for our standout reputation in fresh food and for our leading quality and innovation. By giving customers, the confidence that they can also trust us for reliable value, we are outperforming the strongest growing part of the market across fresh food categories. With our fresh food volume performance almost 5x ahead of the rest of the market. And we achieved fresh food sales growth at 8% in the year.

Now as we look ahead, we believe our strength in fresh food is going to continue to be a key differentiator. We are passionate about supporting our customers in adopting a sustainable balanced diet in line with the Eatwell Guide, and we already outperformed all of our significant competitors when it comes to healthy sales by volume.

So as customers increasingly look for healthier, less processed options and are seeking higher fiber foods that can also help diversify their protein intake, we believe we are well placed to deliver. We are truly committed to help everyone enjoy good food, which is easy, affordable and joyful, helping more customers to eat well, benefiting not just their health, but our planet, too.

Our approach in this space is evolving, and our personalization capabilities are helping us to go further to really connect and support customers with making healthier choices. And we are excited by the bold plans we're building, and we'll talk more about this in the coming months. And we see this as one of the ways in which we are doubling down on the things that make Sainsbury's unique, in particular, our heritage and leading quality in fresh food, our purpose-led approach to decision-making, our food-first, people-first mindset and the strength of our long-term relationships and partnership with farmers and suppliers.

Delivering good food and delivering well as this is what our customers expect of us and have always expected of us. And so coming into the third year of our next level Sainsbury's strategy, we know we want to go further and faster to stand out. One element of this is how we will utilize AI and data capabilities to help make us a better, even stronger retailer. I've said before that retailers that have the scale and the ability to invest in technology will be the ones that pull further ahead, and we see smart use of AI as a key part of competitive advantage.

We know where the key levers are in our business that help us to improve our customer proposition, particularly through enhanced personalization. And we will drive greater commercial value through improved productivity and reduced complexity. And clearly, these are the areas where we will focus the majority of our AI investment.

Right now, the focus of our teams is on how we will use AI to its full potential, prioritizing value streams that help shape our next phase of growth and innovation and underpinning this ambition with the creation of our AI center of excellence, providing the governance, skills and confidence in supporting us to scale safely and unlock greater value.

When we look across our business, significant AI integration is already underway with more than 200 live use cases, ranging from those delivering measurable value today to others which are still in the early stages, such as our future-facing work into agentic commerce and connected stores.

We set out here some tangible examples for you. Intelligent rescanning algorithms in SmartShop are enabling us to target high-risk baskets for rescan. This is helping us to reduce loss, but also optimize inventory accuracy. The introduction of our new optimized price reductions tool centralizes the decision-making on the price of the expiry date markdowns, simplifying the process in-store and saving colleague time whilst also reducing waste.

Through our proprietary decisioning engine, which sits behind our personalized Your Nectar Prices and points offers, we are working towards 500 million personalized offers each week. The exciting thing here is that we're able to adapt and optimize our decisions based on changes in customer behavior. This is helping us to strengthen loyalty, drive repeat visits and further grow our primary customer base.

And finally, Nectar360 Pollen, where we're using AI to address a long-term challenge for marketers using multichannel campaigns. The power of Pollen is that our proprietary multi-touch attribution tool enables us to track the customer journey across all different channels and touch points to measure true incremental sales, and then compare against expected benchmarks so that clients can optimize activity to maximize their results.

So turning to our commitments. 2 years into our 3-year Next Level Sainsbury's plan, where are we? Well, we're in a strong place on a number of the key inputs. Food volume growth has been ahead of the market now for 6 years in a row, and colleague engagement has become even stronger despite significant change in the business.

You'll see here, we've marked ourselves amber on customer satisfaction. The earlier chart on this showed our performance in a particularly strong place versus competitors, but we know we can go even further. This is a real focus across the entire business this year, ensuring our customer experience goes even further in setting us apart. We are pleased to have made good year-on-year progress across many of our plan for better metrics. At the same time, we know there is still work to do, particularly in areas such as deforestation and conversion-free sourcing, plastic reduction and supply chain emissions.

We remain focused on our net 0 ambitions, are continuing to accelerate action to reduce food waste and are enhancing supply chain resilience and responsible sourcing across climate, nature, human rights and animal welfare.

Our momentum on cost savings and cash flow continued to be really strong. We know profit leverage took a step back this year after a very significant step-up in externally driven cost inflation, specifically from National Insurance and EPR and consequently, higher grocery inflation. We invested to sustain the strength of our competitive position, making investments in value, service and availability and each delivered strong returns.

And last but not least, ROCE, where our capital discipline has been strong and returns are higher than at the start of the plan, but have been held back by lower profit growth. We are aiming higher with strong capital discipline and a capital-efficient investment choices.

So coming back to our principle of making balanced choices to deliver for all of our stakeholders. We've invested around GBP 1.3 billion in value in the last 5 years. We've invested around GBP 800 million into wages for our hourly pay colleagues in the same period, and colleague pay is now 40% higher than 5 years ago. We're consistently investing to strengthen the business to deliver now and in the future. And yet in the same 5 years, we've also returned around GBP 2.2 billion of cash to shareholders. We have a really strong playbook with a highly experienced and capable team.

So when it comes to making tough decisions, being ambitious and dealing with the challenges that are thrown at us, we have a good track record of emerging stronger. And I think this will stand us in good stead in the current environment where the conflict in the Middle East will bring new challenges for us, for our farmers and suppliers and for our colleagues and our customers. We will maintain the strength of our competitive position. We will outperform the market again, and we will continue to strengthen our business for the long-term.

Going to hand over to Bláthnaid now to cover the financials.

Good morning, and thank you, Simon. I will now cover the financial highlights for the 52 weeks to the 28th of February 2026.

Starting first with a reminder of our financial framework. This lays out the factors that underpin our commitment to deliver profit leverage from sales growth, strong cash flows, higher return on capital employed and enhanced shareholder returns. 2 years into the Next Level strategy, we are pleased with our progress. We have delivered consistently strong food volume growth ahead of the market, a resilient profit outcome, strong cash flow generation, and we have returned more than GBP 1.3 billion of cash to shareholders through dividends and buybacks.

Turning to the results. Let's start with our sales performance. Sales in Sainsbury's grew 4.9% in the year with consistently strong grocery volume growth and market share gains throughout the year. General merchandise sales were down year-on-year, largely as planned, driven by our strategic choice to allocate more space to food. This was offset by a strong performance in clothing, driven by our improved ranges and a significant uplift in availability, contributing to strong volume growth of nearly 6% year-on-year.

Argos sales grew by 0.7%, up 2.3% in the first half, helped by good summer weather against a weak seasonal comparative, but down year-on-year in the second half, largely reflecting the impact of subdued customer spending over Black Friday and Christmas. Together, this delivered total retail sales growth of 4.3%, excluding fuel and 2.8% growth, including fuel.

Turning now to profits. Retail underlying operating profit decreased by 1.1% year-on-year to GBP 1.025 billion. Sainsbury's profits were down slightly year-on-year, reflecting significantly higher employment and regulatory costs in a competitive market and investment in our competitive position through value, customer service and quality. This was largely offset by the benefit of consistent volume outperformance and continued cost-saving delivery. Argos operating profit was broadly flat year-on-year.

Unpacking the full year Argos profit performance. The business benefited from higher volumes, but this was partially offset by the higher cost of driving online traffic. It also delivered higher operating cost savings, but was impacted by elevated wage inflation. First half profitability improved significantly year-on-year, reflecting strong seasonal volume growth, while profits were down in the second half, impacted by lower average selling price.

Now to Financial Services. During the year, we successfully completed the sale and migration of our core banking products. We completed the sale of loans, credit cards and savings to NatWest and transferred the Argos Financial Services book to NewDay. The results for these legacy operations are now included within non-underlying discontinued operations.

The new proposition with NewDay offers customers a simpler, more flexible way to spread the cost of purchases and replaces the existing store card. We additionally signed agreements on our home and car insurance back books with Allianz and completed deals on ATMs with NoteMachine and on Travel Money with Fexco. In April 2026, we further announced a new partnership with NatWest, who will provide white label loans, savings products and a new NatWest Nectar credit card.

To complete the final stage of the bank exit, we plan to surrender the banking license by July 2026. We returned GBP 300 million of net bank proceeds to shareholders with a further GBP 100 million to be returned through incremental share buybacks this year. Following the successful exit from core banking, we will be creating a simpler, more focused financial services model, fully integrated into our retail business.

As a result, we will no longer report ongoing Financial Services as a separate segment. We will combine these results within our retail numbers for future reporting. The ongoing financial services contribution to profits will be generated from Argos Care, commission income from Insurance, Travel Money, ATMs and white label banking products alongside income from the NewDay Argos Pay partnership.

Turning to underlying profit before tax. Total underlying profit before tax grew by 1.3%. This was predominantly driven by higher financial services profitability against last year's restated loss, while underlying earnings per share increased by 3.2%, reflecting a reduced share count as a consequence of share buybacks.

Following a review of our deferred tax liabilities, we have restated downwards last year's underlying tax rate by around 1 percentage point. This is also reflected in this year's underlying tax rate around 29%, lower than our previous guidance of around 30%. We expect a similar rate of around 29% in the year ahead.

The next slide lays out items excluded from underlying results. We incurred GBP 128 million of non-underlying costs in the year, with the largest item relating to retail restructuring costs of GBP 74 million. The biggest element of these costs related to redundancy costs associated with changes in our central management structures as well as costs relating to the closure of our food counters and conversion of cafes and bakeries.

GBP 29 million in discontinued operations relates to the exit of our core banking services. We incurred non-underlying retail cash costs of GBP 80 million in the year and expect to incur costs of around GBP 50 million this year. We continue to expect to incur cash costs relating to our Next Level strategy of around GBP 150 million over the 3 years of the program with GBP 91 million incurred to date.

Now turning to our cash flow metrics. Retail free cash flow of GBP 574 million was up year-on-year. This reflected higher EBITDA, strong working capital management and reduced contributions to the pension scheme. The stronger working capital inflow year-on-year was primarily the result of a successful project on payment terms. Net debt, excluding leases, reduced by GBP 61 million year-on-year and net debt, including leases, reduced by GBP 15 million, both slightly flattered by the GBP 100 million of bank proceeds, which will be returned to shareholders in the first half of the current financial year.

This table shows the key elements of the retail cash flow and movements in net debt this year and last. I've already covered the key free cash flow movements, including the lower pension cash contributions in the year. The latest triennial valuation of the pension scheme based on September 2024 values was completed in March 2026 and continue to show a surplus. Cash contributions into our pension scheme are expected to be GBP 27 million in financial year 2027, so broadly unchanged.

Beneath free cash flow, you can see GBP 400 million of Financial Services inflows and the cash distributions through the impact of dividends and buybacks. We have generated GBP 1.1 billion of retail free cash flow over the last 2 years, and we are committed to continuing to deliver retail free cash flow of at least GBP 500 million in financial year 2027, in line with our next level strategy commitment.

Looking at capital expenditure. Over the last 2 years, CapEx has been focused on improving our store estate, enhancing our digital capabilities and strengthening loss prevention and security. We are investing for future growth, while also strengthening our foundations and building competitive advantage. Last year, capital expenditure increased by GBP 18 million, reflecting ongoing property and technology investment as well as higher spend on loss prevention and security enhancements. We've also invested in conversion of some of the acquired Homebase and Co-op stores with 5 new store openings during the year and the remainder to be opened during the current financial year.

Looking ahead, you can see our planned spend on efficiency stepping up, underpinning our confidence in the delivery of our cost saving plan and further building sustained competitive advantage against competitors who are more cash constrained. Our guidance remains unchanged. We expect to incur capital expenditure of between GBP 800 million and GBP 850 million in this financial year.

Here, we lay out our balance sheet metrics. Net debt to EBITDA has remained flat year-on-year at 2.6x, broadly in the middle of our target range of 2.4x to 3x. Return on capital employed declined by 10 basis points year-on-year, primarily driven by lower underlying group operating profit.

On to shareholder returns. Looking at the right-hand side of the chart, you can see that during the year from free cash flow of GBP 574 million, we paid ordinary dividends of GBP 316 million as well as completing a core share buyback of GBP 200 million.

From our net banking proceeds, we have returned a further GBP 300 million through a GBP 250 million special dividend and a GBP 50 million incremental share buyback, hence, total cash returns of GBP 816 million. Another GBP 100 million of net bank proceeds will be returned in this financial year, alongside a core buyback of GBP 200 million.

In line with our policy to pay a progressive dividend, our proposed full year dividend per share is 13.7p, a payout ratio of 61%. This is a 1% increase year-on-year. This reflects our intention to slowly reduce our underlying dividend payout ratio over time closer to around 50%.

In summary, we are pleased with our performance in year 2 of Next Level strategy, delivering continued grocery volume growth, resilient profits, strong free cash flow generation and enhanced shareholder returns. Looking forward in the year ahead, we will continue to maintain our strong competitive position and generate free cash flow of at least GBP 500 million and return GBP 300 million to shareholders through share buybacks. Our guidance range for operating profit reflects the uncertainty in terms of the impact of the conflict in the Middle East on both our customers and our business.

Thank you for your time. I'll now hand back to Simon.

Thanks, Bláthnaid. Now our priority for our food business is a simple one, to become the first choice of food for more customers through the strength of our winning combination of value, quality, service and availability to bring the best of that offer to more people in more locations and by maximizing the strength and the reach of the Sainsbury's brand. We've had another year where we've really delivered on this with more customers choosing us for their big grocery shop, trusting us across the full shop to deliver value on the items they use every day.

We've invested more in Aldi Price Match this year in supermarkets and convenience. And at the same time, customers are choosing to trade up Taste the Difference with us more often for special occasions instead of having a meal out or just because they're making choices on the items where quality matters most to them. These are not distinct customers or distinct shopping missions. In fact, almost 70% of customers shopping with us had both Aldi Price Match and Taste the Difference items together in their trolley at least once during the year.

It's the consistency of our delivery on value that customers really respond to, where they know they can trust us week in, week out. And this shows our price position at the end of the '25-'26 financial year versus a year ago. Across the biggest, widest comparison we can make, it's unchanged versus our 2 biggest competitors, and we've made considerable headway against some others.

And as a reminder, we're offering even more value to more customers through Your Nectar Prices, our personalized offers. This is not captured in these indices. If it was, it would further strengthen our value position against every competitor. And it's where we've invested that really makes a difference. Since the start of Food First back in 2020, we focused our investment on the fresh fruit, veg, meat, fish and poultry items that customers buy most often and where they trust Sainsbury's to deliver consistently great quality.

And you can see it's here that we've made further progress versus all our competitors, particularly against the limited choice competitors in the last year. This has been supported by a 17% increase in the number of center of plate items included in our Aldi Price Match.

Now there's been a lot going on in pricing in the market this year with elevated inflation as the industry and our suppliers pass through higher costs. That's reflected in some of the movement you can see here through the year and in the fact that value for money perceptions on average for our competitors ended the year in a weaker place than they started, while it improved for us with particularly strong progress in the second half of the year. And as I highlighted earlier, that's where we've made the strongest progress on volume market share gains.

Taste the Difference has gone from strength to strength again this year, and it's the fastest-growing premium own-label brand in the market. More customers are buying Taste the Difference more often. We've now passed through GBP 2 billion of sales, and we have a clear ambition to go further and faster as we look ahead at our continued opportunity here.

Now fresh food is the heart of our business. Our product development teams are doing the most brilliant job with leading innovation in the market. Our brand and our customer base gives us a unique opportunity to extend the boundaries of our ranges, especially in Taste the Difference through innovation, bringing new and exciting products to more customers.

We introduced over 1,200 new own brand products in the past year, over half of which were in Taste the Difference, including our extension into restaurant quality products with the Discovery range. And we have more than 600 new products that we are excited to bring to our customers in the first half of this year with a real focus on delicious summer ranges as we look forward to hopefully a big summer of sport.

Now we believe that food resilience matters more now than ever, and that's why our long-term partnerships with farmers and suppliers are so vital. We are leading the way across the industry in making long-term commitments to U.K. farming and agriculture, protecting good food for today and generations to come.

In March, we announced that we're further expanding our long-term partnership model to create one of the U.K.'s most extensive networks of multiyear farming agreements. By early 2027, more than 2,500 farms, all 100% British and Irish will be backed by long-term contracts of between 5 and 10 years. And that means that 60% of our own brand produce, meat, fish, dairy and poultry products will be in long-term agreements by the end of 2026.

These long-term agreements are linked with cost of production commitments and give farmers the capacity to invest with confidence in the future of their businesses and particularly at times like this, where farmers face huge challenges on the cost of fuel, fertilizer and feed. This approach strengthens the supply of good food, is raising animal welfare standards and helps tackle climate, nature and labor challenges.

We're bringing more of the best of Sainsbury's food offer to more people in more locations, investing in a very targeted way to open new supermarkets and convenience stores. And we're really pleased with the performance of our new additions. And through our More for More investment in existing stores to make more of our food offer available through space reallocation with a particular focus on fresh food. On average, we're adding around 1,000 food items to the range in these stores.

Invested stores are performing ahead of the rest of our store estate, delivering 2% food volume growth outperformance in the second half and improving total trading intensity by more than 5%. We've relaunched 70 stores to date, and we'll be investing in another 30 in the year ahead, including some of our largest supermarkets. But it's not just about supermarkets. We're investing across all the ways that customers want to shop with us, with the strength of our value commitment and improved fresh food offering convenience stores driving strong market share performance in convenience.

But most obviously, in online grocery with sales up 13% year-on-year. And this reflects both strong growth in core big basket online shops, up 7%, but also 70% growth in our on-demand food business, coming primarily through third-party platforms. And this now accounts for sales of more than GBP 700 million. All of these sales are fulfilled through our supermarkets and convenience stores. So if we look at the growth rate differently on this chart as the growth of sales being fulfilled through our stores, you can see we're providing more choice for customers and driving more sales through our existing assets.

Now I'm really pleased with the improvement in performance in our Tu clothing business. As a reminder, this is a GBP 1 billion sales business, the fifth biggest clothing business in the U.K. by volume. Under a new management team, we're delivering better product ranges, better execution and better availability. We grew sales in every quarter, even in the seasonally weak third quarter, and we are consistently gaining market share. There's plenty more to come with some great products in store and online and some key operational changes in the year ahead that will make a step change in the consistency of our availability.

Turning next to loyalty, everyone loves. Nectar has 2 key elements. On the left-hand side, our customer-facing Nectar loyalty scheme. This is how we reward customers and deliver value to them through points and cash discounts, increasingly through personalized prices and bonus points offers. On the right-hand side is our Nectar360 Retail Media business. We help our suppliers talk directly to around 25 million customers a week who visit our stores and our websites.

Now we are setting the standard not only in the U.K. but globally in how we do this, delivering great returns and great visibility of those returns. And we're making it easier to run sophisticated campaigns. In doing so, we're making Nectar360 more and more of a first choice for clients, choosing who they will use to direct their digital media investments to.

Customers love Nectar. They're engaging more and getting more value than ever, saving almost 20% on a typical weekly big trolley shop through Nectar Prices and now increasingly benefiting from Your Nectar Prices personalized value selected just for them on a weekly basis. We rolled out Your Nectar Prices to main bank tills this year, having previously only been available online and through SmartShop. It's driven a further step-up in Nectar participation and digital engagement with the Nectar app has reached record highs, a really valuable way that we connect with customers. This is great for customers, but it is also key to our ability to power Nectar360.

We have had another year of good profit progress despite some deliberate choices to step away from some activity as a consequence of HFSS changes. We're still ahead of our plan to deliver at least GBP 100 million of incremental profit by the end of this year. We are already a key strategic partner for more than 900 brands and client agencies, and we are increasingly becoming a first-choice partner given the scale of our first-party data, our omnichannel reach, closed-loop measurement capabilities and leading client service. This is really important as brands increasingly want to work with fewer, higher-quality networks.

The launch of Nectar360 Pollen in the autumn is really key to this. It's the U.K.'s most advanced unified retail media platform. It's an unrivaled easy-to-use platform that helps clients deliver omnichannel advertising in store, on-site and off-site. And as we wrap this up, we're getting great feedback on how this is helping marketers better track their returns and make smarter real-time decisions. For example, the Retail Media team at Unilever have called Pollen transformative for marketeers.

Alongside this, our connected digital screen network now consists of almost 3,000 screens across supermarkets and convenience stores, with plans to install a further 3,000 screens during the next year. And we continue to bring more value to Nectar customers with more opportunities to earn and spend points across a bigger network of great brands.

Turning next to more More Argos, more often, which is about strengthening the Argos business, investing in the product offer and a digital proposition to make it a business that customers visit more frequently and buy more when they do visit. In another tough year for general merchandise retailers with subdued spend and intense competition, we've made some good progress on this, with higher customer numbers and higher items per basket.

As a result, we grew volume in the year, not only in the first quarter when we had the benefit of good weather, but also in the second half. But as you can see on the left-hand chart, this was offset by lower ASP through most of the year, reflecting both weak markets in bigger ticket items, but also intense competition putting pressure on prices.

