Associated British Foods plc

My microphone apparently is live. Look, thank you all very much for coming in. We believe there's something else going on in London, or so Chris's taxi driver said. So we're very pleased to see you here at anyone's online as well. Thank you for joining us for this review of ABF's interim results. for the 24 weeks ending the 1st of March 2025. I really am delighted to be joined by Joanna here, Joanna Edwards, who's our Interim Finance Director. Joanna has been ABF's Group Financial Controller since 2020. She knows the whole of ABF extremely well. as only I think a finance controller really can. She has very strong relationships with finance directors across the group. She's also, and I won't spare her blushes, she's a class act. She will be an excellent interim CFO and she'll be giving her detailed review of our financial results shortly. I've also invited Owen to join us this morning, not to put Joanna right or to support me in particular, but to give you his early perspectives on what he's seeing at Primark that he's now running and also some idea of what he's up to. And I hope, again, that he reassures you that life goes on and perhaps there are even added benefits. Let me briefly go through our results for this half year. Sales were in line with last year, but group adjusted operating profits were down 10% and adjusted earnings were down 8%. These figures mask a number of moving parts inevitably and a mix of performance across the businesses. I can't pretend that I'm anything but really disappointed with the results of sugar, which made an operating loss in the first half. The rest of the businesses, though, did deliver a robust performance with good profit growth. and strong margin delivery in retail, grocery and ingredients. We've kept our interim dividend in line with last year. We have a great deal of confidence about the future performance of this group. And let me then share a bit more color with you. Primark delivered good sales growth in Europe and the US. Consumer caution in the US was a continued theme through the first half in the UK. But the profit and margin delivery was strong. And I think it demonstrates our low cost model is working well. Our grocery and ingredients businesses had a good first half. We continue to benefit from multi-year investments we've made to drive long-term growth. And we continue to make more of these investments. The area of weak performance, though, of course, was sugar. And really, there are two explanations for it. As expected, lower sugar, European sugar prices combined with high beet costs had a significant impact on the profitability of of our businesses in the UK and in Spain. And in the event, and we hold our hands up, prices went even lower than we had anticipated. When the market is falling, it's quite hard to call the bottom and we missed it. So that is margins in European sugar. The prices of bioethanol were also significantly lower than we had any reason to expect. And that meant we had an operating loss in Vivergo. Let me be clear. We know exactly what we do need to do to improve the profitability in these businesses, in particularly in Spain and in Vivergo. And the actions to deliver the operational and in the case of Vivergo, the regulatory solutions are already in progress. And I'll come back to these in some detail later on. Across the group, then, we've continued to make, I think, disciplined investments in long-term growth projects, and I'll share some of those with you, and our balance sheet remains strong. We've also made good progress on our current share buyback programme, completing £422 million of share buybacks in 2025 to date, with a further £169 million to be completed in this financial year. And with that, I will hand over to Joanna.

Thanks, George. Good morning, everyone. Let me take you through the results in a bit more detail. Group revenue was 9.5 billion, which was in line with last year at constant currency, with sales growth in retail and ingredients offset by a decline in sugar. Group adjusted operating profit was 835 million. This is a decrease of 10% at constant currency, and at actual rates, the decrease was 12%, with an adverse translation impact of 31 million, driven by the weakening of both the US dollar and the Euro against sterling, but also movements in some of the African currencies. As you can see, As with revenue, we had good results in retail and ingredients, offset by the decline in sugar. And I'll go into the detail behind that in a moment. Margin. I am really pleased with the strong operating margins in retail, grocery and ingredients. Of course, the loss in sugar means overall group margin was down from 9.8% to 8.8% this year. So let me take you through the performance drivers by segment, starting with retail. In this half year, revenue grew 1%. Our key growth markets delivered good growth, particularly in Iberia, France, Italy, Central and Eastern Europe, and the US. Sales in the UK and Ireland dropped by 4% in a challenging retail environment. Adjusted operating profit increased 8% from 508 million to 540, and operating margins strengthened from 11.3% to 12.1%, driven by a strong improvement in gross margin and good cost management, while investment continued in product, digital and brand initiatives. Our outlook for retail for the full year is unchanged. We continue to expect low single digit sales growth in 2025 and operating margin to be broadly in line with 2024. This does assume a slightly lower margin H2 2025 compared to this first half, largely due to the phasing of one-off costs over the year. Moving to grocery. Sales were in line with the prior year. Adjusted operating profit increased 1%, with adjusted operating margin increasing to 10.9%. Our leading international brands and regionally focused businesses performed well overall, benefiting