Associated British Foods plc (ABF) Earnings Call Transcript & Summary

Hello, and welcome to the Associated British Foods Plc Annual results Presentation. My name is Jess, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, George Weston, Chief Executive Officer, to begin today's call. Thank you.

Thank you, Jess, and thank you all for joining me for this review of the year to the 12 of September 2020. Let me start this time with just a few reflections on the year. We've lost 9 colleagues to COVID around the world, and we remember them. We also have so many people in the food companies in Primark who have been quite extraordinarily committed to producing food as well as for making shops safe for keeping the business going. COVID, I think, has demonstrated the resilience and the adaptability of our food businesses. Perhaps with a devolved operating model, we have been well placed to respond quickly to an, obviously, very rapidly changing and challenging environment. There are many people in ABF, lower down in the organization, who are used to making decisions, and they've led us all over -- through this period. I think COVID-19 has also -- this period has also demonstrated the strength of Pri markets. Since reopening, I think it's demonstrated the power of the brand, and John and I will both talk about that later on. And I think it's also demonstrated the operational excellence of our supply chain, of our strong leadership, and of our capabilities in our Dublin buying office. Having a conservative balance strength has been a great strength of for us all. In a way, not just financially, it's also given us operating freedom at important times, and we'll mention that again later. And then the breadth of our operations, having a number of places, which were all the food companies generating cash in the second half was obviously a strength as well. Let me now turn though to the financial highlights of the year. So the group revenues, GBP 13.9 billion, adjusted operating profit of GBP 1.024 million, profit-before-tax of GBP 914 million and adjusted earnings per share then at GBP 0.811. We paid no dividend in the year. And as you all know by now I'm sure, we're not declaring one today. We still invested GBP 640 million back into the business. We generated more cash in the year than any prior year in ABF's history, and we are strongly positioned as we begin to face closedowns again in terms of having a robust balance sheet. Business highlights, then let me turn to that slide. The food business has delivered an adjusted operating profit increase of 26%. The first half was very good, and it continues, in fact, accelerated into the second half. Outstanding Grocery performance throughout the year with significant margin and sales improvement. Not all the benefit came because of COVID in our food businesses or in our Grocery businesses. AB Sugar saw a substantial increase in its profitability with the recovery in European Sugar prices, which we expected. Ingredients in Agriculture were both ahead good sales of enzyme, yeast and bakery ingredients, in particular. Primark through the year, had a good first half, good sales performance in Northern Europe, in particular, you will remember that from our half year presentation. Decisive and hard actions had to be taken when we were shut down in March to mitigate the operating losses while we were closed for an average of 11 weeks per store. Despite that, we honored all the orders to our government suppliers and then since reopening a place to further more than GBP 1 billion of new orders. We traded strongly in the months since reopening, high cash generation in particular. And then we opened a number of new stores in new markets, Poland, in particular, Florida since the beginning of the year-end. And those have been successful openings. Openings we'll talk about later. Let me just go back to what we were looking at in March. So this was the cash generation in the first half of the year before lockdown. And then this was the first cash flow forecast we saw after the stores shut. We assumed -- we are obliged to assume that this lockdown would last till year-end, had it done so and had we taken no actions to mitigate cash outflow, we would have ended the year with GBP 2.5 billion in debt, which was rather more than the debt capacity we had when we shut the stores. It begs the question of what those cash flow mitigations were. The operating costs of Primark, we halved them very, very quickly. The biggest part of that was being able to access the job retention schemes, the furlough schemes, we received GBP 98 million from governments, all across Europe, for 68,000 jobs, which we had further at max. Given the uncertainty of the time, our ability to access those furlough schemes was absolutely vital. I had no doubt we would have been laying people off in large numbers, if we hadn't had access to those furlough schemes. Salaries were reduced for all other retail employees and executives and for a significant number of senior executives at ABF as well. The government helped out by giving us a relief on business rates. You'll remember, we engaged with landlords on lease agreements and came to a good set of agreements where there was -- many landlords supported us. And then, of course, we reduced discretionary capital and operating expenditure in Primark as well. We canceled a significant number of orders in the Primark supply chain. And then we, over time, we put them all back in place. In the end, we took everything on the original trading terms that we had ordered prior to lockdown and that was really, really important. The food businesses traded better. We asked them to manage their capital expenditure and their working capital and to produce extra cash for us. They did that sensationally well. And then, of course, we decided not to declare an interim dividend. The consequence of all those actions then was this -- that was the original forecast, which I just shown you, and this was the cash generation as it's turned out. By the end of the year, we had more cash than we started lockdown with, by somewhere around GBP 1.55 billion of cash on the balance sheet. We -- let me just mention that moment where our original GBP 800 million of cash was so valuable. And that was when we had to commit to autumn/winter stock. We were down to the last GBP 100 million of cash. So almost the low point of the blue line, we had to place orders for GBP 900 million to give ourselves stock to sell-through autumn/winter. And we took that decision. I think we had the Austrian stores and the Dutch stores open only when we placed -- when we started placing those orders. If it hadn't been for the GBP 800 million of cash, we would have been within GBP 300 million of our banking facilities. And I dare say, we would have taken a different set of decisions or delayed decisions on autumn/winter stock ordering and suffered for that. Let me stop there and pass over to John for a more forensic look at our financial results.

