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

Hello, and thank you very much for joining the Associated British Foods Trading Update Call. My name is Josh, and I will be your coordinator for today's event. Please note that this conference is being recorded. [Operator Instructions] I will now hand you over to your host, John Bason, Finance Director, to begin. Thank you.

Great. Thank you very much, Josh. Well, good morning, everyone. A warm welcome from [ Namibia ] to this investor call covering the third quarter trading update that was issued this morning. And apologies, we're slightly late starting. And the reason mostly, the high volume of attendees, just the technology of getting everybody signed up. So our apologies for those few minutes of a delay. So we got today, myself on the call, but then also we've got George Weston and then also Paul Marchant. So we can cover, obviously, the trading during the quarter and outlook for the full year. But the announcement of the U.K. Click & Collect trial is obviously a very significant one, and we decided that it would be best to really give you a lot more information on that. And so we plan to take the first 30 minutes of this call with a presentation too. You should have had an e-mail from us which gives you all of the slides that will be covered. The speakers now, and that's mainly Paul, Paul will direct you slide by slide, so as you can keep up with that. And then after the presentation, maybe lasting for some 30 minutes, then we'll be open to Q&A. And the Q&A at the end, I'm sure we'll ask lots of questions about Click & Collect, but we can also talk about trading as well. So I think with that, I'll pass over to George who will start the presentation on Click & Collect.

Great. Thanks, John, and thank you all for joining us. We think there is significant business opportunity for Primark or ABF from Click & Collect, and I hope this presentation convinces you of that fact too. We -- the trial sits -- rests on capability that is now in place. So Oracle is implemented, EPOS is well down the road to being rolled out. And we've also got a newly installed, we think best-in-class technology stack, driving the website and now the transactional part of that website. We've thought hard and long about the starting point for Click & Collect. We've chosen kids ranges really for 2 reasons. Firstly, we have significant category authority in kids. We've got a very strong kidswear business. But it's one where we suffer inevitably space limitations. We can't showcase at the moment in store everything that we would love -- like to offer our customers. So we think that taken together, our kids offers us the best opportunity for incremental sales rather than substitutional ones. So that's where we're going to start. The offer builds on existing strengths in product, in supply chain, and as Paul will show you later, also in store. And then the last point to make -- for me to make about the Click & Collect trial is that trialing is how we always enter new markets. What we're -- we trialed 5 stores in the Northeast of the States when we first went in there. It's how we learn, it's how we optimize and trialing has stood us in really good stead in the past. And we don't apologize we're doing so again. So the Click & Collect opportunity is one of the sources of growth of optimism. As John may well detail later on, we think that the business is performing well coming out of the pandemic of the latest quarters sales figures in the U.K. and Ireland, in particular, I think, are very creditable. And then as we made clear at the half year, the accelerating store expansion program, the States, Iberia, Italy, France, that our expansion [ pane ] is well underway. We expect to have, for instance, by Christmas, maybe 12 or 13 more stores open mainly across those growth markets. Two other store developments, which I think are significant. The reopening of the flagship store in Belfast is coming up soon. And then the first expansion of the store in the U.S., at Sawgrass down in Florida. I think that's an important moment and I think, illustrates the strength of the business that we've got building in America. But anyway, back to Click & Collect and to Paul.

