Associated British Foods plc

And thank you for coming to this review of the interim results for the 24 weeks ended the 2nd of March, 2024. Obviously, these are a strong set of results. They're in fact the best I've been able to talk about in 19 years. Margins have built back to more normal levels, both within Primark and across the food businesses. That is the consequence of, quite frankly, a restoration of normality in our supply chains and in our inflationary environment. So, return to normality. We're also benefiting, though, through that normality. We're beginning to see the consequences of, in some cases, years of investment and strong strong execution. We've been adding, for instance, a million square feet or so of space in Primark. We just haven't seen the benefits of it until this year. We have made good progress within Primark, in particular on digital strategy, another piece of work that's been going on for a long time, high quality work. And included in digital strategy is the Clicking Deck service, which we have more to say about today. With normalized working capital with supply chains allowing us, running better and allowing us to take safety stock out, we've seen very strong cash flow in the first half. And then with the strong shareholder returns, those flow through into increased dividends. We're also going to take you through what's going back, what's going on with our share buybacks. Geopolitical risks remain. And I don't want to say too much more about that, but I think it would be negligent to me not to salute the fact that the world may look normal at the moment, but these things can change.

Great. So, look, thanks, George. As George has said, look, these really clearly are a strong set of results. As you see in the financial highlights, we've had significant progress across all of our financial KPIs with good growth in revenue, both in most of our food businesses and in retail markets. obviously strong growth in adjusted operating profit and adjusted operating margin, and indeed a record adjusted earnings per share at this time in the year. Of note also, and I'll speak a bit more about it, we had a free cash inflow in the period, despite another big step up in growth investments, and of course a significant increase in the interim dividend aligned with the increase in adjusted earnings. So, look, as usual, I'm going to just walk through some of these indicators in a little bit more detail, firstly starting with the segmental view. And, obviously, George is going to go through each of the segments in a little bit more detail. On a constant currency basis, revenue was ahead across most of our food businesses. As I said, for grocery and ingredients, this increase in revenue was largely driven by the price increases last year to offset cost inflation, but also by volume growth. Across the grocery segment, adjusted operating profit recovered and adjusted operating profit was significantly higher. Our ingredient segment continued to be strong and ahead of expectations, driven by AB Mowry, our Eastern bakery ingredients business, which maintained its strong performance from last year. In our sugar segment, profitability improved significantly, driven by the much reduced loss of Virgo. In this segment, it is worth noting that profits were impacted by FX translation laws, particularly in a low boat. Sales were lower at agriculture with declines in the compound feed markets in both the UK and China, but profits improved on better procurements and improved pricing. So at retail, full-year revenues rose significantly, up 7.5% on a constant currency basis. reflecting the continued growth in selling space. And the first half also saw the significant increase in adjusted operating profit of 46% to $508 million, with margin recovery to 11.3%. So, as always, let me just walk you from adjusted operating profit of $951 million to adjusted earnings per share. As a reminder, adjusted operating profit was up 39% on an actual basis. That includes a translation loss of $57 million driven by the threatening of sterling against dollar and euro, but also against our trading currencies in Africa, as I've mentioned before. Finance income continued to increase as a result of higher interest rates earned on our cash position. In other financial expenses, we recorded losses on cash and foreign exchange balances of some of our African operations, most notably Nigeria and Malawi, which both faced material currency devaluations in the period Lease interest increased during the period because of the increased number of Primark stores. Overall, for the year, we expect a similar level of finance income and lease interest in the second half. However, we do not expect the losses on cash and prime exchange balances in other financial expenses to repeat. Back to the first half, on an adjusted basis, property force tax was up 37% to £911 million. I'll come back to tax in a minute. Adjusted earnings per share increased by 46% to 94.4 pence per share, benefiting both from the increase in adjusted earnings, obviously being the significant driver, but also from the reduction in the weighted average number of shares because of the buyback. Obviously, the weighted average number of shares is going to continue to reduce from the completion of the share buyback this financial year. So just briefly on basic earnings per share, overall profit before tax was up 37% ahead of last year, actually similar to the adjusted profit before tax. Let me just point out two things on this slide. Firstly, in profit sets, losses on closure and sale of businesses, we have a loss of 10 million pounds relating to the closure of our China sugar business. And secondly, the exceptional charge of 6 million. To give a little bit more color on the exceptional charge, it's made up of two things, both in sugar, a non-cash exceptional impairment charge of 18 million at Vivergo, which although it's performing well operationally, and George is going to speak a moment about that in a moment, it continues to be impacted by margin volatility. And offset that, we had a 12 million pound partial reversal of the impairment we recognized in Mozambique last year. So overall, basic earnings per share were 87.4 pence, which is 30% ahead of last year. So just on tax, the adjusted effective tax rate was down from 24.7% this time last year to 23.2% this year. This is largely due to the change in mix of profits and in particular through the increase in the profitability at Primark. And that all set the full year effect of the increase in the UK corporation tax rate. And as guided at the beginning of the year, we've seen a much lower level of cash tax as we benefited from capital allowances and overpayments from prior years. So you'll be able to see that in the cash flow in the next page. But we expect this lower level of cash tax to benefit the full year. So on cash, obviously, we're very delighted. We're very delighted. We're delighted with the cash inflow of £468 million. Let me go through some of those components. Firstly, of course, we have the higher profits we've already discussed. Let me go through working capital next. As you can see, we had a positive working capital movement in the half compared to a large outflow in the same period last year, and that's despite the normal seasonal working capital outflow we see in businesses like sugar. And so this performance in working capital reflects a number of things. One, a normalization of inventory at Primark as expected, stock reductions in most of our food businesses, as George mentioned, and reducing inflation overall, and various other working capital initiatives. We continue to expect these to drive a meaningful decrease in overall working capital at the year end. Next, You will see the step up in capital expenditure mentioned earlier. I'll cover that in a bit more detail by segments in a moment. After that, as I've already mentioned, you can see the cash tax level was low. Actually, the actual amount being the same as last year despite the increase in profits. And finally, in other, we see the benefit of the abatement of the UK pension payment contributions we spoke about at the year end. and all adding up to the strong net free cash inflow. Below free cash flow, of course, we have the cash outflow for our continued share buyback programs. We also paid £348 million of total dividend, which reflects the final dividend and special dividend from last year. Which leads us nicely to the group capital structure and its strong balance sheet position. We ended the period in strong cash and liquidity position. This includes the one and a half billion undrawn revolving credit facility, which we now have extended out to 2029. As mentioned, during the financial year, we executed 281 million pounds of share buyback programs, with the remaining 275 million of our second 500 million pound buyback to be completed by the end of the financial year. We are declaring an interim dividend of 27 points per share, as I mentioned, reflecting the growth in adjusted earnings. And at the end of the half, we had financial leverage ratio just under one time. I thought I'd finish, actually, on the step up in the gross investments, given it's such a big theme for the business, and George has already mentioned it, as we look to drive median term growth. And George is going to talk about elements of this in a moment. But in the first half, we had gross investments of 571 million, as I mentioned. It includes a number of multi-year strategic initiatives to improve capacity, capability, and sustainability. In grocery, if I kind of go around the pie, you see some of the highlights include the continued investments in the production facility in Nigeria for Ovaltine, which will serve and markets across West Africa. In sugar, you see the continuation of the build of the new sugar factory in Tanzania. In sugar also, a lot of decarbonization projects in British sugar, and George is going to speak to you about one in a moment. And ingredients, the expanded capacity for the Oli yeast extracts business in Hamburg, and indeed our new yeast plant in India. In Primark, the outlay reflects the continued store expansion. as well as investment in warehouse automation and technology, including new logistics centers in both the U.S. and in Ireland. Overall, we continue to prioritize investment in the business. As we've previously said, and as you can see in the first half, we expect to increase spend in each of the next few years to slightly above last year's level. So, okay, with that, I'll hand you back to George, who's going to take us through the business in a bit more detail.