Great. Okay. Thanks, George. Good morning. So let me start with a reminder. This is the first financial year in which we report following the adoption of IFRS 16 leases, and that's using the modified retrospective approach. As a result, the statutory numbers for 2019 are stated on an IAS 17 basis. I'm going to take you through the income statement, balance sheet and cash flow as reported. I'll then take you through a reconciliation between the reported and IFRS pro forma comparatives for 2019. To provide the best understanding of the performance of our businesses, and especially Primark, the segmental tables are presented on an IFRS 16 pro forma basis. Along with the usual tables of exchange rates at the end of this presentation, I've also included the segmentals on a reported basis and these next few schedules on an IFRS 16 pro forma basis for completeness. So group revenue was GBP 13.9 billion, a decline of 12% from last year. This decline was mainly seen in our financial third quarter, and that really was the period in which the Primark stores were closed. The decline in the full-year adjusted operating profit by 28% to GBP 1.024 billion was a direct consequence of this. I estimate that Primark lost some $2 billion of sales and some GBP 650 million of profit as a result of COVID-19. Our food businesses has delivered us a very strong performance this year, and that aggregate adjusted operating profit increased, as George has just said, by 26%. And arriving at the adjusted operating profit, exceptional items totaling GBP 156 million this year were excluded. And the next slide gives you detail of those. So at the half year, you will remember, we recognized an exceptional charge of GBP 284 million as a provision against the carrying value of Primark's inventory. At the time of that announcement, the dates of the reopening of the stores were not known and over half of the provision related to stock that was on display in the closed stores. The earlier reopening of the stores, but especially the subsequent successful trading of the seasonal spring/summer merchandise, avoided the need for this provision and summerly. So at the year-end, we actually have a different but a markdown provision of GBP 22 million, and that was created for the inventory stored on our behalf by suppliers, which where they were holding it for longer than usual as a result of the pandemic. The GBP 25 million cost arising from the closure of our Speedibake Wakefield factory recorded at the half year, following the fire in February, has been more than offset by the insurance proceeds of GBP 30 million received in the second half to give us a credit of GBP 5 million for the full year. The GBP 116 million exceptional relates to a onetime noncash asset write-down of several Primark stores, mainly in Germany. It includes the asset write-down on those stores, which will be downsized in the coming year. In the light of the beet volumes contracted by Azucarera in the second crop after reducing the beet price, we've revised our financial forecast for this business. And that, as a result, has led to a onetime noncash write-off of the goodwill of that business of GBP 23 million. The unadjusted or statutory operating profit was 37% down on last year, reflecting the decline in adjusted operating profit and also the increase in the exceptional items that I've just spoken to. Net interest expense increased from GBP 27 million to GBP 113 million, as it included lease interest of GBP 84 million this year, following the adoption of IFRS 16. Profit before tax declined to GBP 686 million and the decline on an adjusted basis was 35%. So let's just come on to tax. The effective tax rate increased from 21.5% to 28.8%. This increase was mainly a result of the much lower Primark profit in the U.K. and Ireland this year. With the important caveat that corporation tax rates stay at their current levels, I expect next year's effective tax rate to fall from this level, probably to some 25% as Primark's profitability is expected to improve. Adjusted earnings per share, as George has shown, declined by 41% to GBP 0.811. much consideration has been given by the Board to the payment of a dividend for this financial year. Our experience of the cash outflow following the restrictions that required us to close all of our stores in March and the increasing number of restrictions, as we speak, leads us to be cautious. On balance, we have elected not to propose a final dividend for the year, whilst we monitor the impact of COVID-19 on Primark during this important trading season. So let's move on to the balance sheet. Net assets were marginally below last year at GBP 9.4 billion, and reflect the reduction of GBP 150 million, arising from the adoption of IFRS 16. You'll also note that we now have recognized right-of-use assets of some GBP 3 billion and lease liabilities of GBP 3.6 billion at the year-end. Net cash increased from GBP 936 million last year to GBP 1,556 million this year. This outcome was driven not only by the better trading in the fourth quarter than expected, but also by a much lower level of working capital, and that's across the group than as usual at this time of year. In particular, later than normal timing of orders for Primark's autumn/winter ranges and lower food inventories as a consequence of higher consumer demand. The working capital benefit that I think is there will reverse in the first half of 2021 financial year. Deferred tax moves from a liability last year to a very small asset this year. This reflects the recognition of a tax asset arising from the implementation of IFRS 16 and also it reflects the noncash store impairment charge that I've already talked about. The move from a net pension surplus of GBP 33 million last year to a net deficit of GBP 66 million year this was really driven by the decline in bond yields that we're all very familiar with. However, just let me remind you, given the scale of the assets in our defined benefit schemes, we consider this liability of GBP 66 million to be modest. Let's go on to cash flow. Free cash flow improved from GBP 788 million last year to GBP 898 million this year. I've already spoken about the decline in the adjusted profit that you see at the top of this slide. The effects of the adoption of IFRS 16 include a higher add-back of depreciation, which now includes depreciation on right-of-use assets. And then also, you can see in there the repayment of lease liabilities. Last year's cash flow included the IAS 17 rental expense. Our capital expenditure investment was still substantial this year. The reduction in our food businesses, up from GBP 325 million to GBP 245 million was expected as a number of major projects were completed in the 2019 financial year. The store opening program for Primark, however, was delayed by restrictions and those are restrictions as a result of COVID, and that was particularly on access to complete the fit-out of our stores. As a result, some of Primark's capital expenditure have slipped into the 2020 financial year. And that really accounts for the reduction, which we weren't expecting, from the GBP 355 million last year to the GBP 316 million this year. Nevertheless, and George will show it later, we still successfully opened 12 new stores in the year and predict, obviously, more for next year. Changes made by HMRC to the timing of U.K. corporation tax payments turned into effect this year. This year, full year, includes 6 quarterly payments compared to the usual 4 quarters. So the increase in cash flow that you would have expected from that, however, has been more than offset by the lower tax payable as a result of the lower profit. A reminder that the GBP 278 million that you see here on the dividends paid line, is the final dividend declared and then paid in this year but declared for the previous financial year. On to the IFRS 16 pro forma comparators. I think I've really shown you this before, but it's -- I'll just have a quick scoop through it. This shows the pro forma effect of IFRS 16 on the 2019 full year. Adjusted operating profit increases by GBP 61 million, and the interest on lease liabilities amounted to GBP 82 million. The net effect is to reduce the adjusted operating profit before tax last year by GBP 21 million. Adjusted EPS reflects this dilution on the GBP 1.375 reported last year becomes GBP 1.354 obviously on a comparable basis. The effect on the key Primark metrics are worth highlighting. So margin last year would have increased from -- and that's the operating profit margin from 11.7% to 12.4%, and return on capital employed because of the right-of-use assets falls from 29%, but still to a very healthy 15%. So let's come on to the segmental analysis. So as I've said, these are on an IFRS 16 pro forma basis. And all of our food businesses delivered an increase in profits this year. So sales food, however, were held back. So you probably noticed they're not moving too much year-on-year, but they were held up by adverse currency, I estimate across the piece, about GBP 150 million. And also in the Grocery segment, the exit from the private label bread contract in Allied bakeries. Our Grocery business has delivered a really strong performance. So adjusted operating profit of 15% and margin increasing from 10.9% to 12.4%. I want to point out the following: Our business has achieved the plans that we set out a year ago to deliver the margin improvement. And that's actually very evident in how much they delivered with the improvements that we actually saw at the first half. These businesses also then responded to the increase in demand for food sold through the retail channel during the second half as a result of COVID-19. These higher volumes more than offset the products sold to out-of-home and food service channels. Profit growth was the most notable in Twinings Ovaltine, ACH, AB World Foods and Silver Spoon. The operating result for Allied Bakeries improved this year, and that actually followed the implementation of some very, very significant cost savings during the year. These results also include a write-down of GBP 15 million noncash, and that relates to the carrying values of Allied Bakeries' distribution assets. And that follows the July announcement of our exit from the co-op contract. Sugar delivered a substantial profit increase this year as a result of higher European prices and prudential governance in Azucarera. It's also a much improved crop in China and further reductions in the cost of the Sugar production in all of our businesses. This was partially offset by lower profits at Illovo and that was mainly driven by a reduction in domestic demand in South Africa. With the benefits of firm European Sugar prices and profit improvements in Illovo, we expect an increase in profit in this new financial year. Operating profit for ingredients was well ahead, driven by Ab Mauri, which responded to an increase in demand in some markets, and exceptional increase for its use and bakery ingredients. So let's turn to Primark. The business performed well in the first half of the year. Most of the sales declined, as I said, we saw in the third quarter, mitigating the operating expense and indeed, the cash flow, and George has already described that, resulting from the store closures was a huge task. The reduction in monthly overhead costs by 50%, while the stores closed, actually was a major achievement. Primal trading since reopening to the end of the year was strong. Like-for-like sales were 85% of the same period last year. But the thing for me, which is the most important is that the operating profit margin at these sales levels was high single digit. And that clearly is a pointer to the profitability of our business going forward. Central costs declined, reflecting lower expenses in the second half of the year as a result of COVID-19 restrictions. It's worthwhile just putting on 1 slide. So this is my summary of the effect of -- in this financial year, the effect of COVID-19 on Primark. I've mentioned the GBP 2 billion of sales, GBP 650 million in profit. While the stores were closed, we saw a cash outflow of GBP 800 million, and that's worth bearing in mind. And if I can ever describe GBP 22 million as modest, then let me do it at least for once. The year-end stock provision of GBP 22 million, actually, given the scale of what's happened to stock actually is modest, but that is the provision that we've got. So coming on to segmental analysis by geography. Lower sales and profits in Primark were the driver of -- for the reduction that we see here in the U.K. and then the Europe and Africa segment. Within Europe and Africa segment, the profit improvement in Azucarera broadly offset the profit decline in a Illovo. The profit in the Americas, very pleasingly moved ahead and benefited from a strong performance from ACH and AB Mauri yeast and bakery ingredients. Asia Pacific benefits from a big improvement in China. And that's both our Sugar operations and AB Mauri. Liquidity has been a focus for all major companies this year as a result of COVID-19. I'm not going to linger too much. The most important number for you is GBP 3.1 billion of liquidity. And just to say that the RCF since the half year, we've successfully extended the date of that to July 2023. And we prudently saw to waiver of the covenant test of that in February 2021, and that remains in place. With that point, I'll hand over to George. Thank you.

