Associated British Foods plc

I will get on to the actual financials. One for Owen. Owen, are you able to say anything about the kind of investment you're expecting for Primark in 2026 above the line in terms of digital? Because it seems like your margin guidance is slightly lower. I think it was flat and now it's slightly below flat. Is that because the investment is a bit higher? And if so, where is that investment kind of targeted? And finally, just on sugar, we've been in a big downgrade cycle in sugar. Do you think we've now trough on sugar and beyond 26, is there any reason to think there's any long-term erosion in the sugar profitability? Thank you.

On the review briefly, it's about governance. It's about long-term governance. And within that governance headline, I think there are two different issues. The first one is food, where I think we haven't quite frankly been getting the scrutiny from the investment community that would serve us well because most of the scrutiny has been about retail and we want to put that perhaps we want to put that right and then on Primark it's really about oversight of what is now a very big and very complicated business and just maybe there's a better oversight model available to us than the brilliant model that we've been running with for 60 years. So you go, well, that was 60 years. That worked absolutely fabulously. And now looking into the future, maybe it's time to do something different. It's a big call. In terms of timing, I would imagine that we would have come to a conclusion about whether to stay together or pull ourselves apart by the interim. And the process of actually getting there will, I don't know, take 18 months or so. I don't think we've got anything to say about tax because we haven't been able to investigate these. This is the purpose of the review, is to dig deeply into those sorts of things. So we have a prima facie case to separate, but we don't have all that detail. Shall I just do the sugar, kind of, has anything changed? Whenever you get into these downturns, there's always that kind of bear case that says, ah, but the world will never go back to where it was. You see the same thing when you get into boom time. And really, in the end, supply and demand sort themselves out. There are a couple of areas of, they're not so much watch outs, but they are sort of changes going on. The first one I think, I think we have to accept that GLP-1s are going to take a couple of percent off sugar, off food production in Europe and sugar included in that mix. And the second one, I used to think that the good returns we made proved selling power. We have two big combined heat and power stations attached to the sugar factories, and we've always done very well selling electricity. I thought that with the growth of renewables, that would erode. With the growth of demand for electricity with AI installations, maybe that demand won't go away. But I think the GLP-1s, I think you've got to kind of model maybe we'll lose a couple of percent of volume across Europe.

Yeah. I mean, maybe I'll also let Joanna square the circle as to what she's been saying in terms of guidance. But just in terms of how we're thinking about the investment, I mean, some of the things I've already spoken about in the presentation. So I think we're nudging up our digital marketing spend. Not a huge amount year on year, I would say. Most of the kind of, I would say, investment is coming from a combination of investing in price through initiatives like Major Find and also marketing support around those initiatives and other sort of trade initiatives, like, for example, rolling out more performance and so on. That's where the investment in margin is coming from. Some of that is funded by – well, actually, I'll let you square the circle on guidance, but that's how we're thinking about the step-up of investment.

Just to really just square that circle, so margin 11.9% for FY25. As we know, anyway, we had there a one-off of $20 million. So what we said it will be slightly below. It's not the margin that is the leading point. It is the creation of demand. So it is all those efficiencies we talked about for an exchange being a tailwind, particularly on the first half. We've got some efficiencies, certainly from the work that we've been doing on supply chain. Owen mentioned what we're doing on the central costs. But yes, the point is those will be used to fuel drive of top line growth, which is what we want to focus on first and foremost. So guidance slightly below the 11.7, which would be the underlying margin for FY25.

Adam Cochrane at Deutsche Bank.

A couple of questions on Primark, and just one little one on the separation, if I may. I'll get that one out of the way. In terms of Can we just confirm that both the food business and Primark on a cash flow basis are cash flow profitable and can fund their own investments? That's the only one on the separation. In terms of Primark itself, the marketing spend, something we've been waiting for for a while to reinvigorate the brand. You've done it in a few different markets. Can you just talk a little bit more about what success you've had with the marketing spend? And most importantly, how are you managing the message between fashionability and price? Because some of your advertising campaigns, I thought they looked very trendy, fashion-led rather than price-led. Is that something that you're going to rebalance going forward? And then the franchise opportunity in the Gulf. Can you just talk a little bit more about what that looks like? Is it a model that can be expanded beyond the Gulf, or is it something quite specific to the Gulf? Thanks.