Focusing back on the progress we are making on the proposition. We're improving choice through adding more products directly fulfilled by suppliers, and we will take a big leap forward on this in the year ahead with the launch of a marketplace proposition.

The investment we are making in our app, key to consideration and building stronger relationships with our customers, is really paying off, with app visits up 24% in the year. And we've made some big moves too across our added value services with more choice and flexibility for customers on ways to pay through the launch of Argos Pay with NewDay and meaningful improvements on our preorder and trading services.

As you would expect, we're continuing to balance this with a real focus on cost across our retail and logistics operations in particular. And this will remain a key focus of our dedicated Argos management team, established to help accelerate the pace of change and drive further cost reduction, which will support investments in Argos-specific infrastructure and technology platforms.

So now Save and invest to win. But the strength of our cost-saving program is a key competitive advantage. We set out our target to save GBP 1 billion in cost 2 years ago. Building on the significant savings we have made in the prior 3 years, investing in technology and infrastructure to improve productivity and make meaningful structural reductions to our cost base. So in a year when we were faced with significant cost pressures, we relied on well-developed programs to deliver savings rather than just trying to find new ways to cut costs. And this really showed through in the consistency of our execution and customer experience this year, particularly at peak when compared to the market, we again outperformed.

We delivered another GBP 330 million of savings last year, and we're well on track to deliver our GBP 1 billion target. I've already covered a number of the areas across technology and Argos in particular, where we've delivered meaningful cost savings this year. There is still plenty more to come across logistics and distribution and in loss prevention in particular.

So after a positive year of progress delivering our Next Level plan, we're in a strong position. We're trading well, reflecting the choices we've made to deliver for customers, whilst continuing to invest in the long-term strength of our business. We don't know how long the conflict in the Middle East will last, and there is a very wide range of potential impacts on supply chains, costs and ultimately, customers.

But we are well placed to navigate the year ahead. And I am confident that through doing the right thing for our customers, our colleagues and our suppliers and farmers, we will continue to outperform the grocery market, strengthen our business and deliver long-term value creation.

Thank you for your time. Bláthnaid and I will now take your questions.

Hello, and welcome to the Sainsbury's 2025-'26 preliminary results announcement analyst Q&A call. On the call this morning is Simon Roberts, Chief Executive; and Bláthnaid Bergin, Chief Financial Officer.

We will now go to Q&A. [Operator Instructions] The first question is from Rob Joyce at Exane BNP Paribas.

So the first one, just looking at the guidance and we think about that, I guess, I understand FY '26 is impacted by Asda. But if I go back to FY '25, you're guiding to retail profits up 5% to 10%. And now the top end of the range, which presumably reflects minimal impact potentially from the Middle East, is only up 3% on retail profit if we exclude the Financial Services. Just wondering what's changed? And is that 3% a number we should think of as a more go-forward number?

Second one is just looking at Argos. Just within the guide, what are we thinking about Argos for next year? It's kind of flat profits in FY '26. Are we thinking similar for FY '27?

And the final one is, I know you're putting it in with the broader retail business now, but Financial Services, I think we were talking about GBP 40 million contribution from that in FY '28 versus 0 FY '26. Just wondering if that's still the case.

Rob, thank you. Okay. So why don't I take the first question and then Bláthnaid on FS. But look, I think -- I mean the first point I would make is when we set out our plan, you'll remember, we set out some really clear focused commitments on what we're going to do with the business in terms of growing customers, growing market share and doing that in a way where we also delivered a stronger financial performance.

And look, I think the first point to make is we're really pleased with the outcome we've achieved in the year just gone. We set a very clear position to sustain our competitive position given, as you say, that competition was intensified last year. We've come through the year. We set guidance around GBP 1 billion at the start of the year. We've come in clearly towards the upper end of that at GBP 1.25 billion with a lot of momentum into this year. I think that's an important point to make. We're taking share. We're growing the customer base. Our cost position is strong. We're on track for the GBP 1 billion cost saving over the 3 years.

And so the plan we set out is the plan that we absolutely committed to deliver. And I think within that, clearly, we've had some big cost headwinds this year. This is the first year where the size of our cost savings of GBP 330 million actually didn't reach the level of cost inflation given NI and given EPR, that's just 2 real cost headwinds we faced in the year.

So as we look to the year ahead, how do we see things? Look, first of all, I think first point to make is based on what we see today, and of course, there's a lot of uncertainty out there, we expect to deliver retail profit growth in the year. We've set a range clearly GBP 975 million, GBP 1.075 billion, but we expect to deliver retail profit growth. And if I can just break it out what that exactly means, GBP 1.025 billion last year, plus obviously, the 20 consensus for FS. So the base we're starting from, we think, based on what we can see today is GBP 1.045 billion.

There's clearly a lot of unknowns out there. And that's the reason we've given ourselves the flexibility to be able to respond to what comes and to make the balanced choices. And as you say, at the top end of our range, we'll grow 5% year-on-year. Obviously, we've got FS around 20%. Obviously, as the year unfolds, we'll see how we do. But I wouldn't want to underplay just the strength of the momentum in the grocery business we're bringing into this year, the focus of our plan, the strength of our cost savings, we're well set to navigate what's coming.

In terms of -- as we look forward over this year on Argos, clearly, we've been very focused on delivering our More Argos, More often plan, now a dedicated leadership team in place. That's making a real difference. We've got a team of people now 100% focused on delivering the Argos transformation. We've seen volume growth against the market. We're seeing our cost plans accelerate here.

And in answer to your question, we're expecting broadly flat delivery in Argos year-on-year because our most important focus is securing the strongest and most successful future for Argos. So flat assumption in Argos, which, therefore, to your question, means based on what we can see today, we'll deliver retail profit growth. And obviously, the food business will continue to step forward year-on-year. Bláthnaid?

Great. So for Financial Services, we won't be reporting Financial Services profits as a separate segment in the future. And the reason for that is we'll be handing back the banking license over summer. That's ahead of schedule, ahead of where we expect it to be at this stage in the program. So delighted with the progress there. We guided to GBP 40 million incremental profit by financial year 2028. We're well on with building that income stream. We're pretty comfortable with where consensus is at the moment, a contribution of around GBP 20 million this year, growing to GBP 40 million next year, and that will be embedded in the retail operating profit going forward. So the guidance today includes that Financial Services income.

The next question is from Manjari Dhar at RBC.

I just -- I also had 3, if I may. I guess starting with the food business. I just wondered if you could give us some color on the disruption that we expect to see from the space work that you're doing this year. I appreciate it's fewer stores this year, but just how should we think about the phasing of that for fiscal '27?

And then on primary basket growth, you've obviously done well so far. I just wondered, Simon, if you could give some color on how much more opportunity do you see there now versus where we were 5 years ago?

And then just finally, just a follow-up on Argos. Obviously, a lot of work has been done on the cost side. Could you give us maybe a little bit more color on where you still see the most opportunity for efficiencies? And what is it that we need to see from Argos to get back to profit growth, please?

Manjari, thank you. Well, why don't I take a bit more color on how we're thinking about the investment in stores and how we think about basket growth and Bláthnaid, where we're going to think next in terms of our costs and particularly the transformation agenda in Argos.

Manjari, look, I mean, the first thing to say is that clearly, the momentum in the food business is exactly what we plan for and is exactly what we expected to see. And actually, the fact that we're growing primary customers at the rate we are. You can see in our slide this morning, just how significant that growth in primary customers are, 1.2 million more primary customers shopping in Sainsbury's compared to 5 years ago.

And then specifically to your point, that underpinned in Next Level, our commitment to put new space down in a very targeted way and at a very capital disciplined way. We were very focused at where we were investing in our stores. And we've so far delivered that investment of about 70 stores. And actually, I would say that when you look at the last year, one of the charts you'll see in the pack, when you look at our volume growth over the year is actually disruption was more front-end weighted last year. And then as we came through into quarter 3 and quarter 4, you can see our relative volume against the market actually improved a bit more. We delivered 1% to 2% over the full year. We had actually in quarter 4, a continued strong performance. So we learned how to manage disruption better last year. Actually, the benefit of that came through a bit more as the year progressed.

And answer to your question, we'll be in about 30 big supermarkets this year. This program is really working for us. It's driving benefits in trading intensity, up 5% volume growth, up 2%. But more than that, customers are getting more of what they want, which was the whole core idea of More for More, about 1,000 new products in these stores, a lot of those in fresh food, and that's really speaking to the standout performance in fresh food that we've got.

In terms of the growing basket size, look, I think I'd make the point that the focus that we have had since the beginning in Food First and has been the absolute underpin of Sainsbury's winning in food has been our focus at the center of the plate. And you can see the value position at the center of the plate. We continue to execute against that strategy very clearly. And whether it be Christmas, Easter, Mother's Day weekends or whether it be week in, week out, customers are trusting the value at the center of the plate. And because of that, we're winning the whole shop. And that's really what's powered the basket item increase compared to the wider market. Customers' confidence in their value position really anchored in those center of the plate choices and then shopping across the whole supermarket. Bláthnaid?

Great. Thank you. So look, we're really confident in our cost saving program. We're proud of the GBP 330 million that we delivered this year. We've got a GBP 1 billion target over the 3 years, and we've got clear line of sight to the GBP 320 million that we need to deliver next year. There is a lot of work going on in Argos at the moment, particularly around costs. We've got Daventry coming online, which is our automated warehouse. So that's going live as we speak. That will be a pretty big cost saving this year.

And then we just forensically look through all of the other cost lines and see where the opportunities are. So I won't talk about those today. We'll talk a bit more about what we delivered when we get to the half year on that. But I would say the team are very focused on the cost saving program this year.

Maybe the linking theme, Manjari, whether it be in winning more primary customers, growing market share, outperforming market share or indeed finding further cost efficiencies. We see a lot more in front of us still to do. One of the things about our strategy and our plan at next level is as we get clearer and even stronger in what we're delivering, we see more opportunity in front of us.

So to your earlier question, there's more opportunity to win through center of the plate, more primary shoppers. There's more opportunity to get customers shopping our full assortment. And just in the same way, there's lots of opportunity to keep delivering our cost and productivity agenda. There are actually much of it increasingly powered by technology and AI, which is one of the things you've heard in our presentation this morning.

The next question is from Frederick Wild.

I also have 3, I'm afraid. So first of all, when I think back to those early -- the early 2022 inflation post-war, it was really the fresh component of the basket, I think, which saw that inflation come through first. When we think about the year ahead, can we think about a similar cadence where maybe fresh comes through a little bit before other COGS inflation that maybe is a bit more back-end weighted to this year?

The second question is a bit more sort of high-level strategic in the sense of -- I know some people are in the wider industry, not just in this country are thinking about increasingly using other profit lines, whether they be Retail Media or other businesses like clothing to support investment in the food offer and to really drive that volume share. Are you thinking about the business in that way? Or are you still thinking about these as sort of separate businesses that can all drive profit growth together?

And my final question is on CapEx. And so I know you've obviously at the CMD preguided to CapEx, that CapEx increase as part of your plans. But maybe given the outsized labor cost increases we've had since then, maybe some new technology like electronic shelf labels coming in. Have you been tempted to add a little bit of extra CapEx in there? Or do you feel sort of bound and that the current plan is sufficient?

Great. Thank you. Okay. It seems like 3 questions in the order of the day today. So why don't I talk to fresh food and inflation broadly. We'll talk about how we're thinking about the profit streams in the broader business. And then as I say, CapEx is a real focus of discipline for us. Bláthnaid can give us a sense of how we're working on that.

Look, I think let's just take half a step back on inflation, Freddie. Look, I think we would all say wouldently that prior to the Middle East conflict, inflation was starting to head down. We've been in the 3s. I don't think we were expecting any of us to go back to the mid-2s quickly, but it was on a route back down into that place. And clearly, the events of recent weeks are bringing pressures on inflation now. I'm not going to predict where food inflation is going to go. I don't think that's helpful to us, but I think it's clear there are pressures on inflation.

And to your question, obviously, fresh food has a couple of important components that go into the production and the processing and ultimately the retailing of fresh food given the energy component. We all know that fresh food takes a lot of energy to produce. And actually, particularly at this time of year and as we head into the peak British growing season, a lot of farms are using a lot of energy right now to get crops underway. And then obviously, as we know, I don't need to explain this to this call, just the breadth of energy consumption across logistics, supply chains, processing, manufacturing, retailing, online, digital. It's an immense energy consuming sector.

And so, of course, there's pressure on fresh food because of the component of energy that goes into it. It's one of the reasons why we would make the point really clearly to government that the energy policy approach that's been taken to highly intensive industries that use a lot of energy should be applied to the food industry. It should be applied to manufacturing and to retailing because we need to do everything we can to mitigate higher levels of inflation.

And so look, I think to your question, there's always a bit of a lag in fresh food, the lag time is a lot shorter than in canned and packaged goods. And so we should see -- expect to see the inflation start to pass through as we come through the next couple of months. And obviously, our job is to make sure we balance the choices we make to mitigate inflation as far as possible, whilst also recognizing the fact that we want to deliver for all of our stakeholders. And look, I think what this will mean is the market will behave incredibly rationally this year. I think that's a really important characteristic of what we think will happen because everyone will be navigating these issues.

On your second question, look, I would just point to what we've been doing. We set out a very clear plan in 2020 to become Food First. We said that winning in food was at the heart of our strategy. And then since then over the last 5 years, you've seen how the strength of our grocery business has grown and grown in terms of its reach with customers, its performance, and its ability to deliver substantial cost savings. We'll have delivered GBP 2 billion of cost savings at the end of the 5-year point, and we're on track to deliver the GBP 4 billion over the 3 years of this plan.

But within that, obviously, there's a number of things we've built. We've built an EV business, which we're really pleased with how that's contributing to our performance now. We paused the rollout just to really build the operating performance of the sites we've got on the ground. We're really pleased with how that's going. And it works really well for customers shopping in our supermarkets. They can charge their car in 25, 30 minutes, while they getting their shopping with SmartShop and be in, out and through quickly with a fully charged car.

We think we're setting the standard in Retail Media in our industry. You can see that we continue to make really strong progress towards our GBP 100 million target through Retail Media. The team there have done a phenomenal job this year, both in extending Your Nectar Prices the first to do that at scale in the way that we have last summer and then obviously, to continue to build out Nectar360 in the way that we are with the capabilities of personalization powered by really effective and strong AI capabilities that mean we will have somewhere near GBP 500 million personalized pricing options out in the market this year, about GBP 250 million as we sit today.

You see what we're doing in clothing. The 2 clothing brands is gaining real strength in the market as customers look for the combination of great value and great style. You can see our performance in the year. So when you look at all of the things that sit around the food business, you can see our focus, number one, and you can see how step by step, we're building really clear capabilities that add to our performance. Bláthnaid?

Right. So Freddie, when we set out the Next Level Sainsbury's strategy, we talked about a CapEx envelope of GBP 800 million to GBP 850 million a year. As we head into this current financial year, year 3 of that strategy, we're still operating within that envelope, and that's what we've guided to. We'll guide in future years when we get there.

I think what's really important, though, is we operate within that envelope and we make choices. So one of the big choices that we've made over the years is when the Homebase store's opportunity arose in the Co-op stores, we did that within the current CapEx envelope. And we're constantly revisiting those decisions to make sure that we're getting the best return, the best opportunity, but also building our business for the future as well.

So we do make balanced choices as we travel through the year. Our absolute focus is on delivering cash, and there's a play between cash and CapEx. So we are committed to continuing to deliver at least GBP 500 million retail free cash flow this year, and we'll make choices across those envelopes.

Thanks, Freddie.

The next question is from Sreedhar Mahamkali from UBS.

Maybe just 3 as well. Just to kind of build on some of the things you've talked about, Simon. The conflict and the impact on consumers, you haven't said anything yet so far. Do we assume you've not seen anything yet, but this is something to play out as reflected in your guidance? Or are you already seeing some differences in the way people are trading within grocery and GM more broadly?

Secondly, I think you've touched on the Value Index, very interesting couple of slides there. You're holding steady before personalized pricing in an intensely competitive market last year. But as your offer becomes more and more personalized, does the way you measure value change to what the customer actually gets, tracking that a lot more closely.

And I guess also while on the competitive landscape, is the activity more stable and rational now than it was this time last year? And really last one to Bláthnaid, I think can you just help us understand net finance cost guidance and how we should be thinking about next year and the year after, the EUR 320 million, which is a bit more than what we were thinking?

Okay, Sreedhar, thank you. All right. Well, let's link together kind of broadly consumer response, what are we seeing, how we think about value and where is the competitive landscape, and then I'll hand over to Bláthnaid.

So look, I mean, I think the first point to make is that clearly, we come into this year with our grocery business in strong shape. And I think that's a really important start point because that's what we've been building over a number of years. And this isn't the first time we've dealt with significant supply chain or energy impact. We've had versions of this every year. This isn't the first rodeo we're approaching on this.

And I think we are well equipped to be able to really understand how we navigate this, which is why we think we can give customers exactly the service and availability that they need, and we'll do the right and balanced approach to managing inflation, trying to keep prices as low as we can where it matters most, and that speaks to your Value Index question, whilst also really recognizing the fact there's lots of costs that are likely to need to be navigated, and we'll have to make sure we make the right balanced choices about that.

In terms of current trading, on the food business, to your point, we've come through the first weeks of the year. As we said in our statement this morning, we've had a positive start to the year. We see momentum and volume outperformance continuing the trend that we've seen. Easter was a strong trading period for us. And so we come into the year with good momentum and continued industry outperformance. Of course, the general merchandise market remains subdued and challenging. And I think it's a bit early yet to judge the impact because, obviously, the key months in -- particularly in the Argos business are May, June and early July when the seasonal categories become really important. And that's the time of the year when people look to buy things for outdoors, garden furniture, all the things for the summer. And so May, June and July, particularly early July is the time that happens.

And so that will be the time we can take a good read on the GM side. I think, obviously, bigger ticket under more challenge than lower ticket items. But obviously, the Argos offer is very well set on value, and we're paying even more attention to make sure we get the balance right between value for money and margin discipline and cost discipline, so we deliver the right set of balanced results there.

On Value Index, we're exactly where we want to be, which is a really strong position against our key competitors, continuing though, obviously, to balance where we need to be really strong value against where we really optimize our performance and drive the right profit outcome. And so that's what we'll continue to do.

The reason I mentioned center of the plate is at the core of our strategy. It always has been. When we all go shopping every week, what we spend in our weekly shopping basket is heavily driven by our confidence and trust in meat, fish, poultry, bananas, apples, milk, breads, orange juice, the things we all buy week in, week out. And that's why we focus so much of our value investment in those parts of the shopping trip, and it's really working for us.

On the competitive landscape, I think a couple of things to say there. I mean, look, first of all, last year broadly played out how we expected in terms of the incremental investment in value at the market level. You'll remember, we set the year with a very clear position. We would sustain the strength of our competitive position and the investments we made in value in a very targeted way in marketing, in service and availability really worked for us actually. We were very focused on how we did that.

And so when we look at the year ahead, as I said, we think we're well positioned to navigate the uncertainties out there. But I think it's also clear that the goals of some of our competitors are clearly defined. And that means that it will limit the extent to which we might see, we think, disruptive or irrational behavior. We see a very rational market over the year ahead. And therefore, we don't really expect much change. I think the industry broadly will solve for the issues that may or may not develop as a result of this situation. And we think our position is strongly placed as we enter into that. Bláthnaid?

Great. So on the finance cost, it's a great question.

Okay. So great question on the finance costs. There is a little nuance in there. So you have picked it up. As we wind down the bank, the Tier 2 debt comes in, and that will have a net cost this year of about GBP 5 million of that debt coming in. We can call it sometime between September '27 and March '28, and our intention is to do that. So that GBP 5 million will fall away in future years. And then the other kind of nuances, there a little bit of increase in the lease costs. We've added some property. We've also had some regears during the year. So that's kind of the balancing number on that.

Simon, back to you. I think Sreedhar has another question.

Now just to follow-up on the Value Index personalization point. You showed it's stable versus 2 of your important key competitors. With personalized value, would it have actually improved last year?

Yes. No, I mean I think just to be clear, the 2 charts that we showed did not include the benefits of personalized value. So it would have improved to your question. Obviously, we're constantly making sure we're using our value investment to drive the best outcome. That's why I make the point that as we use personalization, our AI capabilities and our personalization engine are becoming more and more effective at how we use that investment to get the best connection with customer price perception, but also be very efficient with our value investment.

And so in the round, I've always said we're not looking to be cheaper than we need to be in the market. We're looking to balance the right value position with the combination of personalized value. And as you've heard in our overall guidance this year, we expect in the guidance we've given to grow the profit performance of our grocery business this year. We've been clear on that in what we've said, obviously, on what we can see today. But there are clearly a number of uncertainties, not least the duration of what's happening now, which is the reason why we've given ourselves the flexibility to make balanced choices for what we may not be able to see today.

The next question is from Xavier Le Mené at Bank of America.

