Good morning, everyone, and welcome to our 2025-2026 interim results presentation. Thank you for joining us today. I'm going to start with a brief introduction before handing over to Bláthnaid 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 preliminary 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 five 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.
That has resulted in more and more customers choosing us for their big weekly shop, driving continued volume growth and market share gains. 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 hourly 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. Our product innovation continues to really set us apart. With more than 600 new products this summer, we focused our newness 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. Our gusto with 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. 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 five years.
As you know, our key focus over the first 3-4 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. We have found a winning value formula that really works for our customers with the combination of our price match, Nectar Prices, and Your Nectar Prices. 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 have consistently been delivering on the items that they buy most often.
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's to deliver 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. 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. 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. These commitments to resilience extend further than the U.K. Our partnership with Fairtrade 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. 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 Fairshare, City Harvest, and the Felix Project to distribute over 5 million meals this winter. As we reflect on where we are halfway through the three-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.
It is 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. 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. 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 Bláthnaid 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, 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. 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 are 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're also delivering on our commitment to enhanced 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 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 vs 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 six months. We completed the sale of loans and credit cards and savings to NatWest and transferred the Argos Financial Services book to New Day.
We additionally signed agreements on our home and car insurance backbooks with Allianz and completed deals on ATMs with Note Machine and on travel money with Fexco. Alongside the strong execution in partnership with NatWest and New Day, 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 break-even this year, lower than our previous guidance, as the income from these businesses drops into the discontinued line until the deals are completed and a new revenue arrangement is in place. This is reflected in the restated financial services numbers. This is just a transitionary impact, and we continue to expect the underlying operation profit contribution from financial services products of at least GBP 40 million in the financial year to March 2028. This comprises income from the New Day partnership together with the commissions income from insurance, travel money, care, and ATMs. Total underlying operation profit increased by 7%.
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 GBP 4.1, 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 GBP 11 also in December. The next slide lays out items excluded from underlying results. We incurred GBP 95 million of non-underlying costs in the half, with the largest item relating to retail restructuring costs of GBP 58 million. The largest element of these relates 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 three 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 vs 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 dividends 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 vs 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 store's 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 a 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 focused 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, Bláthnaid. Now, as I said, we're at the halfway point of the three-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 four 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. This is reflected in customer satisfaction metrics across the board, where we've taken a big step forward, as you can see.
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. At a time when customers are much more sensitive to rising prices and inflation is top of mind, the consistency and focus of our pricing investments is really resonating. We've shown you before the significant improvement we've made on value vs our competitors since the launch of Food First back in 2020. 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, including in April, and Nectar Prices is now on around 10,000 products. Both of these key value platforms are included in the value index you can see here. Beyond this, we are offering more value to more customers through Your Nectar Prices, with personalized offers on 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. We have 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.
It is worth highlighting here that if we did include Your Nectar Prices within the value index, this would further strengthen our position against every competitor. 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 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. 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.
From an already strong position, the strength of our Taste the Difference momentum delivered the biggest premium own-label market share gains. We can see great opportunity here. The potential for gaining more in-home dining occasions is clear from the chart on the left. We have 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. These new ranges really lean into the core strengths of our brand and customer demographic, and we are 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 did not 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 have now opened four of these stores, two of each in the first half, and we are delighted with the results. Collectively, the six new supermarkets and 12 new convenience store openings we achieved in H1 are trading around 20% ahead of budget.
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 six supermarkets in the second half, including three 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 sq ft of grocery space by the end of next year, an increase of around 6% over the three years.