Thanks, George, and good morning, everyone. For those of you following the presentation, we're on Slide 3. So just a reminder that back in April, we relaunched our website in the U.K. This was a significant move forward for us in terms of the look, the feel and the content showcased on our website. We designed the site to be a mobile-first design, nearly 85% of all traffic accesses our website through mobile devices. As you'll see from the image on the right-hand side, we have a much richer product content. So multiple images per product, multiple colorways per product, still at the same amazing prices that our customers love with this drawstring jogger at GBP 6 and also highlight sizing information to help the customers work out what size is appropriate for them. In terms of the content of the site, we're now showcasing 70% of our total product range. That's up from only 20% on the old site pre the relaunch. And very importantly, our customers are now able to stock check the availability of the product that they're looking for in their size, in their chosen store. And we really believe that, that's a great route to drive footfall, ultimately drive conversion and that purchase in store. So if you like to turn over to Page 4. A bit of background on how the website is performing. So I think we're very pleased with the response from our customers to the new site and there's strong performance from all of the metrics that we are measuring. Firstly, important to say that traffic in totality is up around 60% since relaunch. The customers are viewing double the number of pages they were versus the old site. And I think very significantly about 15% of the visitors are using that new stock-checker facility. It's a new functionality. And bearing in mind, this is a strong indication of the customers' desire to purchase and therefore, visit store. We are really pleased with that number. Over to Page 5, and as George already stated, we are starting with kids. This is a market where we have or our product category that we have clear strength. It's our second biggest category after ladies wear. We have a strong U.K. market share position on both kids clothing and kids footwear and accessories. And again, to repeat what George just said, we are space constrained in many of our stores. If you think about the complexity of a kidswear where you have babies, you have younger and older kids, you have accessories, footwear, essentials, nursery. There's a lot to try to fit in, particularly in the average stores and even more so in the smaller stores. So what we're looking to do here is to offer a much expanded range of children's wear products, complementing the already strong in-store offer. So we are looking to build our Click & Collect proposition to some 2,000 options across all areas of kidswear from newborn, right the way through to teens. And if you look at the components that make up the product proposition and it's very exciting that the 40% of the total options that you'll see on the Click & Collect offer will be exclusive to Click & Collect. You will not be able to find those in any of our stores including the large stores. If you're an average size store, you'll typically have double the choice now that you currently have, through Click & Collect. And in the smaller stores they'll have up to 4x the product choice that you currently have within the 4 walls of the store. In terms of where we focus our attention, and I'll come on to this in more detail later as well as sort of a strong range of fashion story, particularly on girls wear. We've also focused on license, multipacks and some larger products, particularly around nursery, which by the makes of them are space hungry and difficult to showcase in stores. So in summary, I think on this page, it's about offering more products to more customers, more often and driving that incremental opportunity. And now over to Page 6. So the trial will start in the U.K., 25 stores in the Northwest. We like this region. It gives a very good representative sample of different store types and different store sizes. On average, the stores within that 25 cluster will be 43,000 square feet, which is bang in-line with our company average. However, there's a huge range of sizes within that 25 stores. So for example, the smallest store is 13,000 square feet, which is in Wallasey, which is based about 6 miles outside of Liverpool city center, up to 150,000 square feet in Manchester city center. We're talking a launch towards the end of this calendar year. And as I say, we really expect this to drive higher footfall to the stores and deliver incremental sales. And that's both through existing and new customers. It's about giving more choice to our existing customers, it's about driving new customers into Primark and giving our customers more reasons to shop with Primark and visit our stores. Over to Page 7. What I'd like to do now is showcase some of the product that you're going to be seeing when we go live with our new Click & Collect proposition. And I just want to really start by saying that we don't normally share our product slides in advance of launch. We're very protective as you can appreciate of our IP. So therefore, I would really ask you not to share these, not to forward them, and they are clearly commercially sensitive, but I really wanted to show you what we're doing in able to bring this offer to life. Before I start going to the specifics, I just want to reiterate that all the products that we offer on the new Click & Collect service will have the same price leadership with our customers [ that will never fall ] in the stores. They'll be no different in terms of that perspective. So the first thing I want to talk to you about is trend products. We know we have a very strong in-store trend rooms, as you walk in through the front of our store in ladieswear, and as you enter our menswear department, we showcase the latest trends pulled together as a collective. We don't have the space within our kidswear stores to do the same. So what we're looking to create here is an ongoing trend story focusing on older kids from 7 to 15 and across clothing, footwear, bags, hats, accessories, all the things that you'll see within one of our women's wear trend rooms. And just to highlight a few of the prices to give me an indication of how competitive we will be. The psychedelic leggings that you see on the left hand side will be at GBP 7. The printed denim with [indiscernible] will be at GBP 11 and our printed hoodies at GBP 10. So the same great prices that our customers know and love us for. Over to Page 8. We have a very strong and a very successful license business. All of the license product that we sell in our stores is exclusive to us. You won't find the same style anywhere else and same is true with our Click & Collect proposition. So Pineapple has been a range that's been very successful for us in store. Again, the space means that we are limited in terms of the number of styles we can offer. So this gives us a chance to take Pineapple, really expand the range, extend it into more options and more product categories and therefore, make this available to all 25 stores, many of whom would not be typically arranged for Pineapple and again, taking the opportunity to offer the customer clothing, accessories, bags and some really cool workout footwear. Over to Page 9. One of our biggest and most successful licenses is Disney. And within that, Mickey and Minnie plays a very significant part. What we're doing here is creating a very strong fashion story anchored around black and white with a highlight of red. And again, the digital proposition gives us the opportunity to showcase this together and then significantly grow the options and therefore, the customer choice. Same great prices, top right baseball jacket, key trends of the season, GBP 18, the [ Bulls ] jacket