Associated British Foods plc

Thank you all very much for joining us in person today and thank you for those of you who are online. Before I get into the results presentations, I have a few comments to make about my learned friends on the right. I think all of you know that today is John's last time presenting ABF results. He was appointed our finance director on the 4th of May 1999. Just a week short of 24 years ago, when my daughter, who's just graduated from university last summer, was six months away from being born. We've established that he's been around for a long time. The big question is, has he been any good? And we've been doing a bit of internal research. This isn't audited, I warn you. We've had a look at the 35 survivors in the FTSE, of the companies in the FTSE 100 who existed when John, who were in the FTSE 100 when John started up as finance director. the first point to make, and it's kind of important in a family company, especially when I'm family, is that we're still alive. Two-thirds of the constituents aren't there anymore. We had a bit of a fright during COVID, perhaps, but other than that, and probably especially during that, John, thank you very much. Here are the total shareholder returns for the best of those 35 survivors. And here are the companies. Here are the number of finance directors that each of them has had during the period. So if we divide total returns by total finance directors to get total shareholder return per finance director over the period, And I think we've established that John has not only been good, he's been the best. I've spoken several times over the last, since John announced that he wanted to step back, about John's fine judgment around capital allocation and the capital disciplines he's embedded in our processes and in our culture. They're worth saluting again. They're a big reason why we have a good track record. I've also spoken about how John has embedded high standards in our accounting and in our controls. Accuracy around numbers is part of our DNA, not least thanks to John. The basics are done really well in ABF, at least most of the time. And we all understand that in a diversified company with loads of devolved authority, reliable numbers are absolutely vital. you must always know where you are. I've also spoken about another one of his superpowers, which is his sometimes exhausting energy, most remarkably after nights involving red wine. It is no coincidence that we're replacing John with an ex-rugby-playing Irishman. I haven't spent much time paying tribute to John's qualities as a communicator. And so now I will. And I think this is the right time and the place to do it. In a company like this with a majority shareholder, it is so important that other shareholders feel that relevant information is available to them, that their views are listened to, even if we don't have to do what you tell us to, and respected, and that they believe what they're being told. It might sometimes have been hard to get hold of John before 7 a.m. and after 7 p.m. has worked for many. But I hope you agree that he's always possessed an extraordinary knowledge of this company, a fantastic insight into what all the different parts are trying to achieve. And for someone trained as a scientist, this is unusual and quite annoying. A first class ability to bring clarity to his spoken and to his written work. communications. I've shared so many meetings with John where I've marvelled at how articulate he is, especially when he's needing to bring some sense to statements of mine, which where I thought I was being totally clear, but sadly no one else did. But for all his ability to retain information, for all his ability to speak in sentences, John's brilliance, I think, as a communicator rests most of all on something that he's never set out to achieve, which is that he gets people to like him. He is a really good bloke who in turn just likes other people. John, I hope you won't mind me saying this, and it's a bit personal, but I think some of your ability as a communicator and as a people person is founded on your deep Christian faith, that leads you to respect, value, and sometimes, yes, love your fellow man. I don't think he's ever really thought of himself as superior to anyone, and this is a rare and very special quality. Let me very briefly then introduce Owen, although I suspect many of you know him well already. For a pronunciation lesson, his surname is pronounced Tonj.

Yes?

Yeah, absolutely. He says by the time he started to correct people at Marks and Spencer's who had chosen other versions, it was too late to do so politely. And we don't want to repeat that mistake here at ABF. Owen's job in the next little while is to persuade you all that the wheels won't fall off when John isn't here. Today, he's sitting next to us largely quietly, I think. And but will participate in the Q&A, particularly on anything around the outlook statement. The numbers in this presentation of the first half aren't his. Let me then turn on to the first half business highlights. This is a much better performance than we'd anticipated last summer. We really are delighted with them. We've seen extreme volatile cost movements in all our markets and we've had to take considerable cost mitigation and pricing actions. The food business in particular has been very resilient through all this and we've seen an exceptional performance in ingredients that we'll come back to. Primark sales are up 19% driven by footfall pricing and new stores. We've seen volume growth in all our markets despite difficult consumer conditions. The decision not to fully recover cost inflation, I think, has been a good one. I think we've judged that balance between the need to recover costs and the need to protect our consumers. I think we've judged that well. And then, and I'll come back to it, the new store opening program has been very successful. We've seen increased investment across both Primark and the food businesses and some important innovation, particularly the Primark website, which is a ever more evidently valuable part of Primark's capabilities. First, our financial highlights. These then, group revenues are up 17%, adjusted operating profit down seven, adjusted operating profit before tax in line, with financing costs moving in our favor. Adjusted earnings per share are down three. Interim dividends that the board has decided upon are up three, reflecting confidence in the business. Gross investment up 17% to £527 million. And with that, John, over to you.