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. 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. There is no cookie-cutter approach to our store refit program, with a level of capital spend, change, and space reallocation adapted to fit the trading profile and potential of different supermarkets. We are learning as we go, and we are rolling out rapidly the most successful elements. 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 Freefrom hubs, combining fresh, frozen, and ambient products in one aisle, are contributing to a growth of 14% in Freefrom across the business. That is a 7% market outperformance. We have made our food-to-go fixtures more compelling and easier to shop, with new formats delivering double-digit sales outperformance. In those stores where we have come through the disruption, we are really pleased with progress, with the stores delivering higher food sales, higher trading intensity, and a good customer response to the range improvements. In two, the work we have been doing over the last year to improve the customer offer is really delivering. We have been investing in leadership and enhanced capabilities across our clothing business.
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. Turning next to loyalty everyone loves, we continue to believe that a well-invested loyalty and retail media capability is a fundamental requirement for success in grocery retail. 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 two 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 Nectar 360 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 are 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. 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 is a lot of noise out there in the market, it has 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 Nectar 360 Pollen. This is a bespoke platform built in-house that helps clients assemble tailored omnichannel retail media campaigns. Now, we are 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. 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. 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 podcast, as well as scaling the use of AI and personalization in our digital channels. We are then improving conversion by making the customer journey easier once customers find us, from search tools and personalized recommendations to enhanced product pages, all the way through to payment. This is how we will build a more sustainable, profitable sales base.
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 and 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. We're trialing a delivery subscription offer, Argos Plus, for the first time. We're continuing to revise and reset the store operating model, investing in the store network and in technology. This improves quality, 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 a time of higher than normal operating cost inflation, it means that we can offset more of that incremental cost than our competitors. It is not just about finding ways to save money. It is 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. We continue to be encouraged by progress in driving end-to-end productivity and efficiency benefits. Now, having delivered around GBP 350 million worth of savings last year, we are well on track to deliver to our plan this year and GBP 1 billion of savings over the three years to March 2027.
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 are 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. We are building on the strength of the machine learning forecasting platform. This has already significantly improved our forecasting and our stock accuracy, and we are 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 are now rolling this out rapidly to more stores.
As a reminder, these are the commitments that we made to our capital markets day in February 2024, with the launch of the three-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 balance choices has never been more important. 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 three 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.
As you will have seen in the latest Kantar reads, this momentum has been sustained into the third quarter, despite some tough comparatives through the same period last year. We expect Christmas to be very competitive, and hence we're giving ourselves the capacity to make the right balance 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 Bláthnaid and I take your questions, we wanted to share our Christmas ad, which went live just a couple of days ago. I taste you and human beings. Oh, Puddle Nut. BFG. We've got an unexpected guest. Hey, Sainsbury's, can you help us? Bread Sticks.
Ooh, happy Christmas to me. Sound of drum pits. We need a delivery for number 53. Yummy, yummy. Glazed Ham into 72. The greedy Ratrasper. And Turkey with Trimmings for number 24. Oh, delicious. Come on. Swipe my swackles. We swallowed the shop. Team, I've got a special delivery for you. Have you anything to say? Yes, for a watch pudding. When I never. We're on the Telly Telly Bunkin' Box. Come for lunch, BFG. You haven't got room for an old sage and onions like me. It's Christmas. We'll make room. Come on, then. Want to be ready for anything this Christmas? Ask Sainsbury's. Sainsbury's, good food for all of us.
Hello and welcome to Sainsbury's. Please unmute your line and ask your question.
Good morning, Simon and Bláthnaid. Thank you for taking my questions.
Hello, good morning.
Very good, thank you.
Hopefully well with you guys as well, and congratulations on a very strong set of results. My three questions are 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? Second, Simon, you were very impressively accurate on your food inflation outlook when we talked at the full year. I wondered if you could give us an update on where you see food inflation going from here. Finally, obviously you've now over-delivered a bit into half one. Could you help us understand the half one vs half two phasing dynamics for retail EBIT? Thank you.
Brilliant, thank you. Good morning. Okay, 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. That priority was to sustain the strength of our competitive position, given all we've done over the last five years. 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 what we've been able to do is give customers real confidence in 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.