So, yeah, look, I think it's a mixed bag, I would say, on success and marketing spend. I just have to be kind of honest with that. I think you're probably right to say that there has been a little bit too much on the fashion side of representation of the brand and maybe not enough on price. I was interested when I was in Germany that, you know, we're looking at our brand and you know, it was very hard to see the price, actually, and, you know, fundamentally we're a value disrupter, and then we've got to remind people of that all the time. So I think there probably is a little bit more balance we have to get there. It's like it's – that's the classic, you know, challenge of a value operator is how do you kind of project the quality of the products but at the same time remind people of the unbelievable price. So I think that's what we've just got to do more and more of. I think there were elements of In Denim We Can which showed that a lot of the coverage we got was actually about the unbelievable prices we had, but I agree that the top line advertising looked a little bit too fashion-y. So yeah, more to do, I think it's fair to say. The brand metrics, as I said in the presentation, that we've seen in the States are encouraging awareness. We only did it in the New York area, so it's It's only in the New York area where we've had those benefits. We've got a great brand. We've got a great set of products. We've got to sharpen our comps. I think that's the message. I think franchise is a significant opportunity beyond the Gulf, actually. I think the Gulf is proving what the model can do. But, you know, the Gulf is probably the most tried and trusted franchise market in the world. So we just have to be – don't want to be naive to know that this is where a lot of people do relatively well. So our brand is definitely resonating. It's very exciting. We have loads of opportunities in all the Gulf states, actually. So I wouldn't – you know, we started in Kuwait because our partner is based in Kuwait. But, obviously, we've got plenty of other opportunity outside of Kuwait. That's going to be the focus for the next period of time, but it does open up the opportunity. For sure it does open up the opportunity. It's about getting good partners, but if you can get good partners in different regions, I think there's some real opportunity in the future.

Thank you. Richard Chamberlain, RBC. Three for me, please. Just one on Primark. What are the plans now for the Click and Collect offer? fully rolled out to the UK. Are you planning to do that to other markets in due course? Second, on the sugar profit guidance, I think you guys are looking now for a small profit in fiscal 26. How much of that improvement from the loss, I guess, in the last year will come from lower B costs? I seem to remember you saying it was, I think, 50 million or something before. Is that guidance still valid? And then I guess on the proposed separation, any early thoughts, George, about sort of amount of financial leverage that the food, the standalone food business could support? I mean, presumably it could theoretically take on some significant on-balance sheet debt in future. Is that going to be the plan or too early to say? Thank you. Yeah, you're

I do think, like, relatively quickly. I mean, I think, look, you know, the UK, we obviously did a lot of testing in the UK, right? But in that time, we obviously developed a capability. And so that's, you know, that's good. And as I said in the presentation, the metrics, financial metrics and customer metrics are very compelling, it's fair to say. So we will be rolling it out into other countries. But the timing might take, it might take a bit of time. There is some supply chain fixes we need to have a kind of more kind of sort of sustainable, repeatable click and collect and online model. So we have a bit more to do on that. But actually, you know, in some ways, I don't think we are any way defensive of the time we've taken to get where we've got to on click and collect. We've had to work it through and get the model right. And we'll take our time in other markets as well.

On sugar, the total beat cost this year will be $50 million less than the total beat cost last year. But the average selling price will be lower and will offset all of that, just about. We have multi-year deals across a chunk of our volume. And this year, actually, year on year, the price has gone up slightly, but more of the high-priced contracts have rolled off. So that's what's going on in UKB. Look, I'm tempted to say we can't tell you anything about leverage ratios and stuff like this in a business that we haven't decided to create yet, so perhaps I'll stop there. I just remind you that the same majority shareholder is going to be in the same position in both. And you can look back, I think, about how any majority shareholder thinks about leverage.

Yeah, Will. Good morning. The first one is also on the separation, but it should be quick. I think it's pretty clear, but is it the case that you are only looking at the two options, i.e. a demerger and maintaining the status quo? There's no other strategic review of specific segments or anything like that? Great. The second question is on Primark margin. I just wanted to clarify, what are the moving parts? Is it mostly going into gross margin or is it going into OPEX? And within that, do you think there's room to move on price, whether that's price mix the hero products that you mentioned with WOW, products at WOW prices, et cetera. Do you think there's movement on that one price? And then the final question is just on the cash return. Obviously, there's some volatility in the buyback over the last few years now. In hindsight, do you think it would have been better to stay at a $450 million run rate and deliver consistent cash return, or do you think you will follow basically earnings and the cash flow going forward?