So thanks, George. These results should be seen in the context of significant inflationary pressures really over the last year or so. So group revenue was £9.6 billion, an increase of 21% at actual currency and an increase of 17% at constant currency over the last year. The scale of this increase demonstrates the work done by all our businesses to recover input cost inflation. that we weren't able to mitigate through operational efficiencies. Importantly, there were also volume increases, and that was notably in Primark and in ingredients. You'll remember that last autumn we chose not to recover all the input cost inflation in Primark with pricing, and the execution of pricing in our food businesses, particularly grocery, have lagged input cost inflation. So the group adjusted operating profit margin in the first half declined as a result. As a consequence, adjusted operating profit declined 3% to 684 million at actual exchange rates and declined 7% of constant currency. You'll note that there were no exceptional items in either half year in arriving at the adjusted operating profit. Exchange rate movements were certainly a feature of this half. So, sterling was particularly weak at the beginning of the period and the weighted average exchange rate was sterling against the US dollar. was 118 in this first half, and that compared to 135 in the same period a year ago. These results include a £29 million benefit on the translation of our non-Sterling earnings. This period's unadjusted or statutory operating profit of £663 million decreased by 3%. The improvement in net interest expense was driven mainly by the benefit of the increase in interest rates and what was earned on our cash balances. The improvements in other financial income reflected a further substantial increase in the surplus in the group's defined benefit pension schemes. As a result of the improvements in our financial income, statutory operating profit was ahead at £644 million, and then with adjusted profit before tax broadly in line with last year. Let's come on to tax. So the effective tax rate increased to 24.7% from 23.2% the last half year. This rate is in line, I think, with the guidance previously given and, of course, includes the impact on the blended tax rate for the full year of the increase in UK corporation tax, which went from 19% to 25% in April. A deferred tax asset arose in relation to the charge taken in last year's accounts for the impairment of property plant and equipment and store leases in primark germany a significant proportion of that asset was deemed to be irrecoverable and was written off as an exceptional tax charge last year as a result of further work undertaken this year it's been determined that more of this deferred tax asset is recoverable and so which you can see here that an exceptional non-cash tax credit of 58 million has been recognised in this half year. We anticipate the effective tax rate for the full year to be close to that reported here for the half year. So coming on to earnings and dividends per share. Let me just talk first of all about the shared buyback programme. So we announced that 500 million in November 2022. So actually in the half year itself, we purchased 8.1 million shares for £140 million. And the shares bought back were cancelled. And at the end of the half year, we had 784 million ordinary shares in issue. And the weighted average, which is the number that you see on this page, was 786 million, which compared to 789 million in the last financial year. As of close to play on Friday, we'd actually repurchased 12.2 million shares for a total consideration of 219 million. So you can see that we're getting really very close to the halfway stage in terms of the shared buybacks. Adjusted earnings per share declined 3% to 62.0 pence. On an unadjusted basis, earnings per share increased to 67 pence. And that obviously was driven by the difference from the unadjusted by that exceptional deferred tax credit that I've just mentioned. board has declared an interim dividend of 14.2 pence per share and that's an increase of three percent on last year which reflects our confidence in our forecast for the outturn for the full financial year now let's move on to the balance sheet so net assets for the group at the half year increased by some 0.9 billion to 11.4 billion pounds the increase was driven by as first of all a translation benefit arising from the weakness of sterling between the two half years of some 0.3 billion. Then you've got a net investment in tangible fixed assets. And I'll talk to you about the level of capital expenditure in a moment, a significant improvement in the net pension asset, and that increase in working capital. And that's obviously partially offset by a reduction in the net cash. And I think the net cash figure is in line with your expectations. Working capital increased by a billion. That's from the half year to half year. So that's over the year. Translation was responsible for 100 million of this increase. And then the other major factors were the impact of inflation. So don't forget that, which we've estimated to be some probably 450 million in terms of adding to the working capital. And then there's a larger than usual increase in seasonal infantry in our sugar businesses. And that's driven and it's about 100 million. And that's certainly driven by which is a welcome increase the increased sugar production in ILOVO. I think the balance then are higher inventories across all of our businesses. I want to remind you that Primark a year ago, the inventories actually were too low. If you remember, that reflected the logistics and supply chain difficulties that were experienced in the first half of last year. These inventories have increased somewhat as a result, probably a little higher than you'd have expected, but I expect a reduction from this level at the half year to probably the consensus that you've got by the financial year end. Other net financial assets comprise derivative positions arising from our usual hedging activities, which are effective and are mainly currency and energy, and the change year on year reflects the volatility in these markets. And the deferred tax liability increase of 124 million really is a consequence of the increase in the UK net pension assets. So now let's move on to cash flow. We normally see, as you know, a free cash outflow in the first half of the group. And that really is, and normally is, driven by a build of sugar inventories in the Northern hemisphere. What we've got here is last year being lower and this year being higher than that normal. So last year, the outflow was unusually low as a result of the much lower inventory at Primark that I've just referred to. This half year, I would say the free cash outflow is higher than a typical year. Of course, the cash outflow this year includes £140 million relating to the shared buyback programme. And the remaining increase is mainly driven by higher capital expenditure and then higher working capital outflow. So let me turn to capital expenditure, first of all. The increase here was driven by we've got a large number of capital projects which are underway. And then there's also, I think, a recovery from pandemic-affected low levels of the last few years. So the increase of the investment in our food businesses primarily relates to projects which are building capacity and looking forward. In Primark, the increase reflects, I think, the welcome acceleration of our new store program and expenditure to expand our capabilities in automation and technology. We expect this higher level of investment to continue over the medium term. So factor that into your cash flows as you look at it. The increase in working capital in this first half was driven by the factors that I've just referred to when talking about the balance sheet. We paid 235 million for the final dividend of the 2022 financial year in this half year. That's lower than the prior cash outflow. And you'll note, you'll remember that that included a special dividend that was declared in the 2021 financial year. The cash outflow in the first half resulted in net cash before lease liabilities of 586 million at the half year. Net debt, including these liabilities, are 2.2 billion, always 2.6 billion. And that gives us a financial leverage ratio of 1.2 times. We expect a positive free cash flow in the second half of this year. So that certainly includes the continuation of the share buyback program, as originally intended. But then, of course, you have the seasonal unwind of Northern Hemisphere sugar inventories. And I suspect there will be a reduction there. in primark inventories i would expect financial leverage to reduce as a result by the financial year end so coming then on to the last slide from me um this is the uh performance analysis by by business segment so revenue was ahead in in each of our food businesses and combined uh grocery sugar agricultural ingredients there were 17 ahead of last year Grocery revenue, as you can see, the increase has moved up there. So we achieved 10% ahead of last year, benefiting from the build of price increases taken. But I think as expected, margin declined and it moved from 9.6% last year to 8.2% as a result of that lag of implementation of price increases. I've got to say that given scale of the inflation seen by these businesses. I believe an adjusted operating profit broadly in line in grocery, I think, is a very creditable result. Average sugar revenues were 27% ahead of last year, and that's driven by higher sugar and co-product prices. The strong performance by Alovo, which is very, very strong, I think, in the first half, more than offset the crop and inflationary challenges of this business. but we now expect full year profit to be below that of last year for the full year. I suspect that the strength of the adjusted operating profit in ingredients will be ahead of your expectations. AB Maori delivered a really strong performance in this first half, and ABF Ingredients also performed well, and they're both delivering volume growth as well as strong price execution. A Primark total sales for the first half was 17% ahead of last year of constant currency, with increases in all our geographic markets. Trading was significantly better, and that was really driven by the good footfall. And that really was the demonstration of the appeal, I think, of our proposition to new and existing customers. I think very importantly, this represented a really material improvement in both the UK and in Europe, on the second half of the last financial year. The benefit of stronger sales than expected drove adjusted operating profit margin up to 8.3%, and that's certainly higher than we expected last September. So it really is about that volume outperformance, which I think is the driver of that. Of course, it was the strength of the US dollar against both sterling and euro and the inflation in fabrics that resulted in that substantial increase in cost of goods. and that was the reason for the decline in the margin um the segmental analysis by geography i think i set out in an appendix for you um but i think just just do cast a glance at it i think of note is the increase in the adjusted operating profit in north america which is getting on for double and that really is driven by the success of our grocery and ingredients businesses there so um George, thank you very much for the words that you said. So this really is the last time that I've got the pleasure of addressing you all. I think this is my 48th presentation, so it's really, really quite a number. So I think something really must have kept me going for 24 years. At least you would expect that. I think in reality there are probably many things, but primarily what I would like to say is that I've really enjoyed talking to you about a business that I both love and believe in. It's never been boring, not least because engaging with you lot has always been stimulating and at times challenging. So my thanks for my engagement with you all. And at that point, really for the last time, pass it back to George. Thank you.