from continued investment in effective marketing and excellent commercial execution. These figures also include the consolidation of our recent acquisition, the artisanal group TAG in Australia. Performance in our UK focused business declined overall. This is as expected and was primarily due to lower sales in allied bakeries. George will talk about the actions we are taking in that business in a moment. Overall growth in our US-focused businesses was impacted by the normalisation in sales in the US oils. Again, this is as expected. There's no change to our outlook for grocery, with drivers of performance in H1 expected to continue for the remainder of this year. In ingredients, we continue to be pleased with performance. we've seen a further improvement in profitability with adjusted operating profit up 8%. Our yeast and bakery ingredients business delivered robust sales and margins benefiting from our strong routes to market and broad product portfolio. In specialty ingredients, most of the portfolio performed well and we had particularly strong growth in our enzymes and health and nutrition businesses. Sales in our pharmaceutical businesses were lower, however, due to softer demand in certain product categories. We continue to invest in R&D, commercial capabilities and strategic capital projects to drive long-term growth. Our outlook for ingredients like for grocery for the full year is unchanged, with continued growth over the remainder of the financial year. Performance in our sugar business was challenging. Sales declined 4% and the segment had an adjusted operating loss of 16 million for the half. In the UK and Spain, sales and profitability declined significantly as a result of lower European sugar prices and high cost of beat for 23-24 campaign. We had expected these dynamics, but as George said, the recovery in sugar in the sugar prices is slower than what we had hoped. Our Spanish business Azucarera, the deterioration in market conditions has demonstrated that our cost base is structurally too high. And we are assessing a number of restructuring scenarios. we recognised a non-cash impairment charge of 101 million in these first half results. In our African operations, the performance was strong in Malawi and Eswatini and aligned with expectations. We faced challenges in Tanzania from high levels of prior year sugar imports due to the delayed construction of our new sugar mill. In South Africa, performance was impacted by drought. Vivergo, our bioethanol plant in the UK, in there we reduced production in response to low bioethanol prices. This resulted in decreased sales and an operating loss. This is the impact of the current regulatory environment and George will take you through the details of this and how we plan to deal with it. As a consequence, sugar profitability for this financial year is now expected to be an adjusted operating loss of up to 40 million. George will talk more about the clear and specific actions we are taking to improve financial performance in sugar later. Moving now to agriculture. Sales declined 3%, largely due to compound feed prices. This being a cost plus business, lower commodity prices drove lower sales, and demand in the UK and China also remained soft. Most of our specialty feed and additives businesses performed well, and so did the dairy business. Adjusted operating profit decreased 8% to 12 million, but this was as a result of one-off costs. The profit contribution from our joint venture frontier declined as a result of less favourable marketing conditions for its grain trading business. I would like to point out that excluding the one-off costs, adjusted operating profit would have grown in the half. And so we expect profit to be higher in the second half for this segment. I wanted to include the next slide to show the group's revenue split by geography, which is detailed in Note 1 of the RNS. The point I want to make here and highlight is the group's relatively modest exposure to the US. You can see that 13% of our revenue is in the Americas and 9% of it is in the US. With the proposed introduction of new US tariffs, we have done a lot of planning and detailed work to fully understand the sensitivities around this exposure. This is a very dynamic and fast changing situation, as we all know. But given what we know today, we do not expect the impact of US tariffs to be material for the ABF group. Moving on to adjusted earnings and adjusted earnings per share. Adjusted profit before tax benefited from a favourable year on year movement in other financial income I would like to note that in the first half of last year we had material losses on foreign exchange balances in African currencies. The adjusted effective tax rate increased from 23.2% in H1 2024 to 24.1% this half year. This upward pressure reflects changes in our profit mix this year, but it reflects as well the impact from the introduction of Pillar 2 tax rules, which increased our tax rate in Ireland. Adjusted earnings per share decreased by 8% to 83.6 pence per share and benefited from the reduced weighted average number of shares as a result of our share buyback programmes. Turning to our free cash flow for the half. Our free cash flow was 27 million. Capital expenditure of 0.6 billion was in line with H1 2024. There were no material acquisitions or disposals this first half of the financial year. So let me explain the working capital movement. This year, the working capital outflow of 318 million reflects the normal seasonality of our business, which is largely driven by sugar. I want to remind you that this compares to a working capital inflow last year, and that was unusual. It was due to a normalization of working capital levels in Primark after the supply chain disruptions in the prior year. The level of cash tax was in line with H1 2024. And for the