Associated British Foods H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 5, 2024

There are 15 speakers on the call.

Operator

Right. We're good to go. Thank you all then very much for coming to this review of ABS full year results for the 52 weeks ended 14th 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 4 years.

Operator

They're really very strong, substantial improvement in profitability with operating profit up 38%, adjusted earnings per share up 39%. And then even better than the operating profit increase has been the increase in cash generation up to €1,400,000,000 That's an increase of €1,100,000,000 on last year. Material improvements in our return on capital employed increasing to 18.1% from 13.6 percent in the year before. They're not just strong financial results. They're also we've also had a year of very good operational progress across the group.

Operator

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 are seeing 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.

Operator

We've also seen the results of our consistent multiyear investment across the group. And this year, just gone, we invested another 1,300,000,000 euros 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%.

Operator

Over the last 2 years, we'll have returned approximately £2,300,000,000 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 4 years. 2019, we were at 9.4% margin in 2024.

Operator

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.

Speaker 1

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 £20,100,000,000 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 £198,000,000 And I'm going to go into each segment in turn in a moment.

Speaker 1

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 an actual exchange rates with an adverse translation movement of £97,000,000 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 percent to 10%. So let me take you through some of those drivers of the performance by segment, starting with retail. And there's a bit on this slide, so I'll go through it slowly.

Speaker 1

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 U. S, France, Spain, Italy and Central and Eastern Europe.

Speaker 1

We also had good growth in our largest market in the U. K. And a good recovery in Northern Europe. George is going to provide a little bit more color on those markets in a moment. As we saw before, we achieved a significant recovery in operating margin to 11.7 percent and adjusted operating profit increased from £735,000,000 to just over £1,100,000,000 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.

Speaker 1

Remember that this is after we chose not to cover the full inflation in FY 'twenty three. The increase in gross margins was partially offset by our labor cost inflation, and we are also investing in initiatives across digital, product and brands 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.

Speaker 1

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 U. S. 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 U.

Speaker 1

K. And the strong performance of our U. S. Brands that I've noted. And the latter effect of this performance in our U.

Speaker 1

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 with 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.

Speaker 1

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. Specialty 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 FY 'twenty four.

Speaker 1

Obviously, we need to break the business down largely to 2 components: European Sugar and African Sugar. In European Sugar, it was most definitely a tale of 2 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 Swatini, 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.

Speaker 1

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 specialty feed and additives, which was a positive highlight. Sales in compound feed were soft.

Speaker 1

However, the real challenge was at our JV frontier where prolonged wet weather in the U. K. Negatively impacted demand. We continue to integrate our newly formed dairy business, which we believe will contribute to future growth. Right.

Speaker 1

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 £71,000,000 was strong due to the higher interest rates on our earned on our cash. Other financial income decreased to £23,000,000 primarily because of foreign exchange losses caused by the devaluation of African currencies.

Speaker 1

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 U. K. Corporation tax rate, but it also was much more than offset by changes in profit mix.

Speaker 1

So with that and with the impact of the reduced number of shares from our buyback programs, adjusted earnings per share was up 39% to 196.9p per share. In basic earnings per share, I'll just pick out three things. Firstly, exceptionals, we had a £35,000,000 charge in the year, all noncash with impairments in sugar at the Virgo 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 £26,000,000 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 noncurrent assets, which of £16,000,000 which includes profit on sales of investment properties in the U.

Speaker 1

K. And Australia. So basic earnings per share of 193.7p 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.

Speaker 1

Of course, we had the strong profitability starting this off, we also had some other good positive movements. I'll note 3 in particular on this chart. Firstly, a working capital inflow of £305,000,000 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 favorable settlements and returns historically. In other cash flow, we see the benefit of the U.

Speaker 1

K. Pension fund abatement, which we mentioned at the end of last year of £64,000,000 And overall, all of this contributed to a significant free cash inflow of £1355,000,000 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 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 0.7x at the year end versus 1x at the end of 2023. Now our priority is to continue to invest in the business and the chart here is the one now you're becoming familiar with in terms of how we break down the €1,300,000,000 we spent in FY 2024 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 multiyear projects to drive capacity and capability.

Speaker 1

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 90p per share, which includes a special dividend of 27p per share. The level of total dividend represents a 50% increase year on year.

Speaker 1

In sterling, it's amount of just over £650,000,000 So in 2 years, we'll have paid over £1,100,000,000 in dividends. On share buybacks, we executed our second £500,000,000 in the year, and we also announced an extension of £100,000,000 in September, which we have now completed. And we are announcing today another £500,000,000 program. Again, the total we'll execute over last year and this year will be circa £1,200,000,000 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.

Speaker 1

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 are looking for progress in this segment.

Speaker 1

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.

Operator

Great. Let me start with retail where sales were 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 1 third of Primark's sales. And they're the real growth engines for the medium term future.

Operator

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.

Operator

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 consumers and we're confident of accelerating their Central and Eastern Europe. The U. S. In the long term is our largest growth market opportunity.

Operator

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, 2 more to open before Christmas. Then the U. K.

Operator

And Ireland, these represent about half of our sales now. We expect growth to continue, but not the same 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 continuing 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.

Operator

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.

Operator

A highlight was the 1st 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 6 stores in the year. Our first store is in Virginia, North Carolina and Michigan.

Operator

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 12 in Texas on the Mexican border. Since 2020, we've opened 19 stores in the U. S.

Operator

And generally they're performing well with good densities, good profitability. 1 or 2 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. Within the 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.

Operator

The footfall in the area around Penn Street Station where Penn Station where this store is to be located, that footfall is enormous. A lot of it's from out of state, a lot of it is from out of Manhattan. I think the halo 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 to back to that in the middle in a moment.

Operator

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.

Operator

It will be our 1st franchise experience. I think the franchise model gives us capability of getting into markets beyond simply GCC. Instead of the 5.30 target, which we've been sharing for a couple of years now, We're now given where that's 530 by the end of 2026, we're now targeting new stores to contribute around 4% to 5% 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.

Operator

Core essentials are the first part of it. This is in 4 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. And underpinning our business here is our relentless focus to ensure that we're never beaten on price.

Operator

85% of all the products Primark sells are under £10 and a lot of them are in those core essentials bucket.

Speaker 2

Within

Operator

our 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 1st full year of the global partnership with Rita Ora. It's been a great success. Sales of the Edits are more premium essentials range doubled this year and it's now in 300 stores.

Operator

And menswear, let's not forget the menswear teams, sales of both KEM and LA's 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 Capa to the portfolio.

Operator

Also the partnership with well established brands such as Disney, again, keep on developing that store. 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 3. Growth then finally is also coming from expansion into new categories including home and accessories.