Yes. 2 actually, not 3 for me. The first one, if you look at the operating margin and the value investment you've been doing now for a few years. If we look at the underlying operating profit, it was slightly down year-on-year despite strong volume growth. So how should we think about the balance between ongoing value investment going forward and the scope to rebuild margin going forward? So just to get that clarified.

Second question is on the quality and durability of the free cash flow. So you had an improvement of the retail free cash flow this year. It was helped also by a strong working capital. So how much of this improvement we've seen last year is structural versus timing related with the working capital, especially? And what should we expect potentially for the working capital going forward?

Xavier, thank you. Bláthnaid, go ahead.

Yes. So why don't I start with the cash flow. So we have run a very successful working capital program. We have another year of that to go. We delivered GBP 128 million this year. And a fair portion of that was from the working capital program, and we're keeping that discipline, particularly in stock and inventory management and in payment terms. But as food volumes grow in the business, this is a really nice part of the flywheel. It's a negative working capital. So we do get some benefit, natural benefit out of that as well. So continuing to grow volume in our business is good for our free cash flow on that.

We are absolutely committed to delivering at least EUR 500 million retail free cash flow. We will update in future years on the guidance, but we have a lot of choices that we can make, and we've still got more in that working capital program for year 3 of NLS on that.

Do you want to take the...

Yes. And look, on the first question, look, I think it's really clear from our perspective. We are very focused on continuing to improve and take advantage of our position in the market in the grocery business. You can see the strength of what we're delivering volume. And we've always said from the beginning, what's the biggest operating performance driver in grocery is how we grow volume over fixed costs.

Now obviously, the year we've just had a level of cost inflation that was pretty unprecedented given some of the policy impacts in -- particularly in NI and in National Insurance. As I said earlier on, I think, to Rob's question, this was the first year that despite delivering GBP 330 million of cost savings, that actually the external impacts on the industry clearly weighed heavy in the year.

As we look to this year, I'd make the point again, there's a lot -- we can't see at this point in time. Our range is about giving us the flexibility to make balanced choices. We think we're coming into this context in a very strong place. We're growing our trust with customers. We're winning more primary customers. Customers more and more are spending more of their grocery shop with us. And that gives us an opportunity to really focus on continuing to present great value, but also making our business more efficient, becoming more personalized, finding the sources of additional performance.

And as you would expect, we're incredibly focused as a team in making sure we get that balance exactly right this year. It's a year where we expect to continue to take volume outperformance in the market, and we'll use that outperformance to drive the best financial outcome we can. Thanks, Xavier.

The next question is from Matthew Clements at Barclays.

One for me if that's right. Very impressive contribution to grocery growth from your on-demand business, both in [ SuperSund ] and in the convenience stores. Can you just give us some color around the confidence you have that how much of that is incremental to sales that would have happened in the first place?

And also, can you give some color around the split between orders coming through the Sainsbury app? You incorporated it from Chop Chop into the main app earlier this year. The split between the main Sainsbury app and the third-party apps? And any color also around that in terms of who owns the data and whether you -- I guess you'd rather have orders going through the main Sainsbury app for Retail Media purposes.

Matthew, thanks. We're really encouraged with the way in which we're building volume across channels. For obvious reasons, we want to make sure we get our offer really connecting with customers in our supermarkets and Sainsbury's local convenience stores, also in our online business and also, as you say, in the fast-growing area of on-demand. I think super important to say here that we've really been able to do that on all 4 fronts this year. And at the heart of this, actually is being able to make sure we can use our fixed assets in our convenience stores and in our supermarkets to fulfill the significant growth in on-demand. That's a really important part of what we're doing.

You can see that actually on Slide 41 in our pack, the extent to which this volume is really using the assets of our supermarkets and convenience stores well because that's where we're fulfilling from. We're not building the -- remote locations to fulfill this volume. We're doing it in our stores using our existing capabilities, assets and stock. Clearly, we're very focused on making sure that we meet customers where they are. And as customers want to shop more in the on-demand channel, we need to be in the place to make sure we serve them.

The partnerships we've built, working with some of the third-party platforms, really work for us. Again, there are a very efficient way of reaching that customer base and that volume in a way that we can drive it into our channels. And obviously, we work very closely with the 3 that we primarily use to achieve that. Obviously, customers come in through that platform and then can now access a really broad range of Sainsbury's foods. And what we're seeing is the number of items in the basket really picking up as we do that.

What that means we can do is really focus in our business on the core elements of our Next Level plan where our capital discipline, our capital investment, our resources are making sure that we're making our core channels in Sainsbury's grocery online, Chop Chop, as you say, supermarkets and Sainsbury's Local really perform. And you heard earlier from Bláthnaid, the focus we're putting on our investment choices there. As we put more products into our supermarkets, that's helping our online business perform. It's helping our on-demand business reach more customers. So net-net, win-win there and how that's coming through. Thanks, Matthew.

That's helpful. If I could add just one question in that as well. Just on your downside scenario in your range. Could you give any color around how you think about Argos and the Sainsbury retail business within that downside scenario? Is Argos disproportionately driving the downside case there?

Yes. Look, as we said, I think, to the earlier question, from Rob, we're expecting Argos broadly to be flat year-on-year. That's our central assumption in our guidance. Look, I think a couple of things to say there. Obviously, we're at the time of the year. It's good to see the sunshine out there this morning, isn't it, in the last couple of days. Last year, we lapped some very significant weather in quarter 1. Actually, that benefited the Argos business, but it also benefited the grocery business. So our plan doesn't assume a knockout summer. It assumes an average summer.

But to your question, the key period of time for Argos, as I said earlier, is kind of May, June and early July when the seasonal categories become really important, and that's obviously dependent on the weather. So whatever we see over the coming months will be important in terms of understanding demand in GM and I'd also say in food as well. So that's really the kind of key components of that.

Obviously, the general merchandise market continues to be subdued. You heard that in many areas. And what do we have to do, therefore, really accelerate and focus on the Argos transformation, which we're well underway with, improving what we do for customers, giving them confidence on range, making sure that in, through and out Argos digitally, the conversion is really strong and then taking care of our cost and productivity opportunities, as Bláthnaid said, to make sure that we're moving at the pace we need to get the Argos business in the right shape and to make sure we can be delivering for all our stakeholders given what is a subdued GM market. Thanks, Matthew.

The next question is from Elizabeth Moore at Citi.

I just have one, please. So on Retail Media, in the release, you mentioned that you're ahead of the plan to deliver at least GBP 100 million of incremental profit over the 3 years to March '27. I was just wondering if you'd be able to help us understand what the incremental Retail Media profit contribution was to this year's EBIT. I think in FY '25, you reported an incremental GBP 39 million from Retail Media. I know you showed a chart in the slide and said it wasn't to scale, but that showed a kind of step-up in FY '26 and FY '27 that you're expecting. So should we assume that this year's contribution was higher than that GBP 39 million and then next year could be higher again?

Yes. It was a little bit less than the GBP 39 million is what I'd say this year. There were some changes, particularly around HFSS. So we pulled back a little bit on that, and that's what you've seen coming through the numbers this year. So it's a little bit lower than that.

One of the things here, Elizabeth, just to Bláthnaid's point, is we're obviously thinking about not only the total volume of income we can secure, but also the balance of categories that we are even more active in. And one of the things that we're very focused on, you heard it in the presentation this morning, is we see a real opportunity for Sainsbury's with our primary customer base, but also as a result of that through our Retail Media channels to think about the categories emerging in health and nutrition.

And so what you really see in the year we've had is a bit of a pivot away, as Bláthnaid said, from some of the HFSS work that's been a key part of what's been happening into some of that new and important space. And so this is exactly what we should be doing. We remain very confident on our GBP 100 million over the 3 years. But it's important as we come through this period to also make sure, we're fueling our focus and our strategy in Retail Media into the categories that we think are going to become even more important over the years ahead, with the suppliers and partners and clients that will be very active in that space.

And look, we'll talk more with you through the year on our plans in the health space. But we think the strength of Sainsbury's fresh food business, the big shifts into protein and fiber, we are really well placed to make sure we can give customers and brand partners real opportunities to work with us and creating value.

The next question is from Benjamin Yokyong-Zoega from Deutsche Bank.

I had 3 questions, if that's okay. Firstly, on pricing; secondly, on supplier costs and thirdly, on Argos.

So firstly, on pricing, you've outlined that there could be upward pressure on food inflation, but with a largely rational market. So I'm just wondering if that expectation for higher food inflation has shifted at all your expectations for how you balance price investments across in the Nectar Prices or everyday kind of price matches?

Secondly, on supply costs. Clearly, there's been some pressure building within COGS. So it would be very interesting to hear from your perspective the key concerns that you're hearing from suppliers and how we should think about that cost inflation potentially passing through under long-term supply agreements?

Thirdly, on Argos, what's the rationale behind launching the new marketplace proposition? And how is this a shift from the current Supplier Direct Fulfillment model?

Thank you, Benjamin. Okay. Let's take them in the order that you've asked us. So look, I think on the first point on pricing, look, I think we've covered on the call quite extensively already that clearly upward pressure on food prices for all the reasons that we've talked, most significantly energy and the components of what goes into food, manufacture processing and retailing.

I think at the heart of your question, you're really asking me how do we use our price investment to make sure in the most efficient way we invest in value to give customers confidence, but also, as I say, to make sure that we can manage in the right way our margins and profitability.

And I think, look, our value formula really works for us. Actually, at times like this, we think what customers want is certainty and they get absolute certainty when they shop at Sainsbury's with the biggest Aldi Price Match in the market by some measure. And that is really focused to my earlier point on the products that people buy week in, week out. That's really working for us.

Nectar Prices. Clearly, we started Nectar Prices in April '23 with about 300 SKUs. We're now consistently north of 10,000 SKUs. And then we've talked to Sreedhar's question on the value of personalization in Nectar Prices and the way we can use our algorithms now to really precisely plan that investment. So that formula is working very well for us, and we'll continue to use it in exactly the way we are.

As I said earlier, balancing the value we give for customers, giving customers trust on the prices they pay and driving for the best financial outcomes we can achieve. That's our job to do that, underpinned by our cost delivery.

I think on suppliers, look, for obvious reasons, the work we've been doing over the last 3 years, our fresh food and agri team have really led the way in building out these long-term partnerships. And look, I would just make the point on this call. I spent a lot of time on farms over the last 18 months. Spending time really understanding with our farmers what they need. And what they need is certainty. They need certainty of what we're going to buy, what our commercial terms and cost of production model is going to be and then what's the duration of that contract.

And I can't underline enough, whether it be in chicken, whether it be in lamb and beef, whether it be in milk or mushrooms or berries or vegetables or potatoes or all the supply chains we've worked on, how much of a difference this makes at times like this where that resilience and that certainty really plays through.

So of course, there's pressure in the system, but building that strategic base of partnership, which is running through the veins of this business now is really changing the way our suppliers deliver for us and we, in turn, deliver for customers with the best both value and performance outcomes.

And then on Argos, look, I think really clear, right? What do we have to do in Argos. Argos is a loved brand for customers. They want to buy the range of products that they want to buy. And Argos as a brand gives us permission to be in more categories and in more products than we've been before. And our job is to deliver that for customers in the most efficient way. So we're building clearly capability through Supplier Direct Fulfillment. That's been really effective for us because it's meant we're not carrying the stock in our own business. And similarly, a marketplace where we can link into other brands through Argos is going to help customers access even more of what they want.

So we're taking a very disciplined approach to our investments in Argos for obvious reasons, making sure that the capital we use is very focused with very clear outcomes that we look for. But net-net, how do we improve what we do for customers? How do we improve the digital experience and how do we save cost, as I say, to build the strongest and most successful future for Argos that we can.

The next question is from Clive Black at Shore Capital.

One from me, conscious of time as well. You've touched on the food resilience in your statement and also on wellbeing. I just wondered, a, how important those 2 themes are going to be for the British food system and how and why Sainsbury's may actually be a winner in that context?

Clive, thanks. Really important question. I think the events we see around us around the world just shine a light again, don't they on making sure that we have a food system in the U.K. that delivers what it needs to deliver for our population. And secondly, that, that system is working the right way. Look, it's a topic we really care about.

We, as I've just said, have a long-standing decades-long our commitment to partnership with British farmers. We've just extended that substantially for all the reasons we've just talked about. And similarly on the topic of welfare and wellbeing, welfare of animals, wellbeing of our consumers, topics that are very, very at the heart of this brand. Fresh food is at the heart of Sainsbury's. It standout for us in what we believe in and the potential that we see.

And as more and more customers are looking for healthier options, for themselves and their family. Our fresh food capabilities are one of the things we're going to continue to drive forward. You can see the momentum we have there. We can only do that if we have partnerships and relationships with thousands of British farmers, and we're really close to what they need, and we're working on their behalf with them to make sure that policy decisions in the U.K. food system unlock and support what farmers need.

And as I say, on -- we -- on the partnerships that we have, we're building also leading positions in welfare, too. So for all those things at the heart really about our customers trusting us to do the right thing, and that's absolutely our key focus as we bring good food that's accessible, affordable, and joyful to the heart of everything that we do and we believe in. Thanks, Clive.

Do you think there is a reason -- sorry, the reason you're engaging in 5- to 10-year supply relations, is that because you're worried about the security of supply?

I think it's 2 things, right? I think it's clearly making sure, and if you go back to the fundamental principle, what our customers want most. They want trusted value week in, week out, and they want to be sure they can get the food that they expect to get. And I think for that reason, us taking more control of our long-term supply arrangements and availability is obviously at the heart of making sure we deliver on that on behalf of our customers. So that's one factor.

I think more broadly at the industry level, there is a responsibility for the food industry in the U.K., all components of it and government to have a very clear point of view on what food resilience is, what's needed, what are the policy decisions we need to be making over years and decades to come, a long-term framework of what we need to do. It's one of the reasons why we're taking part in the discussions with the wider industry and with government on building a food strategy that delivers resilience, health outcomes and the support for British farming and agriculture that's needed.

And I'll just add one thing. Look, Clive, it's really important people have the confidence to invest in their businesses. And when we work with suppliers, doing a 5- or a 10-year contract allows them to take that to the bank, take a loan and invest in their business for the long-term. And that's really important as well as we partner with suppliers. It's our commitment to them.

Absolutely.

The next question is from William Woods at Bernstein.

The first question is on the Price Index. If we look at Slide 33 and 35, you said you're exactly where you want to be on price, but it looks like there's been a narrowing of price perception in period 9 to 13 and your pricing gap has narrowed or the improvement in the pricing gap has narrowed versus Lidl, Morrisons, and Asda versus H1. Are you happy with that narrowing gap?

The second question is on Argos. Argos, I mean, we're in a number of years of Argos being weak now. Can you take more radical steps on range and price and ops to improve this?

And then the final question is on Retail Media. If we go back to '23, '24 and we look towards March '27, you've guided to GBP 100 million of incremental profit from Retail Media. But basically, if you get the upper end of your guide, that assumes that all the profit growth is in theory been explained by Retail Media. I appreciate Argos has gone backwards. But I suppose, are you really making progress in your grocery margin? Or is Retail Media the only profit driver in the business? And if you are making progress in the grocery margin, is the Retail Media profit really incremental if you have to keep investing it in price or to manage inflation?

Thank you. Okay. Why don't I speak to the value question that you've asked and where we are on our relative pricing and how that's played through. And then Bláthnaid will pick up on what you just asked in terms of how we're thinking about where our profit delivery is coming from, and then we'll pick up Argos after that.

Look, I think on your question, on Slide 35, you can see that our price perceptions improved actually against the market in the second half. That's what happened. We got better in H2 against the market that went back. I would also just draw out on the earlier slide, the key point, which was that as volumes in the market came off, our volume was more robust, particularly in quarters 3 and 4. So we come into this position with absolute confidence actually in our relative value position because of the volume performance it's dried and because of our consistency in volume outperformance delivery across all 4 quarters of the year.

Obviously, in the year, we made some changes. We bought Your Nectar Prices to main bank shops in July. That helped in the way in which we could use personalized value more as the year unlocks, if that makes sense. Obviously, we're in SmartShop and Grocery online in the first couple of quarters, and then we were using the full breadth of all the shopping trips for personalized value. And of course, personalized value doesn't reflect in the charts that we're talking about here because it's unique to each and every customer.

And look, as we've come into this year, obviously, I'm sure every supermarket is looking closely at this daily, weekly, but our value position continues to be carefully balanced exactly where we are with the combination of the biggest Price Match, Nectar Prices and then this component of personalized value becoming really important in how customers feel a level of trust and value for what they spend.

Right. So let me take the Retail Media. Without a thriving growing food business, you can't really build a great Retail Media business as well because the 2 go hand in hand. So for us, we think of these as sort of one business that complement each other hugely.

In year one of our strategy last year, we delivered profit leverage. In the year we're in, we made some choices given the competitive market that we were entering into to really ensure that we protected the value proposition and that we continue to grow our volumes ahead of the market, and we succeeded in that.

As we head into year 3, based on what we can see today, we expect to deliver profit growth in year 3. Nectar and part of that profit growth is part of what we've given in the guidance, but we use the 2 of them together to ensure that we're continuing to grow volumes ahead of market because that thriving food business is really important.

Come back to your Argos question. Just let's just frame that again, if you wouldn't mind.

Sorry, my Argos question was effectively, we're in a number -- we've had a couple of years of quite weak performance at Argos from a profitability basis. You obviously did a great job before in terms of changing Argos' range, price, ops, all those kind of things. Do you think you need to take more radical steps basically, so you take that strategy and you take it to the next level basically?

Yes. No, thanks. I mean, just to repeat what we hopefully said to previous questions, look, I think we've got a very clear plan for Argos to build a stronger and more successful Argos. And the key shift we've made in year, so the 2 I would call out. The first is that, obviously, we took a lot of value across the business in integrating a lot of the activities across Argos and Sainsbury's, and that was the right thing to do as through 2020 and beyond, we took a lot of value, a lot of cost savings from that.

As we now more and more focus on what do we need to do in Sainsbury's and what do we need to do in Argos and for obvious reasons, sometimes they're the same, sometimes they're different, we put this dedicated focus on Argos. And that is enabling us to really pick up agility and focus in delivering the transformation.

The second thing we're obviously doing is making sure we really stare at what does Argos need to perform for itself. And for example, we're making some investments in technology and infrastructure for Argos, and we're accelerating that work to make sure that the stack that sits around Argos future capabilities is where it needs to be. So those are the 2 areas that we've most moved on this year in order to make sure that we take every opportunity to work at pace to give Argos what it needs in a very disciplined way.

And in the same way, and I would make the point here, there's a range of outcomes this year. Clearly, there's a lot we can't see. And when we think about as we come through this year, there's a lot of opportunity in the Sainsbury's business in the year ahead that we want to make sure we're really well equipped to take advantage of.

And the final question is from Karine Elias at Barclays.

And just one final question for me, speaking of opportunities. Picking up on your comments on convenience, you mentioned that some of the stores were 50% ahead of expectations. This isn't obviously in stark contrast with some of what your competitors are seeing. Some of them have blamed the weaker tobacco sales. Just maybe a little bit of context. Do you feel that this is the assortment, the location? Maybe a little bit more of color on there would be great. It's great to see the division doing so well.

Thanks. It was good to talk about opening new shops. It's one of the things that we need to take a very disciplined approach to. So just to make the point, we're very clear there are parts of the U.K. where there isn't a Sainsbury's today, where there is a very clear, very robust financial case to have one. And that's exactly why this work on convenience and supermarkets is really important to us.

As Bláthnaid said earlier, we've been really focused on the decisions in capital we've made to open new stores within the same capital envelope, we made the Homebase acquisition. And already some of the stores we've got opened there, we're really pleased with how they're performing. Sutton Coldfield was the most recent store we opened, and customers are loving what we're doing in that shop.

And then on convenience, specific to your question, we opened 33 convenience stores in the year. Why are they performing so well? Because the offer is really connecting with customers. The combination of our value and our quality and our service is really working for customers. And more and more, again, as we think about how we can optimize what we're doing, we see real opportunities, particularly on ranging and planograms to make sure that we get an even more precise match of range and layout of our planogram to customer type by store. It's one of the areas that AI is really helping us get even sharper at.

And so the offer that's going into the shops, the way we're organizing it, the consistency of that offer and in the locations that we're choosing, we're very disciplined about the locations we choose. Lots of retailers can open new stores and then find themselves 2 or 3 years down the track with that location not working. Our convenience model is a very strong one. It's one we're very disciplined about making sure we only open where we're sure. And the reason for the performance is for the combination of all those factors.

Okay. Just check there's no more questions.

That was our final question.

That was our final question. Okay. Thank you, everyone, for joining us this morning, and thank you for some really good questions. I hope we've covered kind of all the key topics that are out there to discuss and debate at the moment.

Clearly, we're coming into this year with a lot of momentum. You've heard us talk about the start to the year we've had. We're going to be really focused on delivering for all our stakeholders this year as we continue to build momentum in the Sainsbury's grocery business and navigate the uncertain events out there. And we very much look forward to talking again over the coming weeks and obviously, when we meet again at the end of June for the Q1.