Thank you very much indeed. Starting then with grocery, where the trading performance across the half was really very strong. Margin improvement in particular characterized the half, but also fair decent sales growth, sales up 5%. I especially want to call out the performance of our U.S.-focused brands. Performance was nothing short of sparkling in the first half. And then we've been increasing our investment in sales and marketing. through the period. Let me turn now to the international brands. So, Twinings and Ovaltine in particular, but also Patax and Matheti. At Twinings, we've seen good growth in major markets led by further growth in the well-being range of teas. Ovaltine more mixed. Powder sales in Thailand, which is our largest market, were down a little, although ready to drink has been Selling well and successful new launches of a number of Ovaltine type products across the world in Europe, but in Europe in particular. Patax is going really well internationally, particularly in the U.S. and Canada. We've really got the wind in our sails there. And then Mazzetti where we are after building a global, premium balsamic vinegar brand. Again, strong volume growth in the half on the back of good commercial work. We have increased marketing investment to support the long-term growth of these brands, and that will be a characteristic of the second half, and I have no doubt of years to come. Let me show you an ad that we've made to support twinings in the United States, and then I'll say a few words about it, but it's a significant piece of the mix that is helping us drive sales very strongly in the U.S. and actually the Canadian markets as well. So if we could show you that.

A few things to say about it.