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. Also, I think importantly, particularly at this time of year, this point about celebrating without compromise, and that is where Taste the Difference and trading up into Taste the Difference is playing a very important role for us. We always said, did we not, if we could get value at Sainsbury's really working for customers, then our reputation for quality would come alongside that. We are now really rowing 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.
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, 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. When we think about the impacts of National Insurance Contributions, EPR, the higher costs that 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 a higher level of competition. 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. 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 three years.
In fact, at the end of this financial year, since we started Food First, we'll deliver close on GBP 2 billion for the cost savings in the first five years. That is really important given the obvious continued cost pressures that are out there. 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 are a little bit down at Sainsbury's in the half, improved a bit year-on-year in Argos in the half. 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. We come into the second half actually with really strong momentum. You'll have seen the recent market reads. We're very deliberately, 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 non-discretionary spend will be more cautious. For all those reasons, giving ours elves that capacity through the second half, really.
That is fantastic. Thank you very much.
Thanks.
Thank you. Our next question is from Sreedhar Mahamkali from UBS. Please unmute your line and ask your question.
Hello, Sreedhar. Good morning.
Good morning. Maybe just a couple of questions.
On Argos and on the buyback, please. 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? I guess the second one from an investor's point of view is something that I get fairly regularly these days. It's like JD.com progressed, which means there was a clear ability to separate Argos and its financial performance. I guess, why shouldn't investors get the same level of visibility of Argos profits and segmental disclosure? 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 200 million sort of run rate into next year and then we add 100 million, so taking the total to 300 million? Does that sound reasonable at this point of the year?
Sreedhar , thank you. Why don't I take the first question and then Bláthnaid, maybe on your second and third question. Okay, so yeah, 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 future for Argos. 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. I think, as we said very clearly early September, those discussions had reached.
A relatively advanced stage, but then given there was a substantial re-presentation of the terms of those discussions, it was clearly in the interest of shareholders, actually in our wider stakeholders as well, that we stopped those discussions and we pulled away from that. 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. 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. 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. We are extending our ranges, as you have seen in the presentation this morning, making sure we are 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 are able to now achieve. All of our focus is on delivering more Argos, more often. Of course, the market out there is highly competitive. We have to make sure that we really deliver that plan well. As part of that, you will remember we put a dedicated leadership team in place earlier this year, totally focused on the Argos business. That is beginning to drive some of the improvements that we are seeing as the team really gets around the things that we need to do.
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 small team, much smaller team, were working on these conversations whilst they continued. They stopped early September, and now we're completely focused on what we need to do. Bláthnaid.
Great. Sreedhar , it looks 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. We'll update you on that in the prelims at the moment, but something we are looking at.
On the buyback, look, we are really pleased today to be able to announce the additional, the incremental bank proceeds, taking our buyback this year to GBP 250 million. That's core of GBP 250 million of additional coming from the bank proceeds. We've committed an additional GBP 100 million from the bank proceeds next year. 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. I think that's a reasonable working assumption for your model for next year.
Thanks, Bláthnaid. Maybe just one last point to your question just as we wrap all that together. I think the other important point to make is we learned a lot through 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 route through. 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 Sainsbury's EBIT, you show Argos as pre-concessional rent. 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.
Thank you both.
Thank you, Sreedhar .
Thank you. Our next question is from Lizzie Moore from Citi. Please unmute your line and ask your question.
Good morning. Hi, Lizzie.
Morning. Thanks so much for taking my question. Firstly, I was just wondering around Nectar 360 Pollen. Obviously, it's quite early, but really interested to hear any more detail around the early momentum you've seen there. Related to that, you mentioned you're tracking ahead of your target for GBP 100 million of incremental retail media EBIT by March 2027. Just wondering if you could give us a sense of how much we might expect you to be able to exceed that target by. A second question.
Oh, sorry.
No, it's okay.
Next question. Yeah. Yeah.
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 2027. Thank you.