Thanks for your time.

On the call this morning is Simon Roberts, Chief Executive officer and Blathnaid Bergin, Chief Financial Officer. I will now hand over to Simon Roberts for the presentation.

Well, a very good morning, everyone, and a happy New Year. Welcome to our quarter 3 trading statement covering the 16 weeks to January 3. I'm going to talk about our trading performance, and then Bergin and I, of course, will be happy to take all of your questions. But before I do any of that, I'd like to say a huge thank you to all of our colleagues, all of our suppliers and all of our farmers because our strong quarter 3 performance was the result of an outstanding team effort across our whole business, probably the best Christmas execution I've seen us deliver in my 9 years at Sainsbury's. So a big thank you to our entire team.

We've described very clearly in our statement today how we set ourselves up strongly to deliver over the peak period. We upgraded our profit guidance in November, but we were super clear then that as we have been all year that our priority was sustaining the strength of our competitive position and really standing out in an increasingly competitive market. So we invest in the areas that really matter most to customers, delivering great value, distinctive and differentiated quality and innovation, outstanding product availability and market-leading customer service.

And our customer satisfaction metrics across all of these areas tell us that customers really noticed, driving consistently strong trading momentum across the whole quarter against a softening grocery market. Performance was strong across all our grocery formats. Alongside our core supermarkets, we had record sales in our convenience stores and online sales growth of 14%, including a very strong increase in on-demand sales. But perhaps more than anything, we're particularly proud of the flawless execution of our plan this Christmas, particularly across fresh food.

We delivered our best ever fresh food availability when it mattered most to customers in the key Christmas week on the really big days right across the store network. And we did this together with a clean stock outturn post peak with very limited waste and next to no markdown. This reflects the investments that we've made across our operations in recent years as well as all of our colleagues and our suppliers planning and delivering this. And again, a big thank you to them all.

Now the strength of our trading performance has meant that we're able to reiterate our profit guidance today despite a weaker general merchandise backdrop. And we're upgrading our free cash flow guidance, reflecting the strong working capital progress in particular. We continue to expect to return more than GBP 800 million of cash to shareholders this financial year. Now these 2 charts firstly show the strength of our grocery volume market share performance across this peak quarter, where we've now outperformed the market for 6 consecutive years. And secondly, the strengthening of our performance relative to the wider grocery market over the course of the year, with switching gains accelerating over the course of the year and now more than double the level in quarter 3 that they were in quarter 1, with gains coming from across the breadth of our competitive base.

Now looking at sales growth across the business, Grocery growth was broadly in line with the first half, with volume growth remaining at around 2% despite a softer market backdrop. Clothing sales were broadly in line with last year, gaining share in a weak seasonally driven market. And general merchandise sales were down year-on-year, partly reflecting the reduced space allocation. Argos sales declined by 1%, but with volume growth offset by the impact of lower average selling prices across the market, reflecting subdued customer spending on bigger ticket items like furniture, heavy promotional activity and a weak gaming market.

Now focusing back on the drivers of our strong grocery performance. The consistency of our value delivery is key here. Nectar Prices, Aldi Price Match and for the first time this peak period through personalized, Your Nectar Prices being available to all our supermarket customers. More customers are shopping bigger baskets at Sainsbury's, and this really stands out in a market where volume growth has been under pressure. Sainsbury's has always had a reputation for quality fresh food, and our performance here has been outstanding with fresh food sales growth of 8%. Strong availability has supported customers buying more fresh ingredients and proteins with fruit and veg sales up 6%, meat, fish and poultry sales up 9% and dairy sales up 10%.

Perhaps the clearest indicator of customers choosing Sainsbury's for their big Christmas shop is our fantastic availability and the fact that we sold 20% more turkeys year-on-year and every single one of them was British. Taste the Difference sets us apart from our competitors with our high premium own label sales penetration, reflecting our reputation for quality and innovation. From this strong base, we grew premium own label sales and market share faster than anyone in the market. Taste the Difference fresh food sales were up 15% year-on-year. Argos delivered volume growth in a subdued general merchandise market with weak consumer confidence, a high level of promotional activity and headwinds from online traffic trends.

Volume growth was offset by a lower average selling price, reflecting promotional activity and the impact of weaker big ticket sales in categories such as furniture and lower gaming sales. Sales growth and market share were strong in homewares, electricals and toys in our expanding ranges of supply direct fulfilled items and through our app, where we are building higher customer loyalty and share of mind. Brand perceptions improved on value, quality and overall satisfaction. And tight stock control ensured that we exited the quarter with a very clean stock position.

We continue to expect Argos profit to be broadly in line with last year, but down year-on-year in the second half. Now we've made reference to the balanced choices we're making across the business many times. We're investing in our customer proposition across value, quality and service and bringing more great food to more customers in more locations and in delivering personalized value.

And through our capital investment programs across technology, digitization and automation, we're improving the customer proposition, we're improving the store execution and efficiency, and we're building a structural cost advantage over competitors who are not making these investments. These balanced choices help us deliver a consistently winning proposition for customers and sustain momentum that will deliver for all our stakeholders. We look forward to talking in more detail to you about these with our full year results in April.

So now let's open the call for Blathnaid and I to take all your questions. Thank you.

[Operator Instructions]

The first question is from Freddie Wild at Jefferies.

Happy New Year to you guys, too. First of all, would you mind -- I think there's a bit of confusion out there today why we're seeing consensus move down on what is quite a strong like-for-like numbers. Could you help us understand a bit more about the moving parts of the P&L and maybe grocery over deliver, maybe there's a bit more pressure in general merchandise in Argos than you were expecting?

And then the second question, if I may, is, could you just give us your thoughts on the outlook for inflation and volume in grocery over the year ahead? And finally, I just want to check your comments. I guess it's a bit on from that second question. Your competitor yesterday called the consumer resilient. And I just wondered whether you would echo those remarks or how you would see the consumer.

Okay. Well, let's take those in turn. Look, I mean I think on -- on the first question, look, we were super clear when we set out our guidance in November that our priority, as we said at the start of the year, was to continue to sustain the strength of our competitive position. We said that in April. You remember, we said that again in November. And we did that at a time when we strengthened our guidance. You remember that clearly. And we were confident that we could do exactly that and deliver profits of more than GBP 1 billion. But we set that out, I think, very clearly in November.

Now to your question, trading since then has been very much in line with our expectations in grocery. So what we set out in November, the balanced choices that we talked about there and the things that we were clear would be a feature of our plan when we set our guidance. Really, the grocery business has played out exactly as we expected. And important to say that we absolutely stuck to the plan that we built through the course of last year. It was a bit softer in general merchandise. But the important thing to say here is we didn't compromise our grocery business to compensate for a weaker consumer sentiment in general merchandise. So that's how that's played out since then.

And I think, look, where we are today with about 7 weeks of the year to go. So still plenty that could happen out there in that period of time, but we have a very strong plan for this period. And -- but with 7 weeks to go as it currently stands, we'd expect our profits clearly to be more than GBP 1 billion, but probably to be slightly lower than last year's outturn as we continue to drive through our plan, do the right things for our customers, manage balanced choices for all of our stakeholders.

And in the context of a very tough backdrop, which others have spoken about already this week for the industry with significantly unexpected costs, both from NI and regulatory costs, the subdued general merchandise market, we think that would be a very good outcome. So that's where we are on the full year, Freddie.

On inflation and volume, look, I think as we've come through the third quarter, actually, we've seen our volume performance, as you've heard this morning, already be very robust. And actually, when we look at our volume quarter 1 to quarter 2, quarter 2 to quarter 3, actually, quarter 2 improved a bit on quarter 1 and quarter 3 improved a bit on quarter 2. So our volume is very robust in the context of how we've delivered. Why is that? Because customers are really trusting and buying into our total quality value and service proposition.

And despite the fact that volumes for the industry got a bit softer towards Christmas, we've seen the strength of our volume performance over the quarter end. Look, I think it's very clear we're over the peak of inflation, good news, inflation coming down, commodities more certain. We're not expecting the costs -- unexpected costs that we had in this financial year as we look ahead.

So I think a more clear move towards inflation coming down. We're obviously very focused on ensuring that the strength of our volume performance continues. We've got clear plans. We'll continue to see through on that as we continue to build trust with customers on our offer. And we'll talk obviously more in April about our outlook for the new year based on where the market and inflation and the competitor set is at that point in time.

Look, I really agree with the comments yesterday. Look, I think in grocery, the consumer very resilient, but I think making very clear choices both to trade up and trade down in the basket. We talked about this in November. That's why our value proposition is really working for us. Customers, real confidence in the ability to trade up with Taste the Difference. You saw the strength of that 15% growth, fresh food sales at 8%, but also the strength of Aldi Price Match, the biggest in the market and Nectar prices.

And then really importantly, I would just make the point here, Your Nectar prices is becoming a real game changer for us. And the size of the investment we now make in personalized value, which is a value that only we can see is very significant now in giving customers more confidence in the total value they can get when they shop at Sainsbury's. And so the consumer is resilient. They want to trade up. They want to treat themselves. They want to do that at a great value. They want great quality, but they also want assurance on the items they buy most often every week that they can get great value. And that's exactly not just for this Christmas, but over the last 5 years, how we've built our value position.

The next question is from Sreedhar Mahamkali at UBS.

I guess -- sorry to not stick to the instructions for one question, probably a couple from me as well. You touched on Nectar prices, Simon, just now. Can you actually more broadly talk about how your price position has evolved as you measure it versus the key competitors set through the period, reflecting your comment on Nectar prices, how clearly are you able to measure it? Has it continued to improve in the period? That's the first question.

Second question, I think you've already kind of answered the question a little bit, but I'll try and have a go again. I know it's a bit too early to talk about profit outlook for the year ahead. We've not even finished the year. But your plan is to deliver profit leverage over the period of the strategy. And does the volume growth you're building give you confidence to think you will deliver the profit leverage and profit growth for the year ahead, please. Thank you -- to the extent you can talk about it.

All right, Sreedhar. Thank you. Why don't I speak to Nectar prices and maybe Blathnaid, whilst we're not going to get into next year, maybe just a little bit about how we think about our -- next level plan and where we're up to. Thanks, I mean, just to double down on the point we just made, we came into this year very clear, I think, back in April that our number 1 priority was to sustain the strength of our competitive position. And you've seen in quarter 1, quarter 2 and now in quarter 3, how that's exactly what we've done.

Now there's competition in the market, has become a bit more intense this year. We've made sure that we've positioned the Sainsbury's grocery business for customers in a way where more and more customers are getting confidence to do their big trolley shops with us. And exactly to your question, Nectar is so fundamental in that. I mean, just to bring to life what it's meaning for customers, for the average Christmas shop this year, customers saved about GBP 27 on their Christmas shop. Over the course of the year, customers are saving around GBP 450 as a result of using Nectar on their shopping.

And we saw the highest participation of Nectar prices over this Christmas that we've seen at any point in time. So the propensity of Nectar to give customers real confidence and trust is building all the time. And at the same time, as I described earlier, we've added Your Nectar prices now to become available for every supermarket shopper. And that really is giving customers across the things they buy frequently, that confidence in that value. And so when we think about our position against the market, to your question, as I said, when we look at the volume across the quarters, volume is around 2% for us. It was around 2% in quarter 1. It got a smidgen and better in quarter 2, and it's got a smidgen better in quarter 3.

So our volume performance is very consistent. We always said didn't we that we would make sure that our value position was strong, and that's exactly what we've done. And I think, of course, pricing in this industry and in this market is incredibly dynamic week-to-week. Different retailers make different moves at different points of time as everyone's tried to navigate the impact of inflation, the impact of the costs coming through, but also present the best value they can to customers.

And I think our team have done a really good job at managing that week-to-week, period-to-period, balance to make sure the strength of the customer offer is where it needs to be. And also we manage these costs of inflation and the impact they have. I mean, the overriding point I would make is our volume performance for the sixth consecutive Christmas, we're really delighted with.

And even as volume softened a bit in the market as we came into the kind of key Christmas weeks, you can see in our numbers today, the strength of our volume performance. I come back to our core strategy, Food First, center of the plate, items that people buy week in, week out, confidence in the value, confidence in the quality, confidence in the service, and that's really what's played through in our performance, which is why both our price position and our overall proposition continues to get more traction with customers.

And I think navigating this inflation environment will be one of the key defining kind of points of this year, won't it? And what we've done is stick to exactly what we've said, which is sustaining the strength of our overall competitive position.

Thanks, Simon. So let me take the profit leverage question. At the start of the year, market was very dynamic, a lot of headwinds, particularly with the cost inflation that we saw coming in. So we laid out quite clearly unlikely to deliver profit leverage this year. That still remains our position. We'll guide on next year when we get there. But what I would say is that we remain committed to our plan and committed to delivering profit leverage over the life of the plan.

You've seen the volume growth. We're confident in what's coming through in the volume growth and the investments we're making are in the right place. We called up the cash guidance today to at least GBP 550 million. So on track for that GBP 1.6 billion over the life of the plan. Cost savings program, you'll have seen in the RNS, we're on track and on target to deliver that GBP 1 billion. So all else being equal, we're absolutely committed to profit leverage over the life of the plan.

A very quick follow-up on the free cash flow upgrade. Can you expand on that? Which aspects of working capital you're over delivering, please?

So there's a combination. And in a business like this, working capital is complex. It's like landing a jumbo jet on a head of a pin as you come into year-end. We have been running a working capital program over the last 3 years. Last year, we focused on inventory. You'll have seen again this year the discipline that we had in inventory and the clean exit that we had on the back of Christmas.

So inventory will continue to deliver a little bit this year. We've also been working on payment terms and what we want to do there, and they're starting to deliver and come through as well. So it's really just discipline and focus on the cash management across all areas of cash. So you've got that in all areas of the P&L as well we look forensically at cash.

The next question is from Rob Joyce at BNP Paribas. [Operator Instructions]

Hello, Rob. Happy New Year.

Happy New Year, Rob.

Happy New Year to both. Thank you for taking the questions. So first one -- sorry, just in terms of that relative pricing, do you think you've improved? Or has that got worse over the period? Just there's quite a few questions in the market on that in terms of grocery.

And then the second one would just be on Argos. My estimate has roughly gone from a GBP 20 million tailwind to a GBP 20 million headwind in the second half to get to that flat number you talked about. Is that about right? Have you exited the period with clean stock? And is there any help from this cold snap we've had in there?

Thanks. Okay. Well, why don't I pick up the first point and then maybe Blathnaid on Argos. Look, I think as you've heard me say a number of times, Rob, look, we started the year really clear on our priority on the competitive position, and that position hasn't changed at any point through the year. You remember at the half, we talked about the fact that we've inflated a bit behind the market in the first half. And we've come into the Christmas period with very strong momentum. That's what's given customers confidence to shop with us. I mentioned just before that our value -- our volume performance actually ticked up a little bit quarter 3 from quarter 2, which I think just shows the confidence customers have in the offer.

And then I think what shifts the balance as the year develops is the importance of this personalized value I've just been talking about. You shouldn't underestimate how much of our value investment we're now putting into personalized value and giving customers value unique to them when they do their big shop. And so in the round, you can see in our volume, how strong our big basket growth has been, customers putting more items in the basket this Christmas, buying into Nectar prices, the highest participation and now Your Nectar prices.

And so we're absolutely focused on balancing this inflation challenge the course this year, high inflation in the market, how do we balance what we put through to the shelf whilst giving customers great value. And we think we've got the balance about as good as we could have done through this period, and it's worked in terms of the Christmas plan. As we look into the new year, obviously, our value position is super important this time of the year, just having a really good look through the offer this week in stores and online. You'll see the strength of our value position, both in the biggest Aldi Price Match in the market and in Nectar prices again.

And look, I think the last thing I would say just on the theme is, there's a lot of noise, isn't there, in the last few weeks to Christmas around prices. We stuck to a plan that we built through the course of the year. We didn't make any changes to that plan. I would say overall, an observation I would make is it was clear where others were adapting their plans based on some of the shifts that were happening. We didn't need to do that. We built a plan, we stuck to it, we executed it and customers shop more with us this Christmas. Blathnaid?

Yes. So Argos, look, we're pleased with the volume growth. But as you can imagine, average selling price big ticket items, consumer confidence a little bit under pressure as well. So we saw that coming through in the overall sales number. We guided to flat profit year-on-year in Argos. We're holding that guidance on that. So we are not chasing profit in Argos. We're really focused on the transformation, getting the foundations right.

And you've seen some of the actions as we came through the quarter, the visits to the app up 33% and some of the, supplier direct fulfilled products over 20,000 new SKUs coming online on that. So we were also really pleased with the stock position. We exited clean, which was really important to us, and that shows the discipline that we're getting into the operation as well.

Maybe if I could just add one other point we didn't make reference to, which is important to say that I mean you'll have seen obviously the link between the fact that we just had so little markdown in clearance this quarter. So that was another important factor. And we just were so clean on how we manage stock levels, not just in the last few days, but actually all the way through, and that was obviously helpful both in managing the operation of all of that. But we just didn't need to deal with a big clearance or waste issue in any way this year.

Just very quickly on the inflation, you referenced the inflation environment a few times. How are we seeing that inflation environment evolving into 2026?

Yes. Well, I think as it's been pretty well documented by others this week for sure and by a number of you, I think it's clear we're past the inflation peak. And I think we'll obviously talk in April about where the context is there, where the competitive dynamics are at that point in time. But at this point in time, I would say, the 2 or 3 things that are clear to us is that we wouldn't clearly expect the unexpected cost impacts to come at us again next year that we've dealt with this year.

So particularly the impacts, obviously, of EPR and NI. We see obviously commodity costs becoming more stable. And obviously, there'll be wage inflation, but we plan for those things a long way out. And I just would make the point again that we have a very mature and developed Save to Invest program now that's been building actually over 5 years. We come to the end of this financial year, we'll have delivered GBP 2 billion of structural cost savings in that period of time. And that program continues to be very important in navigating operating cost inflation next year. But I think the overall picture I would set this against is an environment that is much easier to predict than the one we had to navigate into this year.

The next question is from Elizabeth Moore at Citi.

Elizabeth, Happy New Year.

Happy New Year. So just one question on the grocery growth. You delivered another really strong quarter. I was wondering if you'd be able to break down how much space contributed to that number, so both in terms of the new store space contribution and then also the reallocation of space away from general merchandise within the store.

Yes. Thanks, Elizabeth. I think the kind of overriding point here, and we can definitely share some of the detail with you perhaps after the call is that our space program, we're really pleased with. There were 2 components to this. The first was reallocating space in some of our key supermarkets where the food offer, we wanted to bring more assortment to those locations. And we've done a substantial number of stores. We'll do that in about 70 stores this year, actually. And those stores went through that change during the kind of summer period in the main. And so we're online over this Christmas.

And we could definitely see the benefits both in customer satisfaction, but also in volume of customers being able to buy a wider range of food products. And I'll come back to this big point, you must come to Sainsbury and get everything you want in stock and more and more, we've been able to do that. The other part of our space program, as you know, has been to begin our biggest new store opening program in a decade, which is comprised of both supermarket and convenience locations. We're in the first phase of getting the new supermarket, particularly the home-based conversions open. And again, the reaction we had in those stores, we're really pleased with.

So I think the impact of new space actually builds into next year from this year because obviously, the stores we've landed this year have got a partial year effect where they'll come into a full year effect for next year. And so we'll show you as we kind of get into next year, how we see the new space being an increasingly important part of our volume underpin. But I would just sort of characterize all that by saying the more for more plan is something we're really pleased with the progress.

And actually, I think when we look back, the disruption took a bit longer than ideal to get through. But once we're through the disruption, we can see the benefits of customers and particularly actually this Christmas, in the stores that have been open for a year now, we saw a big tick up in their performance this Christmas as customers were just much more confident with the new store and the scale of the assortment that we've got.

And then the other point to that, which I mentioned, obviously, we've taken some space from GM -- of the GM kind of downside impact there, if we could call it that, about 150 basis points linked to the space out, I think. But net-net, the overall position here is a more focused GM range in those stores, more assortment for customers, better overall outcome for the business.

The next question is from Fran ois Digard at Kepler Cheuvreux.

Fran ois, Happy New Year.

Yes, Happy New Year. Thank you. Did you observe -- yes, sorry, do you believe the market Christmas trading trends are indicative of underlying market momentum and so extrapolate for the coming months? And in line with that, do you plan to significantly rebalance the mix between Aldi Price Match, Nectar and center of the plate prices?

Thanks, Fran ois. Look, I think if we take a step back on what we've observed not just over the Christmas period, but over the course of this year, I think what's really clear to us, and we do a lot of listening to customers, as you would expect me to say, is customers want confidence and trust, but then whether they come and do their shopping in the second week of January or the week before Christmas or the middle of summer that they can be really sure they're getting the value they expect on the products and items they buy, first of all, most frequently.

And then secondly, where they want to trade up, they can get a trade up at really good quality and really good price. And thirdly, that when they come and shop with us, as we're talking today, they can get the full store or online experience, whether that be availability, whether that be service, whether that be loyalty, all the things that we've been working to build. What we saw this Christmas was a really strong performance in our grocery business for the sixth year running. We saw more customers shop their big trolley shop at Sainsbury's because of their confidence in all of the components of our offer.