I think £1.50 this morning at Primark, just up the road. Starting then with Primark, with retail, where trading was significantly better than we'd anticipated back in September, and I'll come back for that. In particular, we're delighted by the increase in footfall in the UK and Europe both. And then, as John said, higher sales drove and higher footfall drove the profit margin up to 8.3%. We can see a route still back to double digit margins, but for now, 8.3 is much better than we feared it was going to be. The new stores, we opened half a million square feet, 13 new stores, and they've been really successful. The sales densities across the 13 are significantly higher than the company average. The 530 stores ambition is alive and well. As each new store opens, as well as they have been doing, we get more and more excited. The digital development is really very important. The rollout of the improved website, I'll show you more about that in a moment. And then the click and collect trial in the northeast has gone sufficiently well that we're going to extend it and expand it. into another 32 stores, which are the London stores and Lakeside and Blue Water, which are just outside the M25. The German restructuring and growth plan is in place. We've got quite a lot to say about that in Germany today. And then we're also announcing an acceleration of our expansion into southern states in the United States, anchored by a new warehouse in Florida. Sales performance then, like for like sales, up 10 with obviously higher average selling prices, but higher unit volumes as well and significantly higher footfall. We had feared that by moving our prices up, we would lose some of our shoppers who were going to be cash squeezed anyway. really didn't happen. We've seen a little bit of a reduction in units per transaction, but not all that much. We thought that we would get new customers giving us a try because they were looking for value, and we've certainly seen that. We've also, I think, done a very good job of attracting customers who would previously have shopped in some of the high street stores that went bust during COVID. And then I think that the last part is I think the website is undoubtedly driving traffic. So UK like-for-likes up 15 and our value market share has gone from 6.2% to 6.5% and I'll show you how that's built over time. Europe, excluding the UK, like-for-sales are up 8. Again, higher average selling prices, higher footfall and much improved performances in Spain, France and then Germany as well. And then sales in the US are 11% higher. So we had 6.1% by value share of the UK clothing market that's online and offline combined in 2019. It went up a little bit in 2020. We were then largely shut. Last year, we got all that traditional share back despite the growth in online participation in the clothing market. And this year, we've increased at a rate that we haven't seen for some while. So we are growing share in the UK in particular, we're motoring. In Germany, we saw like for like sales increased 13%, absolutely great. We've recently rolled out uh the the website uh with the stock tracker we think that will be particularly relevant uh in the german market um we have um uh we need to and we are address addressing the profitability of the current estate it's still profitable uh in in total uh but um sales densities are too low and they're too low because many of our stores are too big and they're too close to one another. We've already closed two stores in Germany, Weicherstadt and one of the Berlin stores in the half year. Actually, the Berlin store we closed outside the period. And today we're announcing our intention to close four more stores, obviously in consultation with employee representatives, which are Frankfurt, Gelsenkirchen, Krefeld and Kaiserslautern. Having most recently reduced the size of the Hanover store, we're going to be consulting on reducing the size of more stores. The average German store is 50% larger than in other markets. But Germany is a big country. There are many Germans who live in areas not within shopping distance of a Primark, and we plan to invest in new locations where we're not yet present. We've designed a new smaller store model, probably around 20,000 square feet. And we're actively looking for new space for those. We're in negotiations with potential new locations. And we'll share more of that with you later on in the year. So Primark Digital, the much improved customer website is now live in the UK, Republic of Ireland, Germany and Spain, which launched last week. On average, traffic is considerably up, 60 to 100% up on prior. And usage of the stock checker function is running at around 20%, which we think is really good. We think that that is driving footfall into stores. And we really are very pleased with the impact the new site is having. Italy is the next market to go, followed by Italy. the US and France. We'll have all the markets, all 16 of our markets with the new website before the end of the summer. The click and collect trial has progressed well. As you know, it's only in 25 stores and only on kids wear. We're seeing good basket sizes purchased online. We're seeing then good attachment rates in stores and we're seeing low rates of return. lower than we'd anticipated even given that kids wear typically has a lower rate of return than some of the other categories. We're sufficiently confident to roll it out into London stores. We're refitting the old customer service desks to be collect collection points and that'll be done by July or so. Digital engagement more generally then, and let me in a moment show you this video. The customers produce most of our content. It really is a lovely business model. This video we're going to show you was watched nearly half a million times. We didn't produce it. We have our own tech talk channels, but there are so many and tech talk is the major channel now. For us. This is the increasingly famous unit hard, which is to spring summer, I think. um what um uh plush velvet leggings were to the autumn and let me just show you this That was it. Let me just say a little bit about bestsellers in the first half because I think some of them have been interesting. The first one, the cold weather essentials sold early in the season. I think we all sat inside, I certainly did, in the study, I didn't have the plush velvet leggings, attempting not to turn the central heating on. And sales of winter ranges, particularly those two products, were quite phenomenal. So cold weather essentials. Now, of course, we also had a very good Christmas laughing as we did the Omicron affected Christmas the year before. We've also seen in the period, and we're not quite sure where it's coming from, early buying of holiday ranges. Now, maybe because our availability is much better than it was a year ago, but we've got into holiday gear much earlier. So in this first half. And then I'm delighted health and beauty is performing extremely well. I think on the back of, well, obviously more socializing, but also really good quality ranges that we offer. Great product, obviously fantastic prices, sales of skincare. and other health and beauty products are well, well ahead. I now want to turn to some extensions of our offer. We've seen Debenhams disappear. We've seen Warehouse, Principles, Jane Norman, Peacocks, Wallace, Dorothy Perkins, Topshop, et cetera, et cetera, et cetera. There are many, many shoppers looking for new places on the high street to do their clothes shopping. And we have deliberately set out to attract them with products they might not have associated with Primark in the past. So the edit goes from strength to strength. Premium fabrics in particular, fantastic value, but at higher price points than we would have seen in Primark stores in the past. The chem ranges, which is basically the smart casual clothing for men, again, fantastic. Chem, in most markets, people have no idea who Chem is, but they know great clothes. And again, really good quality clothing at prices which are well under what you would expect to pay for those sorts of products. And then the second range from Paola Echeverria, who is a Spanish actress, and social media leader. Again, products selling well everywhere. The sales of this sort of offer, which we haven't typically had in the past, are growing very quickly and it's very exciting. As I say, it's part of the reason that we're seeing footfall going up. It's not just kind of wealth effect driving people to shop cheaper, it's because our offer has expanded. and done so very attractively. So Primark Cares, let me tell you a little bit more about where we are there. We're launching, well we have launched our first circular collection. So these are clothes designed with the principles developed by the Ellen MacArthur Foundation. So they're clothes which are designed to be recycled. Less mixed fabric, less buttons and zips and other things that hinder recyclability. We are taking all the design and buying teams through these principles. This is just the start. At the moment we've got 30 products. We are much further ahead in using recycled or more sustainably sourced material in our existing goods. So this time last year, we're up at 39% of products having sustainably sourced