On behalf of OTC Markets, we are pleased you have joined us today. Today's presenters represent some of the top-performing companies on the OTCQX Best Market in 2025 based on share performance and volume. Our next presentation is from J Sainsbury. If you wish to ask a question, please submit it via the Q&A box on your screen. Today, I'm excited to welcome Amy Morgan and James Collins of the Investor Relations team at J Sainsbury, which trades on the LSE under the symbol SBRY and on the OTCQX under the symbols JSAIY and JSNSF. Welcome, Amy and James.
Great. Thank you, Michael, and thank you everyone for joining us today. I'm going to start with a brief introduction to Sainsbury's, and then I'll hand over to James, who will share an update on our investment case, strategy, and key commitments. Sainsbury's is the second largest grocer in the U.K. and is one of two listed food retailers, ourselves and Tesco. When we look across the depth and breadth of our assets and the combination of our brands across our physical store estate, product assortment, supplier and customer relationships, winning culture, and robust financial position, what really distinguishes this business above all else is our brand and our heritage in food.
For over 150 years, we've been at the heart of Britain's relationship with food, and we have built a strong reputation for providing great value, outstanding quality and range, and leading customer service. We have around 600 supermarkets, generally in edge of town locations and more than 850 convenience stores across the country. Although we have a particularly strong London and South East presence. Over the last year, more than 70% of the U.K. population have shopped with us, with more and more customers choosing us as the place they come to for their big trolley weekly shop. We are growing volumes faster than the market and are consistently taking share.
Alongside our food business, we are setting the standard in retail media through our Nectar360 business, which is powered by our Nectar loyalty program platform and coalition of partner brands. We are one of the largest general merchandise and clothing retailers in the U.K., particularly through Argos, which is one of the U.K.'s leading digital retailers with a strong presence in electronics and household goods. Just briefly here, you can see a breakdown of our sales with around 20% of our group revenue coming from non-food and 13% coming from the sale of fuel. Clearly, the vast majority of our income is from our grocery business.
We'll be reporting our 2025, 2026 results at the end of April, but in the previous financial year, 2024, 2025, we delivered just over GBP 1 billion of operating profit, which represented more than 7% growth year-on-year. This was driven by double-digit growth in Sainsbury's operating profit, which reflected strong grocery volumes, the delivery of operating leverage, continued growth in Nectar360 profit contribution, and good progress in our cost savings plan. For your reference, the Sainsbury's business makes around a 3% operating margin on average. Operating profits in Argos were lower year-on-year in 2024, 2025, and we are underway with a transformation plan to support Argos' performance in a general merchandise market, which has been subdued and highly competitive. I wanted to give you a little more detail now on each of our brands.
Our Sainsbury's business is all about good food, and we're there for customers wherever and whenever they want to shop with us. We have a strong groceries online business, with around 14% of our food sales coming from online shopping, which is increasingly supported by on-demand immediacy shopping. We fulfill our online business entirely from our own stores, and we use third-party partners to support with fulfillment of our growing on-demand business. Alongside our food offer in Sainsbury's, we also have our Sainsbury's General Merchandise business, our Tu clothing range, and Smart Charge, our ultra-rapid electric vehicle charging network. Our Nectar loyalty scheme is well-loved by customers with more than 85% sales participation. Customers can earn and redeem points in our stores and with our coalition partners.
Since 2023, being a Nectar user gives customers access to lower prices on around 10,000 products through our Nectar Prices offer. We were also the first to market with personalized prices in 2021, and this year we've rolled out our personalized Your Nectar Prices across all our stores and online so customers can access up to 10 personalized offers each week, comprising their favorite products and new recommendations based on their shopping habits. We're confident there's further we can go in this space and are continuously advancing our offer and driving digital engagement through our Nectar app. Nectar360 is our loyalty, insights and retail media business, with more than 900 clients and media agencies now partnering with us to run retail media campaigns.
This year, we launched the Nectar360 Pollen, the most advanced retail media platform of its kind in the U.K., which will enable clients to book, plan, and activate their retail media investments and utilize our market-leading measurement capabilities for their campaigns. Argos, as I said previously, is one of the U.K.'s leading general merchandise retailers. What really sets Argos apart is its convenience. Customers can shop with us through our website, our Argos app, standalone Argos stores, and conveniently located Argos stores inside Sainsbury's supermarkets, and can collect their order from one of more than 1,100 collection points in as little as four hours post ordering. Now you can see here that over the past five years, we've really been on a journey to rebuild our share of the grocery market.