Thank you very much, John. Let me start then with our Grocery businesses, which saw a very strong both financial and operational performance. They managed to increase output, in some cases, dramatically. They kept people safe in all the factories. In fact, across all our food companies around the world, we think perhaps 5 or maybe 6 people were infected with COVID while they were at work. We created very rapidly, very safe working conditions and most of all, often in really difficult times with the high levels of absence, they kept going producing more food for consumers all around the world. They absolutely played their part. Retail demand increased more than -- in our case, more than foodservice declined. That's just the nature of the mix of our businesses. Twinings Ovaltine over team, their profit growth now many years standing continued. Mazola and home baking increases drove a very good performance in ACH, but those were largely COVID inspired. Silver Spoon and World Foods, likewise, they ended up well ahead of last year. And then the improvement in George Weston Foods, which is probably now 5 years in place. Continued Tip Top sales were good. And more than offset COVID-related declines in this case in our meat business [ dome ], which supplies a lot of meat into foodservice in Australia. Twinings Ovaltine just need a little bit more time on it, strong profit and margin improvement. We benefited from the completion of the supply chain changes of the previous 2 years. We saw a significant supply chain savings. Our black tea, herbal teas both drove growth around the world. We launched a new range of infusions, top right, in the U.S., U.K., and France, they have traded well, and we saw increased home consumption in tea in many of our markets. In some of our markets, tea is a more out-of-home occasion, and we saw sales decline. In particular, the Ovaltine saw weaker impulse sales in both Thailand and Vietnam, which are both big markets for us. So Ovaltine had a rough time in out-of-home consumption in Thailand. We've seen successful new product launches though in Switzerland and Brazil and outside Thailand, the sales growth of Ovaltine has continued well this year. Moving then across our Grocery portfolio into North America, we sold out of every bottle of Mazola we could produce and demand is still high. We saw extraordinary increases in demand for bakery ingredients. We think the underlying demand for our home baking yeast probably went up 500%. We managed to supply 243% sales increase, which was pretty good going. And then finally, in U.S., a small acquisition we made previous year, Anthony's Goods, performed well, not only in supplying increased levels of demand on the West Coast of the United States, but also keeping its operations going in lockdown. They did a very, very good job. As I mentioned before, George Weston Foods, good sales of Tip Top bread, good sales of anything for breakfast. Australians were all locked down, having breakfast at lunch at home. As they went into lockdown, they bought large tubs of Yumi's dips and they were also introduced to new ranges of veggie bites and vegetarian burgers and took to them enthusiastically too. We are very excited about the prospects for Yumi's. As I mentioned before, Don was impacted by the decline in food service, particularly, we supply all the baked food to McDonald's in Australia. AB World Foods had a record year by some way, demand at its peak for Patak's sauces went up by 45% with all the carry houses and Chinese restaurants shut in the U.K., people tried to recreate very successfully, I'm sure, Indian and Chinese food at home, and they bought into Patak's and Blue Dragon as well. And we sold out, again, of all the capacity for all the products we made, including pappadums and naan bread. Patak's and Blue Dragon growth internationally was good, held back by capacity constraints, which we will address in years to come, but the internationalization of that business is progressing really well. We bought a lovely, but small business, Al'Fez, which is a brand -- is the leading brand of North African and Middle Eastern Cuisine in Britain, and we will roll that into our supply chain production of it into our supply chain and give it sales reach in the U.K. and outside. We're excited also by Al'Fez. Acetum, our balsamic vinegar business in Italy, seeing sales and profit growth from the very start of lockdown in Northern Italy in a factory where we lost 1 of our people to the disease was really a remarkable display of organization and commitment by many people. Sales and profits grew at Acetum, we were particularly pleased to see the growth in sales of the Mazzetti brand of balsamic vinegar in a number of markets where we have launched the internationalization of Mazzetti brand, sits behind the business case for the purchase of Acetum and it's going well. In the U.K., as John said, we stopped supply of a major private label contract during the year. We also took position to end the very unprofitable co-op contract, and we will take the costs that are associated with that out in the next year as we took the costs associated with the first contract out in the year just gone. We saw a 13% sales increase of bread through COVID and the operating result is a consequence of getting these costs out and also sales uplift, we saw profits improve. Westmill food is heavily exposed to Chinese and Indian restaurants, if you like, it's the flip side of AB World Foods in the U.K., it saw a significantly reduced demand into those sectors, but where it's supplied retail, noodles, rice, in particular, sales were very, very strong. If you like, the star in terms of volume uplift, across all our retail businesses, has been Silver Spoon in the U.K., which supplies a very large amount of baking ingredients, both flour and sugar, other ingredients as well like yeast into U.K. consumers. Profits were well ahead. Mind you, if you couldn't make money this year then you ought to, bakery ingredients sold into home, you should take your bat and ball home and get into something else. We did our very best to supply all the demand that was in place, that was created by the new generation of home bakers. And I think, actually, in the end, we did a pretty good job. If people are baking at home in second lockdown, we've got rather more capacity than we did back April in and May. We hope that there will be -- some of the new generation of home bakers will realize what a wonderful activity it is and stay with it when the world returns to normal. Moving from Grocery then across to our Sugar businesses. We've had another year of good delivery of cost savings, as much as ever before. We have visibility in the next couple of years of where the cost savings are going to come from next, particularly Africa and the U.K.. And those cost savings, which are now the productivity improvement program that goes back many years now has transformed the competitiveness and profitability of our Sugar portfolio. As expected, we saw higher prices in our European businesses. In the U.K. where we've had a number of 2-year, multiyear pricing agreements with customers, this year we will see those lower prices on the second half of 2-year agreements [ fall away ] and we replace the higher prices. So I expect to see further improvement in British Sugar this year. But British Sugar has returned to profit very nicely. The returns we make from what used before 2017 was really a bedrock of profit and cash generation at ABF, that's coming back and coming back well. Much improved performances in both Spain and China were also evident in the year. And John has slightly improved crop in China. Illovo was disappointing. Market demand reduced in South Africa. The South Africans have been a little bit later into replacing Sugar with artificial sweeteners in beverages. That's what's driven that market demand down. It's a shift that's occurred [ some ] years ago in Europe. Let me say a little bit more about the Illovo. So the demand reduction in South Africa, we've responded by closing our mill in the Southern town Umzimkhulu, and there are good cost improvement programs in place in Illovo, and next year, we'll see benefits from them coming through. All our other African markets continue to grow. Sugar consumption in all of them is very low. Our routes to market are very good now. We are the brand leader in all these markets. And I think we've got years of growth [ ahead of us ] in these other important markets. Even though there has been an impact from COVID-19, it's made the movement of both people and goods, much more difficult, and it's reduced to its cost -- it's caused, in some places, difficulty in operating complex machinery without the technicians that we need to get kits up and running again. And it's also caused big restrictions accused at the borders. We sell -- we have significant regional sales, which would be more difficult to execute this year. On top of all that, we had a particularly early onset of the rainy season in Tanzania, in particular, which is a good market for us. And we lost production at the back end of the campaign. Turning then back to Europe. And here is the [ mancon ] published prices. So this is the price of sugar that the EU thinks pertains across Europe. And you can see in the right-hand side, the increase in prices from the low point back in October 2019. October '17 was when deregulation occurred. We are coming back into something approaching stability in Europe, if we're not already there, and pricing is better as a consequence of it. Agriculture next then. So feed enzyme strongly ahead in the year. Our feed enzymes go into 1/4 of the chickens produced on the planet. It was really important in terms of the resilience of the supply chain that our factory in Finland at Rajamaki was able to supply increased demand often for safety stock, and it did, and the highly trained plant operators at enzyme factory are all kept well throughout the first wave of COVID, and it's important that we keep them safe and disease-free in the second half. U.K. feed sales were very robust. We supply feed -- we feed about anything up to 40% of the chickens and pigs in this country. And again, there was no interruption in supply from any of our factories at any point during lockdown, and that was incredibly important for the food supply chain in the U.K. But foodservice is a big driver of demand for poultry, with the closure of foodservice, the demand for poultry has reduced. And therefore, our overall feed sales in the U.K. are down as well. Internationally, feed businesses have been good. And then Frontier, which is actually a big business in the Agriculture sector of the U.K., suffered from a horrible crop -- sorry, from the horrible weather that characterized last financial year. If I move then on to our ingredients businesses, as I say, this is a part of ABF, which has been growing very significantly and strongly for a number of years now. And this last year was no exception. It was driven by AB Mauri in particular, where we saw very strong trading in China and in the Americas, particularly around supply of yeast into home bakers. We displayed great agility in China and Americas in increasing our capacity to supply the consumers of -- home consumers of yeast with a tremendous job. There was also a shift -- an important shift, a significant shift during lockdown from craft bakers and foodservice into the industrial bakery sector. And we have a strong presence, a stronger presence, particularly in the Americas in the industrial bakery sector than perhaps in craft, and we benefited from that shift to industrial bakery sector. We invested, now about 18 months ago, in a plant to make nondairy whip topping in Brazil. It is basically a cream substitute that doesn't go off in a hot climate, and that business has boomed since that investment. Last but not least, we completed actually just at the beginning of this financial year, the important joint venture with Wilmar for bakery ingredients in China. The performance in China, not least because that agility in the supply of home baking yeast had a very good year even before the trying to venture. The technical side of the -- our ingredients portfolio. So the most science and technology-based part of our entire food portfolio AB Ingredients, had a more mixed performance, strong enzyme sales, both in feed and food applications, excellent progress in yeast extracts in factory in Hamburg, a company called Ohly. It makes specialty ingredients increasingly for the meat-free sector, and there's good growth, I believe, to be had for Ohly from meat-free. We have a nice business in California, which supplies protein crisps for the bars market. The bars market in California has collapsed and with it, the demand for protein crisps that brought -- PGPI had a very tough time. And then Abitec saw increased competition in 1 of its contracts and had to give up margin because of that. This has been a year where we've invested both capital and also revenue in improving our research and development capability, not least in the purchase of a business in Sweden called Larodan, which has great expertise in lipids. It makes research-grade lipids, and it will for Abitec, which is our lipids-producer in States, a significant new R&D capability. Let me just pause there before I move on to Primark and have a glass of water. Right. I will start on Primark with just giving you the latest information on the trading restrictions that we face. And here they are. At the moment, 19% of our selling space is shut when the U.K. -- when England closes down on Thursday, that number will go up to 57%. Wales will reopen on Monday we expect, but only 8 stores there. So significant closures that take us through current information to the beginning of December other than in Belgium where closures will run through to the middle of December. Obviously, not great news. We expect to lose GBP 375 million of sales through this period. Before the closure in Ireland and week to date in England, we've seen very strong sales periods, we would expect to see strong sales when we reopen in December should that -- should we be allowed to do so? I think it would be enormously helpful for our consumers, for ourselves, if we were allowed to extend our trading hours from reopening in December and