It's in the top 1% of ads in the Kantar database. It is very effective at driving sales and brand attributes. It's also a very efficient piece of footage. A lot of the footage was originally produced for the French market, and we've been able to repurpose it. Thirdly, though, as you can see, it promotes cold tea as well as hot teas, and it promotes wellness. It notes that we're the market leader in English breakfast tea in the U.S., but sells the entire range, and it also notes the 300-year heritage. It's working extremely well for us. Let me move then on to the regionally focused brands and starting where I really should on the U.S. focused brands. That is the bakery ingredients, retail bakery ingredients and also Mazzola. We see a strong performance in Mazzola supported by new capacity so we've de-bottlenecked the factory in Chicago and given ourselves the capability of supplying the entire market which we really didn't have for a couple of years beforehand. So, Mazzola is now really undisputably the branded market leader and sells at a price premium to other edible oils. Fleischmann's, which is the brand under which retail yeast and starch largely sells, continues to benefit from all the trial that occurred during lockdown. We feared that people would lose their home baking habits once they were free to do other things, but a good chunk of them haven't. So we've had a really good step up in sales of yeast in particular, and that's a very profitable line for us. As I've mentioned before, our bottle oil joint venture that we have, again, in the States, that's had three really good years, and the first six months of this year continued the performance of the prior period. In the U.K. then, a successful product launches in Dorset and Ravita in particular. We've got some flavored things in your goody bags which are selling really well. We've also covered Ravita with chocolate. It's a traditional thing for Westerns to do going back all the way to my great-grandfather. And they have landed very well also. Improvement, good improvement now at bakeries on the back of a little bit more volume and very good cost control. Australia and New Zealand are doing it tougher. They have their first consumer downturn since 1991. If you were working then and experienced that then you're in your 50s, no one else in the working population has seen their disposable income go down in the period. We're seeing people respond exactly as we see them respond in Europe and the U.K. with increased sales at discounters and branded sales going to our own label. They'll get through it, but I think we've probably got another six months of consumer squeeze, not until interest rates start to fall, I think, in Australia will consumer sentiment turn. If I can move then to ingredients, really, really pleased with the performance of our ingredients businesses. Strong margin and profit growth and ahead of our expectations, driven by yeast and baker ingredients, so AB Maori. And we'll get into the reasons for that in a moment. A tougher period for ABFI, the specialty ingredients part of that portfolio. Significant capital investment. characterizes both parts of our ingredients portfolio. So Maori first, sales have benefited from the annualization of price increases, but also from volume growth in the UK. Essentially, the margin has stepped up a little and across large volumes. That is very, very satisfactory. Input costs have been well managed. And that's helped too. We're investing in new capacity to support the long-term growth. There's more capacity going into Brazil. Production is underway in the new specialty yeast plant in the UK. And then, as Owen mentioned, we are well underway with constructing a major new yeast plant in the northeast of India to supply that growing market. ABFI then, as expected and has been reported by many others in this sector, sales and volumes in the period have been down. Customers are destocking. They continue in some parts of that. We are seeing green shoots in other parts, but only in the last couple of months. We've been taking safety stock of these sorts of ingredients out of our businesses too and everyone else is doing so also. I think we'll get to stability maybe by the end of our financial year, maybe by Christmas. But we've seen margin improvements. Again, good pricing actions taken last year and some of the raw material costs have come off in the time since. We have taken the decision despite the volume declines to keep investing in R&D and keep investing in commercial capabilities, essentially putting salesmen into new parts of the world where we didn't previously have sales coverage. We're expanding manufacturing capacity at our yeast extract plant in Oli. That work, again, is well underway, and then there's a major new packing line going into our enzyme factory in Finland. It'll be ready by, I think, the end of this financial year. Finally, in specialty ingredients, we have been so fortunate to have enjoyed The leadership of Fabienne Sardin Oaks for the last nine years in the sector, she's now taking a well-earned retirement. We are very pleased, though, that Jérémie Joux has joined us to replace Fabienne. Like her, he has a long and very distinguished career in specialty ingredients. Agriculture. It shouldn't surprise anyone that revenues have fallen this year. Significant parts of this business are essentially cost plus related, and when costs come down, so do revenues. It was a difficult year for compound feed markets both in the UK and in China. And then just to add to the tale of woes, which is a bit unfair given the profits are actually up in the first half, but the wet weather affected Frontier. Frontier is a magnificent company. supplier of agricultural inputs into the UK market and also the leading grain trader in the UK. But if farmers can't get onto their fields, then we can't either buy their crops from them or sell them anything to put on those crops. So, when the weather returns to normal, we will get back on the front foot in Frontier. Sugar. Social got a good first half. Volumes have been strong across the piece, though, in Europe and in Africa. The trajectory of the African business continues to encourage us. The rollout of retail brands continues. The routes to markets keep on developing. And then this is the half where we've seen significant improvements in some of our more challenged businesses. So much reduced losses in Vivergo. That plant is now working well, and also the closure of our business in, our sugar business in North China, which brings our involvement in the Chinese sugar sector to an end. I think we first went in there in the early 1990s. Across those years, it's been a very profitable business for us. Turning back to Europe and operations, Very pleased with sugar production in the first half of the year. So the campaign produced 1.1 million tons of sugar against something like 730,000 tons last year. Last year in the second half, we were having to buy in high-priced sugar to supply our customers. This second half, we won't have to. It is evidence of just what a good crop sugar is for the UK agricultural sector. We've had the wettest six months in living memory and yet all the sugar bar a couple of fields, it really is just a couple of fields, has been successfully lifted and processed through our factories. Sugar sales in the period we've been rebuilding stock levels, they got very low last year as we scraped the inside of silos out to minimize the amount of polish sugar we had to buy to supply our customers and we've been refilling some of that this year. Azucarera crops good, good pricing. We've been paying more for sugar beet and raw cane, but we could afford to do so because of higher prices. And then the Virgo, so the plant works well now. It's taken us a while to get it up to design capacity, but it's there and increasingly reliably so. So the losses were significantly reduced in the period. Margin volatility continued, but actually at a much lower level than we saw in the first half last year where we had the record low prices or low margins right across European ethanol. It's so much better now. Let me just spend, as Owen said I would, a little bit about decarbonization at Wissington, which is the largest of our UK sugar factories. There is a really big 80-20 rule or reality across ABF's carbon emissions. 80%, more than 80% of all our CO2 comes out of our sugar businesses, and 80% of that comes out of the four UK plants. So when people ask us what we're doing about carbon emissions, and they should, we really should be talking about what we're doing in sugar, which is why I started doing so here today. So we've invested... some tens of millions in additional evaporation processes at Whittington. The payback on that in terms of energy savings is more than attractive. It's good payback. But it takes Whittington's carbon emissions, this is scope one and two I've been talking about, sorry, scope one and two, down by 28,000 tonnes a year, which is 2.7% of British sugar's total, which as I say is getting on towards half of ABF's total. So, yes, we're doing work everywhere else, but the big stuff is in sugar. Now, we've proved the point with this one. We're going to do the same again. It will also have a good payback, and then there are two other even bigger projects that we're going to put into, that we're going to invest in and install in the years to come. This is the big bit of ABF's decarbonization right here across those four factors. Turning to Alovo, sales performance has been good. Profit has been flat, but profit jumped last year, so it's remained at the higher level, which is great. Good domestic sales growth. ABF Treasurers have been working, Treasury Department has been working hard to cope with devaluations and hard currency shortages in Malawi, add Nigeria to that list, and Argentina. We know more about hyperinflation accounting as well than we might have ever wanted to, but it's the reality. So Malawi troubled in terms of access to hard currency, but sales good. Production was mixed. This is a business which is very heavyweight agriculture and processing business. Zambia, which is the largest of our factories and the largest of our markets, is going well. Adverse weather in Tanzania and Malawi. If you thought it was wet in the UK, you should have seen some of the pictures coming back from Tanzania and Malawi. We were sideswiped in Malawi by a hurricane. It didn't