mixed with the cream with the black sleeves at GBP 16 and through next [indiscernible]. So a great opportunity to give them more choice, more options to more customers on one of our best and most successful categories. We know that nursery has been a really successful category for us and being able to showcase a lot of that in store, the full range of product that's required to kit out your nursery and your newborn is a challenge. So therefore, what we're creating here is an always online nursery and essentials range of babywear. So this will be available throughout the duration of the Click & Collect offer. So what you've got here are products such as nursery, feeding, choice and larger bulky products that are very difficult, in some cases, impossible for us to showcase in store. If you look, for example, at the rugs, the Mickey and Minnie rugs that you see on the floor there at GBP 20, amazing value. Again, difficult for us to showcase these, particularly in the smaller stores. So a real opportunity to have an always online Mickey and Minnie nursery range. Another good example of how we are taking a license products in Captain America and Iron Man, which are only available in a very small handful of stores and extending this down to all 25 of trial stores. Same great prices, again, I've talked about, 3 pack of t-shirts GBP 8, all exclusive to Primark and available at sites at all the 25 trial stores. On Page 12, what Click & Collect also gives us the opportunity to do is to test and trial brand new licenses. So anime, the Japanese license characters have been strong for us, but what we're able to do is extend this now into new anime characters. So Naruto is brand-new, exclusive to Click & Collect, only available through Click & Collect and build on the back of one of our already very successful categories. On to Page 13, now this is really interesting. Because of the seasonality of our product ranges, we are restricted to offering things like rainwear in a summer season and swimwear holiday shop in an autumn season. What this gives us the opportunity to do is the always-on stock in some of these categories. So here, you can see a unisex rainwear [indiscernible] GBP 11, a spotty jacket at GBP 14, and this will be available all year around. And the same will then apply to Swim and Beach. So for those customers who are going on a holiday in an autumn/winter season where we would have next to no -- next to nothing in terms of stock in store, we're able to now offer a full range of Swim and Beach to our customers all year around. Another really interesting opportunity for us. Our larger product category, which again, very difficult to showcase in store. On the left-hand side, you see a great range of nursery, furniture and storage, the middle lineage large plush toys and on the far right, a fantastic range of Disney Princess dresses. You can only imagine how difficult it is to get more than a few options of those dresses on any one rail in store. So this opportunity for space hungry products, difficult to showcase in the sales drawer, making this available through Click & Collect, another great way of extending our proposition and giving the customers even more choice. Over to Page 15. This is a really lovely story of Winnie-the-Pooh baby and what we're looking to do here is to drive traffic through into the stores by exclusive previews of product before it's going to arrive in the bulk of our store estate. So this is the Winnie-the-Pooh story which will arrive 4 weeks in advance of the prop-full store launch because of wide range of categories, clothing, accessories, nursery and furniture, a really lovely story showcased together and 4 weeks of exclusivity through our Click & Collect offer. Moving on to Page 16. Essentials are a really important part of our business. We usually sell these items as singles or as 2 packs. But in order to drive the average selling price through the Click & Collect proposition, we are moving them to 5 packs and maintaining the great price of GBP 7.50 for 5, so GBP 1.50 per individual item. And I think what's really also important, if you look at the far right, we'll see how we're moving away from hangers to wrap bands and these are recycled and recyclable cardboard wrap bands. So also looking across all of this offer to reduce the amount of plastic and packaging that we use for our products. So when the customers arrive in store, we want them to have a great experience when they come to collect their order. So we are creating new designated areas in the heart of the store from where the customers will collect their orders. And we have achieved this by repurposing our current customer service desks. We've recently moved our returns away from the customer service desk and now it'll be able to be take place for all of our sales in store. This means that we can repurpose these customer service desks and have no reduction of our store selling space, which is very important. We'll have clear signage to navigate the customers to this department throughout the store. And we also want the journey to be designed to drive that attachment basket. In store we have a broad offer, a great choice across all of our categories, and we want our customers to be able to see that as they make their way to Click & Collect department or area, I should say. Customers can select a nominated collection day up to a week in advance, I think it's really important. And we will notify the customer as soon as their order is ready. Our Click & Collect tours are free for the customers to collect and we will also accept returns free of charge in store. In terms of the logistics operation on Page 18. So all the Click & Collect orders will be processed and dispatched to store from a U.K. distribution center based in Leicestershire. Our suppliers -- our product suppliers will prepare the majority of the stock to be e-commerce ready. And as I've said already, and as you saw a couple of slides ago, minimizing the packaging and absolutely minimizing the plastic that we use on our Click & Collect orders. The duration of the trial, the replenishment and the distribution to the store will be a manual pick and pack operation. We believe this to be the most pragmatic and cost-effective way to get the trial up and running. We have a great partner in Clipper, who we're working with on logistics. But I think once we have the results of the trial, we will look to automate that risk proposition and this service in due force. As George has already said, we've made significant investments into digital, including the implementation of Oracle across all of our stores and depots. The rollout of our new EPOS system in store, which looks great and been received really well by colleagues and customers, that will be rolled out by the end of this year. So we've built a good platform on which to build this product. In terms of the team that we've got onboard managing this Click & Collect offer. We've got a really, really talented bunch of people who are combination of in-house tallent, but we've also brought in expertise from a number of other technology and digital businesses, including places like ASOS, Farfetch, Net-a-Porter, John Lewis, Superdry. And from a CRM perspective, we've brought people in from businesses like Weight Watchers and Expedia. So a really strong team that we're really embedding well into the Primark family. We're also working with some of the world's leading partners to help us deliver this trial. If you look at EPAM from a systems perspective, Publicis, marketing agency, Salesforce and Clipper Logistics, we've got 4 that we believe are best-in-class, have strong expertise in a very fast changing world. And we -- as you can appreciate, we would have gone through a very rigorous tender process to get to those 4 providers. I'm now going to hand back to George to conclude, and then we'll take Q&A.