or recycled content to them. And now we're at half. We continue to expand the sustainable cotton program. It's the largest in the world in the fashion industry already. We're up to about 275,000 farmers trained in it. Just as a reminder, it's been running now for 12 years. We're not sort of late into sustainable agriculture. We're expanding the program into Turkey, the moment where Bangladesh, Pakistan, India, and China, Turkey next. And then during the half year, we published our first sustainability an ethics progress report. It's very comprehensive and it's very straightforward and honest. It's a serious document. Moving then to some of the new stores, as I say, 13 in the period. I've illustrated Italy because it's such a great market for us now. I think we're only up to eight stores, so so much growth left in that market. France, here's a store in Saint-Etienne. We were worrying at the back end of COVID that perhaps there had been damage done to our business in France. It turns out not to be the case. And then Eastern Europe is becoming increasingly interesting. This is our first store in Romania. We'll open our first store in Hungary in the next 12 months or so. And Poland sales densities are accelerating. It's really great. Czech Republic has bounced right back as well. But I want to focus this time round on the American journey. Here are the three stores we opened in the first half, all in New York State. Jamaica Avenue, Roosevelt Field, which is the southern end of Long Island, and then City Point in Brooklyn. Very successful openings. We're chasing our less affluent customer with stores, which, as I say, is 35,000 square feet. And they are really resonating um with with with our um with our consumer so we've opened three more stores um we've got five more to open uh in the second half we've already got buffalo opened the first um shopper in the uh in the queue on opening day was from across the border in canada um and we think that there's going to be a nice uh trans uh border trade uh into that buffalo store We signed two new leases also in the period, second store in Florida and then New Jersey. We're accelerating the opening of stores in the southern states and for the first time, including Texas. Texas has a big Hispanic population. It's a lower cost area to do business. It's the fastest growing state in the U.S., and whatever our prejudices might lead us to think, actually they dress very similarly to how Americans dress in many of our other U.S. markets. To support that sudden growth, we're opening the second distribution center in Jacksonville, Florida, and there it is on the right-hand side. Finally then on Primark, second half, outlook. We're beginning to benefit from reduced sea freight costs and energy costs, but because of currency differences, the cost of bought goods in the second half this year is higher than the same period last year, so that will upset some of the cost savings. Much tougher like-for-like comparators in the second half, but we will see like-for-like growth And I think it's right that we remain cautious about consumer spending. Right. Let me then move on to food. So pricing of sugar and the coproducts in both our European and African markets are significantly higher than they were a year ago, and that's obviously to our advantage. But we've paid significantly more for sugar beet, for cane, and particularly for energy. The higher volumes in Ilovo are very welcome because we're supplying into growing markets, particularly Tanzania, Malawi, and Zambia. We had about as Difficult growing season for the sugar beet crop in the UK last year and about as difficult a harvesting program campaign this year with particularly frozen beet and then rotting beet. I've got more to say at the Virgo at this stage. I just acknowledge that we made a loss in that business in the first half. We only produced three quarters of a million tons of sugar. We would normally think that a million tons was sort of our baseline. And the sugar that we did produce was harder to extract from the beet. Actually, compared with the last difficult harvest, which was 2012, we were much better equipped to process frost damage beet than we were there. And then, although we saw significantly higher gas costs, and just a reminder, we use a great deal of natural gas in our sugar operations, those were offset to a considerable extent by the value of the electricity that we're selling from the combined heat and power plants through the same period. Spain drought in the south of Spain reduced our crop there. We paid more for energy in that market too. We got higher sugar prices, but in the first half, energy costs were greater than their sugar price increases. The second half, that will reverse. We've done a very good job on sugar pricing in the Spanish market, and that will come through in the second half. In the second half in the UK, we will see the profit effects of us having to buy in sugar to supply customers. So the margin in sugar in the UK will go down. And then China, very COVID-affected. Turning to a lovo then, where the profit has been significantly ahead, improved sugar prices, not least because pre-packed sugar, retail sugar, continues to grow and grow strongly. Increased production exactly where we wanted it, in Malawi and Zambia. The South African sugar industry is going through a very difficult time. Two of our competitors are in their version of chapter 11 or receivership. And we're not immune to the pressures that have caused them such distress. We've seen severe flooding in Mozambique in our cane estates, cane estate there. We grow sugar on a flood plain. And 2002, there was a flood. And then just a few weeks ago, there was another one, which has wiped out the vast majority of the sugar cane that we're growing there. In some places, it was under eight meters of water. We've taken a charge to reflect the writing off of the value of that sugar cane in this first half year. And then the new sugar plant is is is is is progressing. It will be out to see it in a couple of weeks time. The Virgo. Right. We know how to run the plant. The plant runs well at design capacity. And that's the first time I can say that with certainty since we commissioned it in 2014. So that's great. We opened it into a uniquely difficult time for the European ethanol. industry with high energy costs, high wheat costs, and a bioethanol price across Europe that was affected by the import of a large amount of American and Brazilian ethanol. We couldn't have had a worse time to be opening. Negative margins, much greater negative margins than the industry has seen for a long, long time. We remain confident in the prospects for this business. The second half will be a whole lot better than the first half, and we see no reason why this business shouldn't be sustainably profitable in the future. Turning to grocery, the last 18 months in grocery have been about cost recovery. And it's been really difficult because the cost increases are just kept on coming. So you negotiate your way to higher prices, and then you've got to start again and do whatever. The best news is that I think that process of chasing increasing costs has at least for now come to an end. We think that our pricing actions are largely done. commodity prices can explode again but for now we've we're done with with most of the pricing we've recovered by and large the cash costs we haven't recovered maintain the margins that we were enjoying before the inflation kicked off so there's a job of work to be done to build margins back We'll start to see the beneficial effects of pricing on our margins, though, in the second half, including in bread. The performance of our U.S. businesses, both ACH and Strassen, I'll come back to it, has been outstanding, and I'll call that out here. And then really in response to recession and people being more and more tempted by our own label, we've increased are brand investments. We think that in the long run, that's the right thing to do, even though the consumers are looking for value. Diving into different parts of the grocery businesses, then. Twining's Ovaltine. Revenues are well ahead. Marketing investment is well up. Here's an example of some advertising of the wellness ranges in London. The wellness ranges keep on increasing in sales. That's very encouraging. And then geographically, we saw particularly good performances in the US and in Australia. Also a lot of price that we've had to take in twinings. Ovaltine, though, has had a more difficult time. We've had strong performances in Switzerland and Brazil. Thailand's been very difficult, particularly on powder, and it's our biggest single Ovaltine market. And then markets have been disrupted, obviously, for very different reasons in Myanmar and in China. China is coming back, and Myanmar is better than it had previously been. UK grocery. The sales increase was the consequence of pricing. Increased marketing investment, though, in the World Food brand, so that's Patax and Blue Dragon. Jordan's, Dorset, and Rybita have all seen a great deal of commercial activity, both in terms of launching new products, but also in communications around them. And then Mazzetti. similarly increase in marketing spend. Let me just show you the new Jordans.