do much damage, but gee, it dropped a lot of water on us. And then the construction of the new sugar mill in Tanzania has been bravely carried on through just the heavens, opening and remaining open. Normal consequence, I am told, of El Nino years, that's fading away. I think it's more a periodic climate event rather than profound change. And actually, even if the weather is changing, we're coping with it. Right. Let me just have a glass of water before I come on to Primark. It's been a very important half for Primark. We've delivered 7.5% sales growth and the margins recovered to 11.3%, which really is in the pack with the sort of net profits we were making before the pandemic. We outperformed the market in the UK, in Spain and France. even though sales in all those markets were soft. We've made really good strategic progress across digital, other forms of technology, and also brand investment, and I'll show you some of that in a moment. We've completed the Click and Collect trial. We've learned a lot of really interesting lessons. We have our own way of doing digital and Click and Collect, and we'll be broadly, we'll be rolling out our capability across Great Britain. And again, I'll say more about that in a moment. So the UK sales were good. Strong like-for-likes driven mainly actually by the carryover in last year's price increases. We didn't put any new price increases through this year. Football was up slightly. Market share was well up. Christmas was good. January, February a bit soft. And basket sizes are down a bit. Now, we're beginning to see, we think, some improvement in basket sizes, but until the weather turns, we won't really know where we are on that important measure. Primark celebrates 50 years on the UK high street this year. We opened our first store in Derby in 1974. Despite having been here for a long time, there's growth left for us in the UK. We're spending £100 million on the business in the UK this year, and we're still growing well. Sales growth in Europe, 7.9%, with the likes of one and a half performance. Good performance, actually, across most markets. As I said, we outperform the market in Spain and in France. We've seen strong growth in Italy driven by new store openings. It's a great market for us. Performance has improved and is improving in Germany and was strong in the Netherlands. Slower recovery in consumer assessment in Portugal in particular. Ireland had a softish first half but seems to be getting better now. And then space contributed 6.4% to sales growth in Europe with six new store openings. three France, two in Spain, one in Poland, and then Hungary opens in a couple months' time. U.S. performance. Sales growth is 38% driven by new store openings. Three new stores, Chicago, Long Island, and Charlotte, North Carolina. We've now got 24 stores. and we're expanding into southern states. The new distribution center at Jacksonville is open and working. We signed leases in Texas, Maryland, and Tennessee. The overall profitability of our U.S. business is much higher in the first half than it was in the same period last year, and the profitability of our new stores is compelling. So, the full rollout continues. We're still on track towards 530 stores. The rollout is part of the growth story, but there are other parts to it too, and let me then move on to them. So the expansion of the product offer continues, where the offer is getting broader for both existing and also for new customers. Nightwear, knitwear, alongside seasonal products in the first half very strong. The partnerships, so with Pala Ece, Rita Ora, and Women's Wear Chem, In menswear, they're all driving sales in all our markets. So Paola, for example, doesn't just sell in Spain. She sells everywhere. It's not all about the partnerships, though. The edit range, the elevated essential, is now in 270 stores. That's been expanding steadily for some while now. Good performance in performance and leisure wear in men's and women's. Good growth there and more to come for half two. Home and beauty, reasonably new categories for us, again, giving us good growth. Licensing, we have a very strong license business and it's going well. Hello Kitty, I am assured is to spring what the Grinch was to Christmas. And then spring, summer products, we just need the weather. We saw it in parts of France and Spain last year, last week, and the response in sales was very good. We're looking good. We just need a bit of warmth. Digital engagement then. So we've continued to make really good progress with the digital engagement strategy. We've seen traffic increase across all markets, digital traffic increase across all markets, and 20% of all visits to our website and almost all our markets use the stock checker which we think is a really good indicator of an intention to go to the store. There's more to be done, search engine optimization, customer relationship management, these capabilities we have and we're exploring them. We've made the most progress in the UK. That's where we've done most of the development work so it shouldn't surprise us. We have been exploring testing paid marketing. So far it's going well. It gets knowledge of our ranges into people's minds very quickly and it enables us to target new customers very accurately. Overall, we have no doubt that digital engagement is providing meaningful support for sales and as I say, there's lots more to come. We think really that there is a last mover advantage in this space. We think that's true as well for Click and Collect and so let me tell you what we're doing there. So we've completed the UK trial of click and collect. The results have been encouraging. The click and collect basket is much bigger than we thought it was going to be and it's profitable. The attachment rate then for people going into stores to click, to collect their click and collect order, the attachment rate is higher than we thought that it was going to be and a higher percentage of shoppers are doing, are shopping for another basket. So that drives the economics very well. We understand what the cannibalization rate is from one type of store to another type of store and it's very acceptable and we know because we've been trialing women's wear what the return rates are and that also works for us as well. It's incremental. It satisfies things like unfulfilled demand from both new and existing customers by offering them extended choice beyond what their local store offers and we think that the combination of digital and click and collect creates a mutually beneficial flywheel effect. It's essentially we're driving people into the stores using both the digital engagement and also the click and collect capabilities. So the results that we've seen and analyzed and the analysis has been very high quality. It gives us confidence to roll out the service to all stores across GB. It will be a curated product range across women's wear, kids, men's wear, and selection of home wear. So not everything that we sell will be available on Click and Collect, but what we do will provide, will drive incremental sales and incremental profit. The phase rollout starts later on this year. Our ambition is that there'll be Click and Collect desks capability in all RGB stores by the end of next financial year. We have at the same time been doing a lot of work on the Primark brand. As the business grows and grows between markets, I think there's an opportunity to go beyond great prices, great product, great stores into sort of brand representation of who we are. We're about bringing coherence and discipline to our communications. In short, what we're saying is best prices you'll find in the high street, good quality, sustainability, transformation built into everything. A big part of this is what we call the brand world. Essentially, it's our visual identity. We're going to use it consistently over time, and it will leverage our physical and digital estate in building the brand. It will include some new attributes, which includes This P portal that you see here, customers will see that more and more across all our markets. The first market we've used it for is Germany. I'll show you in just a moment. Now, we've also made our first ad for the German market as that's the market where we know, where we want to challenge and improve our brand perception and the campaign which I'll show you in a moment, is a key pillar in our overall Germany transformation strategy. So if we show the German ad, please. So, for our German customers, you'll see how the ad is emphasizing the versatility, the durability with stylishness of our clothes along, of course, with their affordability. Right. So, before I turn to the group outlook, let me just summarize this, the set of results. Obviously, very strong set of first half results. I'm delighted that across our businesses, that so many of our businesses across both food and also retail are performing very well at the same time. But at the same time, we continue to increase our investment in the long-term strategic opportunities which are available to us. Let me then turn to the outlook and to the second half. The group is on track to deliver significant profit growth growth in profit and cash ahead of our expectations just going back as recently as January. Grocery continues to perform well and we're stepping up the investment in that sector in both sales and marketing. We do expect some reduction in margin U.S. oils to come in the second half. It shouldn't surprise anyone. Sugar will have a better second half than second half last year with normally cost of sugar to sell in the U.K. There's no reason to think the ingredients won't continue to perform well. We may see some volume improvement in the specialty ingredients part of that. Primark will have a second half, a good second half. The store expansion remains on track. Operating profit margin will be moderately higher for Primark in H2 and investment in that growth business will increase again. Group capital expenditure will continue at the same pace. And for a number of years ahead, I would expect, many of the projects that Owen took you through are multi-year investments. I am, of course, mindful of geopolitical risks. They are clearly out there. But it does go, these results, I think, do go to show you just how strong this business is when times are more normal. And if the world is to remain normal, then there really is very little limit to our ambition.