Thank you. So I hope we've shown that there's been a lot of thought, a lot of investment that's gone into today's announcement. We have the physical -- we have the digital assets in place. They're ready to go. Click & Collect allows us to supply our customers with wider product ranges. I hope that you took away from Paul's product slides just some of the excitement that we feel for the product opportunity. We're starting with kids where there's undoubtedly unfulfilled demand. The opportunity is to drive profitable sales, whilst minimizing substitution, while also maximizing attachment sales. The opportunity goes beyond kids, but let's not get too excited because we have to run this trial first to confirm the economics of it all. I think that concludes everything we have to say. And John, I'll just pass it over to you to be called back on questions.

Great. George, thank you. But certainly, Paul, thank you very much for giving us all of that detail behind Click & Collect. Maybe if I could just say a couple of comments about the trading in the quarter, and then I'll open it up to Q&A. First and foremost, our expectation for the full year is unchanged. I think given the sort of the continuing volatile times, I think that is a good outcome. Our food businesses, if I can characterize the quarter, it's won very much of ongoing price actions. So these are price actions, which are happening. And the other thing which should be of interest to you is that the AB Agri and ABF Ingredients businesses have actually upped their profit forecast. So these are businesses getting really their heads around the environment and making sure that we keep ahead. Primark's trading, we will -- I'm sure will cover in through in Q&A. Maybe if I can just make a very -- couple of very broad comments. The U.K. actually has traded, I think, very strongly for the whole of the quarter. And so the like-for-like compared to pre-COVID of minus GBP 4 million really was delivered pretty consistently. And so that's the period from March to May, the same in the Republic of Ireland. Continental Europe, I think, has been evidently more sluggish and more difficult. So the like-for-likes that you can see where we're talking about 15% for the quarter for Continental Europe. Actually, that's very much weighed by a very slow start to the quarter. Actually, it was over 20% at the beginning of the period, but then really improving somewhat at the end. So what's the outlook for the final quarter? We think that the like-for-likes in both the U.K. and Continental Europe should improve from here. Okay. So I think at that point, I really will open it up to any questions that people have.

[Operator Instructions] Our first question comes from the line of Georgina Johanan from JPMorgan.