Operator

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.

Operator

The first one is cotton. We're committed to using all our cotton, to all our cotton either being organic recycled or from the Primark cotton project. When 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.

Operator

You may have seen the £15 jean story. Our jeans are sustainable 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 washes 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.

Operator

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 2 markets, Germany and the U. S, different jobs for each of those campaigns to do for us.

Operator

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 3rd burst there. We're tracking various metrics, for example, brand affinity and consideration and we've made good progress.

Operator

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 U. S, we have a simpler goal. We just want to increase brand awareness.

Operator

We have every faith in our proposition for the U. S. 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.

Operator

I think we have 11 stores now that are covered by that marketing campaign. And the campaign is still going 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. Life, that's a great improvement. From Primark TV ads to digital engagement, which is now a key driver of footfall across all our markets.

Operator

We're making good progress. We had 140,000,000 visits to primark.com across all 17 markets. That's an increase of 23%. Traffic in the U. K.

Operator

Increased 15% to 58,000,000 visits. Partly, it's a continuous improvement to the website and expansion in these new markets that's driving these improvements. It's also the result of real focus and capability across digital activity. Our customer database continues to grow search engine optimization, targeted digital marketing. The CRM database reached 3,000,000 customers this year, which is a threefold increase on last year, 2,000,000 of those customers are in the U.

Operator

K. Use of our stock checker continues to grow up 35% on last year. It's now between 15% 25% of all visits to the website include a visit to the stock checker, 20% up sorry, 20% is the number in the U. K. Social media following, which we still think we can exploit further, was up 10% this year to £26,000,000 We think that's contributing as well.

Operator

We do a lot of data analysis to estimate the conversion rate from website traffic into footfall. It's not a perfect science because it never is, but we're comfortable that conversion rates are good and that our digital engagement is contributing to incremental sales. Click and Collect, of course, is an important evolution of our digital journey. We now have 87 stores with Click and Collect point. The rollout to all GB stores will be complete by the end of 2025.

Operator

The metrics for Click and Collect are good in terms of basket size and value. It's driving incremental in store purchase as well. It's attracting new and returning customers and customer satisfaction scores are very high. The technology works extremely well. Cost optimization and efficiency are really important part of the mix, particularly as we have in this country in particular new and growing cost pressures.

Operator

We aim to deliver annual savings through large numbers of initiatives across our stores, across our supply chains and in the central costs. Self checkouts are one aspect of them. They're now in 103 stores across 8 countries. They reduce queues. They help reduce staff numbers.

Operator

We expect to get to 190 stores with SCOs by the end of next May. We're also, as you know, investing in the depot network using automation there to manage headcount. The new warehouse in Ireland is near completion. The automation projects in the Netherlands at Stage 2 and the Czech Republic are underway. Let me go back to another one of our important priorities, which is carbon emissions.

Operator

The bulk of our carbon emissions are in scope 3. We've been running a number of pilots in our supply chain to see whether our suppliers can reduce or to improve their energy efficiency. And we're now in have rolled that work through 51 factories in Bangladesh, China and India. And absolutely, you can get big chunks of carbon out of those factories by running them better where training, we're running workshops, we're sharing solutions that ABF might have in other parts of the world and taking them into those factories in Bangladesh. The consequence of that Scope 3 emissions reduced by 12% in the year despite increased volumes.

Operator

So our total Scope 3 is now 0.6% lower than the 2019 baseline despite the significant increase in volume.

Speaker 2

There's a long way to go, but we have a methodology, we have a capability and we're doing the work. As for Scope 1 and 2, where we've got more control and where we've been at it for longer, Scope 1 and 2 emissions are now fully 52% lower than they were in 2019. I think we're on stage 4, round 4 of low energy light bulbs. Good saving. We will spend £130,000,000 on them by the time we're done, but with good payback.

Speaker 2

So bringing all this together for Primark, we're feeling very good about the business. The low cost model is working extremely well. We've got good market shares, growing market shares in the growing markets, lots of white space. We're back to margin levels that we think are right, that we've seen in years before COVID, and we think that those margin levels are sustainable. Okay.

Speaker 2

Then on to grocery, which has had a good year. As I said earlier, we're able to get back to focus on growth on new product developments, on other commercial activity, marketing campaigns and so far. We increased our spend, particularly but not just in Twinings. The commercial execution

Operator

around those marketing campaigns in Twinings in particular has been very, very good. And as has been the new product innovation especially for these international brands that we're now pulling out for you. And we're evolving our portfolio in Australia in particular where we have very good marketing positions. But let me turn to start with to some of these some of the marketing that we've been talking about. Mazzola is a good example.

Operator

We've upped the spend on Mazzola. It's very focused on our core consumer who's Hispanic and that population in the States is increasing. So we have more mouths to feed every year in that population. We outsold our closest branded competitor in the States by some 40%. We think that our status as number one brand is well established now.

Operator

Yes, we've enjoyed an increase in margins that's going to tail away back end of the year that's begun to tail away. But fundamentally, the strength of that business has improved significantly over the last 18 months, 2 years. Increased marketing investment for Twinings has also shown us great returns. I showed you the U. S.

Operator

Ad 6 months ago. We've got a French version of it. Actually, the U. S. Version is the version of the original French ad.

Operator

It's also top scoring. Twinings is now the number one brand in France. We grew our share in all our largest markets, the U. K, the U. S, Canada and France.

Operator

And this combination of effective marketing also increased distribution, improved in store visibility, particularly in the States. New product innovation has given Twinings brand very good momentum indeed. New product development. Then a couple of examples in Twinings. The one bottom middle is iced tea in the U.

Operator

S, but we've also launched Twinings sparkling tea first in the U. K, it will go to Australia next. It's going well. It's part of meal deals in Waitrose and Sainsbury's and I have every confidence that we'll give you some to take away after this meeting. Patak's ready to heat meals available launched in the States can be heated from the microwave from 90 seconds going well and as is Jordan, Slovak, Granola also for the U.

Operator

S. Market. Investment in capacity, capability, market expansion then in grocery, tip top, we're adding new bakery capacity in 2 sites in Australia. Canning Vale in Western Australia, we've had in Western Australia one of the leading brand and own label position for 30 or 40 years. This investment will ensure that we maintain that for the next 30 or 40 years.

Operator

Tip Top though also has a good position in supplying buns to foodservice. It's a very major supplier of QSR restaurants in the Australian market. And we're commissioning, I think it's probably up and running by now, a new line in Queensland really just to keep up with growth in the QSA palm market. From Australia to the U. K, scrocciarella, which took me a year to learn how to say and I'm still not sure if I know how to write it.