Thank you very much.

Thank you.

Thank you, William Woods from Bernstein. Three questions on Primark, if that's right. On margins, you've now got close or almost at pre-pandemic margin highs. Do you think that's the ceiling and do you think there's more to go in Primark? The second one is obviously the Primark management team has shrunk has got smaller since John Little left and now the CFO gone. Do you think the Primark leadership team is strong enough to keep the strength of the business going? And then finally, just on brand and paid marketing, you've historically not done any marketing within Primark and you've kind of focused on the strengths of the stores, products, et cetera. Why do you think now is the right time to invest in marketing? Thanks.

Do you want to do the first one and then...

Well, I think, I mean, as we kind of have been saying, I think probably for the last six months, we were hopeful that we were coming back to sort of what we kind of think is the right place for our margins in Primark, which is what kind of first half shows is kind of the right place for margins. Obviously, there's lots of kind of, you know, ins and outs of what drives our margin, but we think it's in and around the right place. I think we're now at a place where we're going to be kind of going for growth. And, you know, like, so, you know, we flag the investment point. And that's a purposeful flag because we're saying here that now that, you know, I'm not saying that the chaos is behind us because, you know, But the last few years have been, let's be honest, you know, complicated set of few years. In that time, though, we have been doing quite a lot of work behind the scenes, right? You know, the digital work that we're doing, which is obviously culminating in the rollout of Click and Collect. We didn't just kind of come up with that brand ad, like, you know, overnight. You know, obviously we've been working on brands and so on for the last year, etc., There's quite a lot of technology work that we have to do to actually continue to build the business to be able to enable growth. So all of that means I think we're not really looking for margin expansion from here. We're looking for growth. And I think that's probably where I think how we're feeling about it right now. This isn't guidance for next year or anything like that. That's how we're feeling about the kind of prime up margins back to the right kind of zip code and and invest in growth from here?

As to people, good question. We're obviously in the market for a new finance leadership. We'll make an announcement when we're ready to. There has been lots of building of leadership capability across Primark in the last two or three years. We had very good marketing leadership. That was, we've never had before. We've got really good digital leadership. That was a capability we didn't have before. We've got very good IT leadership. That wasn't the case before. So all this is in support of the future growth, but I think we do have manifestly more better capability in really important areas that are going to drive our growth. And we'll keep on investing in them. As to paid marketing, I think there's just an opportunity. The, you know, the journey to purchase now starts online. We can intervene online. We can change people's opinion. We can bring people to our shop window. as never before, and so why wouldn't we? I think in a couple of markets, we know in Germany we've got a job to do to improve the brand, and in the States we just have an opportunity to point out the brand to more people. So these seem sensible things to do. I don't think they represent a change to strategy, but where there's an opportunity, we'll go after it.

Thank you very much.

Good morning, Richard Chamberlain, RBC. Can I ask a couple of questions maybe about the US, if that's okay? Can you just talk about why U.S. profitability is higher now for Primark? Is that just an actual sort of level of scale or, you know, some cost savings or whatever? And then also about the – on the grocery side, just run through the reasons why you're expecting a normalization to come in the second half. Is that a comparables thing or is it to do with pricing or what are the main reasons behind that?

Okay, U.S. profitability improvement is driven by several things. Supply chain cost is much lower. So freight costs into the U.S. market, things like the marriage costs that we were wearing last year because of stuff up supply chain, that's all resolved itself. So that's point one, which is the supply chain cost. The cost of goods is lower, too. That's the second one. The third one is that these new stores are more profitable than some of the existing estates. I don't think we would claim yet that we're seeing sales leverage across the estate. We haven't got enough stores to have that flywheel going. But maybe I'll go back into supply chain. The Jacksonville Depot is reducing transport costs. in that logistics cost again to store somewhat. So it's more a cost, it's a cost bucket and it's a better store location bucket. Sorry, in food, again, there are two different things. There's very good performance in certain areas of the states in particular, but not just their findings brand, for example. The process of recovering cost inflation, It was last year's job. It was done. We carried more normal margins into this year. We haven't seen much more cost inflation. We have, obviously, an occasional commodity. So we haven't had to put our prices up again and go through all the kind of that involved in the year before. So normal margins there. And then improvement in allied bakeries moves the needle.

And just to follow up, in terms of Primark pricing, what are you seeing there? My understanding is that you've probably already prices are starting to come down in some areas like Kidswear. Is that right? I mean, are you expecting that to ?

Yeah, we've reduced some of our prices in Kidswear. We haven't put anything up anywhere else. Given where labor costs have gone to and, you know, Some of the other input costs, they've come down a long way, but they haven't gone back to where they were. So I don't think we're in deflation territory. We will defend our market position.

Okay. And the volume response in kids to those prices? Too early to tell. Okay. Yeah. Wait for the weather. Yeah. Okay. Thanks.

Thank you. Thank you. A couple around food strategy, I guess. That's not too grand. Firstly, in terms of food security, where do you see ABS role in food security and how do you feel governments are positioned in that respect? And then secondly, the other end of the spectrum, ultra-processed foods. I just wonder to what extent the debate around well-being, diet and well-being, is influencing your portfolio decisions in food, and maybe give us an indication of how active you'd expect to be in food M&A in future, noting that UPF is an important discussion for the ingredients sector.

It's kind of how much time we got. So, you know, we've got a big role in food security in the UK in particular, but also in other markets, Australia most notably. We are buying a lot of the UK cereal crop. We're processing a manifest amount, a good amount of the flour, and we're providing a lot of high-quality affordable food to the UK population. I would actually be feeling slightly better about just being, since we talked outside. I think the actions the government has taken to limit the amount of land that farmers can give over to sustainability schemes, the limitation of that is something that we absolutely welcome. So 75% of their land has to keep on growing stuff and that's really good. The most secure food is the food that's growing closest to you. And then secondly, and I know it's controversial, Our continued ability to use neonicotinoids on the sugar beet crop, albeit in very small quantities on a crop that doesn't flower and all these sorts of things, is a good sign that the government recognizes that agricultural science is part of productivity, is a big driver of productivity. and until we've got some other better solutions that allow us to maintain that productivity, then the judicious use of some of this chemistry is a good thing. So, great. We're further away from some of the, I think, really destructive narrative in continental Europe about just kind of, and putting it in the hands of somewhere else further away and hoping that supply chains then work. On ultra-processed, this isn't intended to be a factious answer. I don't really know what it is. I know that 94% of our UK groceries don't trigger the high fat, high salt, high sugar. And I get what those are. Those are ingredients you can measure. I don't think the ultra-process debate is particularly helpful because I'm not sure that it makes my life any clearer or the consumer's life any clearer about what they should be eating. So it all sounds good, but I think as, I think at its worst it's destructive of years of sensible scientific advice on diet. We need more advice. We need more science. We need more knowledge because we know we've got an obesity problem that needs challenging, that needs tackling. But we tackle it on the basis of fact rather than something that quite frankly is good for selling a book.