I've got two, please. The first one was, I appreciate this is just a trial at this stage. But could you give some commentary around your kind of initial thinking around the economics of introducing Click & Collect? Presumably, there's incremental costs being introduced to the business in terms of delivering that product into stores. So just any help on how we should be thinking about that even just initially would be really helpful, please. And then my second question was, you've referenced a number of times how you can widen out the range. And I think you said evening kidswear, that'd be about 40% that was online exclusive. Can you just comment on how we should be thinking about sort of the working capital implications, therefore, please?

Okay, Georgi. Thank you very much indeed. So I think the first part of the question is really about the economics of this Click & Collect. I'm just going to ask George to really to maybe reiterate certainly how we are looking at that and really how it sort of works with being the store business that we've got. And then I may ask Paul to maybe just comment on the cost that we've incurred to date of both capital and revenue in terms of Click & Collect. So George, maybe a bit on the economics of this.

Yes. Thanks mate. I thought you were the finance director and might have taken that one. Anyway, but let me have a go. Look, I think everyone on the call will understand the drivers. There is an extra cost of picking in the store, which particularly on an annual basis, is reasonably significant -- in the depot, I beg your pardon. And that is an incremental cost, which would come down in the event that we automated that process. The two positives that on the other side are, firstly, the incrementality of the sale even if the margin is lower, as long as an incremental sale, that is fine. And the average price points of everything that we are offering on Click & Collect is going to be a little higher than the average price point of goods in store. And then the second one is the attachment rate of -- so people who wouldn't have come into the shop, into our stores, but are now doing so in order to -- because of the attractiveness of the Click & Collect range, what are they buying as well from the store at the normal margin. We will focus very carefully on all those numbers through the course of the trial. I think -- I don't think it would be a great surprise to say the average sort of process -- extra processing cost in store is probably a [indiscernible] or so. And everything else is as it is. So the attachment rate and the substitution rate, those are the 2 big drivers of the commercial success of this. We -- once we've got the trial, we'll be able to share more specifically on what we've learned, but we've got to get into this trial to work out whether our modeling turns out to be reality or not.

Great. Thanks, George. I mean just to reiterate, George said the -- and we've talked about this for some time, the incremental cost per item of Click & Collect and George gave a number of about to plan. So really just making sure of that we minimize the substitution of in-store sales while working on the attachment of store sales when people go to the Click & Collect as well as the actual Click & Collect sales themselves. Paul, do you want to just cover some of the costs. Let me start with the cost of the trial, just the capital cost because I think that with the repurposing of the actual customer returns part of the stores, the capital cost is lower than you might think.

Yes. Thanks, John. Yes, I think just all that important just to recognize that we have spent several hundreds of millions in getting strong foundations in place, as we talked about Oracle, EPOS. So building those foundations was critical in terms of the trial specifically. And the CapEx investment is around GBP 6 million which is basically around the warehouse and the store reconfiguration of the customer service desk. In terms of fixed costs, it's about another GBP 20 million of fixed costs, which are really investments in people, in licenses and in the photo studio. So that's the 2 big numbers, John, I think to...

No, that's great, Paul. And I think the -- that number that Paul has just mentioned is one very much about the higher level of digital engagement. So it isn't just specific to Click & Collect, but I think is ideal. That should give you a feeling of the scale of it. If the Click & Collect moves forward in terms of scaling, then clearly warehouse costs will become a more important factor. But I think that would then still be a number which is probably high tens of millions that we'll been looking out for that. But the second part of the question, Georgina is just range. And yes, I mean, we will manage it very carefully. But the working capital implications are clear. We will have a separate stock for the Click & Collect. And so that will mean that there is some increase in the working capital relating to that.

The next question comes from the line of Clive Black from Shore Capital Markets.

Nice to hear [ well a sequel ] guys. Two quick ones, if I may. You -- at the start of the pack, and thanks for the presentation, you talk about this being a significant potential opportunity. I just wonder what your definition of significant is within the scope of Primark, given the sort of outline measurements of Primark? And then secondly, if I could just go to the wider group and talk about Grocery for a moment. John, you say in your statement that you expect Grocery or food margins, sorry, to recover in FY '23 or calendar year '23. I just wonder about the shape out and the timing of that margin recovery maybe between first half and second half of your financial year, that would be appreciated as well.