One of the things I think we would reflect on is the benefit of building understanding and loyalty of that offer. So the biggest Aldi Price Match in the market, Your Nectar price is really working for us. And I would say over the course of this year, there's been a lot of noise in the market this year, a lot of new pricing campaigns, a lot of new efforts by different retailers to bring new pricing and value platforms.

But actually, it takes time for customers to work out what all that means. And one of the things we've really seen the benefit of having a really clear, simple to understand value proposition that customers buy into week in, week out. That worked this Christmas. That's worked throughout this year. Progressively, that's been working over the last 3 years plus for us. And so our focus is giving customers value that they want. And as we come into this year, the strength of our Nectar platform and the Price Match is going to make sure we've got continued really strong value. So of course, we'll continue to listen to customers all the time. But there's a big benefit here of customers knowing what they get from Sainsbury's, continuing to expect it and continuing to deliver it.

Understood. So more focus on Everyday Low Price more than usual.

Well, I think in the Aldi Price Match, there's a massive focus on Everyday Low Price, clearly because there are the biggest price match in the market were on the things people buy most often. We've got all of those products that prices people expect alongside next prices. So we started Everyday Low Price back in 2016 in reality, and it's been building since that period of time. And the strength of that offer week in, week out is really underpinning the strength of customers' value, confidence in Sainsbury's.

Next question is from Benjamin Yokyong-Zoega at Deutsche Bank.

Benjamin, good morning, Happy New Year.

Happy New Year. I had a couple of questions. Want to follow-up around Nectar Prices and one around channels. I wanted to ask what kind of impact you've been seeing from those value investments into your Nectar Prices over Q3? And I guess to ask the last question in a different way, would you expect the mix of value investments going into your Nectar Prices to remain broadly unchanged as we head into 2026? And then on channels, you called out the record performance in convenience. Are you able to comment on how that roughly 2% volume growth was broken down by channel?

Thanks, Benjamin. Okay. So I don't want to repeat myself too much on Nectar prices. What new can I add for your question. Look, I mean, I think the key point here is I've mentioned already we had our highest ever participation in Nectar over this Christmas. And actually, I would just double down on the point that when we look at the number of SKUs now that are linked to Nectar Prices, we're north of 10,000 SKUs consistently, which is 1/3 of our assortment is now linked to Nectar prices. Hence, the reason why customers are getting more and more confident to rely and trust on Nectar Prices.

And just when we look to your question actually in the context of Nectar on participation, we see both in online and in our supermarkets some of the highest participation we've ever seen, in fact, online, there isn't much more we can do. Everyone shopping online pretty much is using Nectar now for obvious reasons, given the benefits it brings to a long list grocery shop. In terms of the kind of where do we go next on this? Obviously, Your Nectar Prices, as I've said this morning, that represents now a significant proportion of our total investment in value. So it's at least 25% of our total value investment is now going into personalized value.

Customers really like that because they see us serve up every week on their Nectar app products that are unique to them. And in fact, one of things you might see in our comps this week is Mark Given's just done a kind of great kind of run through how Nectar Prices is working for customers, which you might well see on some of the social media channels in the next few days, which really unpacks why for customers, it works so well for them, Nectar Prices in store and then those personalized value, which, as I say, now represents a much bigger part of the value investment that we've done before.

But obviously, we balance the overall value investment that we place. We started this year with a really clear priority to sustain our competitive position. That's what we've done. Nectar has really underpinned that. And on your question on channels, look, we're absolutely delighted with our convenience performance this Christmas. The team did an amazing job here because we identified all sorts of things in the convenience mission that we could really tune up. And I think what we're seeing is it was a record for convenience and actually particularly powered by fresh foods to your question. We've done things to make sure that we've got our assortment right in fresh in convenience. Of course, we always want to add more fresh space into those stores as customers want more of those products.

But that's been a really strong part of the convenience performance. And we had a record New Year's Eve, we really stepped on our ability to satisfy customer needs in those last few hours of 2025. And so across all the channels, supermarkets, convenience and online. And I mentioned earlier, 14% growth in grocery online. We really invested in our grocery online proposition for this Christmas. We saw the biggest step-up in customer satisfaction we've seen actually.

And that was a function of much more slot availability, really good product availability. We saw the best ever product availability online this Christmas, and we really invested to achieve that. And I mentioned earlier and it's in the statement too, on-demand was also a really big part of our overall online performance. And we're now the biggest partner in the U.K. working with Deliveroo and Uber Eats on our on-demand platform.

Next question is from Matthew Clements at Barclays.

Good morning, Matthew, Happy New Year.

A couple of questions if that's all right. One, really strong growth again in Taste the Difference. I was wondering if you could talk us through the outlook for the Premium Own Label into next year. Do you expect the structural drivers to remain in place? Or could brand make a bounce back if suppliers are investing in price there? The second question on grocery would be around -- sorry to bring back your pricing strategy again. But just thinking more broadly about this kind of investment in personalized pricing. So Your Nectar Price is clearly very efficient way of giving customers very attractive value.

But how easy is it to communicate that value on kind of a broader kind of almost national scale when at least one of your competitors is being very noisy around a very basic EDLP pricing, shelf edge beyond loyalty prices, for example. How easy is it to communicate that value?

And then the third and final question on Argos. So you're in volume growth. You just -- I think you said earlier, you didn't have to run a big sale. It seems like in the second half, you might get some benefit from EPR as well. I'm just thinking so in that context, the profit decline is maybe a bit surprising to us, probably not to you. But for next year, what levers do you have in your control to drive profit growth at Argos beyond market?

Okay. So thanks, Matthew. Shall I maybe pick up on TTD and the kind of pricing communication point, and then maybe we can just talk about how we think about Argos H1, H2 and into this year. Look, I think when we set out our Food First plan 5 years ago now, I remember really clearly, we talked about really driving innovation and product development in a way that we hadn't done for a period of time. This has been a hallmark of the Sainsbury's brand for decades.

But we had lost our way a bit back then in making innovation a real standout for us. And so we started in 2020 actually to really focus on this principle of quality at Sainsbury's. Our challenge was always if we could fix customer protections on value, then our quality credentials would really stand much stronger actually than anyone else again. And that's exactly what we've done. We built a very strong team, fantastic team who are developing new products all the time in Taste the Difference. And for this Christmas, we had our best ever innovation plan, 260 new products, and they really were a big hit with customers.

Now that has also clearly come alongside this big shift in the consumer to want to be able to buy restaurant quality meals to eat at home. And we've now a Taste the Difference brand that will go through GBP 2 billion of sales this year. We've actually already just about achieved that number 7 or 8 weeks out before the end of the year. You saw the size of the growth we've delivered 15% in fresh food, in fact, overall. So it's a really, really key part of what we do. And I think more and more, particularly with the launch of things like Taste the Difference discovery that we rolled out before Christmas, that was an absolute hit with customers.

And I have to say customers have really bought into that kind of premium level of Taste the Difference that we launched, particularly in areas like MFP in meal solutions, in cheese, in wine. And if you didn't have a chance to try those products over Christmas, then they're still available, many of them. We've really elevated the premium nature there and customers are really buying into it. So we think it plays into the uniqueness of the Sainsbury's brand, and we think it plays into the structural change in the market that we see continuing. So lots more opportunities to accelerate in TTD. And we're really pleased, obviously, with the market outperformance that we've achieved.

On your question about communicating to customers on value, look, I think it's always a combination of all these things, isn't it? Customers want to go to the shelf and the products they buy week in, week out and be sure they're getting the value they expect. And that's where the price match is really important. That's where Nectar Prices is really important. So we should never underestimate. It's always been true at the shelf edge. The job of price communication is critically important. But there's also a danger when pricing and competitive pressures get more intense, so that becomes very noisy.

And I think the danger always is filling up stores with lots of cardboard and messaging doesn't necessarily mean customers understand the pricing position. So we take a very balanced approach on this, making sure customers can see price at the shelf edge. But then to your question, using the Nectar app to reach more and more customers digitally. And that's where customers see the benefit of Your Nectar Prices. And the fact we've added that now for all of our supermarket customers as well as grocery online and SmartShop has been a real game changer for us this year. So you go into the app every week. The offers land the day before you normally do your biggest shop and you see the offers that are unique to you. Blathnaid?

So on Argos, look, H1, we had some good weather that gave us a little bit of a tailwind in H1. H2, some headwind, consumer sentiment. I've talked about that volume up, but the average selling price down as consumer held back and that big ticket spending. As we head into next year, look, we are very focused on the Argos transformation. We're getting some of those building blocks in place. You'll have seen, I talked about the app usage up 33%. We've also got the supplier direct fulfill products that's 20,000 new SKUs that are live on the system today.

So broadening that range for our customers as well, which is really important. As we sort of head into kind of the next few weeks and into next year, the cost saving program is starting to get a little bit of momentum into Argos and they're on track to deliver what they need to deliver. So pleased with that performance there. And you'll see the new financial services products coming online. They'll be live for the new financial year as well. So then you can start to see the components and the blocks coming together in August for next year.

The next question is from Manjari Dhar at RBC. [Operator Instructions]

Hello, Manjari, Happy New Year.

Happy New Year.

I just had 2 questions, if I may. The first question was a bit of a follow-on on Taste the Difference. I know we've been seeing very good premium segment growth in the market over recent periods. So I was just wondering how you see the competitive backdrop in premium food specifically and sort of anything that your competitors are doing that you feel that you need to respond to?

And then my second question was on Argos. I guess given the sort of softer performance across peak, has that changed the way that you guys are thinking about the forward buy for Argos into 2026?

Thanks, Okay. Well, look, I'm definitely conscious, we've talked a fair bit on TTD. Look, I think no surprise that everyone is looking at their innovation and quality because it's where the customer is. Customers want to trade down in the basket and trade up in the basket. And so making sure if you're a grocery retailer in the U.K., you've got the right range to meet that demand is obviously a really key strategic focus, I think, for many brands. I think for Sainsbury's, what really stands out here is this has been the absolute cornerstone of what Sainsbury's has stood for decades, actually, quality, innovation, being at the heart of how consumers in the U.K. think about what they want to eat and enjoy with family at home has always been something that we've taken is a very sort of core of our brand.

So what we've done is really amplify that deep kind of focus for what Sainsbury's has always been about and what we've been able to do is really capitalize on this move towards customers wanting to treat themselves at home with premium food, but also really double down on the strength of our brilliant team actually at discovering and finding products from around the world that customers want to be able to buy in their local Sainsbury's. And that's what's enabled us year-on-year on year-on-year now because we just delivered 15% growth in this period, but that's on top of similar growth last year and the year before and the year before and the year before that.

And so we intend to be very focused on continuing to accelerate this focus for us. There's always things we can do better. There's always products we can find. In fact, I was just with James this morning, who's our Director of Product Development, and he was talking about some of the big ideas the team are already working on for next year. And I'm pretty sure there's going to be some very special things coming through. Actually, one of the big highlights away from Christmas for this year is we launched in the summer an absolutely groundbreaking range of products on summer deli. The customers could buy 3 of those for GBP 8 and that really, really delivered for customers great quality.

We just got a small alarm going off here, which shows 30 seconds. Okay, Manjari, that's on TTD.

Look, on Argos, I think we were happy with the volume, right? It was a tough market, but we actually grew volumes year-on-year, which we were pleased with. And as a result of that, we were able to -- let that finish for a second. Sorry about this, Manjari. Okay. Hopefully, that might actually finish. So yes, just we're pleased with volumes over the period in Argos, particularly given the softness in the market. And look, as Blathnaid said just now, we're very focused on our More Argos, More Often plan, 20,000 more products and supplier direct fulfillment, 30% increase in customers using the Argos app. All of those things are going to be really important as we keep driving through our More Argos, More Often plan.

The fire alarm is complete, hopefully.

The next question is from Xavier Le Men from Bank of America. [Operator Instructions]

Happy New Year to you. Two questions, if I may, brief. First one is just on the competitive landscape. So do you have any expectation for 2026? It's not like, as you mentioned, a lot of noise, but do you have any expectation for potentially the market to remain rational, become potentially a bit more competitive. So any thought on that would be much appreciated. The second one, can you potentially comment a bit the mix of products you've got in food, branded goods, private labels, whether you've seen any change within private labels going towards the Everyday Low Price products or the value or more finance, just to get a sense of the mix here.

Great. Thank you. Well, I think -- I mean the most important point maybe just to double down on here is, look, we've definitely seen an elevation of the competitive intensity over the course of this year. That's no surprise, given the events that started the year. We were very clear back in April. One of the things that I think our team did a brilliant job on is being very clear from the outset that we built a plan for this year that sustained the strength of our competitive position, and we've thoughtlessly executed that every period since.

We've been very clear what we set out to do and we've delivered it period by period. And you can see in our results this Christmas, how that's worked for us. One of the things that I'd say in businesses like this, sometimes it's tempting to adapt your offer to respond to what others are doing, and we definitely saw others do that this Christmas. We didn't do that. We built a plan and we stuck to it. And because of that, we delivered it very consistently. I would say overall that the market continues to behave very rationally. There's always quite a bit of noise in the few weeks of Christmas, various stunts here and there to try and win a bit of extra share.

But when you look more broadly, I would say the market continues to be rational. Of course, it does because there's been lots of inflationary pressures to deal with this year. Whilst inflation is going to come down a bit, there's still substantial operating cost pressures to always navigate. And so I would expect that environment to continue. I think the key point to make here is that we've spent 5 years building our proposition in food as we put food back at the heart of Sainsbury's. And we're not going to concede on any of that. We've built really strong momentum over that 5-year period.

And because we've done that, we've also been able to make investments now in the long term. So the strength of our value, the strength of our quality, the strength of our service, but also we're investing now through our next level plan in technology and automation, in personalization and all the strategic platforms that are critical to win in this industry over the long term. And we're doing that at a time when some of our competitors aren't able to make those investments. And so the strength of sticking to our plan, investing in new capabilities, doing the right things for customers every day, that's underpinned by how we continue to approach our position in this market.

In terms of the kind of mix question that you asked, I've said a number of times today and also in November, we saw customers -- you might remember a slide from our interim presentation where we could see the customers were both trading down and trading up in the basket. That's going to continue because customers are still navigating in lots of cases, the challenges of the cost of living, inflation is coming down a bit, but it's not going to come down dramatically. It's going to take time to find kind of its new base. And so the strength of our price match and the strength of our Taste the Difference try outs, as we said, today become really important. They'll continue to be at the forefront of our plans as we look forward.

But I think what we're looking at here is Sainsbury's delivering again a Christmas with a very strong set of value credentials that customers have trusted and Nectar being and Your Nectar Price being a key part of that. Availability, I would just double down on this point. We've never delivered as strong availability as we did this Christmas. And on the big days when people want to get everything at once, nothing is more hassle than having to go to different stores to get different parts of your Christmas shop. Our team really delivered on availability.

And thirdly, as I said, our service metrics are really strong as well. So value comprises all those things, doesn't it? And we'll take all of that into this year and make sure we continue to deliver that consistency week in, week out.

Next question is from Borja Olcese from JPMorgan. [Operator Instructions]

Hello, good morning, Happy New Year.

Happy New Year. First start to the year, more like it. Sorry, I'm definitely being a bit slow in this start of the year, but the answer is not clear to me, and I think the question is straightforward. Why isn't there any volume drop-through in the second half? What has changed versus the first half? Is this driven by bigger promotional intensity in grocery? Or is Argos dragging the performance? Or is there any other reason behind the implied 2H profit downgrade, I guess?

I think -- thanks for the question. Let's just recap on the kind of key points we shared this morning. So the first point is that when we shared our strengthening of profit guidance in November, you'll remember, we said that against the context of we were going to sustain our competitive position throughout the year. And we were very clear to signal the balanced choices that we would make to invest in the strength of our offer, which we planned through the course of the year, and we signaled in November to you. And we did that at the same time as we strengthened our guidance from around GBP 1 billion to at least GBP 1 billion. And we shouldn't underestimate, I know none of us do. When we started this year, there was a lot of uncertainty. And therefore, we laid out profit guidance that suggested a profit outcome that could have been below GBP 1 billion or could have been above it.

And in November, we were able to say as well as continuing to invest in the strength of our offer, we were able to strengthen our outcome to more than GBP 1 billion. And so we were very clear about that in November. And as I've described this morning, we've delivered a quarter 3 outcome in grocery exactly as we expected. We delivered for customers a really strong plan. We were able to exit clean. We invested in the key areas of the shopping trip. One of the things I would observe is that we really invested in store operations. We invested in colleagues in stores. We invested in availability in a way that I think gave us a real advantage compared to some of our competitors who either didn't do that or pull back on some of those choices when volumes got a bit tougher.

So we're making choices here, obviously, for the weeks of the quarter, but we're also making choices here to sustain the strength of Sainsbury's grocery performance over months and years to come. And that's why we laid out that guidance in the way we did in November. And while we're pleased to be able to confirm today that despite some softening in general merchandise, which to your point, definitely happened over the Christmas period, we grew volumes, but there was some softening there.

So Argos performance will be broadly flat over the year, but a bit down in the second half. But actually, we can sustain what we said in November. We can also improve our cash outturn, as Blathnaid shared, GBP 550 million from GBP 500 million, and we can continue to make the right decisions for Sainsbury's. We would expect based on what I said earlier in the call, which is ahead of GBP 1 billion, but a bit less than last year is our sort of central view with 8 weeks to go that, that would mean that Sainsbury's profits would be a bit up in the second half. But we've got 6 or 7 weeks to go. Let's see how that plays through. But we're very, very encouraged with the performance we delivered this year,, given the start points that we have to navigate and all the things that come at the industry.

Next question is from Karine Elias at Barclays. [Operator Instructions]

Hello, Karine, Happy New Year.

Happy New Year as well. A lot of questions have been answered, but I just wanted to pick up on a few things that you said that were very interesting. Obviously, you stuck to your price decision throughout the year and delivered a very strong set of results. Some of your competitors yesterday seemed to suggest that there was definitely some more value -- investment in value, obviously, fear of volume probably being a little bit weaker and competitors basically pricing strategies as well.

Do you feel that this was probably more of a function of perhaps Christmas coming in a little bit later or fear around that? I know it's difficult to read into January. There tends to be a lot of noise, in particular around Everyday Low Price. But anything that you can pick up there would be very useful.

Okay. Karine, thanks. So look, I think just -- maybe just to double down on a couple of points that we've said. We started in April with a very clear priority for the year to sustain our competitive position. As I said earlier in the call, one of the things we're really encouraged by is the consistency actually of our volume performance throughout the year, so around 2%, but Q2 got a bit better than Q1 and Q3 got a bit better than Q2. So I think what we've seen over the course of the year is actually the underlying strength of our grocery business powered by value, quality and service has given customers confidence to shop more with us.

Look, I think coming into the last few weeks of the Christmas, obviously, the market softened a bit on volume. We also anniversaried a very strong comp last year. So in that last few weeks, we were anniversarying a strong comp as well as delivering that strong growth that we've described. And look, inevitably, as volumes came off a bit, I think we saw in a number of brands, various activities that kind of put more, I would say, more pricing into the market in sort of short-term responses. We didn't do that. We stuck to our plan, as I said, building a plan, getting the whole team really engaged and then delivering it was the route to our success this Christmas. As I said, we invested in things like availability, store labor. Nothing is more frustrating as a store manager than not having enough labor to run the operation in the biggest weeks of the year.

And so we really backed our team to make sure they could show up brilliantly for customers. And because of all of that, we think we got the balance right between our value position, our operations and then exiting really clean from Christmas. And then on the theme of exiting clean for Christmas, I think that we come into this January, again, with a very strong focus on value. It's one of the things we always focus on very significantly for this time of year for the obvious reasons as customers tighten their belts even further. And so the strength of our Aldi Price Match, EDLP is a real focus on everyday basics in the shopping trip for customers. And then Nectar and your Nectar prices that we've spoken about. And you'll see, if you look in store and online, just the strength of our Nectar offer as we come into early January.

The final question is from Clive Black at Shore Capital.

Many congratulations on the award of your CBE. After all, you deserve.

Well, thank you and definitely one for our entire team, just a massive team effort, may want to thank everyone at Sainsburys over the last few years. So a real tribute to all of our team and colleagues.

Well done. So first of all, you've mentioned Your Nectar Prices quite a few times this morning, and thank you for the presentation. How far through its maturity journey do you think that mechanism is? Are you in the foothills or is it actually quite advanced now? That's my first question.

And then just secondly, I'd be interested in your thoughts on category performance across your grocery assortment in particular this year, whether you're seeing any, any particular changes? I think alcohol has, for example, been mentioned in a number of dispatches and you've talked about fresh food. And in terms of where you see categories going, how well positioned do you think Sainsbury's is for the direction of travel of the market?

