Associated British Foods plc

Thank you all then very much for coming to this review of ABS full year results for the 52 weeks ended 14th of September 2024 and I'm aware that there are some people online and welcome to you too. It's a much easier job delivering today's results to those of the last four years. They're really very strong, substantial improvement in profitability with operating profit up 38%, adjusted earning per share up 39%, and then even better than the operating profit increase has been the increase in cash generation up to 1.4 billion. That's an increase of a cool 1.1 billion on last year. material improvements in our return on capital employed, increasing to 18.1 percent from 13.6 in the year before. They're not just strong financial results. We've also had a year of very good operational progress. Across the group, this has included strong execution in marketing campaigns, new product development, and capital projects. The marketing campaigns, the product development, got awfully stalled in the supply chain disruption and the inflation battles that we've fought in years gone by. We've seen a return to normality in our markets, in our supply chains. There are still some bumps, but overall many fewer. I think it's not just been about the environment. We've also seen the results of our consistent multi-year investment across the group. And this year, just gone, we invested another $1.3 billion. That will underpin future growth. It will also enable us to deliver on our most important ESG priorities. But even in a year of this record investments, we continue to increase our capital returns to shareholders. Our proposed total dividend for 2024 represents an increase of 50%. Over the last two years, we'll have returned approximately 2.3 billion pounds to shareholders through dividends and share buybacks. Looking at these investments, Specifically, we were investing even through COVID, new stores, depots for Primark, increased capacity and capability in our food businesses. And I'll take you through some examples of that through this presentation. Expenditure on sustainability projects, most of which come with a good financial return as well. And then a few acquisitions that are small in the grand scheme of things, but important. This next slide puts our profit delivery and margin recovery in the context of the last four years. In 2019, we were at 9.4% margin. In 2024, we're at 10. We've gone elsewhere. We went elsewhere in the intervening years. We're much more in line with what we were delivering before the disruption of COVID and the consequent inflation and disruption. With that, let me hand over to Owen to go through this year's financial results in more detail, and then I'll review this year's strategic and operational progress within the businesses.

It's green. It's not working. Okay. Thank you, George. So, look, I'm going to just take you through the results in a little bit more detail. Starting with revenue, you'll see group revenue was £20.1 billion, 4% ahead on a constant currency basis, with sales growth in retail and most of the food businesses. But the performance in adjusted operating profit was incredibly strong. up 38% on a constant currency basis to £1998 million. And I'm going to go into each segment in turn in a moment. But as you can see, that improvement was driven by retail, but also strong performances in grocery ingredients and sugar with all divisions advancing. It's worth just noting at this point, actually, that the increase for the group was 32% at actual exchange rates with an adverse translation movement of £97 million in the year. So, of course, the significant increases in adjusted operating profit meant that we had a very strong margin improvement within the individual segments and for the group as a whole, as George has said, from 7.7% to 10%. So let me take you through some of those drivers of the performance by segment, starting with performance. And there's a bit on this slide, so I'll go through it slowly. I'll also actually just note out that we've added some disclosure to Primark in the announcement today. We've broken down the business into more discrete country segments. And in the appendix to this presentation, we've given some historical performance by those new sub-segments. So in the year we had 6% growth at constant currency with strong performance in our key growth markets, particularly in the US, France, Spain, Italy and Central and Eastern Europe. We also had good growth in our largest market in the UK and a good recovery in Northern Europe. George is going to provide a little bit more colour on those markets in a moment. As we saw before, we achieved a significant recovery in operating margin to 11.7% and adjusted operating profit increased from 735 million to just over 1.1 billion pounds. This was driven by increased gross margins, which was supported by an increase in price in H1, but most notably by an easing in input costs. Remember that this is after we chose not to cover the full inflation in FY23. The increase in gross margins was partially offset by our labour cost inflation, and we are also investing in initiatives across digital, product and brand to continue our growth momentum. It's worth noting that a combination of this profit increase and the normalization of working capital has driven a material recovery in return on average capital employed also, which has increased from 12% to 18.7%. So moving on to grocery, we've achieved significant profit growth and margin improvement here also, all the while investing in brand