So the margin tailwinds, both the gross margin level and operational efficiencies as well, we've talked about the move on some of the central functions into our GES, but we also have got some efficiencies on the supply chain, on stores, are still driving some of those efficiencies. FX is going into the gross margin. So there are different components, both in terms of the gross margin and the operational margin. But as we said before, it is not about the margin. It is how we use those to drive the top line.

Room on price. I mean, I think, like, you know, we're not going to invest in price just for the sake of investing in price, right? Like, I think you have to be quite targeted to where you're going to invest in price. I think we will over the next 24 months invest in price. Sorry, give me 24 months to give us, not to be a guidance point. But, you know, it needs to be targeted.

It needs to be focused. Sorry, just before, the cash returns and the volatility in the share buyback. I think our capital allocation policy is quite clear. If we've got enough cash, then we will look at distributing some of that. So having a 450 doesn't tie in with our capital allocation policy. We had less cash at the end of this year than we had at the prior year. 250 feels right, even though we were at one time.

Yeah. Hi, Jeff Lowry, Rothschild & Co. Redburn. Can you just step back about Primark for a minute and help us understand what has sort of sat behind the slightly lackluster LFL. Is this items into basket? Is this footfall? Is this particular categories? And you've drawn a distinction between price and price perception, which is a really interesting one. Which of those is the bigger issue in terms of what your data says about the business? And I guess that plays into the sort of ultimate question here, which is, Your margin has mostly recovered the pre-COVID type levels. The sales densities, nominal, have been under some pressure. Is that the right shape, do you think, over time for a discount or a price-led strategy with your evolving geographic mix?

Thank you. Lots in that question. I think it's a bit of all, actually, in terms of what have been impacting like for like Baskets have been tough, I think, pretty much across all markets. Where we've seen creeping ASP through price, it's been offset by units per transaction, which means that consumers are sort of capped at their spend level. So we've definitely seen that. And some of that's been a bit more extreme in the countries where it's been tougher. I think football has also been a bit of a challenge in certain parts, in certain places. Again, it's been a bit about... I think there's lots of factors to that. Some of that's the market, some of that's our positioning into the marketplace. And then I think we've had some headwinds on categories. You know, we... Last year, particularly the lifestyle categories have been tricky. And I think women's wear up until kind of more recently has been tricky as well. So I think it's been a bit of everything. So that would kind of suggest that it's kind of market and us, right? You know, so, you know... And I'm trying to focus on what we can control. And as I said before, I still believe, you know, we've got the right proposition. Just how we execute and communicate against it is going to be key. I think that's a really good, I mean, that's a tough question. I think the, because it's a tough, the answer I think is nuanced by market. And this is where I think we've also got to get a little bit better as to sort of how we're deploying our, approach by market. I mean, the UK is obviously our most mature market, so you always have your frame of reference around that. But I think actually we can continue to be more price-led, I think, in certain other markets, and we've still got quite a lot of operating leverage to go after. So I think I have to be a bit more kind of nuanced in terms of my answer and be a bit more kind of We have to understand exactly how best to win in each of the markets that we operate in. I still think we can. There are certain markets that are just going to be tough, like Germany. We've talked about Germany before. It's not going to be a big future for near-term future. It might be in the medium to long term, but it's not a big near-term future. That being said, we're opening our first store in Germany for the first time in a couple of weeks' time, so I'm going there because We still believe in the future of the market, but it's a tough market. So anyway, it's a long answer to a very interesting question. Hopefully that helped.

Thank you. Clyde Black from Shore Capital. A couple, if I may. Firstly, on food, notwithstanding the separation, is there any parts of the assortment or the portfolio that you still feel needs some care and attention after the busy year you just had. And then around future capex, firstly, you made a fantastic statement about plants returning in 50 years, which is probably six feet under well before that. But in terms of returns on your food investments, what thresholds are you looking for in that respect? And maybe highlight some of the big projects for the current year. The reason I ask that is you said you've gone through quite a a hump of food investment, but still the group's looking at $1.2 billion of capex or thereabouts. And then lastly, just on Primark, how do you characterize the USA in terms of its maturity profile? Some years ago, this was the sex and violence of ABF. Where do you see the states today for the business?