Look, I think -- I mean, honestly, we're still in the relatively early kind of phases of personalized value. We only added it for all of our supermarket customers this summer. So this was the first Christmas. Obviously, customers could access that value. For obvious reasons, we see personalization, loyalty and then the use of that more connected relationship with customers is a massive source of value. And the possibilities here, both in what we deliver for customers, but also in the value we can create through the partnerships with our suppliers in the way that which retail media works is a very significant focus for us. And Mark and his team are leading out some really ambitious work thinking in this space about how we continue to build our ambition. If we think about what we've done, we started back in April '23 when we launched Nectar Prices with about 300 products. We've scaled that to more than 10,000.

And then at the same time, we started at the personalization end of the telescope rather than the universal end. And so we've been building these capabilities in Your Nectar Prices over the last couple of years. And we see major opportunity to extend that as more and more customers buy into the importance of personalized value. I think in the end, it's a balance. You've got to have universal value that everyone can access, as we've described, and you've got to have unique personalized value.

And I think the big thing we've got to think about is customers, whether they be in store, online, in many ways, are being bombarded with messages of all sorts of different value because it's one of the reasons why I think you've got to be really sure about adding different elements to the value proposition beyond what's really working because what you don't want to do is add confusion to the mix. What you want to make sure is customers see the value that they have, really respond to it and feel it's really right for them.

And then our job as retailers is to create value from that connection with customers, how we use that data, how we build partnerships with our suppliers and our partners. And I'd make the point actually linking to retail media, the step-up we saw this year in brands, partners and clients wanting to work through Nectar360 with our new platform, Pollen to put campaigns in place for customers to be able to get value. All of those things connect together to personalization, loyalty, retail media and a huge opportunity that we see in front of us. So I hope that gives some color there and just massive credit to our team that are really pioneering in this space because I can't imagine if you don't have these capabilities, how you can win in this sector when we look over the next 10 years plus, it's going to be such a key part of strategic capability in grocery.

I was just going to -- do you see a rising proportion of your what might call price investment going into personalized pricing? Or is it about right at the minute in that respect?

Yes, I think it's about right. I mean it's at least 25% of our price investment, obviously, depending on different times of the year. I think it's about right. And obviously, we'll continue to look at how we balance that. But no, I think where we want to be right now, we've got to about the right balance.

Sorry, okay.

No, no, really good. That's a super relevant question on kind of how customer behaviors are changing, what that's meaning at the category performance level. And I think, look, there's a sort of broader context here and there's what happens over Christmas. Now whatever we might like to think about people eating differently in the weeks of Christmas, for sure this year, people bought a lot of mint pies. They bought a lot of chocolate and they still bought a lot of alcohol, right?

So we saw some records actually, particularly in areas like Christmas bakery and confectionery, huge volumes went through in those areas. We saw a very big shift up in our market outperformance on no and low alcohol. The market differential of our performance compared to others really stepped up there. So I think that's been a trend that's been building for a while and further accelerated this year. I think more broadly to the point, it's very clear, isn't it, customers are thinking about value and they're increasingly thinking about health.

Now as a brand, we positioned ourselves in the health space over a long period of time and the options that we've given customers on healthier choices on more protein-based products, there's been a real strength of what we've done. And look, I think the strength of Sainsbury's fresh food business really comes to a fore as this kind of shift begins to take greater velocity. Our fresh food business grew 8% through the quarter. But you know through all of what we've done on Food First, we put our fresh food business at the heart of that. And what we've done in areas like fruit and veg, protein, building those long-term supplier relationships. Why are they so important? Things that we've always got the products customers want to buy as they shift more to healthier choices. So now it's been very much sort of join that part of what we've done.

And you'll see us do lots more in the healthier space. And there's a big campaign going to come this year linked to next year again, lots of product development happening in this space. So something we listen very closely to customers on, and we want to make sure we play to our strengths of a very strong fresh food business that can really meet more of those health needs as they build.

That was our final question. I will now hand back to Simon Roberts for closing remarks.

Okay. Well, look, huge thank you, everyone, for joining us this morning. Really great to hear everyone's questions, really good questions, really good to spend some time just reviewing the quarter. And Blathnaid and I very much look forward to seeing everyone in April for the full year. Stay safe with the weather out there. Thanks for your time this morning, and see you soon.

Good morning, everyone, and welcome to our '25/'26 interim results presentation. Thank you for joining us today. I'm going to start with a brief introduction before handing over to Blathnaid to cover the financials. I will then share some more detail on our strategic progress over the first half of this year.

You may remember this slide from our primary results in April. This is the plan that we set out to you then with a commitment to accelerate into the year with a clear set of balanced choices, but with a priority above all else to sustain the strong competitive position we've built over the last 5 years. We have delivered on this priority in the first half, focused and effective investment in our customer proposition has consistently delivered on our winning combination of great value, trusted quality and leading service. And that has resulted in more and more customers choosing us for their big weekly shop, driving continued volume growth and market share gains.

Now we came into this year with great momentum. We planned for a strong summer and we really delivered through playing to Sainsbury's strengths. We invested where it mattered most to customers, extending our Aldi Price Match to even more everyday essentials and building on our market-leading personalization capabilities, making personalized Your Nectar Prices available to all supermarket customers. And our product innovation continues to really set us apart.

With more than 600 new products this summer, we focused on units on summer sharing products and outdoor eating. Alongside outstanding fresh food availability, this allowed us to fully capture the benefit of the weather when demand was at its highest. And Argos delivered a good seasonal performance, grew market share and improved profitability.

Our entire team stepped up again and really delivered for customers. I want to take a moment here to thank all our colleagues, partners, farmers and suppliers for their hard work, their dedication and their care which really helped us to deliver this strong summer performance.

So we started the year with strong momentum and a clear plan. We set ourselves up for success over the summer, and we delivered. Our offer has never been stronger. And you can see here how that comes through in our overall customer satisfaction, which continues to lead against our full choice competitors, but also in terms of our position in the market, reflecting a fifth year of outperformance. We are now at our highest H1 market share in 5 years.

As you know, our key focus over the first 3 to 4 years of Food First was resetting our value proposition investing over GBP 1 billion through this period. We learned how to invest in the most focused and effective way, selectively investing where it matters most to customers. And we have found a winning value formula that really works for our customers with the combination of Aldi Price Match, Nectar Prices and Your Nectar Prices.

And so in a year where competitive intensity has stepped up, and where as an industry, we are facing into higher employment and regulatory costs, we have made balanced choices to keep price inflation behind the wider market and to ease cost of living pressures for customers. Customers are responding to the value we've consistently been delivering on the items that they buy most often. And this is why at a time when inflation is very much back in the headlines we are the only grocer improving value perception with customers year-on-year. We are balancing our investment in value whilst driving forward our focus on innovation and quality.

Customers have always trusted and expected Sainsbury to deliver a leading quality, and we are further extending our reputation here through the continued growth of our premium Taste the Difference ranges. As we continue to drive innovation and with a real focus on fresh food, more and more customers are choosing Taste the Difference. We achieved 18% growth in Taste the Difference fresh sales over the first half. And as you can see here, customer perceptions of our quality continue to be significantly ahead of competitors.

Through the strength of our value proposition with our passion and reputation for quality and innovation, and the consistent availability and customer service we're now achieving, we are delivering the winning combination. As a result, we have almost 1 million more loyal primary customers those who are doing the bulk of their grocery shopping with us week in, week out. And the strength of our grocery proposition is clear. 65% of customers shop both Aldi Price Match and Taste the Difference products in the same basket during the first half. This is a clear demonstration of the way customers are now shopping with us across the full spectrum of our offer.

Now we know that the strength of our own brand assortment is the reason many customers choose to shop with us and delivering the breadth and quality of our own brand products is only possible through the support of our suppliers and a commitment to long-term partnership.

We continue to work collaboratively with our farmers and suppliers to face into food industry challenges. Long-term agreements enable suppliers to invest for the long term and in outcomes that are great for customers and positive for the environment. And these commitments to resilience extend further than the U.K. Our partnership with Fair Trade is a great example of the work we're doing to strengthen our supply chains around the world and support the communities from which we source. Having switched all our by Sainsbury's black tea to Fairtrade in July, we are now the biggest U.K. grocery retailer of Fairtrade tea.

Now everything we do comes back to our purpose to make good food, joyful, accessible and affordable for everyone every day. And our partnership with Comic Relief supports us here through a shared vision of a future where everyone has access to good food. Our Nourish the Nation program is helping fund meals and holiday club places for families that need them most. We will work with charities such as FareShare, City Harvest and the Felix Project to distribute over 5 million meals this winter.

So as we reflect on where we are halfway through the 3-year Sainsbury's Next Level plan, I'm pleased with the progress we're making against our commitments through making balanced choices, we have delivered sustained strong momentum. We have invested where it matters most. And as a result, more customers are trusting us to deliver great value, trusted quality and leading service. And it's this winning combination that has driven grocery volume growth ahead of the market for a fifth consecutive year, and helped deliver a profit performance ahead of our expectations in the first half. And we head into this festive season with great momentum and confidence in the strength of our Christmas offer.

We have the most important part of the year still ahead of us. And while we are strengthening our profit guidance today for the full year, we are deliberately giving ourselves the capacity to sustain the strength of our competitive position through continuing to make the right balanced choices.

With that, I will now hand over to Blathnaid to cover the financials.

Good morning, and thank you, Simon. I will now cover the financial highlights for the 28 weeks to the 13th of September. Starting first with a reminder of our financial framework. This lays out the factors that underpin our commitments to deliver profit leverage from sales growth, strong sustained cash flows, higher returns on capital employed and enhanced shareholder returns. We made good progress on delivering profit leverage in the first year of the Next Level strategy. But this year, we have significant incremental cost pressures through higher National Insurance contributions and an EPR charge. Our priority is sustaining our strong competitive position. And so we're unlikely to move forward on profit leverage again this year despite our continued delivery of food volume growth ahead of the market.

As outlined previously, we continue to invest in our business for future growth while maintaining our cash commitments. We are also delivering on our commitment to enhance shareholder returns, and we expect to return more than GBP 800 million to shareholders this year through dividends and buybacks.

Turning now to our sales performance for the first half. Sales in Sainsbury's grew by 5.2% with consistent volume growth through the quarter despite higher inflation. Argos sales grew by 2.3%, helped by a good summer weather and offsetting a Q2 comparative, which was boosted by significant strategic stock clearance activity last year. Together, this delivered total retail sales growth of 4.8%, excluding fuel and 2.7% growth, including fuel.

Retail underlying operating profit was broadly in line with last year's at GBP 504 million, which was ahead of our expectations. Sainsbury's profits were down slightly year-on-year, with volume growth and cost saving delivery, enabling focused investment in value, customer service and quality and partially offsetting higher employment and regulatory costs and elevated disruption from our space reallocation activity. Improved profitability in Argos year-on-year primarily reflected a stronger trading margin performance versus last year's clearance activity.

We announced in January last year a phased withdrawal from core banking, that is loans, credit cards and deposits and a move to a model where financial services that are complementary to the retail offer will be provided by third parties. We've made excellent progress with this over the last 6 months. We completed the sale of loans and credit cards and savings to NatWest and transferred the Argos Financial Services book to NewDay. We additionally signed agreements on our home and car insurance back books with Allianz and completed deals on ATMs with NoteMachine and on Travel Money with Fexco.

Alongside the strong execution in partnership with NatWest and NewDay, these deals have contributed to the extra cash proceeds that we announced today. We are now expecting net proceeds of more than GBP 400 million, significantly higher than our original guidance, and we will return GBP 400 million of cash to shareholders via special dividend and share buybacks. We have also established forward arrangements with these financial services partners that will give us strong ongoing commission income.

In the short term, the ATM and Travel Money disposals mean that we now expect the Financial Services underlying profit contribution to be broadly breakeven this year, lower than our previous guidance as the income from these businesses drop into the discontinued line until the deals are completed and a new revenue arrangements in place. This is reflected in the restated financial services numbers.

This is just a transitionary impact, and we continue to expect the underlying operating profit contribution from Financial Services products of at least GBP 40 million in the financial year to March 2028. This comprises of income from the NewDay partnership together with the commission's income from insurance, Travel Money, care and ATMs.

Total underlying operating profit increased by 7%. And driven by this year's financial services profit against last year's restated loss, while underlying EPS increased 12%, reflecting a reduced share count as a consequence of share buybacks. In December, we will pay an interim dividend of 4.1p, up 5% year-on-year, in line with our policy of paying an interim dividend of 30% of the prior year's full year dividend and we will pay a special dividend of 11p also in December.

The next slide lays out items excluded from underlying results. We incurred GBP 95 million of nonunderlying costs in the half with the largest item relating to retail restructuring costs of GBP 58 million. The largest element of these relate to the costs ahead of our full reopening of our distribution center at Daventry. Cash costs were around GBP 55 million, with the majority relating to redundancy payments associated with the head office restructuring that we completed and booked in the P&L last year. We continue to expect retail restructuring cash costs of around GBP 100 million in the full year and Next Level Sainsbury's strategy implementation cash costs of around GBP 150 million over the 3 years of the program.

Turning to our cash flow metrics. Retail free cash flow of GBP 310 million was down year-on-year, mainly due to lower working capital inflows and CapEx phasing leaning more to H1 year-on-year. Net debt was broadly unchanged year-on-year but GBP 231 million lower versus the year-end position, primarily relating to the timing of a net GBP 250 million cash inflow from the bank that will be paid out as dividend to shareholders in the second half.

This table shows the key elements of cash flow and the movements in net debt this year and last. A lower working capital inflow was primarily driven by timing and a strong benefit from inventory reduction last year. Cash contributions to the pension scheme were down year-on-year, in line with our guidance of around GBP 26 million in the full year. CapEx was higher year-on-year, primarily reflecting the phasing of work on our new store openings and store refit activity. We continue to expect capital expenditure of between GBP 800 million and GBP 850 million versus GBP 825 million last year.

As mentioned earlier, we received a GBP 300 million dividend from the bank, partially offset by a GBP 50 million payment relating to the withdrawal from core banking. We expect to receive the majority of the remaining bank proceeds in the second half of this year, which will be used to fund the additional buyback activity this year and next.

The movement in other is primarily driven by higher additions of lease liabilities last year, reflecting the Homebase stores acquisition and our new London office. We continue to expect to deliver retail free cash flow of at least GBP 500 million in the full year. Net debt to EBITDA is broadly unchanged year-on-year, benefiting from the bank cash inflow.

On shareholder returns, we will now return GBP 400 million of bank proceeds to shareholders through a GBP 250 million special dividend and GBP 150 million addition to the share buyback. We will add GBP 50 million to this year's buyback to make the total buyback GBP 250 million, and we will add GBP 100 million to next year's core buyback. As you know, we will specify the level of next year's core buyback with our preliminary results next April, but to be clear, this GBP 100 million will be in addition to the core level. In this financial year through paying ordinary dividends of more than GBP 300 million and a GBP 250 million special dividend as well as a GBP 250 million share buyback we will return more than GBP 800 million to shareholders.

In summary, we have traded strongly in the first half of the year. Together with cost savings, this has allowed us to make focus and effective investment in the customer proposition and additionally offset higher costs to deliver a retail operating profit ahead of our expectations. Strong execution in our Financial Services phased withdrawal strategy has produced higher-than-expected proceeds and this will be reflected in enhanced cash returns to shareholders.

We now expect to generate a retail underlying operating profit of more than GBP 1 billion in the full year, reflecting the strength of our H1 performance, but allowing us to continue to make balanced choices to sustain the strength of our competitive position. We continue to expect to generate retail free cash flow of at least GBP 500 million.

Thank you for your time. I'll now hand back to Simon.

Thank you, Blathnaid. Now as I said, we're at the halfway point of the 3-year plan that we set out in February 2024. And I'll now run through each of the strategic outcomes that we put in place to define this next phase of our growth. Starting with our plan to be First choice for food.

We are bringing more of our food range to more customers in more locations attracting more bigger basket primary shoppers and delivering further grocery volume share gains. We've built really strong foundations over the last 4 years, providing great momentum, and we've built on those with investment in areas that really matter most to our customers on value, on quality and freshness, on availability and on range. And this is reflected in customer satisfaction metrics across the board, where we've taken a big step forward, as you can see. But what really stands out for me is the progress we've made on value perception in every channel in supermarkets, in convenience and in online. We're making sure customers have access to great prices, however they want to shop with us. And so at a time when customers are much more sensitive to rising prices and inflation is top of mind, the consistency and focus on our pricing investments is really resonating.

We've shown you before the significant improvement we've made on value versus our competitors since the launch of Food First back in 2020. And now building on this, you can see on this slide, we've made focused and effective investments in the first half of this year, and that has further improved our price position against all competitors. We have the biggest Aldi Price Match in the market, having extended the number of everyday essentials included in April and Nectar Price is now on around 10,000 products. Both of these key value platforms are included in the value index you can see here.

But beyond this, we're offering more value to more customers through Your Nectar Prices with personalized offers and up to 10 items each and every week that are tailored to each customer based on their shopping habits. We are leading the way in personalization across U.K. grocery, having first launched this capability back in 2021. And we've gone even further this half, fully scaling Your Nectar Prices across all supermarket tills, enabling many more customers to access this really meaningful personalized value. And it's worth highlighting here that if we did include Your Nectar Prices within the value index, this would further strengthen our position against every competitor.

Now the consequence is that more customers are choosing Sainsbury's for their main grocery shop. We also did something quite different with our marketing investment and focus in the first half cutting through a much noisier market. Through the peak summer weeks, we've dialed up our marketing across Aldi Price Match and at the same time, Taste the Difference, and we delivered a campaign focused on everyday trade-ups. This helped drive the strongest brand consideration for Sainsbury's since 2013.

Now our reputation for food quality, range and innovation sets us apart. Working closely with suppliers, we delivered more than 600 new summer products with the result that we were the go to for customers' key summer occasions. And from an already strong position, the strength of our Taste the Difference momentum delivered the biggest premium own label market share gains. And we can see great opportunity here.

The potential for gaining more in-home dining occasions is clear from the chart on the left. And we've taken a further step forward in the last month with the launch of Taste the Difference discovery, a range of restaurant-quality meal solutions and premium specialty products and ingredients. The response from customers has already been really strong with premium dining sales growing 40% since launch. Now these new ranges really lean into the core strengths of our brand and customer demographic and we're really excited about how far we can take this.

Now a key part of the strategy we laid out in February last year was to build on the renewed strength of the Sainsbury's grocery proposition and to bring it to more customers in more locations. What we didn't know then was that we would be presented with an opportunity to achieve some of that through new supermarket openings, filling in a number of key target locations through the acquisition of stores from both Homebase and the Co-op. We've now opened 4 of these stores, 2 of each in the first half, and we're delighted with the results. Collectively, the 6 new supermarkets and 12 new convenience store openings we achieved in H1 are trading around 20% ahead of budget.

And specifically on the Homebase stores, we're particularly pleased with the look and feel we've been able to deliver in these stores, but on a much lower than standard fit out cost. While the feedback from colleagues and customers on the transformation of the former Co-op stores, has been exceptional. Now subject to final planning consents, we plan to open another 6 supermarkets in the second half, including 3 Homebase conversions and up to 12 more supermarkets next year.

In total, we expect our new store opening program and the growth of food space in existing supermarkets to have added more than 1 million square feet of grocery space by the end of next year, an increase of around 6% over the 3 years. And we remain excited about the opportunity we have to reach new customers in new key target locations, and we expect this to be a strong driver of market share gains over time, particularly as the new stores mature and the disruption from refit activity reduces.

Now alongside new store openings, we have been continuing to invest selectively in our existing supermarkets through our More for More plan, reallocating space to provide more food range. And there's no cookie-cutter approach to our store refit program with the level of capital spend, change and space reallocation adapted to fit the trading profile and potential of different supermarkets. We're learning as we go, and we're rolling out rapidly the most successful elements.

So in particular, we have improved the prominence of Nectar Prices and the look and feel of our center aisles. We have extended range and enhanced presentation in beers, wines and spirits, also often relocating the department within the store, delivering a sales uplift. Our free from hubs combining fresh, frozen and ambient products in 1 aisle are contributing to a growth of 14% in free from across the business. That's a 7% market outperformance. And we've made our Food to Go fixtures more compelling and easier to shop with new formats delivering double-digit sales outperformance.

So in those stores where we have come through the disruption, we're really pleased with progress with the stores delivering higher food sales, higher trading intensity and a good customer response to the range improvements.

So in two, the work we've been doing over the last year to improve the customer offer is really delivering. We've been investing in leadership and enhanced capabilities across our clothing business. And as a result, we're now seeing improvements in ranges, product design and in our operational performance, too. Our combination of great value and quality design is driving stronger customer perception metrics, and we've also significantly improved availability. We delivered sales growth of 7.8% in the first half, with higher full price sales, and we've achieved our fifth consecutive quarter of market outperformance.

So turning next to Loyalty everyone loves. We continue to believe that our well-invested loyalty in retail media capability is a fundamental requirement for success in grocery retail. And Nectar is at the leading edge here in the U.K. and globally in terms of enabling personalized rewards for customers and in delivering leading retail media capabilities. As a result, Nectar continues to generate very strong returns.