Just in that respect then, can you give us a steer as to how active you expect to be in Food M&A going forward?

In Food M&A? Where it helps us build our businesses. We'll get involved in it. I think our approach to M&A at the moment is the same that's been for a while. Where it helps us to accelerate the growth of a part of the group, we'll look at it. Prices in specialty ingredients seem to have come down a bit. That's a good thing. Prices of assets in the United States seem to have come off a bit. That's a good thing. but essentially we use M&A as a growth tool rather than a process of buying, but in ways accelerating growth rather than just buying income, going in and buying earnings.

Thank you. Gary Martin here from Davie. Just a couple on Primark, if you don't mind. Just starting with H2 volume. I mean, obviously it's going to be very weather dependent and there's a lot of variables going on, but I suppose you've initiated Your paid marketing trial are expecting any kind of incremental benefit in the second half just from initial files and marketing. That's my first question and then just secondly just on Primark again, just on the up weighting of some of the premium ranges like Ken Edits and just licensing across the estate seems to have ramped up a little bit. Are you expecting an incremental margin benefit from that?

We would expect both to drive sales but not Not usually. So the paid marketing that we've been doing is demonstrating to us that there's good short-term payback on advertising if we choose the right product. But we've talked about the whole digital strategy, perhaps improving like-for-likes by a percent or so. We might be able to push that a bit further if we do more paid marketing, but we'll be very judicious in how we use it. Not a massive feature in the second half. So it's not a massive feature in the second half. As to the expansion of the ranges and some of the more higher price point products, we just think that there's an opportunity with changes in the high street to expand our offer without shifting our offer away from what we've always been, just adding more product, more price points, still offering great value. And As you can see by the expansion of the edit, for example, to over 200 stores, that's been going well. Now, it doesn't necessarily, it improves cash margin more than it improves net margin because we're still fantastically competitive at these higher points, price points.

Makes sense. And I just want to follow on just the paid marketing trials. It seems to be quite targeted geographically right now. It seems to be focusing primarily in Germany at the minute and potentially USA in the near future. Is that the orientation of how you expect to roll it out? Is it going to be targeted by different geographies?

We know from the work that we've done that there are segments in all our markets who don't shop in our stores as often as we'd like them to. and paid marketing particularly when targeted then with products that we think will appeal to them seems to be a very sensible thing to do. The brand work is more relevant for Germany where we have a brand issue than it is in the markets where we don't have a brand issue. Okay, cool.

Okay. It's Adam from Deutsche Bank. In terms of on Primark, the click and collect, is it something from the lessons that you learned in the UK that would make it applicable into your other markets? I know you maybe will do a trial in the future, but is there anything that you've seen so far that would make a – that you think it wouldn't be any different in the European market? And then on Primark, incredible job on the margin. Given how much everybody else is talking about cost inflation in terms of the OPEX space, Have you still got ongoing efficiencies within the Primark cost base that's helping to alleviate some of those cost pressures? Or is it all just that gross margin flowing through? And then the final bit on Primark, it seems that capital structure really more generally, you've had a couple of years of special dividends, of share buybacks. You're talking about increasing the investment. Is all of that investment going to be just funded by the higher profitability that you're generating? And then to Clyde's point on M&A, Is there now more of a growth agenda? Is there more on Primark store refits that we could see? How do you think about capital structure for the next sort of one or two years? Why don't you take those?

Okay. Yeah, no, I definitely think, I mean, we've learned a huge amount in Click and Collect. As George said earlier, it's probably an exemplar of how we should do analytics at Primark actually has been the Click and Collect work. So we have learned what products work. We've learned what customer missions we're trying to go for and target by click and collect versus just straightforward store visits. Is that applicable to other markets? Of course it is. Yeah, it is. I think is the financial model viable in other markets is a sort of different question. And I think there's two factors that kind of relate to that. One is your... your maturity in digital engagement, full stop. We are the most mature in the UK in digital engagement. We're the most mature in terms of our customer database, most mature in terms of our SEO, and indeed, it's the only place we do paid marketing. So you kind of have to kind of develop that level of maturity and then, you know, so obviously click and collect is then the next logical kind of step. So that's one factor. And then I think the second factor is just pure economics, you know, do you have the right clustering of stores, et cetera. I think that should work in some of our countries, some of our other countries. But, you know, you have to do the analytics. So we will look at it, but it's not a next year job. We will take our time and probably build out the digital engagement more at first. On ongoing efficiencies in Primark, yeah, there are still ongoing efficiencies in Primark. We have to invest a little bit to get after some of them. I think, you know, technology sort of is a factor in that and that's part of the reasons why we're kind of stepping up investment. So I kind of see, you know, obviously where do we have the big call space? Okay, we've got this big call space in our depots. We're investing in automation there to actually go after efficiency there. We have big call space in stores. We already have, I would say, a pretty good model in terms of efficiency and source, but you always are doing continuous improvements in that regard. And then you've probably got efficiencies in product allocation and arranging. And we see opportunities there to drive that. I mean, I'm talking all medium term here, right? So I think there's still quite a bit to go after in terms of economic model around efficiencies. On the growth agenda, well, look, I think we're, you know, look, the balance sheet's obviously in great place. But as we've kind of said many times before, just because you've got a strong balance sheet doesn't mean you sort of turn in a dime to do more growth. You do growth where you think it's sensible. We are going at a pretty decent click, we would say, organically at the moment. It's not like I would – we would kind of say – let's kind of do more kind of organically because we've got, you know, we've got a good pace and we've got a good, you know, just pure capacity as to what you can do and what's sensible. And we're still quite, you know, we're still quite diligent in terms of determining returns on our organic spend. And I think we're going to be the same again on the M&A. You know, I don't think just because we've got kind of big balance sheet means that we're going to actually just have a sort of M&A splurge. But, you know, again, where it's sensible to kind of enhance the existing businesses. You know, George mentioned speciality ingredients. There are certain parts of grocery that we would look at as well. You know, we will take a look and see if it kind of makes sense from a return perspective.

To follow up, in terms of the gross margin, in terms of the timeline, of all of the gains in gross margin that you expect to achieve from lower freight, lower input costs, Will they have been done by the end of the second half? By the time we get to September, is that it for gross margin? Yeah, I think so.