current financial year, we still expect cash tax levels to be moderately lower than in 2024 due to the benefit of unexpected state aid refund in the second half of this financial year. Moving on to the balance sheet. This is a strong balance sheet. And I want to highlight a few items. Firstly, intangible PP&E and other non-current assets have increased in line with our investments in CAPEX and acquisitions in the last 12 months. Secondly, working capital. This was broadly in line with this time last year when Primark inventory normalised. I want to point out here that the very sensible steps we're taking in the short term to minimise the impact of tariffs could impact working capital in the second half. Thirdly, the lower cash balance of 201 million reflects shareholder returns that we have made over the last 12 months, both in dividends and share buybacks. I will give more detail on those in the next slide. And finally, I really wanted to highlight the pension asset, which remains very substantial. So focusing now on cash and liquidity. Again, we are in a very strong position. At the end of the first half of this financial year, we had net debt including lease liabilities of 2.8 billion and leverage of one times. This is broadly in line with last year. Cash and total liquidity reflect the step up in shareholder returns, which included the declaration and payment of a special dividend of 198 million. the 100 million extension of the second share buyback and the current share buyback programme of 500 million, which we expect it to complete by the end of this financial year. Our capital allocation policy is to prioritise disciplined investment in the businesses to drive long-term growth. In the first half of 2025, our total investment therefore was 557 million. And I just wanted to point out that this is split around different segments of our group. Approximately 40% of that was in retail, where we continue to roll out stores, invest in our depots and add new technology. The remaining 60% was across our food businesses and a large amount of spend was on a number of multi-year projects to add new capacity and capabilities. George will talk in more detail about some of these investments shortly. Our declared interim dividend is 20.7 pence, which is in line with last year. In terms of share buybacks, we expect to complete 591 million in this financial year. We completed 359 million of buybacks in this first half by the 1st of March, with the remaining 232 million left to complete in the second half. I will now hand you back to George.

Right. Thank you, Joanna. And starting off then with Primark, where sales grew 1% in the first half. In Europe, we had good growth in our growth markets, Iberia, France, Italy, Central and Eastern Europe. Together, these markets are close to 40% now of Primark sales. Our proposition in all these markets is resonating well, and we've had good execution of our store rollout plan. In the US, we continue to make good progress. We had 29 stores at the end of the half with another 18 leases signed, and recent store openings are positively contributing to overall US sales densities. As I've said before, we see increased brand awareness in the US as probably the key growth driver. And we've recently completed a trial marketing campaign focused on the New York area, And we were pleased with the initial results. They showed an increase in metrics across awareness, familiarity and consideration. We built on those learnings in a second phase, which we launched last year. Clearly, tariffs are going to have an impact on all retailers importing products from China. And we've assumed some unmitigated cost in the second half of this year. I welcome, though, the removal in the States in particular of the de minimis exemption on Chinese shipments, which I think will be a positive for value retailers who operate in U.S. shopping malls. Turning to the UK and Ireland, it was a challenging half due to continued consumer caution, particularly amongst our lower-income shoppers, and this was exacerbated by mild autumn weather. However, we have had an encouraging pickup in UK trading over the last few weeks, and I'll talk in more detail about the UK in a moment. Finally, in Northern Europe, I'm pleased that the benefits of restructuring in Germany and some of the Netherlands are clearly visible in our performance. And in Germany, we continue to make progress on the longer-term project of improving brand perception in that very big market. Our core essentials remain at the heart of our customer proposition, and we're continuously reinforcing our price leadership and great value. You can see this most recently in the new value campaign that we launched only yesterday, Never Basic, which is now in store windows and online. Our spring-summer ranges have launched and look great. And people are planning holidays this year with early beach and swim sales ahead of last year and with luggage sales extremely strong. We've had a great early reaction to new season styles and lighter fabrics like linen across all women's wear, including collaborations. And our licensed product continues to drive excitement. Good luck trying to get hold of something from our new Guinness partnership. But whatever the weather, performance and leisure wear is what the world is wearing, and we continue to expand our offer and expand it significantly. Primark's more premium line, the edit, continues to grow very nicely, and we recently extended the label into homeware. We continue to invest in our digital channels and capability, meeting our customers where they are to create demand and ultimately to drive footfall into our stores. We're using these digital capabilities to amplify our organic campaigns, and a good example of this was our recent homeware campaign with Pinterest, where a more integrated