Thank you. I don't think I'm betraying too many secrets in saying that we sign off CAPEX projects at a minimum of 15% year three. That's only the start. We then start to ask whether we believe it. And look, I mean, we know in some of these very big projects that to get to settled state outputs can take a while. but really what we've been looking at in all these projects is long-term competitive position. That's why I talk about 50 years. We wouldn't have done Tanzania if it hadn't been for the brand metrics. We're supporting that. Similarly, Australian developments are on the back of positions that we've already got. Where do we head next? Look, I don't want to just talk about the bad stuff. I want to talk about the good stuff, too. You know, I really do would love to have a longer session with a group of fellow-minded people about the potential for Primark or our enzyme business or the health position or what we think we can do with Ovaltine over the years. There's so much there that I think is underappreciated. Yeah, look, there are always problems. We've lost a major account, as you all know, in our animal feed business. We'll get on and do something about that. But really, I think the better use of all our time is accelerating the growing bits, the attractive bits, and making sure that you kind of prevent bad stuff from happening again. Yeah, of course, we've had to take some action on things like the Virgo on Spanish sugar. But really, the future of the food group is about growing the lovely bits much more than it is about fixing the last few kind of headaches. That will come to fruition, we'll have the capacity expansion and yeast extracts. That's really good. We'll have the yeast plant in northern The market is oversupplied at the moment, so we won't get an immediate return off that. We'll get the flour mill in Victoria complete. That will reduce our costs there and solidify our position in the Victorian market. We'll be a long way through the capacity expansion at World Foods' Polish site. We'll have the sourdough plant up and running quite soon. We'll have the blending plant add enzymes done by January. What have I missed out with the good cross foods? Ovaltine Nigeria. We have the most fantastic Ovaltine business obviously in Switzerland. To be Swiss is to eat Ovaltine in all its manifestations. The population of Switzerland I think is 11 million. which means that the Nigerian population grows by Switzerland every 15 months. And we have really good brand awareness in Nigeria, but we've never had a cost base to really access that market because we've been importing product tariff paid out of China.

So that's an exciting one.

Second violence. I think, well, As I said, there's a lot going on in the US. I mean, we are 33 stores. And I think for a maturity level in the US, that's pretty immature for a market the size of the US. Although we've been there 10 years with COVID, slap bang in the middle of that. This year is going to be an important year. We're going to open up more than 10 stores, including Manhattan. We're going to do a little bit more brand marketing as well, particularly in the New York area to support that. There's obviously a huge amount of noise in the marketplace going on at the moment, so we have to kind of see how that all settles down. I hope it does. And, but I mean, you know, like we're still, you know, that's still really early days. You know, you'd like to think in a kind of a U.S. growth plan. But, you know, we're not going to do anything stupid either. You know, we've been kind of thoughtful. We've made some mistakes. We've learned from the mistakes. We're making money. You know, but we've got to, so we've still got to be pretty kind of thoughtful as to how we expand. So, you know, it could take another 10 years to get to maturity. But, you know, but I still think the proposition works well there if we can kind of get the awareness in the right way. Bridget? Bridget?

Sorry. Yeah, sorry.

Is that working? Yeah. It's Monique Pollard here from Citi. I have three questions, if I can. They're all on Primark. The first one, Owen, given your focus on the price investments being very targeted and specific, I was just interested in sort of how you think about the overall price landscape and whether or not you benchmark to secondhand clothing platforms like Vinted as well when you're thinking about that price proposition now, given the rise of those platforms. The second question was just whether you had any views at all on the potential for the closing of the de minimis loophole in the UK budget and what benefit that could potentially bring to the competitive landscape in the UK overall. And then the final question was just on second half UK trading. So obviously a massive improvement there. And you've mentioned a lot of the focus you've put into the customer value proposition driving that. Just wondered if you had any views on whether the competitive landscape, so, you know, M&S and the cyber issues that have been well understood had had any benefit there or whether benefits, et cetera. Just trying to understand sort of how much you think was external factors versus your own internal. Thank you. Do you want to do one on three and I'll do two?

Yeah. Yeah, the overall pricing landscape. I mean, it is interesting, actually. We haven't changed our pricing that much this year to reduce pricing to make sure we're still at the lowest entry price point. So that's demonstrating that it's not a very competitive market from a pricing perspective. We don't benchmark to the second-hand market. Maybe we should, but I think it is quite a different market. I mean, we look at it quite a lot, but we don't benchmark to it. I mean, a lot of product on vintage in the UK is Primark, so it's going to be hard for us to benchmark to that one. the pricing has been more competitive, I would say, in Europe. I think that's where we see more pricing pressure. In H2 in the UK, I think I'm going to be a bit more bullish and say it's all to do with us rather than to do with the... It's always to do with the external market, but The impact of M&S was more a switch between M&S and Next than it was elsewhere. I think we just executed better.