James will cover our strategy on that in just a moment. If we look back to 2014, we had a share of almost 14% of the market by volume. However, from 2014, we really started to be impacted by the rise of the limited choice supermarkets, Aldi and Lidl, and you can see the growth in their share more than doubling over the last 10 years. Their growth has had a significant impact on the industry, with market share pressure for the full choice supermarkets, whose economics were impacted as they tried to compete on price. However, over the last few years, the rate of growth of the discounters has slowed as they've struggled to find new locations and increasingly cannibalized themselves.
At the same time, we have fundamentally reset our strategy, investing to bring our prices to a more competitive level and refocusing our business on food. Now we are back in a position of growing our market share and are consistently outperforming the market on volumes. In Argos, we are best known for our range of consumer electronics, household electricals, and gaming. Across our offer, we are focused on extending our ranges to offer customers more inspiring choices. Over recent years, we have been focused on relocating the Argos estate from standalone stores to stores and collection points inside Sainsbury's, ensuring greater ease of collection for customers while at the same time reducing our cost to serve.
Almost 80% of Argos sales are now through digital channels, and we are increasingly focused on improving the digital journey, and we're encouraging more customers to shop with us through the Argos app, which is delivering greater shopping frequency. I hope this has been a helpful introduction to our business model and our brands. I will now hand over to James to cover our investment case, strategy, and key commitments. Thank you.
Great. Thanks very much, Amy, and good afternoon or good morning, depending on where you are. I'm just gonna briefly cover first our investment case, so effectively why you should invest in Sainsbury's, you know, the proposition that we promise and that we aim to deliver as a business. We established our Next Level Sainsbury's in February 2024. We're around two years through a three-year strategy. At the heart of the proposition that we're talking about is delivering profit leverage from sales growth. I.e., fundamentally delivering a level of profit growth that is higher than sales growth. Why do we think we can achieve that?
Because we expect to grow our food volumes ahead of the rest of the market, we expect to deliver a level of cost reduction ahead of the rest of the market, and ultimately that gives us more capacity to reinvest the benefits of leverage and of cost savings back in the customer proposition. That ensures we remain competitive, and we should also be able to drop that through at a good level of profit growth. Linked to that, and kind of controlled and disciplined capital investment, that should deliver good sustained cash flows, and higher return on capital.
This is a real focus for our business in an industry which historically has not generated great returns, and where, in the, particularly in the time of the U.K. space race, where there was a lot of new space being put down in the U.K., you know, returns were diluted. We're now really focused on making very good returns, on the capital that we spend, particularly on real estate, where historically that's been an area of weakness across the whole of the industry. Really strong, reliable cash generation, really key. That should in turn deliver enhanced returns to shareholders. Good, strong, sustained cash flows as a business. We, for the last five years, have, promised to deliver at least GBP 500 million of cash flow per year.
Broadly, we've been returning that to shareholders, number one, in the form of a dividend where we have a progressive commitment. That is returning at least GBP 300 million a year to shareholders. In the last two years, we've also been buying back shares. Broadly, that sort of GBP 500 million plus we've been returning to shareholders. We've also done a divestment of our financial services business in the last couple of years, and we've returned that to shareholders, firstly through a special dividend, and through enhanced buyback last year, and actually we promised also in the year ahead of us.
That's the key investment case, is really about those good, dependable cash generation feeding to kind of good, consistent cash returns to shareholders. Moving on to the kind of recent history of the business, this is really important. We had a management change and a strategy change back in 2020. Actually just as we went into the pandemic in the U.K. We had a very tight focus on really focusing the business back on the core food business. You can see these are some of the summaries of what the first three years of that delivery. 2020 - 2024 is basically describing the first three financial years of that strategy.
We went from a position where we were a growing volume or basically our volume growth was below the market to growing ahead of the market. We did that in part through investing very, very heavily in our price position. We basically acknowledged that we were not as sharp as we needed to be on pricing and closing a lot of the pricing gap versus our key competitors. Particularly versus the discounters, we reduced our price versus Aldi by about 16%, versus Lidl by about 12%, and by the other big box retailers by between 2% and 5%. Basically taking away a price position which was uncompetitive and making us competitive. At the same time, it wasn't just about price. We recognized that as a brand, people expect great quality from us.