Operator

It's fantastic new bakery products started off in Italy. We're commissioning the line in the U. K. To supply in the first instance the U. K.

Operator

Food service markets. It will be ready to be consumed by Christmas, very excited by that. And then Nigeria, we're investing in a factory that will make Ovaltine. We won't be importing it from China anymore. We'll have a lower cost base, less exposure to currency.

Operator

We'll be supplying the rapidly growing Nigerian markets. 93% of Nigerian families consume milk modifiers. So it's a very big market in Nigeria growing with the population and this factory also gives us access into other parts of West Africa, reduce our costs, increase our capacity and those other markets increase our access to hard currency countries. Let me just spend a couple of minutes on the evolution of our grocery portfolio in Australia and New Zealand. It's a very attractive market for us.

Operator

We've been there for a long time. We're well established with good market positions. There's population growth. There's interest in branded food. They're wealthy countries.

Operator

They're food experimenters. So Tip Top and Don in particular are well established traditional grocery brands. They have the task that they're well on the way with evolving beyond sliced bread and sliced ham. The growth areas in bakery and in cooked meat are not the staples of the past. So and sorry, and there's also in Australia, we're pivoting not only to these sort of more niche higher growth areas, but also into Foodservice.

Operator

Foodservice is being held back by recession in Australia a little bit is on a very similar growth trend to America, a big food service market. So I mentioned the tip top bun line investment. Yumi's took us into dips, which is attractive category. It also takes us into the fast growing vegetarian sector, and we're investing behind that. In New Zealand, only ABF could do it.

Operator

We bought Dad's Pies to sit alongside our existing Big Ben Pie business. We've got very strong market share, and that combination is trading extremely well. This year, just recently we bought a company called The Artisan Group. It is a supplier of premium baked goods into foodservice. Cafe culture in Australia is alive and well and the artisanal group is the major supplier down the East Coast to that market.

Operator

Let me pause.

Speaker 3

Ingredients.

Operator

Firstly, yeast and bakery ingredients, where markets around the world are really back and in very good health. Yeast margins have recovered well in many places and we see little reason why these new margins won't be sustainable. We've got really strong food

Speaker 2

and beverage and other places and what we're trying to do is put other bakery products through those channels. So we've built an R and D center in the Netherlands. We've expanded it. We've already got one in Australia. Product development for the world will come out of or is coming out of those 2 centers and that's a source of our growth into the future.

Speaker 2

But we're also investing in capacity, in new capabilities. We're building a new yeast plant in India, Northern India, the yeast market, basically,

Operator

quite quickly in that country and we have to keep up with demand. I think that factory will be completed sometime next calendar year. I think I've mentioned in the past the specialty yeast plant in Hull, which produces yeast for the alcohol beverage we commissioned at last year. But it has a relevance to another acquisition we made, which is a company called Omega Yeast based in the United States. It's a leading provider of liquid yeast for the craft brewing industry in the U.

Operator

S. And we have the capability to take their know how, some of their products to the rest of the world. So it sits nicely beside our existing business. We have a very strong business in supplying yeast for the alcohol industry. Closely related to that, we're also strongly a good supplier into the bioethanol industry.

Operator

We've invested $120,000,000 over the last 15 or so years in effluent treatment, water treatment across Maori. Standards have reset across the world. We gave ourselves the task of not only being compliant with all present legislation, of course, but all likely future legislation. And after 15 years, we're very nearly there. It's been one of our big ESG priorities for a long period of time.

Operator

We've got a couple of plants still to do and then we're done. So it's falling off the list of ESG priorities because we've just about completed it. Right. Let me try to bring a little bit more clarity to our Specialty Ingredients portfolio. We have 7 businesses across 3 key technology platforms and there they are in the middle: industrial biotechnology, precision extraction and synthetic chemistry with these 7 businesses lined up along them.

Operator

And then these technologies in turn can serve a wide range of markets down the right hand side food and beverage, nutrition, health, pharmaceutical, animal feed and some technical applications from enzymes such as pulp of paper or detergents. We're investing in these businesses in the science and the scientists in the other capacities and also in plant and equipment. And we have high hopes, high expectations for growth into the future from this part of the ABF portfolio. In Olie, we're debottlenecking our fermentation, giving ourselves more spray drying capacity. That's in the yeast extract business.

Operator

And in enzymes, we're investing in a very good powder packing line, which both expands our capacity and further increases the safety standards on the site. Those projects will be complete this year. Sugar. Let me show you with this slide why we like the our African sugar businesses so much. We've got population growth in Sub Saharan Africa.

Operator

We've got GDP growth that the Chancellor would die for in Sub Saharan Africa. And we know that sugar sales grow faster than GDP where there's GDP growth. We are very so the market fundamentals are really good and we're very, very well positioned. The footprint is strong. Our cost base is low.

Operator

Our market shares are high. We've got the leading brands in Tanzania, Zambia and Malawi. We've got good cane estates, good factories, good routes to market. We have on top of that some quite close in potential for profit improvement. In agriculture, we have a new farming method that improves essentially by improving soil health, you improve future yield.

Operator

We're demonstrating yield improvements by up to 15% in Zambia where this has started. Back to basics in the factories, there's a lot more to come from that. There's more brand work and route to market development available to us too as we produce more sugar, not least from the new factory in Tanzania. We have the distributor relationships,

Speaker 4

the brand to carry those

Operator

products through into market. We have the distributor relationship to the brand to carry those products through into market. Switching now to European sugar, which is also a business we like a lot. The gray and the green lines on this chart show how European and U. K.

Operator

Spot prices for sugar, how they went up, how they came back down again. The sharp drop was essentially just came from the surplus of sugar in Europe, increased acreage, disease control was very good, yields were very good and then Ukrainian sugar came into the EU in large quantities. We can't mitigate very much of the impact of that price fall because we've negotiated the prices for sugar beet. That's how the European industry works. You negotiate sugar prices beet prices in advance of negotiating sales prices.

Operator

As we said in September, we expect profits to bounce back in 2026. We've negotiated those lower prices for beet next year. The benefit of that will be about $50,000,000 We also think that supply will reduce acreage given over to sugar beet will reduce. And the Ukrainian sugar has been quoted right back. This is also a business that I've said it in the past is very good at continuous improvement.

Operator

So there's more cost base to get at in those sugar businesses. We have, as I say, confidence that 2026 will see us bounce back. I get mocked for this slide because I keep on saying it's one of my favorite ones. It's essentially the highlights of ABF's reduction in carbon production. Our approach is aligned to 2015 Paris Climate Agreement.

Operator

We're on track with that. Just a little bit of explanation, the bigger the bubble, the more carbon you save. The color indicates the whether the project is finished and whether the returns are good or not. So green is high financial return, say, above 18%. That steam reduction project in Whittington was right up there.