activity to drive longer term growth. Sales grew at 4% on a constant currency basis, reflecting good performance across a number of our leading international brands, in Twinings in particular, but also at our regionally focused brands and at our US focused brands in particular. Again, here we've added some additional disclosure to give you a sense of the weighting of revenue by region. Easing input prices, input costs have contributed to our margin improvement to 12.1%, but so has the improvement year on year in our bakeries business in the UK and the strong performance of our U.S. brands that I've noted, and the latter effect of this performance in our U.S. brands began to normalize in Q4. Overall, we've seen a substantial improvement in our return on average capital employed, increasing from 30% to 35.8%, which actually, even if you adjust for the contribution we get from our significant JV in this segment, Stratus, it's still very strong and is above 30%. At ingredients, we've been pleased with our performance here. We've seen a strong improvement in profitability while continuing to invest in growth. Overall adjusted operating profit was up 12%. Our yeast and bakeries ingredients delivered robust sales and margin recovery and was the driver of that improvement. Speciality ingredients faced some impact due to customer destocking in the first half of the year, but showed improvement in the second half. We're very excited about the long-term potential of these businesses. Our sugar division actually delivered significant growth in both sales and profitability in FY24. Obviously, we need to break the business down largely to two components, European sugar and African sugar. In European sugar, it was most definitely a tale of two halves with high prices initially. And then as we announced at the beginning of September, a significant price decline in Q4, which impacted profitability and will so into next year, which I'll come to. In Africa, we had some very good performances, particularly in Zambia, South Africa and Eswatini, although a more challenging time in Tanzania. That's a market we have high hopes for, but had a lot going on in the year. It's worth noting that the operational performance in Virgo has reduced losses in the year, further contributing to our overall improved results. Margin volatility at that business still remains a challenge, though. Finally, we fully exited our business in China to streamline our focus on resources in the segment. In our agri division, we saw good growth in speciality feed and additives, which was a positive highlight. Sales and compound feed were soft. However, the real challenge was at our JV frontier, where prolonged wet weather in the UK negatively impacted demand. We continue to integrate our newly formed dairy business, which we believe will contribute to future growth. Right. How did this significant increase in adjusted operating profit drop down to earnings per share? As I said, adjusted operating profit was up 32% on an actual basis. So let me highlight a few other items. Finance income of £71 million was strong due to the higher interest rates earned on our cash. Other financial income decreased to 23 million, primarily because of foreign exchange losses caused by the devaluation of African currencies. And with these, adjusted profit before tax rose by 33%. The adjusted effective tax rate was 23.1%, which was down from 23.5% last year. This included the full year impact of the increase in UK corporation tax rate, but it also was much more than offset by changes in profit mix. So with that, and with the impact of the reduced number of shares from our buyback programmes, adjusted earnings per share was up 39% to 196.9 pence per share. In basic earnings per share, I'll just pick out three things. First, the exceptionals. We had a £35 million charge in the year, all non-cash. with impairments in sugar at Vivergo and our Mothballed Mozambique business, and at retail relating to German stores. The second point I just want to point out is the profit on the sale and closure of businesses of £26 million, which is predominantly due to the profit and sale of our sugar business in Africa. And the third point is a net profit on disposal of non-current assets of £16 million, which includes profit on sales of investment properties in the UK and Australia. So basic earnings per share of 193.7 pence was 44% ahead of last year, also benefiting from the lower number of shares. So on to cash. As George mentioned, cash flow was very strong. And that's despite the fact that we had a step up in total investments, both capital and acquisitions, which I'm going to cover in a moment. Of course, we had the strong profitability starting this off, but we also had some other good positive movements. I'll note three in particular on this chart. Firstly, a working capital inflow of 305 million. This is driven by a number of factors, including the normalization of inventory at Primark, which I mentioned, but also stock reductions in most of our food businesses and various other working capital initiatives. Secondly, the cash tax paid was broadly similar to last year, and that's despite the significant increase in profit. And that's due to overpayments from favourable settlements and returns historically. In other cash flow, we see the benefit of the UK pension fund abatement, which we mentioned at the end of last year, of £64 million. And overall, all of this contributed to a significant free cash inflow of £1,355 million. And of course, this, of course, led to a further