They expect innovation. They expect interesting products. Again, we more than doubled the rate of innovation, so new products we're bringing to customers all the time. At the same time, we've invested in our proposition, in terms of customer service, i.e. availability, customer service, and the quality of the experience that customers expect in stores. Now I guess it's a fair question, how do we do that? We accelerated our rate of cost saving very considerably. We generated more than GBP 1.3 billion of cost savings over those first three years. That more than doubled the rate of cost savings that we had delivered in the prior three years as a business.
Really those first three years were about, you know, becoming competitive again, getting ourselves to a price position, where the rest of our proposition, where we have a great reputation and delivery on quality, range, availability, et cetera, really starts to sing through without customers feeling they're spending too much, or we're charging too much for that. If we then move forward to the strategy cycle that we're now in, so we laid out the next level of Sainsbury's strategy in February 2024, so a little bit more than two years ago. What was kind of key focus here? Well, our purpose is written there, so we make good food joyful, accessible, and affordable for everyone every day. That's ultimately the purpose that sits behind us as an organization.
Again, no surprise that the first priority is about food. What we're talking about here is basically aiming to be the first choice for more customers. Effectively, delivering more range to more customers in more locations in the U.K. Really importantly behind that is our commitment to creating a sustainable food system in the UK. Like a lot of the globe and particularly across Europe, we are seeing challenges in terms of the resilience of food supply. We are seeing challenges in terms of food supply being delivered in an ethical way, in a sustainable way.
As a business, we've had a long history as a kind of 150-year-old family business of delivering on standards better than people typically expect in terms of provenance sourcing. We've really leaned into that. We're putting in more and more long-term supply relationships that we think will stand us in really good stead in an environment where the resilience of food supply is becoming more and more challenged. The rest of the priorities here, loyalty, Amy talked about earlier, we do think that we're world leading in terms of loyalty. That's important in terms of the customer proposition, but also generating revenues through retail media. More Argos, More Often is about improving the customer proposition.
Argos has a great range for being super convenient, and really fantastic in terms of the speed and convenience of delivery. What we need is people to arrive at Argos more often and choose it more often. We've been working a lot on range and the digital proposition. Then again, can't ignore savings. We're targeting another GBP 1 billion of savings over the three years, again, ahead of our competitors, in terms of being able to reinvest that back in becoming a more efficient business. Those are the kind of four priorities that we laid out. What does that mean in terms of the commitments we gave?
All through actually the last few years, we've been very clear about a consistent set of commitments that we judge ourselves by as a business and that we report on every time that we stand up and talk about ourselves as a business. We aim to deliver food volume growth ahead of the market, and we've done that consistently. Customer satisfaction, higher at the end of the strategy than it was at the start. Likewise with colleague engagement. Those are some of the inputs, if you like. Then on the outputs, we talked earlier about delivering profit leverage from sales growth. Cost savings, a key part of being able to fund that and remain efficient.
More than GBP 1.6 billion of retail free cash flow over three years, over the strategy. I mean, at our current level, our market cap is around about GBP 8.5 billion. That's pretty significant as a proportion of market cap. Again, I talked about returns earlier on, so high return on capital employed and all of those feeding through to good, consistent cash returns to shareholders. Kind of then winding forward, you know, where are we two years into that kind of next three years of the cycle? You can see where we are on value perception. You'll see the dip down from 2021. This was across the whole industry. Actually, relative to industry, we were performing well over here as we improved our price position.
At that point, there was very significant inflation in the U.K., as there was in plenty of other countries. Where you can see really is the huge progress that we've made. We're now in a much, much stronger position than when we started the strategy. Quality perception has been pretty much on the up over the whole of that period. Availability, sort of super important with customers, is that they find what they need when they come into store. Again, from an operational point of view, particularly in terms of the AI that we're putting behind our food supply chain systems, we're really delivering great availability while also controlling stock holding. Kind of really important proof points of how we're delivering as a business.
Ultimately, this is the real test is that we're growing what we call primary customers. These are really, really important to us because these primary customers are defined as customers who do the vast majority of their grocery shopping with us. You know, we've never had a problem in terms of our sheer number of customers. We are blessed from a kind of historical point of view. We have a very, very good store network, biased towards London, the south and southeast of the U.K. We have plenty of people passing through our stores, but not enough customers were choosing to do their big weekly shop with us, primarily because of the issue that there was on pricing.