Operator

Berry is being done now. The Green project is steam drying of animal feed rather than using natural gas to build it. You can see what's being done. You can see what's coming along and you can see in the gray where there is opportunity but no financial or inadequate financial return. We simply won't do those ones until we've got a way through to make a financial case as well as a carbon case.

Operator

This takes us out to about 2,030. 28% of all of ABF Scope 12 is in the 4 sugar factories in the U. K. So this is the priority, this is the methodology and this is the work being

Speaker 1

undertaken.

Operator

So but don't deny that sugar profit is going to be lower in 2025, but I do want to put that in some context. We've had 5 years of good growth leading up to the decline this year and we expect 2026 to bounce back. We're confident in the medium term outlook for European sugar and very excited by the outlook for African sugar. Finishing on agriculture. We've always had a strong presence in the U.

Operator

K. Agricultural market. We're leveraging that to build our presence in more value added products and services, leveraging it across the world with enzymes, premixes, feed additives in particular. And we're leveraging our roots to market in the U. K, particularly in our dairy strategy where we're integrating last year's acquisitions to create a full service offering to dairy farmers.

Operator

We're expanding that business in Specialty Feed Ingredients. That's going well. As Owen said earlier, the difficulty that the year just gone was the rainfall in the autumn into spring, which cut back the opportunity for Frontier. Let me summarize with this next slide. The again, give you a bit of context of the food growth story over the since going back to 2019.

Operator

We've added the best part of £400,000,000 of profit to this part of ABF. We've done it through good commercial work, a lot of investment. And for all that we have a lot of diversity in the group, we also have an extremely good track record. Next year, it will step back a bit because of sugar, but we have good momentum in the rest of the Foods portfolio. Taken together with Primark then, as we showed you in opening slides, when you put Retail and Food together, you can see significant recovery, the extent of the recovery achieved this year.

Operator

Back to the margin we had in 2019, and then we've had 4 years of COVID and the consequences of COVID. We're back on the same growth trajectory, we think, that we achieved for many years prior to 2019. The group, so to wrap up, very good year in 2024. EPS now significantly ahead of 2019. Consistent investment, good execution is delivering strong returns.

Operator

We've also seen the benefit in the EPS from the share buybacks. A number of the multiyear capital projects will complete this year. We'll continue to invest in others, particularly within Primark. All of them underpin future growth. The store rollout program continues in Primark and continues beyond 2026 and will contribute sales growth of beyond of around 4% to 5% for the foreseeable future.

Operator

It was a year of great cash generation, good momentum in the business. We're well positioned for the medium term. As you can probably tell, a year where you increase your profits a lot, where your cash generating is fantastic, where you invest more money than you have invested before and have a whole lot left to give back to shareholders. That's a pretty good year. Thank you.

Operator

You apparently have microphones in your chairs in front of you. So with that, let me be quiet. Take my glass of water with me and over to you.

Speaker 5

William Woods from Bernstein. Thanks for taking the questions. I've got 3 on Primark. The first one is when you look at your Primark margin, you obviously guided to flat for this year after a big boost in the last year. When you look beyond, is this the ceiling to Primark's margin?

Speaker 5

Or is it an aspiration to take that higher?

Speaker 6

I'll go 1 by 1.

Operator

I think I mean what we've seen in the past has been a Primark margin around this sort of level, but there's it moves around a bit. Currency moves it around, trading success moves it around. We're comfortable with where it is now. Primark is a business which we wish to grow through volume rather than margin. So it's come back to a good level.

Operator

Maybe it can go up a bit, maybe it will go down a bit, but we're at a level which kind of works for us.

Speaker 5

Got you. The second one is, so I've been to quite a lot of the U. S. Stores over the last year or so and you've got quite a different mall strategy particularly in some of the newer ones, right? So you look at Tysons Corner being quite premium, for example.

Speaker 5

You look at some of the mall factory outlet styles type of malls. Could you give some color on the U. S. Store strategy, which mall types are working, which customers you're getting traction with, that kind of thing?

Operator

Yes. It's a good question. We work the brand works particularly well in the less premium malls. It works very well in areas like Queens, Brooklyn. It still works in premium.

Operator

1 of the best stores, for example, is I always forget that I know it because my auntie lives nearby, she doesn't buy everything there. So we work in good regional malls too. We've got a couple of stores where we're scratching our heads wondering why it's not working quite so well, but only a couple. But essentially, we think that we're relevant to both mid market for now, but where we've got opportunities for less premium malls, we'll grab those by preference. We're very interested to see what happens on the Mexican border in Texas.

Operator

We're interested we've got 5 stores signed up in Texas. We suspect they're going to be really, really good because we know that we're very attractive to Hispanic shopper.

Speaker 5

Perfect. Thank you. And the final one is just on the Primark management team. Obviously, haven't had a COO for a while. CFO, is it still vacant?

Speaker 5

Have you had any movements in bolstering that management team?

Operator

Yes, no, big changes. So we now have Finance Director who came from within and who's very good. And underneath Adrian is a very much strengthened finance function. So we've got depth in finance, which is greater than we've had before. We've got a new COO in Nigel Jones who has started very well.

Operator

We have a saying across ABF that they're all heroes at this stage, but he's landed extremely well and brings his capabilities particularly around cost based management that we I think we've been a bit light on recently. So that team, the breadth of that team, the depth of that team is stronger than I've seen over the last 20 years.

Speaker 5

Excellent. Thank you.

Speaker 7

Warwick O'Kynes, BNP Paribas Exane. Just on that cost management then, George, perhaps you could comment on the ways that Primark can mitigate some of the cost pressures coming to the U. K, particularly from April? Right.

Operator

I mean the SCOs help. We have a big project underway on the way we run our stores, the way we get the relevant stock into place at the right time. There is opportunity in both those. Owen, do you want to?

Speaker 1

Yes. I mean I think actually Primark's had a pretty good history of cost management over the years as you'd expect it would do. So I think it's probably taken a bit of a hiatus through the kind of challenges of COVID. But it's store operating model is always a place where you just how you manage the store model in an effective way. And Skoes is part of that, but there's kind of other aspects of that.

Speaker 1

And that's a kind of a continuous improvement program. We talked about the supply chain. There will be the cost savings coming out of automation through supply chain. And I would say, just go back to store, I would say store optimization, particularly in the U. K.

Speaker 1

As we've U. K. Is a more mature market, so you're going to have a lot more kind of updating of the store portfolio. And with that comes a more effective way of laying out the stores in some ways. So like for example, we did 23 refits in the year just gone in the UK.