I think so, yeah. I think so. It feels to me that that's more stable now. I mean, it's probably hard to – I mean, we all know it's hard to almost – everyone needs to recognise the context we've been through in the last two years around kind of movements in gross margins. But it does feel to me that we're stabilising this year.

Morning, Warwick Oaklands from BNP Paribas, Exxon. Three quick questions, if I may, all on Primark. Firstly, on gross margins, could you give us a sense of the magnitude of gross margins compared with pre-COVID levels? Presumably they're a fair bit higher, but how much higher? Secondly, you've talked about Primark going for growth and you've discussed a number of the levers, but perhaps you could just summarise what the key levers are to generate higher sustainable like-for-likes. And certainly a couple of times you've talked about some efficiencies in ranging and allocation. Perhaps you could just give a bit more detail on that, please. Go on, take the first one.

Yeah, I mean, I think gross margins, I mean, I'd be surprised if people's models aren't, if we're not that similar to lots of other people's models, is that there's probably about three percentage points higher on gross on gross margin, about three percentage points higher on OPEX-ish, like I'm saying ish, because, you know, like obviously gross margins sort of bounce around a little bit, but that would be my sort of kind of off the cuff kind of answer on that one. And I think that's kind of the reasons why I think pricing is going to be benign in the industry, because I think that's what's happening in a lot of people's models, economic models.

As to growth, yeah, look, we do hope that as interest rates begin to fall, consumer spending will go up and our volumes will increase on the back of it. That's one area of this will drive like-for-like growth. All the work that's going on that we've talked about around ranges, will drive like-for-likes. That's the normal business of retailing. There's another one, the non-repeative in markets like Italy, the sales have been, the like-for-like sales are down based on the fact that we're lapping extraordinary opening period sales in that market. That will return to normal. But the biggest driver this year, and I suspect into the future, is the continued rollout. You know, 5.3% of sales growth in Europe on the back of new store space. This is a retailer that's growing its presence and still has a lot of white space to move into.

To your third question, it's another like-for-like lever, which is range optimization. I think every business has probably got continuous improvements in this area, right? And I think Primark does as well. The model has been relatively straightforward and As we kind of expand and you get more kind of complicated, different markets, you've got to bring a little bit more kind of science. I don't want to use the word AI, but you've got to bring a bit more technology into the equation and make sure you've got the right products for that kind of location. I don't think we believe – we don't think we believe we're – we've got room to grow there, let's just say. We've got room to grow. And it's not like we're not, this is not kind of new kind of, not new technology, really. It's just enhancing existing technology. And there are some obviously newish tools, which are a bit more kind of advanced.

Morning, Anubhav Malhotra from Librem. I've got a couple of questions, firstly on click and collect. You mentioned you've learned a lot of lessons on WordPress. So maybe just give us an idea on what attributes of products that you look for, because you're only putting a selected part of the range on Click and Collect. And then secondly, on the sugar business, it seems like all parts of the sugar business, Ilovo, British Sugar, Rivergo, the profit seems to be second-half paid this year. Is that the right understanding, and what sort of profit should we be looking for? Thank you.

Do you want me to deal with the sugar one? Yeah. Okay. I mean, it's not, they're not quite, it's only really British sugar in second half waiters. So, because we got the benefit year on year on the sugar. For Virgo, the big improvement is actually in the first half. What am I missing? Yeah, so again, FX and Lobo. FX and Lobo, yeah. I mean, well, I don't know. I mean, at this point in time, hopefully FX isn't going to be kind of a core component of the second half of the year. But, you know, I wouldn't say, yeah, so I wouldn't think it's going to be a big component of the second half of the year.

On some of the lessons of click and collect, some of them I've mentioned. So the click and collect basket is good. The attachment rate is good. The attachment basket is bigger than we'd expect it. and the returns are manageable. I think we've surprised ourselves. Some of the sort of things that we might not have guessed at have been around product that was already available in all stores. If you put it on Click and Collect, so some of the, some of the retail ranges, for example, some of the things like Clam Jams, the rate of sale improvement is very good when you add it to Click and Collect, even though it's in the stores. It doesn't seem to substitute. So that was an interesting one. The definition, and Owen hinted at it, of shopping missions. So don't just look at your range based on price points and availability. Look at it as a shopping mission. So what would be a good example? A wedding party. Put on click and collect a range for that event. Halloween, a range for that event. And that's worked well for us. So lots of subtlety in it. And another part of things to go after where we've got only where we've got credibility as a brand in a certain product area just click and click work. So we tried to, for example, add some things, some sort of nursery products to kids wear. And we're just not known for it, it doesn't work. So that was an interesting one. But where we are known, extending the range works really well.

Okay.

Hi, it's Mandy from Citi. Just a quick one. I think you mentioned when you started your Click and Collect trial, it wasn't going to be very incrementally heavy on your supply chain or infrastructure. Do you still feel that way, your infrastructure fit for purpose, or is some of that digital investment that you mentioned catered towards the Click and Collect as well?

Okay. So because the Click and Collect basket is quite big, we don't have to chase the costs down. in the delivery part of Click and Collect. Sorry, in the picking part of delivery of Click and Collect. So the capital that we need to put into efficiency at that end is lower than we might otherwise have thought. There's some, but we don't have to go down the whole kind of automated warehouse route. That makes the returns to Click and Collect much more attractive.

Got some questions I think online.

Paul from HSBC. Two quick ones. Could you just give a bit of guidance on the working capital over the full year? What do you think that number might actually be? And then secondly, on the US, you only added three new stores, but sales were up circa 40%. So I'm just trying to work out what the delta is there.

Okay. I think it's carryover stores that we opened in the second half of last year. Okay.

It's a full year, effectively. And working capital, well, typically, I mean, you would see sort of 300, 400 million outflow in the first half of the year. And that sort of tends to reverse for the full year. So you can probably put that sort of type of tip. That's kind of what we're at least targeting, I would say, for the kind of full year reduction.

Because we didn't have an outflow in the first half.

A couple of them.

Yeah, yeah. I'm going to just call them out, you know.

So, dear participants over the phone, if you wish to ask a question, please slowly press star 11 on your telephone keypad. And now we're going to take our first question. And the question comes from the line of Warren Ackerman from Buckley. If your line is open, please ask your question.