As we've addressed that and people are more comfortable that we're in the right place on value, more customers are choosing to do their full shop with us, and particularly we're taking more customers, those full shop customers back from the discounters. This is a really important aspect of our economics because the more big basket customers you get coming through your store and shopping with you online, that's a real driver of profitability on a business with ultimately a high cost base. You can see what that's done on the right-hand side in terms of market share gains. Importantly, this is volume market share. You can see that in the first couple of years, that flatlined.
You know, when we're investing first, it takes a long time for people to realize and recognize that you're improving your value. You can see over the subsequent two years, the very significant gains that we made in volume market share. Again, delivering on that commitment to grow volume ahead of the rest of the market. Quickly, just moving on to the final slide and the conclusion, and then obviously happy to take what questions you have. You know, where do we stand now as a business?
If we, you know, in the kind of space available, we've not really been able to describe the industry that much, but really importantly, I think on the left-hand side of the business is where we are really comfortable that we've got to a very, very strong business that's really consistently delivering. Delivering on value, delivering on quality, and delivering stores which are, you know, being upgraded, and ultimately matching customers' expectations to get a better range, better fresh food, better service in our stores. That, if you like, is the left-hand side of this chart, those three on kind of the competitive position, putting more space down and the right space in the right locations, and delivering on quality.
On the right-hand side are the things where these are things that we're investing in that we think build a competitive moat for us as a business. We've been outperforming the rest of the industry now for three, four, five years. What's the thing that provides us with confidence that we think we'll be able to continue to do that? It's the fact that we are not just banking all of that and under investing and you know, taking all the cash in as a business, but we're reinvesting back into the business. We're investing, as Amy said earlier, in personalization through our loyalty scheme, investing in the digitization of our stores, making them more efficient, more attractive to customers.
We're investing in efficiency through you know, significant investments in technology, in automation, in AI, in an industry that moves very large numbers of quite low value items, you know, huge millions of items per day, you know, automation, technology, AI can make a real difference in terms of making us more efficient. Again, likewise, those can deliver structural cost reduction. Big challenge for us, as would be the case across many industries, is the cost of labor, and is far and away our biggest operating cost. Through investment in technology, through investment in infrastructure and automation, we're taking manual task out of our stores, out of our delivery depots, and that's making us a much more efficient business as we go.
Importantly, these aspects on the right-hand side, which require capital investment, this is where, you know, we are reinvesting. There's probably only one or two other people in the industry who are investing at this rate. We're building this competitive moat versus competitors, particularly so kind of significant number of highly leveraged competitors in the industry who are not doing this. That means that we can deliver more efficiently, over time. That is the presentation concluded. I'm happy now to pick up a few questions.
Great. Thank you to everyone who has submitted some questions to us so far. I'm gonna start, James, with a question about cost savings. Within our cost savings plan, how much are the cost savings coming from structural changes, so for example, automation, versus taking out discretionary costs like marketing?
Yeah, it's a good question. We often talk about our cost savings being structural cost reduction because frankly, particularly in this industry and I've been around in this industry for, you know, pushing more than 30 years now, anyone can cut costs. Actually anyone can cut costs in the short term with relatively few consequences, again, in the short term. Ultimately, over time, customers will notice, you know, you will become less efficient if you don't invest in your technology, you'll start to have challenges in your systems. Our programs, you know, where we are now very, very well developed in terms of the way that we identify and deliver costs are very much aimed at structural permanent cost reduction.
Again, we've had to be a lot more honest with ourselves as an organization. Historically, we claimed lots of cost savings, but also added a lot of cost into the business. We're really focused now on reducing our SG&A to sales. At a time when, you know, labor costs are rising way ahead of food inflation all the time, that is quite a challenge, but that's the objective that we set ourselves as a business.
Thank you, James. Next is a question about Nectar. What is the contribution of Nectar to group income, and how does Nectar support the Sainsbury's and Argos businesses?
Yeah. Number one, in terms of contribution, we don't specify an actual operating profit contribution at a business. It is pretty substantial. The reason that we don't specify it separately is that we think it's not the right way of thinking about it as a business because frankly, that income stream is interdependent with the core grocery business. We don't think that people should value it separately as something that's growing faster. Yes, it is growing faster, but ultimately, you know, it feeds off and is also contributing to the core grocery business. What we have said is that over the three years of this strategy cycle, that we expect Nectar and primarily retail media to deliver at least an incremental GBP 100 million of operating profit.