Okay, got it. Thanks, Lizzie. All right. Let's start with Nectar. Nectar and Nectar 360, to your question, we are 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. 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.
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. Nectar 360 Pollen, clearly something we built earlier this year. We are actually going live right now. We had our first series of client conversations this week. The feedback is exceptional because clearly what we are doing here is building a capability that is 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. Over the coming months, that will scale out. It is going to really revolutionize how brands and agencies can work with us.
We think it is 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 Next Look, we are really encouraged with progress here. You heard in the presentation today how both sides of Nectar are really powering the business forward. We will talk some more about this at the year-end. Clearly, we see the launch of Pollen as very important in the progress we are making, and we continue to build momentum on Nectar ahead of what we expected. Really, really good news. I think turning to more nearer-term questions in terms of the budget, as you would 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 costs 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. Clearly, we need to hope and expect our politicians now to make the decisions based on the very strong case we've made. We'll see that at the end of the month. 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 at our most competitive. We clearly don't want to see an impact on business rates adding further costs to the system. Thanks.
Thank you. Our next question is from Rob Joyce from BNP Paribas. If you'd like to unmute your line and ask your question.
Rob, good morning.
Good morning. How are you doing?
Yeah, good.
Thanks for taking the questions. Firstly, just on the Sainsbury's core business. I guess we look at last year's second half, you kind of grew profits there. We doubled the rate you did in the first half. Two questions, I guess.
First one, do we think we can grow profits in the second half of this year to come, which we'll be expecting to be down again? 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 mid-EBIT growth next year? The second one, just on Argos, I think this time last year, you gave us a bit of an update on how you were trading in the first six weeks of the quarter or so. I wonder if you could give us an update on how Argos is trading thus far in the quarter.
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 very much.
Thanks, Rob. Let's talk first to your question on the half and how we think about the second half of the year. Look, I think the 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. As you can see in today's results, we made very focused and effective investments in our value proposition in that first half. You can see how that's played through both in improving our value perceptions year-on-year, the only grocer to have done that.
The fact we have continued to grow our volume is important. I would make the point against some strong comps last year. The strength of the grocery performance in the first half is really underscored by the strength of our competitive position. You have heard me say a number of times, making balanced choices and 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. When we think about the first half, obviously, we invested a bit more in areas like our Aldi Price Match. We invested more in areas like marketing. I talked about that in the presentation this morning.
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. There were a number of tailwinds that came alongside how we thought the first half would go. That is 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. We continue to deliver strong volume share growth against strong comps last year. We're carrying that momentum into the second half. Despite the fact it's the first week in November, there are seven very critical weeks to come.
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. That is what we are doing today. We are going to sustain the strength of our competitive position, as I said at the start of the year, and we will continue to make those balanced choices. I would say just to double underline that, those balanced choices have always served us well and have served the outcome we have been able to achieve well. In terms of how we then think about Argos, probably not a lot to add to what I have said other than obviously to say the customer is going to be more cautious here given all of the uncertainty that is out there. As part of those.
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 clearer the other side of the budgets. Likely to be a very competitive sector, I think, through the last few weeks to Christmas this year for all the obvious reasons. 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. 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. Thanks, Rob.
Thank you. Our next question is from François Digard from Kepler Chevreux. Please unmute your line and ask your question.
François, good morning.
Good morning.
Three questions, if I may. What were your expectations going into H1? Because you mentioned you exceeded your expectations. Could you quantify that excess? 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? On what level of volatility should we expect going forward as a normal? Third, on retail media, I understand you will share more details in final results. Could you help us to see how the market is evolving? You mentioned growth. What is your share of it, or at least what is the food retailers' share vs players like Amazon right now? Thank you.
François, thank you. Why do I not pick up the questions on.
Kind of Argos and where we're getting to there and also retail media? Maybe just to your question on our kind of expectations and how they played through in H1, Bláthnaid, do you want to pick that up?