approach drove very strong traffic to our website. We will continue to build sales growth through both our owned and paid digital channels. The UK, which of course is UK's, is Primark's largest market. It's just under 40% of sales. And it's more mature for us with just under 200 stores. But we firmly believe, for all that the market's been difficult in this first half, that we still believe that we've got plenty of opportunity to go after in the UK. Our market share remains resilient. Look at this chart on the right-hand side. We're above pre-COVID levels, and this reflects a lot of good work that we've done and continue to do to drive sales. The rollout of Click and Collect in Great Britain will complete this June. It's driving incremental sales and contributing to growth. We have no doubt about that. We're reaching new customers. We're also making an extended product range available to existing customers who shop in smaller stores. Over the last couple of years, on top of these, we've been more actively managing our UK store estate. This has included store relocations, extensions and a small number of new stores. These activities improved our UK sales by over two percentage points in this half year. We're also making good progress with our store refurbishment program. And over the last three years, we've completed 29 store refits in the UK and another 20 across the group. The store refits are about modernizing the stores that most need it and improving the store experience for our customers. We also include self-checkouts and LED lighting in all store refits, and those contribute to significantly lower cost levels. If that's the UK, then our growth markets. We're targeting new store rollouts to contribute between 4% and 5% to Primark's annual sales growth. This year, we have said it will be closer to 4%, and we remain on track for that number. We opened eight new stores in the half, and we have a good number more to come in the remainder of the year, and then a few that will continue. open in the very early part of next year. As I mentioned earlier, two of these new stores were in the U.S., including our first store in Texas, where the brand really has had a great initial reception. It's in a border town called McCallum. We're excited to have six other leases already signed in Texas. In Europe, we opened six new stores, including in Portugal, France, and Italy. And there are more stores to come in the second half in Iberia, Italy, and Romania. And please don't overlook the importance of our entry into the Gulf. We have a partnership with the Al Shaya Group to open stores in the region. We'll have more to say about the location and timing of our first store openings. We'll be saying that in just the next couple of weeks. We're really excited by it. These are big markets in their own right. And getting into franchising is about building an important new capability. which has the potential to open up other new markets in the future. We're supporting space growth with continued investment in our depots and in our supply chain. We think there's a lot of cost potential in those areas, cost reduction potential in those areas. As well as increasing capacity, we have a number of ongoing projects in our warehouses, either to fully automate them or to partially automate them, introducing labor saving tools. Primark cannot be a low-cost seller without a low-cost supply chain. We continue to drive cost optimization and efficiency then across our supply chain, our stores, and our central functions. And let me share a couple of examples. How many products we can get into each carton? How many cartons we can get into a container? How do we optimize our store delivery schedule? These are all areas of opportunity for a significant opportunity. And in our stores, we now have self-checkouts in 136 stores and a plan to reach close to 200 by the end of this financial year. Self-checkouts typically reduce labor hours by around 10%, and we can either redeploy some of that effort into the store, or we can use that cost saving to absorb typically labor cost increases without raising prices. Shoppers like self-checkout because they reduce queuing time, and actually the theft level through self-checkout is lower than it is through tills. LED lighting is now in over 300 stores. On average, it's reduced our energy consumption by 30%. It's quite a big number. And then improvements to our labor scheduling. Our labor model over the last few years have significantly reduced costs and helped offset inflation pressures. It's about getting the right person in the right place to generate more sales. This includes optimizing our store format, our store layout, and the scheduling of colleagues' hours. I was pleased in the first to see a slight improvement in stock loss in this half. It's still a very big number, but we have helped ourselves by the investments we've made in extra security measures, including CCTV, remote monitoring and increasing security guard hours in the right places. So to bring this all together, we continue to feel really optimistic about Primark. We continue to expect the full year margin in 2025 to be broadly aligned with 2024. And as I said in November, Primark is back to margin levels that we think are right and that we think are sustainable. This is with our prices being as competitive as ever, with our continued obsession in price leadership and with increased investment in things like digital. Our low cost model is working extremely well. We're making good progress with storm rollouts and a large number of other strategic initiatives that will follow. drive long-term growth. Owen has got himself much closer to a lot of these initiatives in just the last couple of weeks. And so let me pass over to him for a moment to tell you what he has seen in his early days as CEO of that business.