then after Christmas. On top of the actual store closures, we also see at the moment trading hours restrictions in Portugal, Spain, Netherlands, Italy and Belgium. We've seen this movie before. We have operational plans to manage the operational consequences of the closures, we will order, and we will honor all the orders that we have in place with suppliers. Most of those orders, which are currently unpaid for, relate to stock that will be for the spring/summer '21, and therefore, is all very relevant to our future. We will take whatever steps we can, and again, we've experience of doing this, to reduce operating costs everywhere for the period of our closure. Just to show you the closures again in the square footages of -- on the top half of this chart, the stores which are closed and then the opened stores below. And just to put that in a graph on slide 38. On the left-hand side is what we saw in terms of footage available to customers through April and May and then the reopening. And at the moment, what we're looking into with the closure of the English stores on Thursday. So we're some way off, either the length or the depth of the closures we saw back in March, April. But without doubt, there will be a significant hit to sales. There are differences. So last time, some stores are trading, that makes a difference in the location and the duration at the moment is shorter. And then, of course, we do have the experience from last time in the supply chain, we know where all the inventory is. We've got experience of applying for furlough schemes that we decided to do that this time around. The operations of the stores both in closing and also then in reopening are well understood. We had to plan extensively how we were going to reopen the stores safely last time around. We don't have to do that time -- this time around. And as John has shown you earlier, we have an even more robust pile of cash to draw down on [indiscernible] last time around. So that is what I have to say about the situation we're currently phased into. Let me go more broadly then into the performance, I think, of Primark through the year as a whole. The first half was encouraging. It was particularly encouraging in Northern Europe where we've had undeniable problems in years gone by, it did feel as if we were making very good progress there, GBP 650 million is the number we reckoned that we didn't -- the profit number -- profit cost of the first closures of the business back in April and May. We think we would have made more than GBP 1 billion in Primark this year, and obviously, we made rather less. The sales when we reopened, have been very, very encouraging, GBP 2 billion of sales since we got stores up and trading again. And I think that has demonstrated the relevance and the appeal of the business. 52% of U.K. shoppers say that they are still nervous of going back to the high street. And yet, our like-for-likes in Britain, outside those 4 stores in Oxford Street, Birmingham and Manchester, were 95% of the prior year. We have lost no closing market share from -- comparing when we were open to when to the period before closing. So although shopping online for clothing has increased, we have the same market share across all other ways people have of buying clothes. Fully half of our of our core consumers bought nothing during lockdown. They waited until we reopened, and then they came flooding back to our stores. So we think that the relevance of the appeal of Primark has been very -- more clearly demonstrated through COVID than ever before. I think what we've also and we knew we had good shop leadership, we knew we had good supply chain capabilities. Those 2 areas have been absolutely magnificent through this period. They've been incredibly tested. And have stood up to whatever COVID has thrown at them. It's an outstanding set of capabilities in the business. When we reopened, we did so [indiscernible] in our communications and our actions in stores on creating a safe environment for our customers and employees. I think we surprised a lot of people who might have remembered Primark for being a bit of -- Primark stores for being a bit of a scrum in just how orderly and carefully controlled our stores have been. U.K., as I've mentioned, all channel market share in line with pre-COVID levels. The other things in the -- since reopening, I think we've begun to display the acceleration of our sustainability agenda. We opened 12 new stores, including our first store in Poland, and we end the year with 3 -- ended the year with 384 stores. We've opened, I think, 3 since then, we're now at 387. Let me just show you a couple of pictures. This is of reopening. I think that across all our markets, we looked like we had put the most thought of any retailer into the post-COVID world in terms of signage, in terms of protection bottom right for our pill operators and people queuing up for them. And also in terms of managing the flow of people through our stores, those at the top right is about 6 o'clock in the morning, the morning of the reopening of our Mary Street store in Dublin. Next slide, the press response to our opening in England. Let's go on to the next slide then. And I think I've gone through this. I want to bring out that U.S. point, excluding the big store in Boston, which is 1 of these city center destinations, which -- where we're seeing lower sales everywhere, if you take that out, stores post-reopening in the states, like-for-likes are in line with pre-COVID time. We're trading better in the U.S. underlying than in any of our other markets. And to say, to be have these high like-for-like levels with 52% of population, is nervous about going shopping, I think gives you a strong indication of the appeal and relevance of the business. New stores in the year, we opened 12 new stores. This is Trafford Center in Manchester, all of them are trading well. Next slide. Four new stores in France. We had 1,000 people queuing up on the day of opening in Paris Plaisir, which I think is a shopping center to the west of town. We've seen no cannibalization in our other 6 stores around Paris. Italy, second store in Milan, trading really well. Poland, good. Spain, good, the store to the right is the lovely location store on the Ramblas in Barcelona, which has no tourists in it. It's -- we've been waiting to get into Ramblas for all 12 years we've been trading in Spain. And we opened it in the midst of COVID. It will be a great store for us. Go on, please. This is Plaisir in France. The French market is an increasingly important one. And we see some of our higher sales densities anywhere in France. Next, Central and Eastern Europe. The right-hand side is a very well-ordered queue on the day of opening of our Primark store, first Primark store in Poland. It will be a good market for us. The brand is well known. And that store is trading even in this COVID environment at above our budgeted levels. We will open a store this financial year, our first store in the Czech Republic. So Eastern Europe is looking like a very relevant, good, strong market for us. Let me spend a little bit of time talking to you about the United States. This is Sawgrass Mills, the busiest shopping center in Florida that usually sees 25 million South Americans visiting it every year to buy clothes. Not so many this year, but we had a queue of 300 people on opening day in the state which is semi, at least, locked down. And where the brand is known. Very encouraging start in Sawgrass Mills. I suspect the store and time will prove to be too small. It's 135,000 square feet of stores that we now see is -- as our ideal size. And let me show you why by giving you the example of Danbury, Connecticut, where we reduced the size in May 2018 from 54,000 to 34,000 square feet. And you can see the sales density that -- I draw your attention to the last 3 lines. The sales didn't move. We lost no sales as a consequence of which the sales densities went up to a very adequate level. The store on a store basis went from making a small loss to a good profit. We have a proven profitable store model in the United States. Since breakeven -- sorry, since we reopened, trading has been strong, as I -- I'd say, stronger than any of our markets. The stores that we have opened now pay for all the overheads. So the business as a whole is at breakeven. There's still 2/3 of our original warehouse available for expansion. Those 2 new stores since year end, Sawgrass Mills and American Dream trading -- both of them trading well. We have 2 new stores confirmed for 2021, 1 in Chicago in a good retail street in that city and then another store in the autumn in Philadelphia. When Chicago opens, we will have a store in the Midwest, we'll have the stores in the Northeast and we'll have a store in Florida. We are accelerating based on that profitable store model I showed you with the illustration of Danbury, we're accelerating the building of the new store pipeline. If America is important to our future, so is sustainability. Sustainability, we firmly believe shouldn't come with a higher price tag. We are going to get all this -- the single-use plastic out of Primark. We've already removed 175 million units of plastic hangers and packaging, 86 million labels and stickers have gone, and a further 300 million of labels and stickers will go this year. We have the largest sustainable cotton program of any retailer -- sorry, any clothing retailer on the planet. We will have trained 160,000 cotton farmers by 2022. And this autumn, there are 60 million units of clothing made -- clothing and other items like towels and sheets made out of cotton that our cotton farmers that we've trained have produced for us. 60 million, this is not niche. We have more than doubled the products in store made from recyclable plastic, nylon and cotton, 40 million items in store this year made from recycled plastic essentially. And last but not least, and this is very important, I think, part of getting the whole of the U.K. clothing industry to a much more sustainable place. We have launched the recycling scheme in store. Any clothing that you bought from anywhere, if you deposited here in a Primark store, we will get it back into the reuse and recycling world. But as a pickup point for clothing, we think that this is a great asset in the supply chain. And profits from the scheme -- and recycled clothing does have a value, profits from that will go to UNICEF. No Primark presentation would be complete without showing you some of the top sellers, not surprisingly, it's all heavily COVID affected. Loungewear, so zip through, hoodies, sweatpants, and then phenomenal performance on pajamas in all our markets have characterized the period since reopening. Both nails, eyelashes, have sold extremely well, in particular, lipstick, not so much, not much point in having lipsticks smudging underneath your facemask. But those facemasks, we are selling in large quantities as well, GBP 2.50 for 2. Licensed product, we mentioned before, we've increased the number of licenses that we're offering in store, particularly we're getting into gaming and then some of the Netflix franchises to licensing continues to grow. And if we are allowed to open for Christmas, and I suspect we will be at least in many places, then we have a great range of Christmas gifts and Christmas cheeriness available at very good prices to everyone, as I say, please, authorities, let us trade more hours in the run-up to Christmas, and we can give thousands more families a better Christmas than they might otherwise have. Again, just going back to the point about the resonance of the brand. The number of social media follows is up 10% year-on-year. But the bigger point is that through lockdown, we didn't lose our communications, our contact online with our consumers. 22 million followers without a transactional website is a phenomenal testament to the relevance of Primark in the lives of our shoppers. Let me summarize then and go back to the beginning. The food business has very strong profit increase through the year, outstanding performance in so many different ways in our grocery businesses. AB Sugar, exactly where we hoped it would be with a rebound from the consequences of reform in 2017 and more to come. Ingredients and Agriculture ahead as well. Primark, good first half progress and then I think, astonishingly good performance, both operationally and in terms of sales as well since reopening. And a year of very, very strong cash generation, which has left us well placed for these -- the perils of the next, I hope, only few months. In terms of outlook, clearly, there is significant impact of increasing government restrictions on Primark. We don't know how long things will last. We don't know where they will be. We don't know whether this will be a one-off closure or whether there'll be more to come before we've got COVID behind us. I've got here without mentioning Brexit, but that is coming up on the rails fast. We have had plenty of time to make good contingency plans for the disruption that I think will inevitably occur either with a deal or worse without -- we are lucky, and it is more luck than judgment that our business doesn't move -- our businesses don't move many products across the English channel. So a disruption for us will be smaller. But it will still have some effect, but not as much as it will for others. And then financially, we have as many parts of the group that will win from a no-deal Brexit as we'll lose. Grocery continued substantial profit in the year ahead, further profit growth, I think, in Sugar, both in Europe and in Illovo. Primark we've got to look through this period of closure to the excitement of selling space expansion and particularly the acceleration in the new -- in the United States, but also in these exciting new markets in Eastern Europe. And then based on what we currently see have access to how we fully expect Primark's profits to be ahead in the year we're now in. We have the people, we have the cash resources in abundance to meet the challenges ahead. And I think it's absolutely right that we're investing in the future, not only in Primark, but also in the food businesses. Thank you very much for that and let me -- for listening to me. And let me hand over to you for questions, and John will come back on the line.