strengthening of the balance sheet with an increase in cash and total liquidity and a reduction in overall net debt, despite the step up in shareholder returns. So crucially, the key metric is leverage and the combination of higher adjusted EBITDA with the lower net debt has resulted in a lower leverage ratio of 0.7 times at the year end versus one times at the end of 2023. Now, our priority is to continue to invest in the business, and the chart here is the one you're becoming familiar with in terms of how we break down the 1.3 billion we spent in FY24 across the businesses. Approximately 40% of the spend was into retail, which is investing in the growth program, but 60% was across food in a large number of multi-year projects to drive capacity and capability and George is going to comment on some of these investments in a moment. The second priority is to return excess capital to shareholders and we are continuing to step up our level of return given the strong balance sheet. So let me start with dividend. We're proposing a total dividend of 90 pence per share, which includes a special dividend of 27 pence per share. The level of total dividend represents a 50% increase year on year. In sterling, it's an amount of just over £650 million. So in two years, we'll have paid over £1.1 billion in dividends. On share buybacks, we executed our second £500 million in the year, and we also announced an extension of £100 million in September, which we have now completed. And we're announcing today another £500 million programme. Again, the total we'll execute over last year and this year will be circa £1.2 billion. So just to finish off on outlook before I hand you back to George, there's very little change here to what we said in September. We're targeting mid single digit growth at Primark in 2025, with margins to remain broadly in line with last year as we continue to invest for the future. As discussed in September, we expect a drop in sugar in 2025 before a rebound in 2026. Grocery will be impacted by the normalization in the U.S. performance, but otherwise we're looking for progress in this segment. And in ingredients and agriculture, we are also looking for progress. So with that, let me hand you back to George and I'll come back to you for questions.

Great. Let me start with retail with sales are up 6% in 2024 and we're pleased with that. We had strong performances and what we're defining now is our growth markets in Europe, Spain, Portugal, Italy, France, and together they account for around one third of Primark sales. And they're the real growth engines for the medium term future. We have good momentum in these markets. Our brand is well established. and we're building market share. We've also demonstrated, particularly in Spain, that we can successfully add stores beyond Tier 1 locations. So, moving to secondary locations using smaller stores, we've just recently opened one of these smaller stores actually in Portugal next door, where previously we'd really struggled to find new space. Portugal is a very good market for us. There is plenty more white space in these growth markets, Spain, Portugal, Italy, France. It's earlier days than in Central and Eastern Europe, but our brand and proposition is really resonating with the consumers, and we're confident of accelerating their Central and Eastern Europe. The US in the long term is our largest growth market opportunity. It's only about 5% of our sales today. We're now at 27 stores, and the business is nicely profitable. We're continuing to make good progress with the store rollout, 27 stores, and another 14 leases signed, two more to open before Christmas. Then the UK and Ireland represent about half of our sales now. We expect growth to continue, but not at the same pace as our growth markets. The year just gone was bumpy in the second half, which we firmly believe was really entirely down to weather. There's still plenty to go at in these markets, including through continual improvements in ranging, through digital customer engagement, and through store optimization and cost. In Northern Europe, the main focus of the last two years has been the restructuring of our footprint in Germany and to a lesser extent in the Netherlands. And we're starting to see the benefit of that work coming through. Both markets in the year just gone had a very strong improvement in like-for-like sales and densities. Some of this was the benefit of sales transferring from clothes stores, but some of it wasn't. It's worth remembering that Germany remains the largest retail clothing market in Europe, and we still believe that Primark has a role in that market. Store rollouts continued with 22 new openings. A highlight was the first store in Hungary, which had a fantastic response and takes us into our 17th markets. New stores in Europe have generally performed well with good densities, densities above company average. In the U.S., we added six stores in the year, our first stores in Virginia, North Carolina, and Michigan, our second store in Florida, very early on in this financial year and the distribution center that will support our continued growth in the southern states. That second store in Florida is an amazing success so far. We look forward to opening our first store December the 12th in Texas on the Mexican border. Since 2020, we've opened 19 stores in the U.S., and generally they're performing well with good densities, good profitability. One or two, including that second Florida store, are doing extremely well with densities well above our total company