To make our Jordans country crisps so outrageously tasty, we start with nature's pick and mix. Our bakers take the humble oat, add a pinch of magic, and transform it into delicious light and crispy golden clusters, crafting very, very crunchy combinations. Jordans, tasty by nature.

That Tasty by Nature is the new positioning of the Jordan's brand. Turning then to LA Bakeries, where we have secured significant pricing, which was absolutely justified. The trajectory of performance is encouraging. The second half in particular, we will see the benefits of that pricing becoming evident. There's lots more to be done with the business, but compared with the dark times that followed the invasion of Ukraine and the increase in wheat and energy prices in particular, we're in a much, much better place. The styles of the show in grocery, ACH and Stratus, sadly a joint venture, but nonetheless, half of a good thing is still a good thing. So very strong trading performance in ACH. Mazzola is now firmly established as the number one, as the leading branded vegetable oil in that market. And Fleischmann's bakery ingredients business has recovered really well from COVID where it was out of stock for a long period. So all the market share that we enjoyed before, which I thought we would take two or three years to recover if we ever recovered it. We've got back. Pricing actions to cover inflationary costs, again, really good. And then Stratus benefits from the US market like many of the UK food markets, switching to own label oil, where it's the largest supplier by some way. So good volumes and then really good margin management in that business. So both businesses well ahead. Australia, tip-top traded well. It's had to cope with a very difficult weed harvest. more difficult to make bread in Australia than I can ever remember. But the cost of doing that has been recovered well in the marketplace. We're rebuilding the Western Australian Bakery. It's by some way the largest in Australia and it's an important asset for us now and in the future. Don KRC, probably part of ABF that's had most trouble with most trouble filling all the jobs. We've had a year, 18 months, of not having enough staff. That is easing, as it does we're able to produce more product, and that's what we've been doing, and it's going quite well. Ingredients has been great. A.B. Mowry, in particular, where uh they have very successfully recovered cost inflation and then they're the part of the group which is now benefiting from some reduction uh in those costs and it's and they're holding on to margin to some margin expansion um in maori and uh but also uh the performance in brazil in the wider baker ingredients category has been uh has been very strong significant investment in new plant first in capacity in Brazil and in India and then as these two pictures show next in specialty yeast production there's a lot of yeast that's used in industries other than bakery and this is a plant in Hull which is designed specifically to cater with the smaller volumes and closer product quality tolerances that some of these other industries require. And then on the right hand side, a big investment in Brazil in the treatment of effluent, that's an effluent treatment plant, which gets us well ahead of the water standards required now in Brazil and the standards that we would anticipate coming into effect in the future. So there's a big investment in Brazilian water. ABFI has had a good period too with good sales and profit growth. We've reinvested the benefits of sales growth within the enzyme business by increasing spend in R&D and in sales coverage. The significant capital investment going on in a yeast extract plant in Hamburg to increase the capacity and to increase the capability of that plant. And then Phytexia, which we bought, the phytonutrient business that we bought last year is performing well and certainly to our expectations when we bought it. Finally, agriculture. It's been a more difficult year. Revenues are ahead. They're obviously going to be ahead with high commodity prices. Frontier, the grain trading fertilizer joint venture we have is trading very well. UK animal feed is difficult. The poultry, the chicken market is down on I think affordability for affordability reasons and the pig market has been weak. um and then uh finally uh the business in china uh nice business we haven't in china but uh slower recovery of volumes uh since the pandemic since since restrictions particularly on uh interprovincial movement of goods has uh um it's taken longer to recover i think we're there now um here's a picture of one of our new investments in the food businesses, which is the Western Australian feed mill. This is a great asset. It is by some way the largest scale producer in the Western Australian monogastric market. And it's commissioning very well. It is Western Australian market is a very well protected one that's very well protected from by geography. And we're now very strongly placed in that market with this with this new female. Moving on to. the bit that Owen's got to help deliver, the full year outlook. So we expect the operating profit to be modestly ahead at the final year. We expect ingredients to be well ahead, but to an extent that increase in profitability there will be offset by reduced profit in sugar. And grocery will be slightly ahead for the full year over the benefit of the pricing actions we've taken. Primark will be ahead of last year's second half. And margins for the full year will be similar to what we've seen in this first half at 8.3%. So full year adjusted operating profit and earnings per share, we're broadly in line with last year. As I say, we expect to be there or thereabouts for the full year. Summary of all this, much better first half performance than we anticipated last September. I keep on reminding myself of just how gloomy we were back in September. I now recognize, having celebrated that the wheels didn't completely fall off, that we need to move on from where we survived. to getting back to rebuilding margin and rebuilding and increasing profitability. But you hear from the podium a big sigh of relief. The full year guidance is unchanged. Remind you of the, I think, significant decision to expand the footprint of Primark in the south of the estates and particularly into Texas. And a reminder of that increased investment both in Primark with the acceleration of the rollout and also the investment in loads of significant opportunities in food.