[Operator Instructions] We will take the first question from Clive Black from Shore Capital Markets.

Sorry for your losses in the business. A couple of questions from me, please. Firstly, could you give an indication of the capital expenditure for the current year '21 year? And maybe also your expectation for where ABF goes from a geographical perspective over the next 2 or 3 years? And secondly, could you make some comments about -- within the retail business, your experience is on lease costs and how you anticipate those to evolve or property costs, not just in the U.K., but more broadly in the international level for Primark, please?

Thank you very much. John, do you want to handle the expected CapEx this year?

Yes. So Clark, yes, the -- I think CapEx for the coming year, assuming we can get into maybe about GBP 700 million. So you can see an increase from where we were.

We ask the food companies to cut back on CapEx where they could. That was back in March. And we probably took about GBP 50 million of spend out of that year -- of the year just gone, which will go back largely into this year. So there's been -- and as we go into this series of shutdowns, we have not asked the food companies to delay CapEx at this stage. Geographical expansion, well, I think the most relevant geographical expansions are Primark Eastern Europe and then in the United States. We think that from the depot in Bethlehem, we can access everywhere east of the Mississippi. And we will be looking at opportunities anywhere in that region. The -- probably Twinings Ovaltine won't be expanding into new geographies, but it will be deepening penetration into those markets. China, for both Twinings and Ovaltine brand is building quite nicely. Brazil, likewise. World Foods has set up its own routes to market -- its own distribution and selling capability and marketing capability in the United States, where we think there is -- where we think India and cuisine, in particular, has growing relevance, as indeed it has in the southern part of Europe, we're seeing good sales growth for Patak's across the more southern parts of Europe. What have I missed? Sales -- increasing selling capability for our specialty ingredients businesses into the Far East has been a characteristic of the last couple of years, and we've gotten more to add there. And then actually selling capability to some of our European-produced ingredients in the United States, I think, is something that we want to get on with there. So let me stop with those ones. So a fair amount of internationalization still to come, but not necessarily in new geographies apart from Thailand.

And on leases?

Yes.

Yes. Sorry of on lease costs. Look, I've said about this, I think there's no doubt that the lease costs of the high suits has been repriced. It was repriced before we got into COVID through price now. So I think as we look forward, then the leases that I think retailers and certainly ourselves are prepared to sign up to will be at much lower rents than those that have prevailed in the past. And actually, I think, would be more flexible, so in terms of break clauses and so forth in it. So I think everybody on the call is aware, are -- the length of our existing leases is somewhat longer because of the maturity of Primark, maybe compared to certain other retailers. But nevertheless, we have some tens of stores that have break clauses or renegotiations coming up in the coming year. So I think as a long-term outlook, occupancy costs for us will go down, and that will be a reflection of that. And that isn't about renegotiation of existing lease terms. But I think that's the way we go.

And then just a final question, if I may. Not particularly original one. But George, in your comments on Primark, there was no real addressing of the phone issue of online retailing. I just wonder, particularly with another lockdown around whether click and collect is going up the agenda for the Primark management?

Whether we end up doing click or collect -- click and collect or not, will not be a response to COVID. We couldn't do it properly. It's not something the businesses of scale, like Primark and Snapchat. And I think, quite frankly, we demonstrated last year that when we are open, we trade very, very well, and we trade our way out of the consequences of having our closes of our stores closed. If we do ever get into click and collect, it will be because it is additive to our business, not because it's trying to protect us from something that we're not -- sorry, it's not -- it won't be to address a weakness. I think just to repeat a theme of mine today, I think COVID demonstrates -- has demonstrated to us all just how strong Primark is. And if we do click and collect in the future, it will be to make the business even stronger.

The next question comes from the line of Warren Ackerman from Barclays.

George, John, it's Warren here at Barclays. I've got 2 main questions and 1 small housekeeping. The first main question is around lockdown 2, the GBP 375 million revenue impact. I know there's lots of moving parts around the EBIT, John. I mean, you talked about 50% operating cost reduction last time. Just interested if you can maybe give us a bit of sense of how you're sort of thinking about all the different moving parts on what impact that could have on the EBIT next year? And then what monthly -- cash sensitivity should we think about if U.K. lockdown were to continue beyond early December? And then the second 1 is more kind of back to market share on Primark. Could you John -- maybe, George, could you talk a little bit about the detail on market share? What are your market shares like off-line versus online? Where are you taking that share? And I saw some data showing that your off-line shares were up 50%. Is that kind of ballpark right? I'd be interested in any color you can share around share. And just a housekeeping one, squeeze it in quickly, too, around that central costs are much lower. Why was that, John? And then working capital reversal in the first half, how much should we think about?