Speaker 1

And that doesn't just help with how the store is set up for sales, but also helps it set up for costs as well.

Speaker 7

Got it. And my last question is just on the gross margin and

Speaker 1

whether

Speaker 7

anything has changed since your assessment in September, so anything from sort of freight negotiations that you're seeing? And then just sort of relating back to the cost piece, are you expecting the gross margin will need to rise a little bit in 'twenty five in order to achieve broadly stable operating margins?

Speaker 1

Yes. Well, first, not really not much has changed. I mean, it's I wouldn't say it's a normal world out there, but it feels more normal than what it's been for a bit of time. We've been able to sort of like, pardon the pun, navigate through the freight sort of volatility well. And look, currency is moving around a bit as we know.

Speaker 1

But other than that, there isn't huge movements in gross margin. But yes, you are right in saying that if we're to have kind of flattish margins into next year, there's a little bit more in gross margins offsetting the inflation and investment in overheads.

Operator

Yes.

Speaker 8

I'm Neandris Hill, The EKALI Plaque from Shore Capital. Two areas really, not Primark related to be relieved to know. Firstly, on sugar, quite struck, George, by what you said around Africa. Does that mean that on a 5 year view looking forward rather than 5 years looking back, it's not unreasonable to think that ABF Sugar business could break out of that £1,000,000 to £200 EBIT range. I'm not suggesting you give us a forecast, but conceptually, does Africa provide the potential for that?

Speaker 8

Maybe start with that. Thank you.

Operator

Yes, I think so. I think so. There's a significant amount of cost opportunity and cheap volume growth opportunity in the work in the Canefield projects and also in factory improvement. Don't need capital or don't need much capital for any of that. And as I showed in that first slide, we've got the market demand.

Operator

So we're just supplying markets there. And then the Tanzania project is an important one. It more than doubles our capacity in that market where again there's growth, there's a deficit market and we have the leading brand and really good roots to market. There is then secondly beyond sugar, we have to be careful with this, there are opportunities in investing in adding value to co products. In Tanzania right now, for example, we're a major supplier of potable ethanol.

Operator

With the factory expansion, there's an opportunity to produce more potable alcohol. And Africa is not short of things that you could do with large slugs of capital. We just need to be very disciplined about it. But yes, absolutely, I think there's growth there.

Speaker 8

Thank you. And that's a nice segue actually into my second area, which is about capital in the grocery arena and 2 areas really. Firstly, across the piece, payroll is probably more challenging, not just the U. K. How is that influencing your CapEx decisions?

Speaker 8

And is it evolving in terms of capital replacement labor replacement, sorry, with capital? And then just while I'm on, just in relation to that, across Grocery and Ingredients, I mean, you talked about areas of investment in Ingredients, but where in Grocery would you see, say, category or geographically where you may want to add on additional acquisitions? I think you said you did a couple in ingredients in H2, but where do you feel about grocery on that front? Thank you. And that will be enough for me then.

Operator

Clive, look, acquisitions in grocery have tended to be in the last couple of years quite small but quite nice. World Foods in particular has added a couple of small has bought a couple of companies that have taken us into new cuisines, has taken it into kind of Arabic, North Africa and also has given us a way into sort of premium Italian. That's a very big category Italian. You need to find your chunk of it. Is there more potential there?

Operator

Probably, although the opportunities in World Foods now having got those 2 acquisitions under their belt maybe in kind of leveraging them rather than adding another one. Australia is the big place where I think a couple of things. Both acquisition and also CapEx giving us finding our ways into more premium parts of the market, faster growing parts of the market. It wouldn't surprise me if we found another equivalent of TAG, the Artisan Group to acquire. They're not very big acquisitions, but they are very sort of leverageable through the assets that we've currently got.

Operator

U. K, I think we're okay. I think

Speaker 1

the U. S. U.

Speaker 8

S. Is

Speaker 1

the other obvious place. We're executing very well in the U. S. In grocery across a number of our businesses. So it definitely gives us the opportunity.

Speaker 1

We don't want to overpay and that's been a problem for the last number of years. But it certainly is in a market that we're executing well we could build on.

Speaker 8

So just on efficiency?

Speaker 1

Yes. I mean, I don't think like I don't think necessarily the recent labor moves necessarily changed the game per se. I think labor inflation has been a challenge for manufacturers for, what, 10 years now. So automation has become part of the DNA of manufacturing and I think

Operator

the driver in the last couple of years has been more about labor availability. We've just commissioned an automated warehouse in Poland where the labor shortage is every bit as acute as it is here. The payback is good, but it's much more about securing supply chain really than it is about labor. Australian automation projects, labor cost again, it's more labor availability. So we're signing we are signing off labor efficiency projects more than previous years, really only about the automation of those sheds?

Operator

That's where the

Speaker 8

Thank you very much.

Operator

Yes, sorry. Richard?

Speaker 9

Yes, thanks. Richard Chaimdon, RBC. Owen, probably one for you. Do you mind commenting on the outlook for working capital in the coming year, I guess, particularly in light of any expectations on sugar and sugar inventories, but how you should see the overall picture as well? Thanks.

Speaker 1

Yes. I mean, we've got we've sort of come off a couple of years now of sort of working capital normalizing across the group, most notably, I would say, in Primark. I think next year is probably a bit more of a normal year, I would say, with the exception of sugar, as you rightly point out. So we're we've sort of ended the year with relatively high stocks. So you would expect some of that to normalize into next year.

Speaker 1

But we're back to a little bit more outside of that, a bit more normal. And I think I've said it before, I think there's still opportunities across the group to improve working capital. We'll be working on them. I'd hope that we'll get some improvement in those through the year. So that's sort of the aim.

Speaker 9

Primark, I guess, historically, it's been a business that's been known for not spending very much at all on marketing and then obviously being able to then keep prices very low versus or the lowest in the market, and that's been one of the reasons. The marketing you're planning in markets like Germany and the U. S, is that specific to those markets? Or is that going to be a sort of precursor to now a change in sort of group wide thinking on marketing? Or you think actually should be doing more in some of the other markets as well?

Speaker 9

Thanks.

Operator

It's a very good question. We start off in those two markets with a job to do and we'll see where we get to. At the same time, we are investing really in trials of digital paid content. We'll be very pragmatic. If we end up richer as

Speaker 6

a result of doing it, we'll keep doing it.

Operator

I've got a I would speculate that in Germany, we're going to have to have a layer a level of ongoing brand marketing. And in the States, again, it's pragmatic. If it drives sales, then great we'll do more of it. In the States, I think we're probably going to be doing more digital because as we showed you from as you can see, we've got a couple of clusters of stores, but in a lot of other areas, we're miles away from there. And to get efficient TV coverage, it's just not going to happen.