Yep. Yep. Look, we entered H1 cautiously. If you remember the backdrop as we entered H1, there were a few things that went on there. We exceeded our expectations largely because we had some really good weather. We know in good weather, because we're south based in food, we tend to outperform and take more market share. The same in Argos as well with those seasonal products. If you think about the good weather, we got good sell-through in Argos and we got an uplift in the food as well. That's why we exceeded expectations in H1.
Thanks, Bláthnaid. Just to the question on.
What is more Argos more often all about, François, in terms of us building a really clear plan out in Argos such that we can deliver for customers? A 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. 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's 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.
The reason the sales were softer in Q2 compared to Q1 was we anniversary that very significant clearance activity last year. In the second quarter, actually, sales were a bit up, but less than the first quarter. Actually, profitability improved in the second quarter as we anniversary what was a high level of clearance last year. 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. 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.
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. We're going to need to be at 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. Our team across Nectar 360 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 were going to power both our customer delivery, but also our value creation narrative. We are clearly on track to deliver the GBP 100 million additional that we committed to over the life of this plan. We are also very focused on making sure in retail media as we launch Nectar 360 and the other work that we are 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 is bringing more customers into our N ectar ecosystem. Thanks, François.
Thank you. Our next question is from William Woods from Bernstein. Please unmute your line and ask your question.
William, good morning.
Hi, good morning.
In terms of you've shown some quite good data on your value and quality perception growing or improving ahead of the market. Tesco, which is special, value market share gains have been softer than Tesco, maybe you've kind of plateaued slightly in the last few months. Do you think there's a disconnect there between the value and quality perception improvement vs 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? The final one is just on your gold, silver, bronze store strategy. How are you seeing your gold stores perform, and any learnings or kind of further adaptations to take from that?
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. 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. 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. 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, an Aldi Price Match line and a Taste the Difference line. 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. One in three baskets contain Taste the Difference. 65% of baskets customers are buying the Aldi Price Match line and Taste the Difference line. We set out a very clear plan, did not we, this year to make sure that we sustained our competitive position. We inflated a bit behind the markets, and that's really played through. 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 plates. 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. That is 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. 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. 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. That meant we could get ourselves on a really stable and good footing coming into Q3. Yeah, 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. On your question on our space, two key components of this.
You'll remember we laid out a plan for more, which was bringing more of Sainsbury's range to more customers in more locations. You'll 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. It's 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.
On the other side of our more for more program, this was about taking space from GM into food. In this year, we will land just over 50 schemes. Obviously, we are 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 are investing in these schemes. 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 have really focused on. Food to Go, our central aisles on Nectar, Beers, Wines, and Spirits, Freefrom. These are the areas where we are really making sure that those elements of the store we are getting the best returns. We are rolling them out as fast as we can. Thank you.
Thank you. Our next question is from Benjamin Yokyong- Zoega from Deutsche Bank. Please unmute your line and ask your question.
Yep, morning all. Congratulations on the results and thanks for the questions. 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 impacts, if any, you've seen from recent price cuts from competitors. Is it your intention to broadly maintain your value position over the rest of the year? On Argos, you've outlined the cautious near-term outlook for discretionary. I just wanted to check how inventory levels are compared to last year. If there's any color you could give on the deflationary market backdrop you mentioned and if this is more pronounced in certain categories. Thanks.
Benjamin, thank you.
Why don't I pick up. Kind of at the key grocery themes you've had. I know Bernard will want to comment on where we are on 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 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. 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've indicated, our volume share improved year-on-year despite some strong comps. That's because we invested a bit more, but in a very focused and effective way. We increased the Aldi Price Match on some more everyday essentials. We increased the number of products in the Nectar Prices range. As I said in the update as well, we also did some more marketing this summer and, 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. We invested some more in marketing as well as sustaining the strength of our value position.