I think if you...

[indiscernible]

Yes, let me sketch out and answer and then let John fill in the details. If you looked at the cash outflow and profit impact of lockdown 1, you could probably give yourself a pretty good answer to what a lockdown 2 -- should it go on for several months, what it might look like. The share offline, yes, we've seen those increases in market share in the off-line trade, too. I think -- I can't believe they reflect a future where everyone is comfortable going back down to the high street. We have a younger demographic in our stores, and that younger demographic is more willing, I think, to go down to stores than older folks. So I have no doubt that some other brands will build back some of their market share in the in the future. I think the -- probably the most encouraging market share information is really against all comers. We had 3 months where you could only buy clothes either at a supermarket or online, and we came out of that having not lost market share. That, for me, is the bigger testament to the strength of the brand. The central -- let me at that point, hand over to John for more detail.

Yes. Okay. Thanks, George. So the first thing about the GBP 375 million is, obviously, that is the sales that we'd lose. So -- and by the way, and that's just simply taking what we have forecast for those stores for the periods of which have been announced. It is I think the approach you take to taking cost out depends on the time period that the stores are likely to be closed for. So I will -- not that I'm trying to dodge the question. I just really want to show that the -- we will look at this quite, if I can describe it as flexibly looking forward. Look, there will be some costs that will fall away because they are variable costs that relate to the actual stores. There are then various other costs that then go to occupancy and to employee costs. If the period is literally for 1 month, then I don't think we will get a reduction of 50% that we saw for the much longer period. And so what I would urge you to do is roughly, roughly take 75% fall through or a 25% reduction in the operating cost for this period. Clearly, if the time frame changes, then I think we'll look at that again. You asked about that cash. What I've got to say, I've learned quite a lot about cash flow over the last few months. And not least the timing of it. So Warren, I think what you would see is of the GBP 375 million -- I mean, let's put it this way. You don't have sales of GBP 375 million. Your first cut would be your cash goes down by GBP 375 million. But I don't think that would be the case. I think the immediate effect will probably be a cash reduction of, let's say, some GBP 300 million. But quite a bit of -- at least half of that or whatever would come back many months later. Because basically, remember the continuity stock that's not sold, we then don't need to order that continuity stock as early -- at the same time as we did before. So probably, it's the immediate cash outflow that you would see. And then you would probably get a good half of that, at least back probably maybe 3, 4 months down the road. Just coming on to a couple of the cash flow elements. The -- yes, you've rightly picked up on the working capital position at the end of the year. Let me give you a number, maybe GBP 200 million coming back as we pay for orders for autumn/winter. And that's literally, we are paying them on time, but they're just -- the handover was later than is normally the case. So that gives you a feel that we've obviously got the cash reserves to be able to do this, but it's that immediate effect and then seeing some of it come back.

Sorry, just adding a minor a point to that, we had assumed that stock levels in our food businesses would recover in the first half of this year. I think it's now likely they won't. So there won't be cash going out for inventory building. That's probably GBP 100 million.

Yes. You're right to pick up on central costs. Look, not to put too fine a point on it, Warren, you look at all of the costs that go with -- people traveling and you're looking at various elements. It is a lot of those variable costs really have gone out of the business. So no, I would see some of that coming back. It's not a new low level, I think as a lot of the normal activity will come back, you'll get some of it. So if I were penciling in a number for this new financial year, I'd go back to the number of last year.

The next question comes from the line of Simon Irwin from Crédit Suisse.

A few questions for you. Just firstly, on Primark, can you just talk a little bit more about what you've done to the model in Eastern Europe for the Poland opening, particularly in terms of kind of how you've priced and ranged it? And what differences you've made, say, compared with, say, Germany or whatever in order to be competitive in that market? Secondly, on Primark, can you just talk a little bit about input costs for the current year in terms of what you're seeing in terms of FX and buying terms? And then just finally, on sugar. Are there any issues around the current year crop for British sugar? And how confident are you in Illovo rebounding?

Okay, Poland. In Poland, we have priced as we price everywhere, which is on the basis that we will be the lowest priced player on everything. And that's what we've done. The ranges, typically, we put in the range to begin with that we sort of best expect to sell, and then we adapt it very quickly. We expect that Poland will be maybe quite like Germany and having a higher participation of, John referred to, as continuity items. So non-fashion, I think, will be probably a bigger share of the market, but children is where we expect to do well in Poland, too. Input costs for the year, cotton is well under control. Artificial fabrics are well down. Airfreight is viably up, but we use very little of it. And labor costs in our supplier markets are similarly pretty unremarkable. So very little inflation there.

George, if I could just comment there. Yes. So actually, we have seen a good bit of deflation in a number of the raw materials coming through. So from cotton to a lot of the polyesters and so forth. And then the other thing, of course, is that the current exchange rate, who knows where it will go as a result of other elections today or Brexit at the end of the year. But should it stay at this rate, then that is a favorable exchange rate. So I think not only, I think, is the dollar buying price better, but then the exchange rate will go forward. So I think that is -- it's a bit of a tailwind there.

We -- on early estimates, and early estimates can be misleading, we expect the U.K. sugar crop to be down maybe 15% on yield -- on field yield. The early estimates are unreliable because you tend to harvest your worst beet first. But that's where we're seeing sort of 15% to 25% loss of yield in the early beet coming into the factory. The acreage is up a bit, but we expect to see the overall production of sugar in the U.K. down maybe by about 100,000 tonnes on -- it could be over 1 million, but we don't know if it will be over by much. The same situation is apparent across Northern Europe. In Spain, I think we're fine. We don't have the same damage to our costs that we have in Northern Europe. Illovo rebound. Illovo has actually started the year reasonably well. These are important months for them because they're in the middle of harvest. We have a good degree of confidence of the cost savings getting embedded. And we have increasingly good sight of pricing actions we need to take in highly inflationary environments like Zambia. So I think we're feeling more solid about Illovo this year than we were this time last year.

The next question comes from the line of Georgina Johanan from JPMorgan.

I've got 3, if possible, please. The first 1 is a follow up really, I think you touched on this, John. Just in terms of the orders that you've placed for autumn/winter stock, I think you said GBP 1.25 billion or so. What do you think your ability is to carry that over into next year, perhaps including some around comments sort of the seasonal element of the product rather than the continuity product, just if you were to end up being closed for longer than anticipated. That's my first one, please. Second question was just if you could make any comments on pricing in the U.K. and elsewhere, just very anecdotally, it looks like some of your prices are sort of nudged higher year-on-year, but perhaps that's unfair. And then third was just a clarification question. John, you said about expecting 25% OpEx reduction in closed weeks. Just to clarify, were you talking about a 25% OpEx reduction for the space that's closed? Or were you talking about 25% overall given the amount of space that's closed?

Let's take the last 1 first because it's easy. No, I was talking about 25% of the OpEx of stores that are closed, so rather than the whole stake. I mean I've got to say, Georgi, that coming into this year, some of the others -- the guys at Primark have been very forensic and very careful on cost. And I would have to say that not all of the costs that we had previously have actually come back anyway. But the 25% relates to those stores that are closed. So I think if we do that will...

On...

So we're doing them in reverse.

order. Pricing in the U.K., we haven't increased a like-for-like price in 9 years, like-for-like garment. So no, our prices have not been much higher. What you will be seeing, though, is higher quality particularly in women's fashion ranges that we might not have carried before but have more fashionability and perhaps more material cost in them, we think that we have commissioned from our customers to go -- to carry more, what I would sort of cautiously call more upmarket product, and you may well be seeing some of that. I hope that your view of women's fashion in particular is that it's more interesting this year than it may have been for a while.

George, sorry to interrupt, just only with a small point. So I don't know what data or how you got the feel, Georgi. Maybe 1 small element of that may be. I think we genuinely have had, depending on what trading period you're looking at, a lower level of markdown. So maybe if you're looking at net selling prices, net of that, that may be something that's there. But generally, sticker prices, if anything, have gone down rather than we know that, and so -- and then George is like the ASP, certainly, but in terms of the ranges has gone there. But like-for-like items, absolutely not.

Yes. Average selling price is up just a little bit, but it's on mix.

Mix. Yes, mix.