average. Inevitably, we've got a couple of them wrong, but we've got plans in place. To fix those, within the leases we've signed, we have an interesting opportunity in Manhattan. It's a store that in its own right makes good economic sense. The footfall in the area around Penn Station, where this store is to be located, that footfall is enormous. A lot of it is from wild estate. A lot of it is from out of Manhattan, I think the halo that that store provides for us will be really good. There's a real opportunity also in the States to unlock the growth potential by raising brand awareness. I'll come back to that in the middle in a moment. So looking ahead, we have very significant space to open into in our growth markets in the States, in new markets. And we have detailed roadmaps that we're working through. In terms of new markets, GCC is next. We're excited about that. It's a big market. It'll be our first franchise experience. I think the franchise model gives us capability of getting into markets beyond simply GCC. Instead of the 530 target, which we've been sharing for a couple of years now, we're now, given that 530 by the end of 26, we're now targeting new stores to contribute around 45% sales growth per annum for the foreseeable future, so well beyond 26 medium and into the long term. That's stores. Let me... give you a bit more detail of how we think about our product strategy. Core essentials are the first part of it. This is in four buckets, if you like. Core essentials at the heart of the business, and they remain the key driver of volume. These are things like leggings, hoodies, jeans, t-shirts, underwear, socks. Underpinning our business here is our relentless focus to ensure that we're never beaten on price. 85% of all the products Primark sells are under £10, and a lot of them are in those core essentials bucket. Alongside our great value proposition, we do have an opportunity to keep expanding our offer to slightly higher price points and more premium products, so collaborations ranges grew strongly. We had the first full year of the global partnership with Rita Ora. It's been a great success. Sales of the edit are more premium essentials range doubled this year, and it's now in 300 stores. And menswear, let's not forget the menswear teams. Sales of both Cam and LA Stronghold also doubled as we added more products within those ranges and introduced them into more stores. Licensing then continues to grow. Sales of NBA and NFL products grew particularly well, especially in the U.S. We added this Italian sportswear brand, Kappa, to the portfolio. Also, the partnership with well-established brands such as Disney, again, keep on developing. That second store in Florida has a Disney shop within it on its mezzanine and is phenomenally busy. And then we continue to work with new products. This year we added Hello Kitty, which has gone straight into the top three. Growth then finally is also coming from expansion into new categories, including home and accessories. In home, the offer is working very well. The standout success this year was ceramics. They went viral on social media and sales doubled. And the luggage shop, again, is really, really successful as well. Let me turn to a couple of our sustainability priorities. The first one is cotton. We're committed to using all our cotton, either being organic, recycled, or from the Primark cotton project. And we're making very good progress here. In 2024, the percentage was 57% of all our cotton coming from one of those three sources, and that was up from 46% last year. Cotton is by some way our largest fabric. Secondly, we're working harder on giving lives a longer life. You may have seen the 15-pound gene story. Our genes are sustained as long-living as any more expensive ones. We've introduced a durability framework across all our buying teams. It sets out the requirements that all clothes must adhere to, including physical quality tests and a set number of washers, and we're making very good progress there. We've previously highlighted the work we've been doing on the Primark brand, including an updated look and feel. So a good example has been the introduction of what we call the P portal. You can see here, this is now all across all our channels, all our marketing. We are, through digital in particular, getting better at tailoring our local communications to customers in individual markets. And for the first time, we've invested this year in multimedia marketing campaigns in two markets, Germany and the US, different jobs for each of those campaigns to do for us. So in Germany, it's part of the overall transformation plan. We launched a brand campaign last spring. It's aimed at addressing Primark's brand perception in the market. We've had, I think we're on the third burst there. We're tracking various metrics, for example, brand affinity and consideration, and we've made good progress. Too early to claim success, but we're moving those brand metrics strongly. And as I said earlier, the like for likes in Germany have been good as well. In the US, we have a simpler goal. We just want to increase brand awareness. We have every faith in our proposition for the US shopper. We just need more people to know about us. So in August, we've launched a 12-week media campaign in the New York area. I think we have 11 stores now. that are covered by that marketing campaign. And the campaign is still ongoing, but the initial testing is positive. Let me be quiet for a second and show you the ad that we have been running along with other media, aspects of media.