On a base of a bit more than GBP 1 billion, that's a 10% increment, incremental operating profit over those three years. In terms of, you know, what it contributes for customers, also what we're really delivering is very meaningful value for customers. I think a lot of the time loyalty schemes deliver points, and, you know, we deliver points to customers, and over time, they're rewarded with loyalty, with points which ultimately they can cash in against the future value of their shopping or against other options in terms of, you know, spending in hotels, holidays, airlines, et cetera. There's real delivery there. However, you know, where we are really building loyalty is in the area of personalized value.
Ultimately, customers can be confident when they go into store that they will get access to a range of offers which are only available to loyalty scheme holders. More than that, you know, every week we're delivering a unique, personalized range of offers through the digital app to our customers, which are typically on items that customers buy most frequently. It's delivered in a way that you know, we know through the algorithms we've been running this for three and a half years that customers respond really well. Again, thinking about how you deliver value to customers most meaningfully and effectively, it's a very good way of getting a really good return on investment through your marketing spend.
Great. Thanks, James. A couple of questions on Argos. Firstly, what are the operating margins for Argos, and how do they compare with industry averages? Also, how can we distinguish Argos and grow market share versus Amazon and eBay in the U.K.?
Yeah. In the first answer, we don't actually disclose Argos' operating profits separately. However, we've given some pretty clear indications in the last couple of years. Argos' profitability is very low at the moment. Versus an average retail operating profit of 3%, the Argos operating profit margin would be, you know, below 1% at the moment. It's very low indeed. I think the question was how that compares to industry averages. Really difficult to identify an industry average across, you know, ultimately online general merchandise retail. It is a low margin and, you know, we ultimately have the objective of increasing that margin back towards the retail average of a bit more than 3%.
Sorry, and the second part of your question?
Just asking around how we distinguish Argos and grow market share versus Amazon and eBay in the U.K.?
Yeah. Number one, you know, we don't have the same range as Amazon. Amazon literally stocks millions of items, particularly through Marketplace. We have a much more curated range. But what we deliver, A, is convenience through that curated range. It's significantly easier and faster to shop Argos than it is to shop Amazon. You know, that's the feedback. We know that from customer responses. The convenience and speed of Argos is something that's unmatched in the U.K. Customers can typically expect to order an item and pick it up within four hours at more than 1,100 collection points in the U.K. Those collection points are often in Sainsbury's supermarkets or in Sainsbury's convenience stores.
They are in a very convenient locations with long trading hours or very close to where people live and work. So there's a huge convenience in that click and collect network, which obviously is for free, and then for a very competitive delivery charge as well. Quite often we're able to deliver within four hours as well. Ultimately, Argos is a real go-to for customers who want the ease, speed and convenience and reliability of being able to choose between rapid delivery and rapid click and collect.
Brilliant. Thank you, James. Just very quickly as our final question, in terms of shareholder expectations for dividends in 2026, can you just set out what our payout ratio is, please?
Number one, we have back in February 2024, where we laid out our strategy and our kind of commitments and our investment case. We made a commitment to a progressive dividend. Last year, we haven't announced the dividend for March 2026 full year yet, but in the year to March 2025, our payout ratio was a little under 60%. In the year ahead, obviously, if we deliver on our commitment to a progressive dividend, then you would expect, you know, a relatively similar level of payout and, you know, a higher dividend. I think that's a core part of the proposition.
Also, you know, within our capital allocation commitment, we've made it super clear that, you know, we expect to be able to finance the business and still deliver more than GBP 500 million of free cash flow. On top of that, you know, if we continue to generate that kind of cash flow, you should expect a share buyback of more than GBP 200 million. Additionally, we have said that in the year ahead, we'll return an extra hundred million pounds of buyback, which is part of the proceeds from the bank disposal process last year. Last year, we delivered more than GBP 800 million of cash to shareholders, on a market cap of just over GBP 8 billion, in the year ahead.
Assuming that we deliver a similar level of buyback as last year and deliver on the progressive dividend, then you would expect more than GBP 600 million of cash returned to shareholders in the year ahead.
Brilliant. Thank you, James. Thank you everyone for joining and for your questions. If you would like to arrange to meet with us or if you have any further questions, our contact details are on the slide that you can see currently. Thank you.
Thank you very much for your time. Thanks.