Thank you very much and over to you. So what we'll do is we'll go to Q&A and we'll take questions, I think, first of all, from the room. We've got some people online. So those that are online, you're very welcome to ask questions. But I think we'll take people in the room first. So I can go with Warren Ackerman, please.

Before I ask the question, John, I just want to say on behalf of all the analysts and investors, it's been an absolute pleasure working with you all these years. And as one of your house brokers, we've had our ups and our downs. I'd hate to say more ups and downs, but it's certainly been fun and educational. And that's not just a Primark comment or an ABF comment. And George, you've already said it. I mean, John, you're one of the good guys and your passion for the business is undimmed, which I think is a rarity these days. I do think you'll be a great ambassador for Primark in your new role. And I'm sure your advice to the board will be much appreciated. Hopefully it leaves you some time to explore your passions outside work, and that's not just a comment on wine. I mean, welcome to the role. ABF is a pretty unique company, unique culture. From my early observations, I think you'll be quite well suited to it. You've got big shoes to fill. I'm confident you will. The only caveat is that you'll need to first figure out John's unique style of guiding us. Millions, I mean. Okay, in terms of a couple of questions, the first one is just on operating costs at Primark. Can you talk a little bit about margins, why margins in the second half will be only similar to the first half, and then what your thoughts on margins are into next year? It'd be quite useful to sort of understand a little bit on some of the kind of moving parts around freight, cost and energy, any kind of numbers around any of those. And when hedging rolls off, help us do our little margin bridge that we always ask about. It's super useful. And then just secondly, on non-prime art, there's lots of moving pieces up and down. It'd be great to sort of understand a little bit what you're thinking about profits, John, on sugar ingredients. And grocery seems to me that sugar profits are lower, but grocery and ingredients higher. Could you maybe just flesh that out a little bit for us for 23 and how much of those ups and downs then flow into next year's 24 and number? So it's quite a long-winded couple of questions, but thank you.

So yeah, so first of all, thanks for your words at the beginning. Okay, so Owen, why don't you?

Well, I'll have a go to Primark and you can be thinking about the remainder. So I think the one thing that George mentioned in Primark, which it just has to be worked through, is the impact of the FX in the second half, because I think people sort of kind of forget around when we do our buying and so on. But When we did our buying, sterling was particularly weak, if you recall. So actually we do get a more pronounced impact of FX into the second half than we actually even had in the first half. And that actually is relevant as we look into next year as well, because actually there's no particular boon of FX into next year, because if you look at the blended rate overall for the whole financial year of FY23, I mean, at spot stance today, it's pretty much stand on, right? So you're getting a bit of a weakness in the second half. And then as I say, into next year, you're not getting a huge sort of like, you know, huge benefit. And in terms of the other moving parts, George talks about freight getting better. It is getting better and we have a, it is going back to some more normal levels of roughly around $2,000 a container. But that's happening at the back end of our second half. So it's not, we're not getting the full benefit of that in the second half, it's happening through the half. But of course we do get that benefit into next year. uh which is is a benefit into next year and then in terms of fabric costs uh which is the other big moving part um we have it is it prices have come back um and we do have to get a it's a little bit less pronounced impact in the second half of the year and we do see hopefully a benefit out into into into next year so they're they're the i would say It's a big moving parts, but the reasons if the narrow question, the primary reasons why sort of margins aren't kind of expanding into the second half is that kind of FX component, which you spoke about. I think that's it.

Let me start off with sugar. We never have enough sugar to sell when prices are high. That's why prices are high. We're sitting here in some frustration looking at a world market price of 24, 25 cents. If though we had a decent UK sugar crop going into next year and the energy prices stayed lower and we weren't having to buy in very expensive sugar next year, we would have a much better year. The second half of this year, though, we will see profits lower because that's the time when the margins get squeezed by the need to supply customers with sugar that's been bought in. We would hope that ingredients have a fair chance of holding on to the margins they're making at the moment, and maybe if some of the input costs came down, at least delaying the rate at which they pass them on I think that's probably easier the further up the value chain you are but I think it'll be sort of a one-off effect into next year second the second half margins in profitability in both yeast and specialty ingredients I think will be will be good again and then grocery we'll see better margin in the second half than we've seen in for the first half or I think probably even the second half of last year but we won't get not to the extent of getting back historic margins the margin that the 10% that John worked so hard to achieve over 23 years is still a way off right thanks very much let's take the next question yeah Georgina thanks

Thank you. Excuse me, Georgina Jones from JP Morgan and echoing words of thanks to John, of course, hopefully it goes without saying, thank you. Two questions from me, please. Firstly, just in terms of pricing, I mean, as we sort of look ahead 12 months, 18 months in Primark, we'll be at a stage where hopefully, you know, freight costs have pretty much normalised, hopefully energy costs have normalised and indeed, hopefully we're back to a kind of quote unquote normal world. Yeah, obviously there'll be some high single digit, low double digit pricing that cumulatively has gone through in the Primark business. How do you think about that on a midterm basis? Like, is that something that you would potentially give back to the consumer or do you see that as like a structural step up?