NetNet, 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. We've been the only one in the market to do that. We're going to carry that momentum into the second half, right? It's absolutely a core part of our formula. We've shown that by growing our volume, volume over fixed cost is what we've said over the life of our plan. When we look out over the three 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, Bláthnaid.
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'll have seen in the numbers, we did 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.
We'll continue that discipline to make sure we're delivering our cash targets for the business. Pretty pleased with the position, particularly as the availability is improving.
Thanks, Benjamin.
Thank you. Our next question is from Manjari Dhar from RBC Capital . Please unmute your line and ask your question.
Manjari, good morning.
Morning, Simon. Morning, Bláthnaid. Thank you for taking my questions. My first question is just on marketing spend. I know you mentioned that you've done a little bit more over the summer. I was just wondering how you're thinking about your spend running into Christmas. Are you deploying that marketing spend any differently this year? My second question is just on Argos. I wondered if you could give some more color on the economics of the Argos Plus trial. How does this work?
I guess, what do you need to see from this trial to class that as a success? 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 do we expect still to come? Thank you.
Thanks, Manjari. Okay, let's take those in turn, William. If I take the first two and then Bláthnaid can speak to where we are on our cost plans, both this year as we look ahead. 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 played such an important part.
You can see the majority of 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. Yeah, 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. 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. That has given us real confidence in how our marketing is cutting through both digitally.
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. We can see that cut-through with customers. When I talk about retaining the capacity for the second half, you have seen us go live with our Christmas campaign last weekend with the return of BFG. As you would imagine, we are 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 the Argos Plus trial, I would make the point this is a trial. We are 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. 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. Obviously, we're doing lots of things in the more Argos more often plan to make sure we're getting the proposition right. Importantly, we can deliver that proposition at the right cost and the right efficiency. That will work through and we'll update in due course.
Great. Over to me then on comp savings. Look, we're really pleased with the progress we're making against the GBP 1 billion target over the three years. We delivered GBP 349 million last year. We estimated it would be broadly split 1/3 , 1/3 , 1/3 .
If you think about this year, think about the phasing, pretty flat across the two halves is the way to model it. About half of it delivered and about half of it to come in the second half of the year.
Yeah, and just to reiterate, clearly we have a GBP 1 billion cost saving target over the three 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.
Thank you.
Thank you. Our next question is from James Anstead from Barclays. Please unmute your line and ask your question.
Hello, James. Good morning.
Good morning, Simon. Two questions on Argos, if that's okay, please. You mentioned that you learned Argos is separable, which is an interesting lesson.
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's that makes it harder to separate. My question is, when you think about the structure of Argos going forwards and how it fits together with the core Sainsbury's business, will you be deliberately chipping away at some of those relationship complexities, if you understand the question? 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? Thank you.
Thanks, thanks. Okay, why do I not speak to what we learned on your question separability and then Bláthnaid can c ome back on the question of the first half and how the profit shaped up. Yeah, without repeating myself for obvious reasons, we really stared through this process at what it would take to separate Argos out to the fullest extent. I would make the point that back in February 2024, 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 needed to deliver for customers and the operating model of both businesses as being quite separate. We made that statement clearly then. That is one of the reasons why in our strategy we were very clear about first choice of food and more Argos more often as being two distinct elements of our next-level plan.
As you have 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? How similarly do we make sure that the focus in the grocery business and in Sainsbury's is what is needed there? I think what we can see in these results is that approach, continuing to build through and build momentum. 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 our more Argos more often plan. Obviously, there are elements of how we are 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. That's one of the things we've looked at quite closely. We definitely learned what it would take to separate these two businesses. We've made progress in organizing ourselves to make sure that Argos has what it needs and Sainsbury's has what it needs. Clearly, that's one of the things that we continue to drive through as we execute the strategy that we laid out. Bláthnaid .
Very short answer, James. Yes, it would have been break even if we hadn't had the charge.
Thank you. Thanks, James.
Thank you. Our next question is from Clive Black from Shore Capital. Please unmute your line and ask your question.