Operator

So I think we'll go digital and quite focused. In that New York area, we'll see what this does.

Speaker 9

Is it easier with I mean one follow-up, is it easier with more digital marketing to sort of see the positive returns on that? Because I guess the risk is you don't really know what customers would have bought anyway, right, without the market.

Operator

You can see it with a great deal more precision in digital marketing. I think in a place like Germany, you've just got to chase brand metrics. That we know that we had an issue there. That's what we're trying to fix. So actually, the specific returns can only be inferred from how much like for like was a result of the improvement on views about quality.

Operator

But we're off the brand metric.

Speaker 1

I mean, we're ways I mean, obviously, we measure any type of marketing, whether it be conventional or digital. It's all to be measured and determined from a returns perspective. So yes.

Speaker 10

This is Gary Martin here from Davy.

Operator

I suspect the problem in those growth markets is there are a number of fairly big drivers of the like for like and some of them are negative, 2 of them at least are negative. The first one is that we our experience over the last few years has been fantastic first 3 months sales performance, which then a year later you're anniversarying and there's no way you're going to achieve those. That brings year 2 like for likes drives the negative and then you sort of typically start to grow from there. But given that we're opening stores reasonably quickly, you've got quite a lot of that sort of complexity going on. The second one is that and I sort of hesitate to use the word cannibalization, but we've always believed there's good cannibalization in some of these growth markets.

Operator

The second cannibalization in some of these growth markets. The 2nd store in when we opened the 2nd store in Milan, we got a whole lot richer, but we had negative like for likes in the 1st store. As we look when we sign them off, we look at the expected cannibalization, we then compare with what we said we were going to do, but it is a drag on like for likes. On the other hand, a brand that is reasonably new to a market should see good sales progressions years 3, 4, 5. So net net, I think those markets are going to have lower like for likes than we would hope to see in the established markets where all this sales generating work, whether it's digital, whether it's new categories, whether it's new products, etcetera, etcetera, etcetera should be allowing us to keep on growing same store sales.

Speaker 1

But obviously they would have the higher growth in total because that's where the growth is coming from. So I mean I think next year look we mid single digit growth, I mean, we I think we said in September that we'd expect the non like for like to contribute more to the lower end of the range of 4% to 5%. And we'll that's kind of calling for some modest underlying growth. I think the metric is more relevant, as George says, in the mature markets. And we are targeting like for like growth in the mature markets, including the U.

Speaker 1

K. I think we're well set up for that. I think our product set is as good as it's ever been. Consumer is we'll have to see how the consumer is post budget. I think our kind of hope would be that the consumer is in okay NIC, but and certainly our demographic will be an okay NIC, but we'll have to see.

Speaker 10

Makes sense. And then just maybe another one just on the store rollout, just more broadly, and it's another 2 part question. Just firstly, I guess, if we kind of discuss again maybe some of the growth markets, so we're talking Italy, Iberia, France, can we get a reminder of the white space opportunity to kind of further grow your store count in those geographies, like what you see the overall opportunities in those geographies to be? And then maybe just as a second part, obviously, you've done good work in Germany, you've done good work in the U. K.

Speaker 10

In terms of store resizing, kind of changing the dimensions to kind of better suit the kind of demand levels there. Is there more store dimension or store size changes kind of planned into the future? Thanks.

Speaker 1

Well, I'll take the second one first. Well, do you think I mean, I think store optimization becomes is an important part of retail, right? I don't every good retailer does store optimization, particularly as you get more and more mature in your markets. And I think U. K, we will we've done a few already actually where we've just relocated to slightly better pitches or we've done small resizings and so on.

Speaker 1

So I think that will be it should be a good part of your arsenal in terms of continued productivity, etcetera, and so on. So we did we've done some in the U. S. Previously of some of the older stores. So I think we have to keep on that actually agenda to make sure that like we're optimizing what we got as well as opening new stores.

Speaker 1

So yes, is the short answer. On the first one or the other one, yes. I think

Operator

France, Italy, Spain, Portugal, these the success of these smaller store formats does open up a fair number of markets. And I don't want to give a specific number, but in Spain it's unlocked Portugal for instance where we have a fantastic business. We haven't managed to open a new store in years years years because we can't find big enough sites under the old model. These smaller stores allow us. I would imagine that we could double our participation in the Portuguese market.

Operator

Spain, I think a smaller number, but still reasonably significant. Italy, I think is still more it hasn't reached that stage yet. It's still got big locations to go after. France, I think we're up to 28 stores or so. We're beginning to look at some smaller stores in particular.

Operator

We have to be so careful in France to make sure that we keep footfall levels high.

Speaker 1

Is it higher cost to

Speaker 6

service the market? Is it higher cost to service?

Operator

Is it higher cost to service? I think actually in Germany, we're really interested in these 2 new stores that we're opening. They're much smaller. We have more freedom to operate. Germany is a very underpenetrated market for Primark.

Operator

I think there's quite a lot there. Eastern Europe standard stores, we've got so much base.

Speaker 8

So

Operator

it's I'm aware all that is a sort of numbers free set of comments. Hence the 4% to 5%.

Speaker 10

Yes, exactly. Thanks so much, guys. Okay. Sure.

Speaker 4

Hi, good morning. Sreedhar Mann Khali from UBS. Maybe three things, please. Just back to Grocery. You've talked about normalization in the U.

Speaker 4

S. To be felt through the year. We're taking that as a modest step back in the margin for the year. More if you take a step back, I know you've put some slides there, it's showing the longer term growth and things like that. You could perhaps talk about mid term growth and margins in grocery, how should we think about it?

Speaker 4

There's quite a lot going on, different geographies, different brands, etcetera. That will be very helpful. Second one is Click and Collect. I know you're extending that into the rest of the U. K.

Speaker 4

Anything incremental to share perhaps in terms of basket size, the secondary basket, etcetera? Anything that's helpful for us to think about it? Thirdly, maybe should a big picture stepping back to group level, again, your charts have pointed out, margins have recovered, cash generation strong. And you talked about potentially further opportunities in cash and working capital. How should we think about again medium term shareholder returns?

Speaker 8

If you

Speaker 4

could talk through please. Thank you.

Operator

That grocery margin is a mixture of a whole lot of things and let me pick out some of them. The mix change towards higher margin products like tea, that has driven some of that step up. We still haven't got our net margins in U. K. Grocery back to where they were pre COVID.

Operator

We recovered the cash costs of inflation, but not in the margin. So maybe there's a bit more opportunity there only, maybe. Australia, I think, has a margin opportunity as we shift the portfolio mix. U. S.

Operator

Will step back a bit but still be good. Have I missed out?