Thanks very much. Okay. Let's talk about significant, first of all in terms of what we're proposing today. I think that number of 2,000 or building to 2,000 options on Click & Collect should give you a feel for the very real scale of this. So this is not a small offering. So I think, first and foremost, the business opportunity is this massive increase in the offering to our customers. And I think Paul has laid that out really, really clearly. And this is just in children's wear. So we're excited by this, Clive. I'm not going to clearly put a number on what I think it will do to like-for-likes or whatever. And the trial is one very much about confirming that. But make no bones about it, the team is very excited by this, and significant, I think, is a very appropriate word. Let's come on to Food. Yes. I mean the margins and remember, I'm really trying to say, rather than just food overall, I think the -- you've seen Agri and probably Ingredients coming back, and we know that Sugar is going to have a good year. I think now we're talking about the margins in Grocery. So let's narrow that focus. We'll have -- the margin will be down this year. I see taking -- the negotiations often take some months in terms of a lag for all of this to come through. I think I will be looking at a run rate in the second half of our next financial year, really when there's the benefit of our pricing actions come through.

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

Warren here at Barclays. I've also got a couple. The first one is on Primark current trading. I was wondering whether, John, you could give us the exit rates for the quarter. Any kind of color around current trading for U.K. and Continental Europe, and U.S.? And interested in your comment around sluggish Continental Europe given restrictions of these. Just wondering whether -- why you think that is the case? That would be helpful. And then secondly, just if you could update us on inflation expectations and maybe Paul can share some thoughts on how he's thinking about Primark pricing which I guess is starting to come in to the autumn/winter ranges from next month. I think it is the first price increase in 8 years, and how you're going to kind of go about doing that? Any kind of thought or color on quantum or what kind of SKUs, because I guess that that's going to do a lot of the heavy lifting to offset some of the inflation as we think about margins for Primark into next year?

Okay, Warren. Thank you very much. So let's talk, let's turn to like-for-likes. Warren, rather than just give like-for-likes by week or by month, which you know why I really don't like in terms of -- they could be still affected by a number of factors. But let me make the following comments. The actual group like-for-like, so that's for Primark group. Actually, in P9 was up minus 5%. So the minus 9% for the quarter overall was minus 5% in the final period, which was period 9. And the reason for that was really quite a good improvement in Continental Europe. So the U.K. seems to be well established at these sorts of like-for-likes of minus 4%, we think we've actually had some -- I [indiscernible] we've had some weeks where like-for-likes have been positive. Not surprisingly, with the great weather over the last couple of weeks, well, obviously, with the Jubilee, we've actually had some weeks of positive like-for-likes. So I would expect for the quarter for the U.K. to be a bit ahead of -- the minus for which we'll take any day, by the way. That is a great performance, but we think it will improve a bit more in the final quarter. Continental Europe, look, what I want to say here is it remains volatile, okay? By that, I mean week on week, it can move around a lot. Let me say the following. The -- it isn't just 1 or 2 countries in Continental Europe, and I get some comfort from that. It's -- so it isn't Northern Europe or whatever. We're seeing some quite big movements all over at Continental Europe. So I think the watch out is that as we look forward. But given the lower end of the period for like-for-likes and constantly, I would expect the final quarter to be better. You asked about inflation. So you really asked about pricing as well. So I don't think there's any update from us in terms of Primark pricing. You're aware that we did a really very detailed look at the products that we've got. Some prices are same where they are. Some prices are moving, but this is in for autumn/winter. So those have not been implemented in store yet, and we'll probably see those in August throughout September. Not surprisingly to you, of course, then when spring/summer comes, they will land in the store in February or so. Then we will have a selective increase in some of those as well. Paul, I don't know whether you want to add anything on pricing. Maybe really just a reflection on our positioning as the best value around and the work you've done on that.

Yes. Thanks, Warren. I could reiterate what we said already. I think selective price increases for autumn/winter in some products, some new, some existing. We're working through what that means for [indiscernible], and the product ranges that will coming in from sort of Christmas time. But as you say, that sort of great value being at the heart of everything that Primark stands for will not change. We will maintain price leadership. And we know it's important to our customers. We want to be best value in our stream. So we won't [ be away ] from that.

Great. Thanks, Paul. Okay, Warren, does that answer your question?

Yes, it does.