De Minimis, gee, we had hoped to see some actions taken in the budget. The Europeans are well on the way to closing loopholes. The Americans have done it. we've been working very hard to provide the Treasury with information about the value-add of High Street versus the value-add of this method of trading. I'd also point out that given the closure of parts of the U.S. market, the rest of the world is getting a lot of pressure out of Chinese manufacturers, and we really should be taking steps to preserve our own position. So I hope so, but until we see the budget. It's likely to be one of the, sorry, if it came through, it would be one nice thing out of the budget amongst a bunch of things that perhaps weren't cyber to you. Mark, are you dressed? Sorry, sorry, sorry. Yeah, yeah, yeah. Warwick?

Warwick, sorry. Yeah, Warwick, sorry. Morning, Warwick O'Connor, BNP Paribas. Actually, similar question to Monique's, but looking at Europe. Owen, in particular, I was wondering if you could just reflect on the sharp decline in like-for-likes in the second half in Europe. How much of that do you think was you versus the market? Was there a particular change in cannibalization effects or deliberate cannibalization effects in H2? And what does that mean for European like-for-likes looking forward?

Yeah, look, I think... I think most markets in Europe are feeling the pinch. I mean, if you look at all the metrics about European clothing markets, they're all struggling. Sorry, market, like high-level market level. I think, and they're all competitive, right? Like, it's not like, you know, it's not like there's a sort of a new competitive kind of theme in European markets. They're all competitive. I think we've had a bit of capitalization I think you probably would have quantified the kind of a quarter of the impact is is that and like you know I don't you don't want me to hear this is say this but there have been some weather impacts and some like particularly Iberia quite quite struggled in in in the second half of the year and and I think place like France I think are, have become more competitive actually. So back to my time. So I'm not more competitive. I think are very competitive and are a bit tougher, particularly in this kind of tougher environment. So it's, it's, it's a bit of everything to be honest work. Uh, like I have to be, you know, it's a bit of everything. Um, and, um, it just goes back to the same thing again. We just got to execute. Well, uh, the proposition is good. We've got to execute well, but I think European markets are going to just take a little bit longer to recover.

Thank you. Just to build on the couple of questions earlier, maybe on Primark again, sort of three questions, I guess. The UK is where you spent a lot of time. I think you've talked to a lot of initiatives to reinvigorate Primark there. Does it give you confidence you can actually now see sustained positive like-for-likes in the UK over the coming year, two years, sort of time period? Or otherwise, what should we be looking for in the UK as a proof of the effort you're making continuing to deliver? And that's the first one. The second one, I think you've talked about cost optimization, clearly also talking about investment for growth. I guess the question is, at Primark level, sustained growth in like-for-like terms means what in terms of operating margin? Is a mid-11 sort of margin consistent with healthily growing like-for-likes in the business, how should we think about it? And again, third one also on Primark, is the medium-term capex what we've just seen today, 497 million, 500 million, something that we've seen today, is that a good run rate to think about for Primark capex?

All good questions. I think UK like-for-like... Well, I think you should measure us on UK like-for-like... I think there's a lot still to go after in the UK. So I don't, you know, I'm not, I'm still kind of, you know, optimistic about where we can go in the UK. We've only just rolled out Click and Collect. You know, we've, all of the initiatives that I talked about here, there's more to come, there's more to come in all the initiatives that we talked about, you know, performance where more coordination, et cetera. I think we can. We should be trying to aspire to get to more sustainable like-for-likes in the UK. Our brand is phenomenal in the UK, the brand awareness, the consideration, all that sort of thing. So there's still a lot to go after. I think margin, I think we would say around these levels. I don't think it's around these levels fields we can. you know, kind of make the model work for sustainable like-for-likes. You know, we always have said before, which we still believe, is that the margins, the outcome, you know, but we, you know, the strategy is to drive the like-for-likes. But around these levels feels right. And then CapEx, yeah, I think there's similar levels. I think similar levels, although, you know, there's sort of, you know, franchise obviously is quite a capital efficient way of, you know, expanding and so there might be a bit of give from that I think was but I think the take might be more investment in digital and so so I think I think that similar levels is probably okay for now I think the depot spend will be similar yeah to for a while yeah yeah and some of that's actually also to support them digital as well

Thank you. Is there anyone online?

Nope, there's no one online, or no one allowed to be. Thank you all very much for coming, and we've got some prezzies for you all by way of thanks, a little bribe. And if not before, we'll see you next year. And in the meantime, it's a bit early to say happy Christmas, but we're getting there.