Speaker 1

No, that's a good I mean, yes, it's a mixed benefit of international brands and it's the kind of improvement, I would say, in the U. K. And Australia. I'm not I don't think we're I would be comfortable giving a guidance on it, but there's no reasons why you can keep it at these levels. It might bounce around a bit, but keep it

Operator

at these levels. I think the on click and collect, I think the best we can say is that we've seen nothing to undermine the financial case for rolling out Click and Collect following that long test we ran. The basket size the Click and Collect basket size is good. The attachment rate

Speaker 1

We give

Operator

them a number of attachment rate?

Speaker 1

No. We well, yes, we have. We've said like it's up to 40%. 40%.

Speaker 6

Yes, yes.

Speaker 1

Which is what you'd expect. Actually, you'd expect people if they're going to come in, they'll shop

Operator

more. The return rate is well controlled. So it hasn't got worse as the rollout has continued. And we're seeing a significant proportion of the click and click at shopper being consumers who haven't shopped with us in the last 2 years. So we're getting new people in.

Operator

All those were the things that we weren't looking for in the test. So it's not dramatically better than the test, but it's I think we've done the right thing. Yes. I mean the medium

Speaker 1

it's hard for us to give medium term shareholder returns. I mean I think we just point you again to the sort of the capital allocation methodology, which we've stayed true to in the last number of years, where we've sort of pivoted around the one times leverage. Think, look, the business has got good cash generation. So I think you've got to look at the 2 things, the cash generation and the capital allocation policy and then determine as to whether we believe. But yes, look, I think if we can keep generating cash, we'll be able to keep healthy shareholder returns.

Operator

The, I don't think you shouldn't think that the CapEx bill is going to drop much over the next few years. We've had a lovely reversal at least some of that working capital build that went into a balance sheet during inflation that's made this year particularly good. I think a dividend policy the dividend policy really hasn't changed. All that's changed is what we do with surplus is the policies that come on beyond that.

Speaker 1

Ashton

Speaker 11

here from Redburn. Firstly, as a Kiwi, I should congratulate you on the purchase of Dad's Pies. I've got two questions. I suppose my first one just on like the European sugar recovery. And I suppose just the moving parts into FY 'twenty six, and I appreciate lots of things can impact the sugar price.

Speaker 11

But to you, is the main determinant, the acreage, like how much is dedicated to sugar? And I suppose in that scenario, does your volume decrease? And does that have a second order impact? And that's my first one. And then I guess just secondly, just to square the circle on some of these smaller store formats in Iberia, for example.

Speaker 11

Is the reason that you can do that now just because the brand's at a scale whereby you can get the right level of store density? Just can

Speaker 1

you talk through that? Yes.

Operator

I think sorry, let me start with sugar recovery. We I think twice now since deregulation, the sugar industry has chased volume at dramatic cost to margin. If there is a volume reduction in the U. K. Or in Europe, I think financially, the European industry will benefit from that.

Operator

When you go from being at kind of import parity prices to export parity prices, which we've sort of done this time, you get a great step down in margin. So I think that look, acreage is only one thing, yield is another one. The yields looking into next year are good, not least because most of Europe is allowed to use neonicotinoids to prevent fungal infection. That's has been part of their recovery in yield, which I think hadn't been expected to quite the same extent. So I think that sugar, we would much rather see a smaller crop in Europe and we think we'll get it because that acreage will come off by a fair amount.

Operator

You can't force it out, but I think it will come down. Smaller store format, in that very Primark way, we took a couple of sites and we tried it. We'd spent years increasing the range of what we were selling in stores. The stores were getting bigger and bigger. And to some extent, we were being driven by that.

Operator

The ultimate manifestation of that was Birmingham with 150,000 square feet. We didn't exactly forget that we had lovely businesses, particularly in Ireland, all the way down to 8,000 square feet, which would have traded for 60 years profitably. But anyway, we started looking particularly in that Spanish market where you go, well, we fill in the geography of Spain, implies that people often there were a lot of Spanish consumers who couldn't get to us or were never going to get to us. So we have to go to them and how do we do it profitably? Well, you look back at some of the island experiences of how you trade a much smaller store.

Operator

You have the advantage in Spain of lower labor costs. So let's give it a go. I think the first one was Leon, it's been great. So in that very primark way, go, let's do that again. And then that takes you around.

Operator

So the confidence builds with the experience.

Speaker 12

It's Andy Tasud from Citi. Just one on Primark. You've helpfully called out the sort of revenue mix. Is there anything to call out in terms of varying levels of profitability in those segments? And I guess linked to that, you've also said that 85% of your SKUs are sort of below £10.

Speaker 12

Is that in the U. K? Or is your mix the stock pretty consistent throughout the markets?

Operator

That second one is pretty consistent. Yes, the margins vary between markets based on occupancy costs, labor costs in particular, sales densities to some extent. And no, that's a number we've never shared.

Speaker 1

Other than the U. S. And Northern Europe because of we've talked about it plenty of times are below the average.

Speaker 6

We done? I think we're done. Oh, sorry.

Operator

We have one last question on the Oh, there's online questions, I forget. Sorry, got a whole other audience, so I can't remember that.

Speaker 13

Thank you.

Speaker 14

And now we're going to take our first question on the phone. And it comes from the line of Warren Ackerman from Barclays. Your line is open. Please ask your question. Yeah.

Speaker 3

Good morning, George, Owen. It's Warren here at Barclays. Hopefully, you can hear me okay.

Speaker 1

Yeah.

Speaker 3

A few from me. First on grocery, George, can you give us an update on Allied Bakeries? Losses narrowed. What's happened to improve the situation? Do you see a scenario where you can eventually get back into the black in the UK bread business?

Speaker 3

That's the first one. And then secondly, just on Primark, I've been reading more and more recently about mix. You're talking a lot about license wear, vintage denim, cosmetics, accessories. Can you maybe talk a little bit about mix as a like for like driver? I know it's mainly volume, but it does seem to be more of a feature.

Speaker 3

And any particular countries you'd call out where you are seeing kind of a bit more premiumization in some of the more slightly more expensive ranges? And then finally, just one for Owen. I'm wondering whether you could, Owen, help us a little bit on finance costs for 2025, any kind of ranges we should be thinking about from a modeling point of view? Likewise, anything on net debt free cash flow would be great. Thank you.

Operator

Okay. Starting with Ally Bakeries, the improvement was both the consequence of input costs coming down, so energy and wheat, and price eventual price recovery. We didn't manage to get pricing increases out of our retail partners for a long time and we the year before the one that we're reporting on, the margin hit was very significant. But we got those price rises. We've enjoyed them all year.