What can we do with stock that we've got in the warehouses and the shops now if we're locked down? Well, it depends how long the lockdown goes for. We have some spring/summer, as John has said, in warehouses ready for next half. It's only product which is either spring/summer continuity or ranges which consumers haven't seen before, so it won't be fashion damaged. We would very much attempt to maintain those same operating principles. If the consumer has seen it, we don't want to show it to them again in a year's time. But if they haven't, or if it is the same -- if it is acceptably the same product because it's continuity, then we can put it away. How much that will be, we just don't know. We do -- as I say, we would love to have as many hours as we can to trade through, particularly the Christmas ranges in December when we're allowed to reopen in these markets.

That's very helpful. So just as a follow-up on that point then, I suppose, with the orders having been placed for autumn/winter, if the closures are to continue, given that the kind of selling season for autumn/winter is, I guess, traditionally shorter than summer...

Yes.

Should we be putting a bit of extra markdown into our models as we go into the new calendar year. Would that be sort of a sensible assumption?

We -- look, we are -- the U.K. closure, in particular, which is the big one, is so new that we're still doing the work of working out precisely what we've got, where it is, what we think we'll sell of it in December. And what actions we might take on markdown. But it's simply too early. Even if these dates are the ones that come to pass, to give you a steer on it. In a couple of days, time will be better placed. But right now, quite frankly, we don't know.

The next question comes from the line of David Holmes from Bank of America.

Just a couple on margins. So firstly, I think you've highlighted that the top line impact of the destination city center stores, what kind of drag have these been on Primark's margins during the year? And then secondly, John, you mentioned that Primark had been high single-digit margins since reopening. Should we expect, and are you hoping to progress on that level in FY '21? And then just on margins within the food businesses, I think you delivered good progress this year. What are the moving parts as we move into FY '21 on the food margins?

Can I just -- let's just touch on the Primark margins, first of all. So the -- I really wanted to make that comment. And you probably heard my -- the deliberation of my voice when I was saying it. The fact that -- I wanted to make a point that, that 8% to 5% of pre-COVID level sales with the existing structure, we are delivering a high-digit margin for that last quarter. So as you look into 2021, assuming no change in -- let's put lockdowns to one side, David. So let's just say, the stores are open. We are confident of the -- as long as our stores are open, we're trading well. And so let's just take those like-for-likes from the end of last year. If you apply them to this year, then absolutely, we would expect a margin in the high single digits. If the -- I think we've made it clear that the lower those like-for-likes actually reflect spend, overall spend in all channels in the category. And we know that it's very event-driven, and there are certain things that people are not buying at the moment. If you then subscribe to that there will be some normalization in that spend, as we can do as a society, more things, then you would expect that spend to go up. I'm not saying it goes back to I don't know where it was before, but there are certain things that we know that people are not buying at the moment, then we would expect our sales to go up. And our margin would go up with it. So that's the sort of, if you like, the key driver to that. And then I would then also say that, yes, the Primark team are very, very focused on cost, and would look at that. Does that give you a help of how we're looking at it, David?

Yes, that's useful, John. And I guess just linked to that, I think would be helpful to understand how important those large destination stores are to, I guess, the margin buildup of Primark?

Well, I think that sales -- that like-for-like decline is coming out of 2 things. It's coming out of the large stores. And I think the numbers in the U.K. give you an idea, I think you can probably work out what the sales in the large stores have declined by. If -- and I think you would have to assume that through next year, with the lack of tourism, it's likely to pertain those big store sales won't increase all that much. And then secondly, sales loss are coming out of what John has said, these events. So we didn't buy into Halloween at all. Christmas jumpers, we bought very few of the party gear for Christmas. We bought very little of it. And so forth. So that's the other place for the sales loss. And probably it's not far kind of equal sales coming out of 1 and the other?

Yes. I mean, David, I must admit, I don't -- I'm not trying to avoid it. I just don't think I have in my head the effect of, let's say, the 16 stores and the effect of the overall margin. The thing I would say, though, is that it's also the stores that we've got in retail part, while the sales are well ahead of last year. So there is the benefits on margin from those. Some number of tens of basis points is probably where I would go. But that's from the top of my head at the moment.

That's really helpful. And then...

And then food margin, to some extent, it depends on how quickly foodservice opens up again? And how big a recessionary impact there is on businesses like Twinings, which is a high-margin business. But -- and as being so may suffer more in a recession than some other food businesses. The higher volumes do drive margins and there's still reasonably subdued level of promotional activity drives margins, too, in grocery. So I think, well, who knows, but -- because we don't have answers to either of those questions. But you'd have to assume that the Twinings margin or sales level and therefore, the mix, there's a mix effect on margin offset -- I'm sorry, of Twinings Ovaltine sales growth declining. And then volumes at some point in the year will return to something more like normal. But when that is, we don't know. I mean, yes, it's not many weeks ago that we were assuming that foodservice would be back in time for Christmas. Well, that's clearly not happening.

I think just on grocery overall. I mean, George has left this out. I mean, the fourth quarter surprised us with the higher levels of retail volumes than we had otherwise thought. And so for our businesses, that's going through into this year, but still lower levels of food service.I think you can hear our caution. Look, if I -- I would say, a small margin decline for the grocery segment as a whole. And don't have any profit growth and therefore, for this coming year is a placeholder for the moment. And I'd say it's a placeholder because we'll see how it goes. But don't just add on another big profit increase on. That's my caution as we see how these trends work through. The Twining supply chain changes had a nice effect on the margin of the entire grocery group, and that won't repeat. And we don't have an equivalent project anywhere else in grocery. So I think it is all commercial mix this year. And I think that's going to get worse.

I appreciate it. You don't have a crystal ball, but that's really useful.

Yes. When you get one, David, come and join us, will you? I'm just thinking of time. So let's go to -- maybe if we can just have a couple. Yes. Okay.

Okay. We'll attempt to answer the next question quicker so we can get more in.

The next question comes from the line of Anne Critchlow from Societe Generale.

Just 1 question from me about Germany, Primark. Could you talk a little bit about any underlying progress you're seeing? And also just remind us how many stores did you downsize last year? How many still to go? I think you said 2 this year? And is it a sort of Danbury type situation where you take them from loss to profit going down to, say, 35 square feet?

Yes. So we've taken down 3, and they've been successful. We have great new leadership in Germany, the operational disciplines are much better. The in-store disciplines are improving. We have a good suite of communications about the ranges, we're oversupplying sustainable and recycled materials into Germany. The German consumer, though, is even more cautious about coming down to the High Street than the british one. So the post-COVID like-for-likes are lower in Germany than they are in the U.K. But I think fundamentally, the business is getting stronger and that downsizing will continue.

The next question comes from the line of Anubhav Malhotra from Liberum.

I have a couple of questions. Should be straightforward. The first 1 is how has trading been impacted?

Next question...

Yes. How has trading been impacted in markets where you have seen restriction on trading hours, like Portugal and Spain and Italy? And then secondly, have you seen any change in consumer perception of the brand post your recent sustainability initiatives that you have taken, have you made any studies to understand that?

I do beg your pardon. I think probably because of our lines. Just, could we ask the question or if you could just give the whole question again, please. I think we only got the last part -- excuse me, yes, we can hear you now. Please give your question again.

So my first question was around trading in the market where you have seen restriction on trading hours. So like Portugal, Spain and how has trading been impacted? And have you been seeing any kind of queues formation because there are less hours for people to come in and shop? And if that could have an impact as the winter comes in? And then secondly, on your brand perception after the recent sustainability initiative that you have taken, have you made any studies to understand has there been a change in consumer perception?

Yes. Okay. On trading hours, as you rightly say, Spain and Portugal has never allowed more than 1 person per 20 square meters since reopening, and that has had a marked impact on sales. It perhaps cost us 20% or 30% of our prior sales as there've been restriction on number of people we can have in stores. In Spain, the restrictions on trading hours are more recent. But essentially, we make a good proportion of our sales after 6:00 in the evening. And essentially, we've lost about half of those trading hours. We are beginning to see an impact. We're trying to disaggregate that from nervousness of coming to shopping centers at all. It's hard to do, but it certainly has an effect. And then in Italy, we're not allowed to trade 3 of our stores at the weekends at all. And that has marked effect. In Italy, we have queues. In Portugal, we've had queues right away through. And in Spain, increasingly now. It's why we think that having extended shopping hours, not pure shopping hours is a way of making shopping safer. So we would I think that's a really good idea. In terms of are we tracking the impact of the sustainability agendas, not really at this stage. We're pretty recently into the September campaign. We have lots of good anecdotes, but we don't have hard metrics.