I mean, we will always price as we need to price to remain the most competitive clothing retailer. How do I think about it? Well, we didn't, the pricing actions we took didn't recover all the cost inflation. So we've got some way to go with some of these lower costs simply to fill the bucket back where we emptied it. Some of the cost increases that we've seen, particularly labor, are with us to stay. And although energy is well off the peaks, it's still significantly higher than where it came from. But with the combination of some following wins, and if currency moves for us again, and we keep seeing these volume, these footfall increases, those are the moving parts that move us back to double digit margins. But I don't want people to race ahead of themselves and think that it's the second half of the second half or the first half of next year. I think that's all very unlikely. Very, very unlikely. But it's moving in the right direction.

Thank you. And then my second one was just on the click and collect trial. And I was wondering if you could share any more metrics around that, please. So, for example, in the stores where, you know, the trial is in place, what sort of like for like uptick you've seen versus the rest of the UK stores and indeed anything that you can share on like. incremental margin dilution from the cost of those cases?

One of the reasons we're expanding the trial to another 32 stores is that we don't have a big enough data set to really dig into the margin point. We wouldn't expect just one category with Kidsware that we would see much increase in footfall and it's It's too early to see that, and there's been so much noise as well around with good footfall anyway that disentangling it all is quite frankly not possible. What we've seen though is higher than expected basket sizes, which is a driver of cost of transaction, and higher than expected pickup baskets when people are in stores, which again talks to incrementality. and then maybe because it's kids wear, but we'd model for the fact that it was kids wear. We're seeing lower returns. So those profitability metrics or drivers are all encouraging. Too early, too small a data set to be able to tell you much more with any degree of precision.

Thanks. Thanks, Georgina. Could we take more tokens, please?

Morning, we're tokens from BNP Paribas Exxon. Two questions, please. The first is on pricing, actually, as well. Could you just talk about when you have or need to make a decision about autumn-winter pricing and what your initial thoughts are for that season into next year, please? And secondly, George, you mentioned that the new stores that you've opened this half of deliver better sales densities than the existing estate. Could you just talk about why you think that's the case? Is that purely geographic mix or something about the format, et cetera?

On that point first, and I might move the pricing one on to me colleagues. On those stores, I think it's both. It's Italy in particular, and then it's the smaller stores in the Americas and elsewhere. So it is mixed. If you go back a few years, new stores were heavily skewed towards countries like Germany, Finland, the UK, etc. So it's a better mix.

On pricing through the rest of the year... Just one small point to what George has said about the new stores. I think it is that reminder, I think, and we've got to keep it at the front of our mind, it's the white space that opportunities that still Primark has got. And so when you look at these stores opening in Italy, they are welcoming a prime up to the area for the first time, even in Bucharest, you know, all the way over in Romania, that was the case. And so I think it's that reminder. It is not just filling in what's ever smaller spaces. There's a lot of white space that we're going out there. And I think that is a good reflection.

And I think one other thing that points to is it's how well the brand is known in these European markets. You get to really good sales densities on day one.

Well, I mean, most, I think the pricing, most of the pricing decisions for autumn-winter, they're already locked in to a certain extent. So we'll see a little bit of continuation of pricing into autumn-winter. I think it's more spring-summer is where you'll start to get the kind of really the stability, I would say.

but that would be less than mid-single digit, is that fair?

Yeah, I think so, in total portfolio.

Lower amount, smaller proportion of the range.

So it's way more limited than people may have thought at that point. So Martin Dolan called, let's hope for Martin to be here. Sorry, just here, yeah, thank you.

Martin Dolan from Davie. A couple of questions on the US if I can. What gives you the confidence really behind the expansion of the rollout in the South? Is that customer feedback? Is it really across from Florida or other stores? Or is it just store stability, given that the market's probably better for property there? And also in the US, given what you said about the new store openings and the smaller groups and the right sizing, where are US sales densities now versus group average? Are we now getting US up towards the group average?

Yeah. I mean, basically, we're pretty close to group average with US store densities. Why they're all out, and particularly in the South? I think that the first Florida store has shown us that we're relevant in that market. Now, that store, Sawgrass, has two distinct customer bases. The first one is a tourist, but the second one is local, less affluent, Hispanic customers. And that's one of the customer segments that we think we appeal to in particular. And what in ACH terminology we call this, well, I think the smile region. Texas is a big part of that. The southeast is a big part of it. And, of course, New York is the other big part. And the success in New York. um i think also uh has read across into into the south uh it's track it's attractive that uh the store build costs and the store offering costs are lower but the model works perfectly well in the northeast too um and so yeah no it it's it's it's it confidence that um we've got a customer base, we've got a model, we've got an increasingly stable team. It's been time for a while to put up or down on the accelerator.

Thanks, Martin. We'll go with Adam Cochrane in the middle, please.

Yeah, thanks. Thanks, Adam Cochrane, Deutsche Bank. On the US, can you just, obviously with the increase in store openings, what the pre-opening costs, what's the drag on profitability from a, as you're opening three, four, five, eight stores a year. What does that mean for the trajectory of profits in the US? And then one on slightly shorter term, there's been a lot of talk about the weather in the UK being quite wet. You talked about spring, summer, I can't remember your phrase exactly, encouraging or respectable or something. Has that been varied by region quite a lot? So can we Is it possible to give us a little bit of a flavor for how that current trading is evolving within your positive outlook of life for the second half?

So if I can answer that first one and then pass on to Owen. The weather in the UK in particular, the UK and Ireland, has been shocking. Given that, we could be really encouraged by the sales levels in those two markets, those two bigger markets. Now, I would have said that with more confidence a week ago, because last week was particularly shocking, and sales were hit by more than we've been seeing previously. In Spain and Portugal, we are well ahead, well, well ahead. And that's built the confidence in the spring-summer ranges. But until we actually see the weather term, we won't know whether that confidence is misplaced or is particularly a particularly Iberian thing.

We still could do with the sun shining in the UK. I think we all could. Yeah, look, it will be a bit of a drag, particularly as you're kind of building scale in the US, you know, the impact of having a store unoccupied, at least on the overall portfolio. it's going to be a drag while, you know, particularly when a smaller number of stores. So, you know, so, but I don't think that's hugely relevant to the overall kind of group performance. You know, it's more when we look at the US, we've got to take that out when we look at the underlying profitability, but it will be a drag for a number of years because it's an expansionary marketplace for us. And I mean, the other place, which is a drag on profitability is, is supply chain and the cost of distribution, which, you know, at the moment is, is relatively, um, manual and expensive. Um, so that's something that, you know, in time we will, we will want to invest in, in, in behind. Um, so they'd be the two kind of big drags on, on profitability. Yeah.