Good morning, George. Hello, and it's Warren here at Barclays. I've got a couple for you. I hope you can hear me okay. The first one is, are you able to quantify the level of the step-up in the multi-year Primark reinvestment? I know you talked about it in your prepared remarks, but maybe a bit more precisely how you think about payback and the balance of growth and EBIT margin in 25 and and beyond, so it's about the quantum of the step-up is the first one. And then the second one is just on this 2.1% like-for-like for Primark in the half, are you able to give us any help on the split between price, volume, and mix? And I ask that because the continental European like-for-like was up only 1.5%, but I imagine pricing was up, so volume is actually quite down. Are we starting to see a bit more cannibalization happening? Is it just weather, or is there actually any underlying weakness in the clothing markets in continental Europe? Can you just describe it to weather and cannibalization, or is there anything else going on that you can see on the ground? And then the final one is just on sugar. Some of your European peers, like Suzuka, have warned on EU sugar prices coming down quite materially. more Ukrainian tariff-free sugar coming in. Is there any risk that you think today on kind of 25 sugar estimates vis-a-vis the kind of uplift you're expecting in 2024? Do you expect another year of uplift in 25 or could 25 be a down year on 24 given EU and world sugar prices are rolling over?

Thank you. If I can just chip away at that list, the European clothing markets are soft. That has been the driver of volume declines on a like-to-like basis. There's been a small added factor which I've alluded to, which is the lapping in Italy of store openings a year ago.

And some cannibalization.

And a little bit of cannibalization. Because we're growing.

They're growing in countries like France and Spain, yeah.

And then on the sugar one, look, we're not giving forecasts for next year, but I think we've observed in Spain and in particular softening of European sugar prices.

I mean, I guess let's go back to your sort of first question. I don't think, look, I don't think I'm going to sort of quantify it maybe to the extent that you're going to want us to quantify it really. I think obviously all the investments we're putting in, we expect to have returns, right? So, you know, obviously most of the digital investments will have a return on the top line. The brand will have a return on the top line. The technology will have a return more probably on the there was a bottom line and a little bit on the top line. We would, so, you know, I think the, yeah, we are kind of shifting the balance a little bit more to growth. And I think probably that's what we say right now. And we're going to keep on kind of updating you as we go. Okay, thank you.

Thank you. Now we're going to take our next question.

And the question comes from the line of Grace Smully from Morgan Stanley. Your line is open. Please ask a question.

Hi. Good morning. Thank you. I have three questions, please. Firstly, just on the Primark margin guidance, I think in late January when you were saying that you expected the second half Primark margin to be slightly lower than the first half. Now you're obviously saying that you expect the second half to be moderately higher than the first half. Could you just help us on the second half Primark margin outlook what changed, please? And then my second question, on the primark like-for-likes and to your point, you expect an acceleration in volumes in the second half of the year, helped by some of your marketing and digital initiatives. Just in the case that the volumes didn't inflect positively and you had a scenario where like-for-likes were flat or slightly negative in the second half, are there still buffers you could pull on the margin side to still maintain your margin guidance for to be slightly higher than the 11.3 you achieved in H1. And then lastly, we'll just be on currency. Could you help us, given the recent move in the dollar, how we should think about FX as it stands, impacting primal margins in your fiscal 2025, please? Thank you.

I mean, when I was giving guidance for 2025, I repeat that statement. Of course, currency changes, dollar strength has an effect on both Euro sales and also sterling sales. So that's still to come. What were the other two?

I mean, I think H1, H2. I mean, I think, you know, what sort of changed since I made that statement? I'd say probably two things. One is... just probably a bit more kind of confidence around input costs and cost of goods into the second half. And I think the second one I would say is stock loss, actually, where we haven't talked about it, but, you know, stock loss has remained high and we've sort of trued up our stock loss for the first half of the year and that's probably where I was when I was sitting, when I'm making that statement, I wasn't sure we were going to do that or not. So I said a bit of two things. We consider that stock loss to stay high for the remainder of the year. And then on your point about volumes, yeah, clearly if we have a miserable period on volumes, that's going to impact margins. sort of, you know, at the sort of kind of modest level of volume kind of growth or even flattish growth, we think we have enough sort of kind of buffers, as you call them, in place for the margin guidance. We do need volume growth in the second half of the year, so we shouldn't be under any illusions. That is what we are focusing on, and that's what we are targeting.

Understood. Thank you so much. Thank you.

Okay.

And now we're going to take the last question. Just give us a moment. And the last question comes from from JP Morgan. Your line is open. Please ask your question.

Oh, hi. Thanks for taking my questions. I have three, please. Just the first one, you talked about taking share in Spain. I just wanted to clarify, presumably that was including space growth. And could you just give us a sense of what do you think the Spanish market has been growing by over the last 12 months? Some of the data is, you know, a bit different that we can see from the outside looking in. So, it would just be really helpful to get a sense there. The second question was on U.S. like-for-like performance, and just if you could clarify if that was sort of flattish or in positive territory now, please. And then finally, I guess this is following on from Grace's question, so perhaps there's nothing to add here, but if we are in a situation sort of politically where we see minimum wage growth higher, again next year by a double digit percentage in the UK. Are there levers that you can start to pull to achieve staff cost efficiencies in the UK or should we just be seeing some sort of margin risk there or potentially some price increase given that, you know, other UK retailers would be experiencing similar, like how should we be thinking about that please?

Thank you. On that last one, look, there are levers to pull, and Owen has gone through them, self-checkout, store efficiencies, depot automation, et cetera. If we had double-digit wage rises next year, we couldn't offset them in that sort of time period. It really is a hypothetical one, isn't it? At some point... wage rises get so big that you've got to move prices, but we're nowhere near that at the moment. And I don't want to speculate about what would happen there. Spanish data would suggest the market is just a little bit the right side of flat. So it's better than France, it's better than the UK. But it's, there's a little bit of growth in it, but not much. I can't remember what the middle question was. I can't remember what the middle question was.

Just on US like-for-likes. Yes, I mean, they're still negative, but they're still obviously been impacted pretty significantly by the SOAR expansion program. I still don't think it's sort of a – I mean, it's something that we look at, but I don't think it's still a meaningful indicator at this point in time when we don't have proper scale. I think the thing we're looking at more kind of closely is sort of the performance, particularly of our kind of, you know, sort of last 10, 15 stores, which are trading well.

Super helpful. Thank you so much.

That's okay. Great. We're done. Thank you all very much indeed.