The next question comes from the line of Warwick Okines from Exane BNP Paribas.

Just a couple of questions, please. The first on cost savings. I'm not clear on whether you're intending to use furlough in the U.K. for this latest lockdown, maybe just your thoughts on that? And then secondly, could you just give us an update on Primark's IT implementation? I know you continued that process all the way through last year. And I think you've launched some trials of go live for Oracle. Where are you and what are the next stages for that, please?

Warwick, listen, on the first one, we are looking at -- on furlough, the schemes have some of them have changed from the original schemes that were job retention schemes that were in place back in March. So quite honestly, we are looking at them. And so I'm trying to give you broad guidance, but we just need to look at length of time and so implication. So it is literally, we are looking at them, but I'm not confirming 1 way or another, all right? And that's deliberate on our part. And I'm sure you can imagine that at this stage of where our operations are, that really is perfectly understandable. So that's why when I talk about the 25%, I'm not really looking at too much coming through from that, and I'm looking at variable cost savings elsewhere. So does that really address that?

Yes, so we should assume the 25% doesn't assume...

Do that regardless. And then we will see -- we will look at these job retention scheme. It's fast-moving in terms of accessibility to them as well as the availability of them. So -- and whether we want to do. Be very clear, from the original job extension schemes, we made claims from the middle of March, but we stopped in all European countries in the middle of June. So it was a very, very fine period because we felt that, that was the responsible thing to do there. So you can see that's what we're looking at. IT so far, so good. We've got through many of the hoops, but there are quite a lot left. That is on the big system change. There's a second one, which is a rollout of EPOS, that's going quite well.

The next question comes from the line of Adam Cochrane from Citi.

A quick one, similar to Warwick, really. When you said you discussed at length the dividend payment for this year, but decided not to, how do you think about taking government funds for furlough and paying a dividend? How at the Board level do you debate that and come to a conclusion? And does that impact taking the furlough scheme in the current financial year, given that you may want to pay a dividend?

Look, I think the first priority is to give ourselves the most liquidity we can. We can make decisions about furlough repayment and dividends later on through this period. What we know is it would be irresponsible of us to lock ourselves into any big cash outflows when we don't know what the winter will bring for us.

Okay. And then secondly, on the retail part performance you're talking about, as you think about new store openings, you might not want to make any long-term decisions based on COVID. But do you think there's opportunities for more stores in retail parks or even smaller format stores on retail parks that's come about in the way consumers are shopping?

Well, I think that would be to respond to what we're seeing during COVID. So I think your comment about not making short-term -- sorry, long-term commitments based on short-term consequences, but we would certainly would apply, we will certainly keep an eye on shopping patterns once we're reopened or we'll watch it very closely, to see what longer-term shifts there are. In terms of smaller stores, the first market that we're opening smaller stores in is actually Spain, where we think there are a lot of markets, which could do with -- where we could trade a 25,000 square feet store quite successfully. And then across the 35,000 square foot format in the States. So yes, there is more flexibility around size of store for market opportunities than there might have been a couple of years ago.

We've probably got just a couple of questions left, I think.

That's right. Yes, we've got, I think, 3 questions. So let's take those. It's a longer time than we normally spend, but I think it's worth it, given the circumstances.

The next question comes from the line of Aneesha Sherman from Bernstein.

So my -- I have 2. One quick 1 on store openings. So you pushed out some 2020 store openings out into '21. And I believe some of those are still pending. Is that correct? And will those now be continue to defer -- to be deferred into Q2 and so on? And how does that impact the total net openings for this fiscal year? My other question is on inventory. As you'll be continuing to take on inventory, what are your plans to handle the inventory? Are you going to continue to store it with suppliers and take possession of it later? Or will you be renting additional warehouse space to store it? And where does that hit the P&L?

Thanks, Aneesha, and good to hear you. Look, in terms of openings, clearly, some were delayed from the 2020 financial year. And so I think I'm almost sure that all of those will be opening this financial year. Well, the current -- the problem with the lockdowns is just whether it's access of people to the site to actually get the work done. So could we see maybe some further delays possibly, but it feels less so than we did first time around. The reason that -- when I first looked at the selling space being added in this new financial year. Actually, I was pleasantly surprised because the thing that we did have is, as you can imagine, for the pipeline, some disruption in terms of the contacts being made to add to that pipeline. I think we're in much better shape in terms of building that pipeline from here. So I'd be disappointed if too much of what we've said to be opened this year would get delayed from this year.

Inventory.

Inventory. Some and some. There's quite a lot of stock at any 1 point on a boat on the way to us. That we will pay for at the due date, and we'll have to put it in a warehouse near the market where we eventually expect to sell it, be that the original capacity or new warehouse capacity we have to take on for the purpose. We -- I think the extra warehouse capacity, the stock that arrived during the first lockdown probably cost us a couple of million pounds in short-term charges. I think in most of the stock, which is for later delivery is spring/summer, I suspect, I hope with the disease will -- that the opening of our stores will allow us to trade that stock normally from when it arises. We will -- we bought a fair amount of spring/summer already. We will be cautious and we will, therefore, have fully available ranges in stores when spring/summer comes around. We are looking now at the back half of spring/summer and trying to work out how much stock we might need to place orders for the second half of spring/summer, but that's a rapidly evolving story. So at the moment, not much impact on our P&L of certainly stock that is currently ordered. I think all that will travel into the U.K. and into all our markets in a fairly normal -- on a fairly normal time line. There may be some continuity stock, which we slow down.

The next question comes from the line of Richard Chamberlain from RBC.

I'm trying to squeeze in a few questions at the end, if that's all right. Yes. So first 1 is, what was the working capital impact of lower food inventories at the year-end? That's my first one. And then the second one, I guess, on Sugar, George, you may want to comment. Any sort of latest thoughts on how Brexit will impact the Sugar business? Do you think going forward, do you sort of deal or no-deal? And then just finally quickly on Primark. Am I right that you took an asset impairment for the U.S. as well as Germany. And presumably, that's it for now, though, in terms of impairments, we shouldn't expect any more in the coming year?

So the working capital is -- sorry, yes, the lower stock levels in food, something around GBP 50 million would be the number there. Sugar, if there's no deal, then French sugar will go up in price, but the agreement -- the closer that is in place for Tate & Lyle will -- the 263,000 tonnes will come into place. But sugar, I would expect, in the event of a long-lasting no-deal will improve, the prices will go up because of reduced competition from European sugar. And then Primark in the event of no deal, then I think the situation now will be the situation in the future -- sorry, if there is a deal. Primark asset is all about downtown crossing. And that's it. We think we can't see that we'll get the footfall through that store that we anticipated when we first opened it. So I think we have to be realistic about that first store.

The next question comes from the line of Katy Hutchinson from Davy.

3 questions from me. Some more strategic question, but does COVID influence your broader capital allocation model going forward, perhaps more into the food business or into digital? And then just secondly, you might just give us some color on how important the Christmas trading period is for sales in a normal year for Primark? And is that stock already in stores for the store still open?

Capital allocation. Look, there are lots of uncertainties in food and in Primark. And I think it's too early to be saying we should be investing more in this and less in that. We have to see COVID unwind and see what the longer-term consequences of it are. It is said, and I believe it, the trends that were in place before COVID, so the move towards sustainability in both food consumption and also clothing will accelerate, perhaps the move towards meat-free diets will accelerate. And I think we're pretty well placed to take advantage of all those. So for example, increasing our ability to supply meat-free out of ingredients. That's something that's of interest to us, but early days. And it's based on old trends, which we think will accelerate, not how the world has changed because of COVID. Christmas trading is the most intense period of trading in the calendar, the stock, if it's not in the stores, is certainly in the depots. And with very little still to arise.

So I think if we can -- we can take that as the last question. George, do you want to...

No, other than thank you all for joining us in this sort of restricted way and hoping that you will manage to get a good Christmas of some sort and that you keep safe, I think particularly over the next few days, while we rush around in anticipation of being locked down. And see you in person, I hope, at the half year.

Very good. For me, thank you, everybody. Thank you. Bye-bye.

Thank you. Ladies and gentlemen, that concludes today's conference. You may now disconnect your lines.