Morning, Clive.
Good morning, Simon and Bláthnaid . Thanks for your time and questions. 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 2026, given you achieved flat profits in the first half?
Sure. Thanks, Clive. Let me just recap on the key parts of this. Clearly, on NIC, that was GBP 140 million of cost for us. 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 leading 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. I wouldn't classify our pay award for colleagues as something that we didn't plan for. We had that planned. On EPR, it's GBP 53 million to your question. GBP 140 million on National Insurance and GBP 53 million on extended producer responsibility.
Thank you. I just then 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 food inflation will probably ease, although remain in the system. First, would you expect volumes to positively respond to that inflationary easing?
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.
Yeah, thanks, Clive. Look, I think as you say, look, clearly, we will talk into next year at the end of this year. I think, look, I mean, most importantly, in the latest read, good to see inflation stop going up. I think there is clearly going to be ongoing cost pressure in the system. I think the fact that the industry has largely either solved or continues to solve for the inflation there, I would make the point there is 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 capacity position and pass through inflation. I expect that to continue. We know, to your question on the link to volume, we know, do not we, where the kind of trigger point is for an impact in volume to start to become more pronounced. You have seen in our own performance the fact we have been able to grow volume on volume on volume share. I think we have got that balance exactly right for us and for Sainsbury's customers, actually. It is something we pay a lot of attention to because our plan is based on winning and growing volume market share.
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. 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. We knew back then that our reputation for quality was indisputable, but customers were not really seeing it all because we were too expensive. Five years later, we are now seeing value perceptions improve year-on-year, again, at Sainsbury's, a combination of all the things that we've done.
That means 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. That's what we're seeing with these big trolley shops. They continue to grow with a million more customers shopping with us. 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. 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 did not see before. Linking the two questions together, we are confident we will continue to grow volume market share as we continue to strengthen and improve the combination of value, quality, service, and that availability too, which has also really stepped up.
Thank you. Just a quick last question from me. You have 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, your own buyback, you are 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?
Great question, Clive. Thank you.
Look, if you look at the capital allocation policy, we like to operate within 2.4x-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. Thank you.
Very clear. Very well done.
Thanks, Clive.
Thank you. Our final question is from Sreedhar Mahamkali from UBS. Please unmute your line and ask your question.
Sreedhar, round two.
Hi. I'm so sorry. I almost never do this, but I thought somebody would pick this up. I think it's helpful to understand. This is really about the VI.
I think slide. The slide now. 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 vs Asda in the first half. Please explain how you actually measure this, how narrow or broad-based this is. 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 four or five years of investing, or do you proactively need to improve it further steadily each period?
Thank you. Look, I mean, first of all, this is value reality. This is actual value measured at the beginning of the financial year in March vs where we are at the end of the half. 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. 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. 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.
That's before your Nectar Prices, which is additive to that. You're on mute, Sreedhar.
You're still on mute.
Thank you. Thank you. You can hear me now?
Yeah. Yeah.
Sorry. Just wanted to understand how many SKUs, like how much of the basket is covered in this index, or is it a bit narrow? Kind of.
No, I understand. It's a very wide SKU count included in this. I mean, this is the broadest context of the shop.
Okay. Super. Thank you.
Thanks. Okay. Just to check that. Final questions?
That was our final question.
There is one final question, yeah?
No, that was our final question.
Okay. All right. Sreedhar, round two was our last question. Thanks everyone for joining us this morning. I know it's a busy week. As you can see, look, we're really encouraged and pleased with our H1 performance.
Importantly, the momentum in the business into this is really important. Second half of the year. Plenty to navigate over the second half. As you can see, we continue to make the right balance choices. We do that as we go into this Christmas with really strong plans, both in Argos and in Sainsbury's. Plenty for us now as a team to get on and deliver for customers and deliver more broadly. We look forward to talking with you again in early January. Thanks very much.