Yeah. We think about the, the EBIT margin basis point drag from, from the U S also as the U S is getting a bigger, sales base, the drag on EBIT margins could be worth calling out at some stage just to help us see what the rest of the business looks like.

Yes, but it's not material right now.

17 stores out of 400.

Of course. I mean, actually, we'd want to because we want to demonstrate the underlying performance. So, yes.

Okay, great. So, let's get Richard Tremble in over here. Thank you.

Richard Chamberlain, Thank you morning, yes, Richard Chamberlain RBC can I ask a couple on Germany, please for the primer I just wondered what. Richard Chamberlain, traction you're getting now with the primal cares campaign now that's going. Richard Chamberlain, In the German market, it sounds like you still think a lot of the issues there are more sort of location, or I just wondered how the brand perception is. is changing and also in Germany how the upgraded digital offer has been received and whether that's sort of helping densities there as well.

So the upgraded digital offer is very new it's sort of a fortnight ago so but we would have we know our customers will We'll appreciate it. I don't want to give international stereotypes, but they'll appreciate it. And they told us that they wanted. We know we've got work to do on the brand. I think... It's not only Primark cares that will resonate, although Germans by nature are pretty skeptical about claims that companies make about their ESG achievements. I think some of the new higher price products will resonate well in Germany. Better fabrics in particular will work for us. so yeah it's all in it's all of them in the mix brand will recover most I think because of changes in perception on product are you moving more towards more localized approach as well in Germany in terms of marketing and yes is that helping yes yes the German media is very is very local and yeah there's work that we're doing on making sure that we've got the assortment right by each trading location they're quite different and at the moment they should be quite different and at the moment they're insufficiently different so that that that's in the mix too okay thank you thanks very much okay so the stick is it's neck out of market thanks

Thank you. Nick Coulter from Citi, too, if I may, please. First, could I just press on the double digit margin target for Primark? If it's possible to kind of what time frame should we think about for that recovery? Is that kind of medium term? It would be great to kind of get some sort of long stop or trajectory there. for that double digits operation.

Yeah, I think we probably wouldn't have put it in if we didn't think it was medium term, right? And then you'll ask me what does medium term mean. I think, look, when we look into the second half of this year and into next year, there's enough confidence given in terms of the easing of the cost of goods, particularly the easing of cost of goods, and how the businesses held up and you shouldn't ignore that, that we're on the right trajectory. But as I was saying to a few people, you know, early on, we're not out of the woods yet, right? You know, you've still got a lot of cost ingredients that are still higher than obviously previous to the spikes sector and so on. So we're still not out of the woods and we still, so we're going to be, remain to be a little bit cautious about that trajectory and where that, and how that comes. But certainly it's moving in the right direction. So, and we wouldn't have said, we've got the confidence to get back there if we didn't think it was medium term.

Another crystal ball question. Yes. Okay. Noting your comments on grocery pricing, it feels like you're kind of going over the top, so to speak. When do you think you might get into a position of kind of year over year volume increases for grocery? Is that six months, a year, 18 months? What's the rough thought process?

On cost recovery, we haven't gone over the top. So we've, in most places, got the carry cost back. There is, you know, consumers are looking, obviously looking for value, and their own label is growing, discount sales are growing. in both Twinings and Mazzetti, so premium brands in their category, we have to work harder to persuade people that it's worth spending those sorts of money on. So I think volume growth in most of the categories is quite an ambitious thing to be hoping for in the next, until consumer sentiment changes.

So you're talking about a 12-month trajectory?

But that's the reason why we're getting on the front foot in a lot of the brands on the marketing side of things, in terms of repositioning the brands as you exit this period.

Understood, very helpful, thank you.

Just a few quick ones. Firstly, just on the sugar crop, when will you have confidence that farmers will plant this year, given the horror show of last year? On Eastern Europe, you've been there, what, three years now? I know going in, you had some caution around pricing, range, and costs. What have you learned so far that kind of gives you confidence in the rollout? And then just finally, if you can give us an update on the self-checkout trial, given the comments that you've made about labor being structurally more expensive.

Yeah. Okay. So sugar, I am told as of yesterday, but that about 70% of the acreage, which we expected to be grown this year is now in the ground. We still have in some of the heavy land in East Anglia is still to be sown but we think it will be. Last year we didn't have a problem getting getting crops sown it was everything that happened thereafter you know combination drought, flood, disease, you name it, the broil farmer endured it and then as I say we had frost which stopped the growing and actually the damage was exacerbated by the disease that we'd suffered at the end of the summer, which was probably the consequence of the drought and so on and so forth. So it's going to be better this year, isn't it? That was in Eastern Europe. It's some and some I mean very different the center of Prague is a very different market from Krakow and Poland in particular is very price competitive we would expect that we knew that but we're getting footfall and we're getting sales volumes increasing well the ranges that sell are There's nothing particular to call out for on different differences there. Self-checkout. And then self-checkout.

Yeah, thank you very much. I mean, it's going fine on self-checkout. I mean, the returns stack up, as you can imagine they would do in a high-labour environment. So we'll be continuing to invest in self-checkout across the network. I still think there's work to be done across the board on the customer experience, but we'll keep an eye on that. As we open new stores in the States, they're all opening with self-checkout.

Right, okay. I've overlooked you, Anne. Come along. Anne Critchlow, please.

Anne Critchlow from StopGen. Two questions on click and collect, please. I know it's early days, but are you finding that customers around the smaller stores are particularly appreciating it? I think you're going to offer them four times the range. Yeah. And then secondly, if you could just comment on add-on purchases, whether it's met your expectations.

Add-on purchases have more than met our expectation, so that's great. And there seems to be no correlation that we can determine so far on those 25 stores between store size, store location, whatever, and attractiveness of click and collect.

you okay thank you so um i think we may just um right great okay so um we don't have anybody online wanting to ask a question so i think if there aren't any more questions thank you very much for your time today very good thank you