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

Thanks. Could I ask a few, please, as we've got Paul on the line. You guys, I think, are showing 70% of the Primark range on the website currently. Is it the intention to show the full range at some point soon? That's the first one. And then I wondered if you could also talk maybe about current product return rates. I imagine they're fairly low, but what are your expectations there? What are the current product return rates both of overall and for the kidswear category.

Yes. Richard, thank you. That's a useful question. So I'll let Paul come in. But by the way, on the website, we've never said that we would go to [ default property ] on the full range. I think when you're into some of the basics, I mean, I'll not quite sure what the point of that would be. So I'll let Paul come back. I mean it really is very much about showcasing our fashion items and obviously, having those appropriately modeled and so on. And returns, and I'll let Paul come in on that. Our returns are low. I mean, I know that the question is based on the experience of the old [ lone ] players. Our returns are very low by comparison. So I don't think the terms are particularly an issue for us. Paul, do you want to comment on that?

Yes. Thanks, John. I mean not much more to add, but to say on the percentage of the range, I don't think we'll ever see a situation where 100% of our product is online. And if you think about white socks, black socks. Those are the central lines and not something we see showcase through Click & Collect. I think what we have done as you would have seen through the bundling of the 5 pack of leggings and the 5 pack of long sleeve tops. There are ways of driving the average selling price through bundling certain product categories together. But I think we'll see the entirety of that product range online. I think 70% is a very healthy number, actually. In terms of returns, as you said, John, our return rates are historically very low. We've made some assumptions around the return rate of Click & Collect, but the trial will tell us where that lands.

Great. Okay. And Paul, just one while I got the mic, maybe I could follow another sort of operational one. I mean it sounds like you've got -- you're going to have sort of dedicated customer service areas for Click & Collect, and you've probably got enough room in terms of tills and some space there. But I mean, can you give us maybe an update on how much of the current kind of checkout capacity is being used? Because I guess you've got some quite big queues coming back now with return of tourists and so on. So I wondered how you're thinking about that at the moment. I don't think all the tills are open at the moment or are they in some stores?

So we obviously have a different number of tills in every store based on its footage and its turnover. And the store management teams are responsible for trying to ensure that we have the appropriate numbers of tills operating based on the time of day and the level of traffic that's in store, and that's down to the individual store. We have enough tills in every store to deal with the capacity that we have, but it flexes by store.

Okay.

Thanks, Richard. Can we take the next question, please?

Of course, the next question comes from the line of Michael Benedict from Berenberg.

I have a couple, please. Firstly, on Click & Collect. how quickly can a customer pick up ordered item? Will it be a next day sort of functionality or quicker? And then the second one is just on the attachment rate. Are Click & Collect customers able to pay for items they pick up in store at the same time if that makes sense, i.e., any impulse purchases they take up on their way, can they then take them at the same time or do they have to go back around to the store?

Okay, Mike, thanks very much. So Paul, I will ask you to cover that. The -- now remember, Mike, we're talking about something that's going to start at the end of this calendar year. So Paul, you might want to mention the allocated day for people to turn up. And then obviously, how we see it will be for people to put those attachment sales to work, in other words for people to pick up items and so and pay at the same time as planned in Click & Collect. Paul?

Yes. So we are planning -- if you order on day 1, you can collect on day 3 and the customers then have a window of 7 days where they can nominate the day that they wish to collect their Click & Collect order. And in terms of any attachment sales, customers can pay for any products they want through the Click & Collect deals.

And Paul, we imagine that Primark already has a high level of attachment sales. So when people are coming in anyway, there's the other items that they see in store that catches their eye. So attach themselves, we think should be very successful for those.

Yes, John. I mean the put forward is our life line. And we know that when customers come into our stores, they walk out with things that they plan to buy and a number of things they hadn't planned to buy. So getting customers in to collect their Click & Collect orders, we think is a great way of driving incremental sales by showcasing the rest of the proposition through our all departments, such as kidswear.

Just one other thing you'll be able to do in Click & Collect, you'll be able to try on things that you've bought on the Click & Collect while you are in store. Now going back to Richard's point, we think that that will drive the return rate down even lower. So yes, you can try on something you've ordered. You can pay for another product at the same time that you pick up your Click & Collect order.