Operator

We've had a little bit of extra volume manufacturing for another competitor who suffered a fire. We've lost subsequently a little bit of trade in Tesco's that stings. And can we get back into the black? Certainly cash positive, yes, that's the first goal. Mix within Primark, curiously but quite comfortingly, the best mix I think is Germany, biggest participation of licensed of some of the more premium basics, the chem ranges, the edit ranges doing very well in that market.

Operator

Yes, it we've been chasing mix very deliberately. We have to keep reemphasizing the value that we offer at the bulk of what we sell that pre £10. And we also have to emphasize the value of the more premium products. They are fantastically good value for what they are, but we must never forget the people who come into our shops for the cheapest, best value basics.

Speaker 1

Yes, unless you want to do finance income and free cash flow. Yes. No, I mean, no, I'm sorry, I'll just add to that. I think it is a kind of helpful tailwind mix actually, but we've got to be very careful how we manage it, Warren, as George says. So just on finance costs, I'll keep it relatively simple.

Speaker 1

I think as it stands today, I think we're sort of broadly neutral year on year in terms of finance income, where we'll have a bit of a you'd expect to because we're going to have a little bit lower cash and potentially rates coming down, we're going to have less of a benefit on interest income. But as it stands today, we don't have a repeat of the FX losses on non currency balances. So they kind of net each other off as such as it stands today. And then on free cash flow, as I said before, I'm not expecting material move in working capital in the year. So but we are expecting a repeat of cash tax to be low and also for us to have the benefit of the pension contributions.

Speaker 1

So they do repeat into FY 'twenty five. And then as George said before, CapEx is, we think should be at a similar level to FY 2024.

Speaker 6

Cool. Thank you.

Speaker 14

Thank you. Now we're going to take our next question. And the question comes from the line of Georgina Johanan from JPMorgan. Your line is open. Please ask your question.

Speaker 13

Hi. Thank you very much for taking my questions. I missed the start of the call, so apologies if I am asking anything that you've answered already. Please feel free just to ignore if that's the case. Just three quick ones from me, please.

Speaker 13

First of all, just in terms of the Click and Collect and the continued rollout and you're sounding sort of quite constructive on that. I was just wondering if you could share where that is now as a proportion of sales perhaps in the UK or maybe it would make more sense share it kind of as a proportion of sales in the stores where it's actually being rolled out already? That would be really helpful. The second one, just in terms of the budget and what we've learned on the plans for business rates. If we think about your store portfolio, how should we be thinking of that split in terms of ratable value of above and below the $500,000 threshold, please?

Speaker 13

And then finally, just if you could share anything on trading into the New Year so far. I know the weather hasn't been sort of super helpful. Are you actually sort of still are you in positive like for like territory in terms of the year so far, please? Thank you very much.

Speaker 1

Okay.

Operator

Budgets on ratable value, we're still looking at the numbers. There is a period of consultation where we will be making the point that to penalize the anchors of High Street is not the best way of regenerating High Street and City Centres. So we hope that, that message will be listened to. As best we can see, we are probably more or less neutral, probably, but I think there's more to be uncovered. Trading into New Year is exactly as you say, it's this funny time of year where it can go cold and it can go warm.

Operator

Our sales have never been more sensitive to weather than they've been over the last 12 months. And we're okay. There's another point that Owen rightly makes, which is that you have to look at what was happening with the weather last year as well to look at the comparison. Period 2, so October, November was one of our best periods because September had been very warm and then it suddenly went cold.

Speaker 1

I think the last couple of weeks of the last financial year demonstrated just a little the volatility here you're seeing actually the strong performance that we had in the U. K. So yes.

Operator

Clicking like share of U. K, do you want to Yes.

Speaker 1

I mean we said before we think it could contribute 1% to 2% of like for like, and I think that's probably what we're seeing in the stores. So it's still we've only got a couple of months under our belt where or a few months under our belt where we're into a broader set of stores. So I think but that's the type of kind of numbers we're looking to target with it.

Speaker 13

Thank you. That's really helpful. So just sorry, mate, I can't do the math off the top of my head right now. But if it's contributing 1% to 2% of like for like in those stores where it's present, what is that representing as a proportion of sales in the stores where it's present, please?

Operator

We've only just gone up to 87 in GB, which is under half of the total in the state. We were sitting on about 30, I think. No, slightly more than that.

Speaker 1

No, it was 50

Operator

It was 55, yes. 55, I beg your pardon, which was give or take a quarter of what we had.

Speaker 1

I mean it's like Georgianne, it's just not material at this point in time yet until we roll it out.

Speaker 13

Okay. That's really helpful. Thank you very much.

Speaker 14

Thank you. Now we're going to take our next question. And the question comes from the line of Adam Cochrane from Deutsche Bank. Your line is open. Please ask the question.

Speaker 6

Good morning. Thanks for taking my question. I've got a question on the U. S. Business.

Speaker 6

I'm assuming if there's any tariffs that get introduced from the U. S. That most of your grocery business will be domestically produced, just to confirm that. And secondly on the Primark side, how much of the Primark manufacturing that goes into the U. S.

Speaker 6

Would be made in China if you can answer that? Thanks.

Operator

Yes, okay. I suspect the proportion in Primark would be rather less than the proportion in Walmart. I think consumers have just no idea how much their bills will go up if Trump puts 100% tariff on everything produced in China. But yes, I mean, we're not far short of 50% of what we sell in Primark coming from China. And if that all doubles in price, well, you can sort of do the math.

Operator

But as I say, we will be in the very small roundings of the problem that the U. S. Consumer will face.

Speaker 1

And then in terms of grocery, we obviously, our U. S. Focused brands, they're all domestic, yes. So that's pretty much all within country. But then our international brands, things like people like Twinings, etcetera, would be imported in from Europe.

Speaker 6

In terms of the Primark manufacturing, is it feasible to manufacture the products that you make in China in other regions that are just going to the U. S? So you might have to change it for Europe, but you can produce it in Bangladesh or something just for the products that you're selling?

Speaker 1

Yes. I mean, there's a whole heap of things. Look, I think we cross that bridge when we come to it. I think there's a whole heap of things you can do. I mean, a large percentage of what comes currently from China is in non apparel.

Speaker 1

So you'd obviously people would do mix changes. They would kind of adapt to that. And then you're right, you would look at the alternative sourcing. But again, we'll be following the pack on that one. I think in the long run, only the development

Operator

of India's manufacturing base will serve as a global alternative to China's. But you're looking out 10, 20 years I think for

Speaker 14

that. Okay. Thank you. There are speakers, there are no further questions for today. I would now like to hand the conference over to George Weston for any closing remarks.

Operator

Thank you.

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Earnings Conference Call
Associated British Foods H2 2024
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