A reminder here of the 2 sides of Nectar. On the left-hand side, our customer-facing Nectar loyalty scheme, which is how we deliver value to customers through points earned inside Sainsbury's and with coalition partners as well as through Nectar Prices and increasingly through personalized Your Nectar Prices. On the right-hand side is our Nectar360 Retail Media business. We help our suppliers and other clients understand how customers shop and help them talk directly to the millions who visit our stores and our websites every week, either directly through our media in-store and online or using our targeting capabilities to address customers on third-party media.

Retail Media continues to grow its share of total media spend in the U.K., driven by the high return on investment it delivers, and we're at the forefront of making it easier and more effective for clients and agencies to tailor the effectiveness of their digital media investments.

Nectar Prices continues to deliver outstanding value for customers, supported by suppliers, Nectar Prices were available on up to 10,000 products in the first half delivering customers an average GBP 14 saving on an GBP 80 weekly shop. We also extended the availability of Your Nectar personalized prices. Previously, this was only available to customers shopping online or through using SmartShop in stores. We have now extended this to be available for all our customers in our supermarkets.

As a consequence, more and more customers are now accessing individual and personalized value, which is even more meaningful and accessed every week through the Nectar app. And an important reminder here on how much customers can earn through collecting Nectar points in Sainsbury's and also through our coalition partners, particularly given the growing number of customers who now use the Nectar app.

Now at a time when value for money is much more on customers' minds and there's a lot of noise out there in the market, it's been important to increase visibility here on the extra value benefits Nectar customers are seeing. These benefits are getting stronger and stronger and becoming increasingly valued by Nectar customers, and this is reflected in the value perception scores we have presented today. We talked in July about the launch of Nectar360 Pollen. This is a bespoke platform built in-house that helps clients assemble tailored omnichannel retail media campaigns.

Now we're just starting to roll it out to clients now, and the feedback has been every bit as good as the response we got when we first announced it. We think this will be a game changer for clients' return on investment and another driver of significant growth for us. We're also getting really good returns on our investment across the connected digital media screens in store, particularly where we're rolling these out to our center aisles. All in, we're comfortably ahead of our profit plan.

So turning to Argos. We're making good progress with our More Argos, more Often strategy. Our focus is on building a more profitable business through improving the customer proposition, investing in product range and the digital customer experience. We're building on our reputation for convenience and value and continuing to optimize the efficiency of our fulfillment network. We're making progress on the key customer metrics outlined here on value for money and promotions, but also on quality and range. This is driving higher online traffic and an increase in both volume growth and basket size in a deflationary market.

Our digital performance is where we are really starting to make a key difference, most notably through investing in the Argos app, with strong results, as you can see from the chart on the right. But also through investing to make sure that customers find Argos as a solution more often and more easily, driving greater engagement through social channels and launching our own podcasts as well as scaling the use of AI and personalization in our digital channels.

With an improving conversion by making the customer journey easier once customers find us from search tools and personalized recommendations to enhance product pages all the way through to payment. This is how we will build a more sustainable, profitable sales base and the move we made earlier this year to put in place a dedicated leadership team for Argos is really making a difference to the focus and the effectiveness of our strategic actions and operational delivery.

Range wise, alongside the sharpening of our own brand ranges, we're building deeper partnerships with key brands and bringing new brands and ranges into the offer through supplier direct fulfillment. We're also now giving the customers the option of Click & Collect on these SDF ranges.

Customer familiarity with our Big Red promotional events is building too as reflected in the promotional and value perception scores shown earlier. And we're trialing a delivery subscription offer, Argos Plus for the first time. We're continuing to refine and reset the store operating model, investing in the store network and in technology. This improves colleague productivity and the customer experience, particularly through easier collection and returns processes.

Now turning to Save and invest to win. The strength of our cost-saving program is a key differentiator. And at the time of higher-than-normal operating cost inflation, it means that we can offset more of that incremental cost than our competitors. It's not just about finding ways to save money, it's about delivering sustained cost savings through structural efficiency gains, particularly through capital investment in improved technology and infrastructure.

We have a well-developed program with a good pipeline of initiatives and some of the big capital investments are starting to generate savings, which will build over multiple years. And we continue to be encouraged by progress in driving end-to-end productivity and efficiency benefits.

Now having delivered around GBP 350 million of savings last year, we're well on track to deliver to our plan this year and GBP 1 billion of savings over the 3 years to March '27. Our investment in the replatforming of our general merchandise logistics network will deliver savings of around GBP 70 million when the program is complete and we're just going live in our Daventry warehouse. This is centralizing Argos and general merchandise stock in fewer locations, bringing more automation and improving productivity and capacity.

And we're building on the strength of the machine learning forecasting platform. This has already significantly improved our forecasting and our stock accuracy and we're now extending the benefits further down the supply chain by giving suppliers greater visibility and self-serve functionality. As you can see on the right-hand side of this chart, our use of video analytics technology to reduce shrink at self-checkout locations has significantly exceeded expectations, and we're now rolling this out rapidly to more stores.

As a reminder, these are the commitments that we made at our Capital Markets Day in February 2024 with the launch of the 3-year Next Level Sainsbury's plan. We're now halfway through our Next Level plan. And in a year like this, where competitive intensity has stepped up, making the right balanced choices has never been more important. So while we have very clearly prioritized sustaining the strength of our competitive position this year, we remain on track to deliver these commitments over the 3 years of the plan.

We are continuing to drive forward progress against our Next Level plans, and we are strengthening our capabilities for the future. We're consistently delivering for customers and more and more are trusting Sainsbury's for their weekly shop. And as you will have seen in the latest Kantar reads, this momentum has been sustained into the third quarter despite some tough comparatives to the same period last year.

We expect Christmas to be very competitive, and hence, we're giving ourselves the capacity to make the right balanced choices with really strong plans for Christmas across value, innovation and quality, and by making sure that our service is at its best, both in store and online. Our whole team and I are really excited about what we can deliver this Christmas, and we look forward to updating you on that in January.

Now before Blathnaid and I take your questions, we wanted to share our Christmas ad, which went live just a couple of days ago.

[Presentation]

Hello, and welcome to Sainsbury's 2025-'26 Interim Results Announcement Analyst Q&A Call. On the call this morning is Simon Roberts, Chief Executive; and Blathnaid Bergin, Chief Financial Officer. We'll now go to the Q&A.

[Operator Instructions] Our first question is from Freddie Wild from Jefferies.

Congratulations on a very strong set of results. So my 3 questions. First, if you could give us a bit of help on the consumer outlook into Christmas. You've obviously just made some really quite encouraging comments. But how do you see the sort of Grocery business into Christmas? And how do you see Argos into Christmas as well?

Then second, Simon, you were very impressively accurate on your food inflation outlook when we talked at the full year. So I wondered if you could give us an update on where you see food inflation going from here?

And finally, obviously, you've now over delivered a bit into half 1. Could you help us understand the half 1 versus half 2 phasing dynamics for retail EBIT?

Freddie, thank you. Okay. So let me -- let's take those in turn. Look, I think for obvious reasons, the consumer is very focused on the cost of living. And that's why as you can see in our first half, we set a very clear priority back in April, and that priority was to sustain the strength of our competitive position given all we've done over the last 5 years. And what I think we can see is value for money is absolutely, of course, at the center of how households up and down the country are thinking, a lot of uncertainty out there. And so what we've been able to do is give customers real confidence and the fact they can trust value at Sainsbury's.

We extended our Aldi Price Match in the half, the biggest Aldi Price Match in the market, 10,000 products now in Nectar Prices. And so what you can see, I think, is customers are going to be very focused on value, and our offer is really matching that expectation. That will continue, to your question right into Christmas.

We have a very strong plan for this Christmas. And also, I think, importantly, particularly at this time of year, at this point about celebrating without compromise, and that's where Taste the Difference and trading up into Taste the Difference is playing a very important role for us. We always said, didn't we? If we could get value at Sainsbury's really working for customers and our reputation for quality would come alongside that.

And we're now really rolling forward both on quality and value and service, and the combination of all those things is giving customers the reason to do more of their big shop with us. And I make the point that we shared in the presentation, which is we've seen value perceptions in Sainsbury's customers improve year-on-year. We're the only grocer in the U.K. where that's happened, and you can see the impact on our volume share.

In terms of your question on inflation, look, I think what can we see? We can see that actually the industry has largely solved for the higher costs that have come through this year. There's still more inflation, I would say, to get through. But when we think about the impacts of National Insurance, EPR, the higher costs, both in retailers but also as they've come through in the cost of COGS, we can see how the industry has responded to that.

We also know, and we said this in April, didn't we? It's intensely competitive out there. This is an intensely competitive industry. Competition has stepped up. There's a lot of noise out there in the market. And so we've got both this inflation passing through, but also very clearly at a higher level of competition, and that's the reason we set such a clear priority for us to make sure that we sustained our competitive position in the first half, and you can see how that's played through for us.

Look, I think as we look ahead, clearly, cost pressures are going to continue to be there in terms of the increases to living wage and other costs as well. And so very importantly, for us, our Save and invest to win strategy is super important. We have a very mature efficiency and cost program now. We've committed to save GBP 1 billion over the 3 years. In fact, at the end of this financial year, since we started our Food First, we'll deliver close on GBP 2 billion for the cost savings in the first 5 years. And that's really important given the obvious continued cost pressures that are out there.

And then on your last question on the balance of the half, look, I think -- we're encouraged with the first half. We've seen that focus on value and quality and service with customers really play through into our results. Actually, as you've seen profits a little bit down at Sainsbury's in the half, improved a bit year-on-year and Argos in the half. And so therefore, we were able to deliver a profit outcome a bit ahead of our expectations actually for the first half.

We inflated a bit behind the market in the half. That was all about the fact we wanted to make sure our value position was right. And so we come into the second half, actually with really strong momentum. You'll have seen the recent market reads. And we're very deliberately giving ourselves the capacity to continue to make balanced choices. There's a lot of customer expectations on value out there, there's some uncertainty out there. I think probably a bit of caution in the GM market. Let's see how that plays through in the second half, given nondiscretionary spend will be more cautious. So for all those reasons and giving ourselves that capacity through the second half, Freddie.

Our next question is from Sreedhar Mahamkali from UBS.

Maybe just a couple of questions on Argos and on the buyback, please. And I guess the first one is, clearly, you went through a process with JD.com. Can you discuss a little bit more the context for this and why you terminated the talks and how we should think about any potential future conversations?

And I guess second one from an investor's point of view, something that I get fairly regularly these days is like JD.com progressed, which means there was a clear ability to separate Argos growth and its financial performance. I guess why shouldn't investors get the same level of visibility of Argos profits in the segmental disclosure.

And I guess the third one, maybe just on the buyback. I think you talked about a core buyback. Given the cash flow outlook already for next year as part of the plan, is it reasonable to think that will carry on at the GBP 200 million sort of run rate into next year. And then we add GBP 100 million so taking the total to GBP 300 million. Does that sound reasonable at this point of the year?

Sreedhar, thank you. Well, why don't I take the first question and then Blathnaid, maybe on your second and third question. Okay. So yes, just to recap. And as we said early September, look, of course, our obvious and key question is to make sure we continue to secure the strongest and most successful feature for Argos. And as we said early September, we've been in a process of discussions over a number of months to explore the discussion around acquisition of Argos. And look, I think as we said very clearly, early September, those discussions had reached a relatively advanced stage, but then given there was a substantial representation of the terms of those discussions, it was clearly in the interest of shareholders actually and our wider stakeholders as well that we stop those discussions and we pulled away from that.

And look, clearly, we're very focused on delivering the best outcome for shareholders. And we have a very clear More Argos, more often plan. You can see in the half, we grew sales, we improved profitability year-on-year. We grew market share in Argos. And I think this is beginning to show the first encouraging signs of the work the team are doing to really focus on what we need to do in Argos. And that's about making sure for customers, we deliver exactly the range and assortment that customers want to be able to access through Argos. We know customers love Argos. They love the convenience it brings. So we're extending our ranges, as you've seen in the presentation this morning, making sure we're absolutely on our A game at Argos on value, and also improving the digital experience.

You saw in the presentation the big step-up in online search that we're able to now achieve. And so all of our focus is on delivering More Argos, more often. Of course, the market out there is highly competitive. We've got to make sure that we really deliver that plan well. And as part of that, you remember, we put a dedicated leadership team in place earlier this year, totally focused on the Argos business. And that's beginning to drive some of the improvements that we're seeing as the team really gets around the things that we need to do. And so clearly, a period of time through the summer.

I'd make the point that while these discussions were going on, I think one of the things that we can draw from today's results is we weren't distracted at all by that. The team were very focused on delivering the plan and a smaller team, a much smaller team working on these conversations whilst they continued. They stopped early September and now we're completely focused on what we need to do. Blathnaid?

Great. So Sreedhar look segmental reporting is very much on our minds at the moment and a live discussion in the business today, particularly as we exit Financial Services, so we'll update you on that in the prelims at the moment, but something we are looking at. And on the buyback, look, we are really pleased today to be able to announce the addition of the incremental bank proceeds taking our buyback this year to GBP 250 million. That's core of GBP 200 million and GBP 50 million of additional coming from the bank proceeds.

We've committed an additional GBP 100 million from the bank proceeds next year. And if you look at our capital allocation policy, we have committed to at least GBP 500 million retail free cash flow. If you assume GBP 300 million goes back in dividend we don't have a better use for shareholders' money, we'll return that to shareholders. So I think that's a reasonable working assumption for your model for next year.

Thanks, Blathnaid. Maybe just one last point to your question as we wrap all that together. Look, I think the other important point to make is we learned a lot to the process that we went through in the summer. We learned how we can make Argos even better. We also learned that Argos is separable. It's not something that's wholly straightforward immediately, but it's something that we identified a read through. So we learned a lot through this process, which is also very helpful to us, too.

Maybe just a very short follow-up. Just on that slide where you present the Argos and Grocery, Sainsbury's EBIT. You show Argos as preconcessional rents. Is that the way you look at it in the business? Or is there further granularity that we probably could expect in time?

It is the way we look at it in the business today because it was one of the synergies we took when we acquired Argos. That's one of the discussions that's on our mind as we head into sort of prelims on that, and we'll give more visibility as we complete those discussions.

Our next question is from Lizzie Moore from Citi.

So firstly, I was just wondering around Nectar360 Pollen. Obviously, it's quite early, but really interested to hear any more detail around the early momentum you've seen there. And then related to that, you mentioned you're tracking ahead of your target for GBP 100 million of incremental Retail Media EBIT by March '27. Just wondering if you could give us a sense of how much we might expect you to be able to exceed that target by.

And then second question -- sorry.

No, it's okay. Next question, yes.

Yes. Just ahead of the budget. I was wondering if you could give us some color around the latest discussions you've had on potential increases to business rates on properties over GBP 500,000. And if you could just share how you're thinking about the potential headwind from that in fiscal '27.

Okay. Got it. Thanks, Lizzie. All right. So let's start with Nectar -- well Nectar and Nectar360 to your question that we're very energized and encouraged with the progress we're making across Nectar actually as a platform to really deliver for customers and really create value in our business. And look, I said in the presentation, I think as we think about the strategic capabilities that are necessary to really win in this industry, having a leading loyalty program, having personalized value and having the retail media platform that we're building out are absolutely essential. And you can see more and more now how that strategic capability is making such a difference for what we can deliver for customers, but also what we can deliver clearly for shareholders and in value terms, too.

Nectar360 Pollen, clearly something we built earlier this year. We're actually going live right now. We had our first series of client conversations this week. The feedback is exceptional. Because clearly, what we're doing here is building a capability that's dynamic, is agile and gives clients and brand partners and suppliers the ability to build their campaigns using the platform, getting live quickly in a very dynamic way in what is a first-to-market solution. So obviously, over the coming months, that will scale out.

It's going to really revolutionize how brands and agencies can work with us. And we think it's going to create both a lot of connectivity and a lot of value as we do that. In terms of your question on our ambitions financially for Nectar, look, we're really encouraged with progress here. You heard in the presentation today how both sides of Nectar are really powering the business forward. We'll talk some more about this at the year-end. Clearly, we see the launch of Pollen is very important in the progress we're making, and we continue to build momentum on Nectar ahead of what we expected. So really, really good news.

Yes. I think turning to more nearer-term questions in terms of the budget. Look, I think as you'd expect, we have had, as an industry, actually, a series of discussions at the most senior level of government on the topic of business rates. We've been given the opportunity to present our case really clearly as to why there shouldn't be any further impacts on retail cost through business rates.

Everyone on this call is very well aware of the scale of costs that have come to the industry this year on National Insurance, EPR and hence, the reason why we've made our case very clearly, particularly important, as you say, for large retail stores, not least given the importance of the role those stores play, but also a huge number of people that we employ as large retailers.

And so clearly, we need to hope and expect our politicians now to make the decisions based on the very strong case we've made, and we'll see that at the end of the month. And I guess the broader point here, no one wants to see inflation go up further. We're doing a lot through our internal efficiency and cost saving programs to contain the effects of inflation. As I said, we actually inflated a bit behind the market in the first half. That was to make sure we were almost competitive. We clearly don't want to see any impact on business rates adding further cost to the system.

Our next question is from Rob Joyce from BNP Paribas.

So firstly, just on the Sainsbury's core business. I guess we look at last year, second half, you kind of grew profits there, double the rate you did in the first half. So 2 questions, I guess. First one, do we think we can grow profits in the second half of this year to come? Or should we expect it to be down again? And then looking into next year, in a more normalized cost environment, do you think the business should be back to kind of that mid- to high single-digit sort of growth or EBIT growth next year?

And the second one, just on Argos. I think this year -- this time last year, you gave us a bit of an update on how you're trading in the first 6 weeks of the quarter or so. Wonder if you could give us an update on how Argos is trading thus far in the quarter? And are we expecting it to be sort of in growth over the next couple of periods? Or do you think we're sort of back to a more normalized sort of flat to down Argos position?

Thanks, Rob. Well, let's talk first to your question on the half and how we think about the second half of the year. Look, I think first point I would make here is -- and forgive me repeating this, we set out our plan for this year very clearly with that priority of sustaining the strength of our competitive position. And as you can see in today's results, we made very focused and effective investments in our value proposition in that first half. And you can see how that's played through, both in improving our value perceptions year-on-year, the only grocer to have done that, but also the fact we've continued to grow our volume.

And I'd make the point against some strong comps last year. So the strength of the Grocery performance in the first half really underscored by the strength of our competitive position. And as you've heard me say a number of times, making balanced choices, making sure we have the capacity to do what we need to do has been a very important part of our plan over a number of years. We set that out way back in 2020, 2021, and that continues to be very important for us.

And so when we think about the first half, obviously, we invested a bit more in areas like Aldi Price Match. We invested more in areas like marketing. I talked about that in the presentation this morning. And we also had clearly the benefit of some very good weather in the first half, which was clearly helpful to both the Grocery business, but also the Argos business, too. So there are a number of tailwinds that came alongside how we thought the first half would go. And that's why we've performed a bit better than we expected in the first half.

When we look to the second half, to your question, look, in the Grocery business, and you can see this in the recent market reads, our momentum continues. And we continue to deliver strong volume share growth against strong comps last year. We're carrying that momentum into the second half. But look, despite the fact it's the first week in November, and there are 7 very critical weeks to come. And until the end of the year, we want to make sure we just retain the capacity in our guidance to continue to make those balanced choices given the significance of the part of the year to come, and that's what we're doing today.

We're going to sustain the strength of our competitive position, as I said at the start of the year, and we'll continue to make those balanced choices. And look, I'd say just to double underlying that, those balanced choices have always served us well and have served the outcome we've been able to achieve well.

In terms of how we then think about Argos, look, probably not a lot to add to what I've said other than obviously to say the customer is going to be more cautious here given all of the uncertainty that's out there. And so as part of those balanced choices, we want to make sure we've got the capacity for probably a bit more of a cautious customer in GM, certainly until things are clear on the other side of the budget, likely to be a very competitive sector, I think, through the last few weeks of Christmas this year for all the obvious reasons.

And as you say, we've got a very strong plan in Argos, but competition will be intensified. Customers will shop later. Customers will hold back a bit on spending for all the reasons that are out there. And those are the things that we've obviously factored into making sure we've got the capacity to make the choices we need to over the second half.

Our next question is from Fran ois Digard from Kepler Cheuvreux.

Three questions, if I may. What were your expectations going into H1? Because you mentioned you exceeded your expectations, but could you quantify that excess -- what were you prepared to see your H1 underlying profit decline by how much?

Second question is Argos' performance benefited partly from favorable weather. You have mentioned in the past wanting to make the business less volatile. How far along are you in that process? And what level of volatility should we expect going forward as normal?

And third, on Retail Media, I understand you will share more details in final results. But could you help us to see how the market is evolving? You mentioned growth, but what is your share of it? Or at least what is the food retailers share versus players like Amazon right now?

Fran ois, thank you. So why don't I pick up the questions on Argos and where we're getting to there and also Retail Media and maybe just to your question on our kind of expectations and how they played through in H1. Blathnaid, do you want to pick that up?

Yes. So look, we entered H1 cautiously. If you remember the backdrop as we entered H1, there was a few things that went on there. We exceeded our expectations largely because we had some really good weather and we known good weather because we're South-based. In food, we tend to outperform and take more market share and the same in Argos as well with those seasonal products. So if you think about the good weather, we got good sell-through in Argos, and we got an uplift in the food as well. So that's why we exceeded expectations in H1.

Thanks, Blathnaid. And then just to the question on what is More Argos, more often all about, Fran ois, in terms of us building a really clear plan out in Argos such that we can deliver for customers, really inspiring choice that gives them confidence to make Argos their first choice, a digital experience that's friction-free and really easy to access and then trusted value given the obvious competition in the market. And so we are in the early phases of delivering that plan.

I think what we saw in the first half was an encouraging performance given we grew share. Clearly, the weather helped us grow sales year-on-year. We know that Argos benefits seasonally when the weather is good. Last year, we had a particularly difficult year because the summer was so poor. That led us to a lot of clearance in the second quarter last year. And so the reason the sales were softer in Q2 compared to Q1 was we anniversaried that very significant clearance activity last year.

And so in the second quarter, actually, sales were a bit up, but less than the first quarter, but actually profitability improved in the second quarter as we anniversaried what was a high level of clearance last year. And so when we look at what we're doing in the Argos business, we've said before, our priority here isn't a short-term profit outcome. It's to build the base of the Argos business in customer traffic, in loyalty, in value, in assortment, in the digital experience.

And then, of course, in the efficiency programs we're delivering to make sure over time, we can improve the level of outcome that we can achieve. And as we come into the second half and also to Rob's earlier question, we've got stronger momentum in Argos, but it's a cautious customer and a cautious market out there. And so we're going to need to be a really strong position coming into this Christmas and really competitive, which we'll make sure we're able to do.

Look, on Retail Media, I made the point just before to Lizzie's question, this is an essential capability to win in this industry. And our team across Nectar360 and Nectar more broadly are really leading out here in terms of the capabilities we've been investing in. We've really put a big focus on this key part of our business over the recent number of years.

As we built out our Next Level strategy, we were very clear that Loyalty everyone loves was a core part of how we're going to power both our customer delivery, but also our value creation narrative. And we're clearly on track to deliver the GBP 100 million additional that we committed to over the life of this plan. And we are also very focused on making sure in Retail Media as we launched Nectar Pollen and the other work that we're doing that we continue to take a leading position here. I just would make the point that the launch of personalized Nectar value is so important in this because obviously, it's bringing more customers into our Nectar ecosystem. Thanks, Fran ois.

Our next question is from William Woods from Bernstein.

In terms of -- you've shown some quite good data on your value and quality perception, growing or improving ahead of the market and Tesco with your volume market share gains have been softer than Tesco maybe even slightly in the last few months. Do you think there's a disconnect there between the value and quality perception improvements versus the market share gains?

The second one is on Argos. Just trying to understand the underlying Argos performance here. How much do you think things like Switch and the iPhone contributed to growth in H1.

And then the final one is just on your gold, silver, bronze store strategy. How are you seeing your gold stores preform? Are there any learnings or kind of further adaptations you're taking there?

Thanks, William. We just about heard your question. The line wasn't great. But I think just where are we on value and the balance of the value market share gains and quality, the underlying Argos performance and then how we think about our store space program. So I'll take each of those in turn.

Look, on the first one, we're really encouraged actually by our volume market share gains, as I said, year-over-year. And the reason I talk volume market share gains, we've always said from the start that we're focused on volume because that's clearly a very clear measure of customers choosing to trust Sainsbury's to put more items in their basket, and that's why we measure ourselves against volume market share.

In the presentation today, you can see actually the growing evidence that customers are both trading down in the basket but also trading up in the basket. 65% of customers in the half both bought in the same basket Aldi Price Match line and a Taste the Difference line. And I think that's a very important example now of the fact that we're getting trusted at the entry price point, and we're getting trusted on the trade-up. 1 in 3 baskets can train Taste the Difference, 65% of baskets customers are buying in Aldi Price Match line and Taste the Difference line.

And we set out a very clear plan, didn't we this year to make sure that we sustained our competitive position. We inflated a bit behind the market, and that's really played through. And the other final point I'd make to your question is that our value investment has been very anchored in the products that people buy most often. You remember going way back to the beginning, we talked about the importance of the center of the plate.

If I look at a category level where we've seen the strongest performance, the key big fresh food categories are the ones we're winning against the market most, and that's because customers are trusting that center of the plate and then doing the rest of the shop and filling their full basket across the whole supermarket.

In terms of the question on underlying Argos performance, look, as I've said, the weather definitely helped us in Argos. We saw the strength of seasonal products come through, particularly actually in the first quarter where the year-on-year comps of the weather were clearly much stronger. And so when the sun shone, Argos really came into its own.

Look, I'd be really clear to say, look, we planned for a good summer, but we clearly sold a lot of our seasonal products in the first quarter. And look, I'm pleased we did that, right, because what we didn't have was any stock overhang going into the second part of the year. We did a very effective plan to max out the summer when it came. We sold through well, and that meant we could get ourselves on a really stable and good footing coming into Q3. Yes, of course, the Switch is an important part. Technology is an important part of the Argos overall performance, but seasonal really came through in the first quarter, and we really planned for that.

And then on your question on our space, 2 key components to this. So you remember, we laid out a plan More for More, which is bringing more of Sainsbury's range to more customers in more locations. You remember, too, we've always said there are key target locations in the U.K. We'd like to have a Sainsbury's store, and we haven't got one today. That's why when the Homebase opportunity came to us, we really looked at that, and we're well on now with getting the Homebase conversions open.

We've opened the first of those, trading ahead of expectations and really working actually. What are we seeing? We're seeing trading up, and we're seeing the ability to fit out those stores at a lower cost than we expected. Our property team are doing a brilliant job actually on the ground, making sure we get the Sainsbury's offer landed really well in some of these sites and customers are responding really well.

And on the other side of our More for More program, this was about taking space from GM into food. And in this year, we'll land just over 50 schemes Obviously, we're constantly solving to make sure we get the best trading intensity outcome, improvement in volume, improvement in customer satisfaction and obviously, a good return on the capital that we're investing in these schemes.

And you can see a lot of the stores out there now. What we can particularly see, as you saw in the presentation, is the areas of the shop we've really focused on Food to Go, our center aisles on Nectar, beers, wines and spirits, free from. These are the areas where we're really making sure that those elements of the store, we're getting the best returns, we're rolling them out as fast as we can.

Our next question is from Benjamin Yokyong-Zoega from Deutsche Bank.

Congratulations on the results. I just had a couple, one on Grocery and one on Argos. On the Grocery, I mean, it's great to see the volume outperformance and the inflation behind the market. Just wondering what impact, if any, you've seen from recent price cuts from competitors? And is it your intention to broadly maintain your value position over the rest of the year?

And then on Argos, you've outlined the cautious near-term outlook for discretionary. But I just wanted to check how inventory levels are compared to last year? And if there's any color you could give on the deflationary market backdrop you mentioned and if this is more pronounced in certain categories?

Benjamin, thank you. Well, why don't I pick up kind of the key grocery themes you've had. I know Blathnaid will want to comment on where we are in our stock position in Argos, and we can add to it from there. Look, I think at the risk of repeating myself, so forgive me for this, Benjamin, I think look, we set out a really clear plan to make sure this year we sustain the strength of our value position. I think we were clear in April to say there was a lot of noise in the market, and it was important, therefore, that the clarity of the Sainsbury's value quality and service message really cut through in that context, and that's exactly what we've done in the half.

As you can see, we inflated a bit behind the market. You can see, as you indicated, our volume share improved year-on-year-on-year despite some strong comps. And that's because we invested a bit more, but in a very focused and effective way. We increased the Aldi Price Match on to more everyday essentials. We increased the number of products in the Nectar Prices range. And as I said in the update as well, we also did some more marketing this summer. And we, for the first time, ran a very bold marketing campaign on Aldi Price Match right alongside our focus on everyday trade-ups on Taste the Difference.

And so we invested some more in marketing as well as sustaining the strength of our value position. And net-net, when we look at where that's brought us to over the half, we're really pleased with what that's meant because, as I said, we've seen value perceptions in Sainsbury's customers improve year-on-year, and we've been the only one in the market to do that.

And we're going to carry that momentum into the second half, right, because it's absolutely a core part of our formula. And we've shown that by growing our volume, volume over fixed cost is what we said over the life of our plan. And when we look out over the 3 years of Next Level, we're very focused on growing volume market share and making sure that we can drive the right financial returns as we do that over time. Argos, Blathnaid.

Right. So what we're seeing in the Argos market is it's largely electricals and furniture that are a little bit deflationary. But just to sort of talk about working capital, we have a real discipline in the business around cash and around working capital. Last year, we ran a pretty big working capital program in Argos. We reduced inventory by just over GBP 90 million while improving availability. So it's really important to get the right balance on that, and we exited the year-end clean on inventory as well.

As we came out the back end of this summer, you've seen in the numbers, we had a good sell-through on seasonals. And again, we exited the period clean. So inventory is reducing ever so slightly this year in Argos as we wrap up the end of that inventory working capital program, and we'll continue that discipline to make sure we're delivering our cash targets for the business. So pretty pleased with the position, particularly as the availability is improving.

Thanks, Benjamin.

Our next question is from Manjari Dhar from RBC Capital.

My first question is just on marketing spend. I know you mentioned that you've done a little bit more this summer. I was just wondering how you're thinking about your spend running into Christmas? And are you deploying that marketing spend any differently this year? And then my second question is just on Argos. I wondered if you could give us some more color on the economics of the Argos Plus trial. How does this work? And I guess, what do you need to see from this trial to pass that as a success? And then finally, I just had a question on the cost savings for this year. I just wondered if you could give us some color on sort of how that phases between H1, H2. How much have you seen so far? And how much should we expect still to come?

Thanks, Manjari. Okay. Let's take those in turn, and if I take the first 2 and then Blathnaid can speak to where we are on our cost plans, both this year and as we look ahead. So look, I think right back to the start of the conversation, sustaining the strength of our competitive position was our clear priority this year. That's why balanced choices play such an important part. You can see, Manjari, to your question how that's played out in the first half.

We invested more, as I've said, in Aldi Price Match. We extended Nectar Prices. That really converted with customers such that the value perception improved year-on-year as we've talked. Yes, and it was an important shift actually for us to run value and trade-up side by side through the summer. That was a very specific choice we made actually to test what we could see in terms of the returns on those campaigns. And we were really pleased with them actually.

As I said in the upfront presentation, we saw the highest return in terms of brand consideration for Sainsbury's on the Taste the Difference campaign that we've seen in over a decade. And so that's given us real confidence in how our marketing is coming through, both digitally and in all above-the-line channels. Our marketing team have done actually a fantastic job over the last number of years, resetting how we think about Sainsbury's and more recently, Argos marketing, and we can see that cut through with customers.

And look, when I talk about retaining the capacity for the second half, you've seen us go live with our Christmas campaign last weekend with the return of BFG. And as you would imagine, we have a very focused and very intentionally focused on value and quality as we come into this Christmas to make sure that our resonance with customers is where it needs to be.

On Argos -- on the Argos Plus trial, look, I'd make the point, this is a trial. We're just testing how customers think about this, whether by paying an annual fee and getting delivery for free is something that customers would respond to. We're in the early phases of testing that. And obviously, we'll update you when we know some more.

It really speaks to making sure that convenience at Argos is a standout reason that customers would choose to shop with us. And so obviously, we're doing lots of things in the More Argos, more often plan to make sure we're getting the proposition right. But importantly, we can deliver that proposition at the right cost and the right efficiency. So that will work through and we'll update in due course.

Great. Maybe then on cost savings, look, we're really pleased with the progress we're making against the GBP 1 billion target over the 3 years. We delivered GBP 349 million last year. We estimate it will be broadly split 1/3, 1/3, 1/3. And if you think about this year, you think about the phasing pretty flat across the 2 halves is the way to model it. So about half of it delivered and about half of it to come in the second half of the year.

Yes. And just to reiterate, clearly, the GBP 1 billion cost saving target over the 3 years, which we remain on track for with a strong pipeline into next year as the maturity of this program continues to build out. Thanks, Manjari.

Our next question is from James Anstead from Barclays.

Two questions on Argos, if that's okay, please. You mentioned that you learned Argos is separable, which is an interesting lesson. But I guess that also during those discussions, you must have had a lot of time to think about some of the complexities in the relationship between Argos and Sainsbury that makes it harder to separate. So my question is when you think about the structure of Argos going forward and how it fits together with the core Sainsbury business, will you be deliberately chipping away at some of those relationship complexities, if you understand the question?

And a much quicker second one, which is it looks like the Argos losses narrowed significantly in the first half. Is it fair to assume it would have been profitable without the EPR charge that was registered in 1H?

Thanks, James. Okay. Why don't I speak to what we learned on your question separability and then Blathnaid can come back on the question of the first half and how the profit shaped up. Yes, without repeating myself, for obvious reasons, we really stared through this process of what it would take to separate Argos out to the fullest extent.

I would make the point that back in February '24, when we laid out our Next Level plan, we were really clear at the time that we saw Argos and Sainsbury's in terms of what it needs to deliver for customers and the operating model of both businesses as being quite separate. And we made that statement clearly then. And that's one of the reasons why in our strategy, we were very clear about first choice of food and More Argos, more often as being 2 distinct elements of our Next Level plan.

And as you've seen actually over the last period of time, one of the things the team and I have been really focused on is how do we make sure we set up Argos with what it needs and how similarly, do we make sure that the focus in the Grocery business and in Sainsbury's is what's needed there. And I think what we can see in these results is that approach continuing to build through and build momentum.

And so in Argos, we have a dedicated management team now. Graham is the MD of the Argos business. That team is completely focused on making sure we land and deliver and drive through More Argos, more often plan. Obviously, there are elements of how we're organized where we still share resources across the group. Obviously, areas like how our technology operates. If we were to fully separate that, we would need to understand what's required there. And that's one of the things we've looked at quite closely.

So we definitely learned what it would take to separate these 2 businesses. We've made progress in organizing ourselves to make sure that Argos has what it needs and Sainsbury's has what it needs. And so clearly, that's one of the things that we continue to drive through as we execute the strategy that we laid out. Blathnaid?

Very short answer, James, yes, it would have been breakeven if we hadn't had the charge.

Thank you. Thanks, James.

Our next question is from Clive Black from Shore Capital.

Some short ones from me. You've mentioned the cost headwinds from the government policy in this current year. Could you just -- you might have done this before, so apologies, but could you just quantify what the EPR, NIC and National Living Wage elevated cost base was or is for FY '26, given you achieved flat profits in the first half?

Sure. So thanks, Clive. Well, let me just recap on the key parts of this. So clearly, on NIC, that was GBP 140 million of cost for us. And we made that very clear at the time when we talked about the impact of National Insurance. We then did, obviously, our pay increase in January of this year. Now we've had a policy of living the market on colleague pay over a number of years now.

And so our annual pay award was ahead of the National Living Wage. But clearly, that's an inflationary cost that we plan for through our Save and invest to win program. So I wouldn't classify our pay award for colleagues as something that we didn't plan for. We had that planned. And then on EPR, it's GBP 53 million to your question. So GBP 140 million on National Insurance and GBP 53 million on Extended Producer Responsibility.

And I just wanted to look into next year. I'm not seeking any form of guidance, but just in terms of moving parts. Firstly, in the expectation that inflation -- food inflation will probably ease, although remain in the system. First, would you expect volumes to positively respond to that inflationary easing?

And secondly, I just wonder how you feel about the balance of mix in terms of what are the drivers to either trade up or trade down going forward, given you have spoken about a strong value quotient, but equally your traditional traits around quality and innovation really coming through.

Yes. Thanks, Clive. Look, I think as you say, look, clearly, we'll talk into next year at the end of this year. But I think, look, I mean, most importantly, in the latest read, good to see inflation stop going up. And look, I think there's clearly going to be ongoing cost pressure in the system. I think the fact that the industry is largely either solved or continues to solve for the inflation there.

I'd make the point, there's still inflation to get through the pipe. The industry continues to behave, I think, broadly rationally. Cost pressures clearly exist across the board and everyone is working to retain their own competitive position and pass through inflation. I expect that to continue.

We know, to your question on the link to volume. We know don't we were the kind of trigger point is for an impact in volume to start to become more pronounced. You've seen in our own performance, the fact we've been able to grow volume on volume, on volume share. So I think we've got that balance exactly right for us and for Sainsbury's customers actually, but it's something we pay a lot of attention to because our plan is based on winning and growing volume market share.

And so the balance of our value position, how we pass through inflation in a way that makes sure our value position is strong is one of the things that is the sort of first priority of how we think about these things. And then look, I think we've learned a lot since 2020 about the power of the Sainsbury's grocery proposition when all the components of it really come together. And we knew back then that our reputation for quality was indisputable, but customers weren't really seeing it all because we were too expensive.

And so 5 years later, we're now seeing value perceptions improve year-on-year again at Sainsbury's, a combination of all the things that we've done. And that's meaning that the strength of our quality, and I'd go further and say the strength of our assortment more broadly is becoming even stronger in terms of customers' consideration of where they shop. And that's what we're seeing these big trolley shops continue to grow with 1 million more customers shopping with us.

And so when we look ahead, we feel very confident about the grocery proposition that we've been building as a team. We still think there's plenty in front of us to do. But our own brand assortment, the strength of Taste the Difference, what we've done in the entry price point, the fact now that 65% of customers in the first half, both traded down and traded up in the same basket, all this points to the importance of making sure we make these balanced choices to maintain the value position because when our value is as strong as it is, customers see so much more in Sainsbury's that they didn't see before.

And so linking the 2 questions together, we're confident we'll continue to grow volume market share as we continue to strengthen and improve the combination of value, quality, service and availability, too, which has also really stepped up.

And then just look, a quick last question for me. You've got a very strong balance sheet. I mean your fixed charge cover went up in the half. I noted once you distribute the Financial Services dividends and buyback, you're still going to be barely geared. I just wonder how you characterize your balance sheet from a capital discipline perspective. What ratios do you want to work to on an ongoing basis?

Good question, Clive. Look, we like to -- if you look at the capital allocation policy, we like to operate within 2.4 to 3x net debt-to-EBITDA. We'll continue to target to be in the middle of that range. As we travel over the next few years, we have great capability to invest in our business. If any opportunities come along, we'll be in a position to take advantage of those, but we'll continue to operate within that range of the capital allocation policy, and we'll make choices to keep us in that range.

Our final question is from Sreedhar Mahamkali from UBS.

Sreedhar, round 2.

I'm so sorry, I almost never do this, but I thought somebody would pick this up, but I think it's helpful to understand there. This is really about the VI, I think the slide -- there was a really interesting Slide 27, there it is. I just wanted to better understand this, please, and where you show 90 basis points improvement versus Asda in the first half. Please explain how you actually measure this, how narrow or broad-based this is? And then really kind of taking a big step back, what is the right price position for you on the Grocery side? Is it protecting where you've got to after 4 or 5 years of investing? Or do you proactively need to improve it further steadily each period?

Sreedhar, thank you. So look, this is -- I mean, first of all, this is value reality. This is actual value measured at the beginning of the financial year in March versus where we are at the end of the half. And clearly, what this reflects is our actual value position when you take into -- include our Aldi Price Match and our Nectar Prices.

What it doesn't include, which is an important distinction to make to your question, it doesn't include the added value of your Nectar Prices because obviously, they're unique to every customer that accesses them. And so when you think about this slide, this is on the value that's available to everybody and then personalized value comes on top of it.

The key point clearly is that we set ourselves a very clear priority this year to sustain our competitive position. That meant we inflated a little bit behind the market this year. I've made the point before, our value investment goes into the products people buy most often and that's how our value perceptions have improved. That's at the core of building baskets and trolleys out. That's at the core of customers saving GBP 14 on an GBP 80 weekly shop, and that's before Your Nectar Prices, which is additive to that.

You're on mute, Sreedhar.

You're still on mute.

You can hear me now?

Yes.

Yes, sorry, I just wanted to understand how many SKUs, like how much of the basket is covered in this index? Or is it narrow?

It's a very wide SKU count included in this. I mean this is the broadest context of the shop.

Okay. Just to check any final questions.

That was our final question.

There is one final question, yes?

No. That was our final question. I will hand it back to you for the final remarks.

Okay. Great. Sreedhar round 2 was our last question. Okay. Well, thanks, everyone, for joining us this morning. I know it's a busy week. As you can see, we're really encouraged and pleased with our H1 performance, but importantly, the momentum in the business into this really important second half of the year.

Plenty to navigate over the second half. But as you can see, we continue to make the right balanced choices, and we do that as we go into this Christmas with really strong plans both in Argos and in Sainsbury's. So plenty for us now as a team to get on and deliver for customers and deliver more broadly, and we look forward to talking with you again in early January. Thanks very much.