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

I've got 2 questions, please, about the distribution process of the product. You said the trial will use a dedicated U.K. distribution center. Would that also be the attention, if you rolled beyond the trial? Or could the Click & Collect operations be carried out within existing facilities? I appreciate they're very different processes, but could that actually be within your existing network? And then secondly, your decision to fulfill through central inventory. Does this mean that your very unlikely to go down the routes of RFID in the future on individual products?

Okay. Right. So the -- there really is no decision about RFID, so in a sense that -- for the foreseeable future, it really is about a central distribution required for Click & Collect. So that would be our expectation as we go forward from here. So that would be the [indiscernible]. I think, Paul, any other comments about the dedicated distribution center?

I think that as we said, Warwick, I think the trial and set up with the Click & Collect is a very pragmatic prospective way for us to get the trial up and running. I think, depending on the results of the trial and where we go next with Click & Collect, will determine what an automated facility looks like in terms of where it's located. So I think it's too early for us to speculate on that yet.

And then, Warwick, because so much of this range is incremental, it has to be centrally driven rather than store-based stock.

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

I had a couple of questions on the Click & Collect offering. So firstly, would you be assigning any kind of minimum order value on the Click & Collect. And then secondly, I think you mentioned that average price point -- price points for Click & Collect will be higher, but would the like-for-like prices especially for the ranges which are not available in store, would that -- do you think be any higher than the store ranges? And then thirdly, for how many days will you allow the customer to keep -- will you hold the product in store, so the customer can come and pick it up before you send it back to the distribution center? And then one beyond the operational prospect of it, how would you be communicating with the customers before the launch of this Click & Collect service? What are the plans you have in place? And if you have given it any thought on whether it will be a lot more online or a lot more of the line advertising?

Okay, Anubhav. So there were some maybe that I'll say more detailed questions that you asked, how this will look. Paul, I think why don't I do pass it on to you about -- is there a minimum order here for Click & Collect. Maybe just a comment about price points in the pure Click & Collect offering in terms of ASP. Just directionally, Paul, I think, is what's needed there. And then is there a time period for returns?

Okay. Thank you. Yes, I think in terms of the minimum order spend, we do expect to have a minimum order spend, but we are still working through the details of what that will be. In terms of prices, as George has already said, there is a higher ASP on the Click & Collect proposition because we don't have some of those basic entry price points. However, from a LFL price perspective, the same values applied on Click & Collect product as it does in store. There's no -- should not expect to pay higher for a similar [indiscernible] that you would pay in store. In terms of the window for customers to correct, there is a 1-week window from their dedicated collection day for them to collect their order. And if they don't collect that order that it will be returned to the distribution center and they'll be refunded through their credit card. In terms of communicating to customers in advance, yes, we have a marketing campaign in place through e-mail, through social media, from the website to communicate the [indiscernible] launch as we approach nearer the launch date at the end of the year.

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

Two quick ones for you. Firstly, just thinking a long way down the track. If this works, which of your foreign markets would this be suitable for? And which do you just think you don't have enough store density to make it work? And can you just give us an update on how the self-checkout trials are going, Paul?

Okay. Simon. I think -- remember that we're at the trial in the U.K. here. So I think if we're talking about foreign markets, then it probably is a little early there. But George, could I maybe ask you to maybe just make some comments on the foreign markets?

Yes, sure. Look, Simon, you're absolutely right, store density is an important consideration after U.K., Ireland is -- Ireland's actually got the best store density and then Spain, store densities elsewhere are fairly nascent. We would have to think about Northern Europe. Yes, I'll turn over to Paul for the self-checkout.

Self-checkout, yes.

Thanks, Simon. The self-checkout trial is probably live in 2 stores in the U.K., Sheffield and Northampton. Sheffield has been live for slightly longer than Northampton. I think positively, the customer reaction to the self-checkout has been very encouraging. We reached our expected adoption rates quicker than we expected, which is great news. So in terms of the number of customers using and the number of units being processed are both at least in line, if not ahead of our expectations. But again, it's still relatively early. We have lots of things to work through, including stock loss and the implications on that on our business model. But overall, I would say so far so good.

I think it's one to watch Simon, without a doubt. Another question, please.

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

A couple of questions from me, please. The first on the distribution center, if it's an entirely separate facility? Or can you leverage your existing delivery network to stores on the back of it? And then secondly, just to give us an idea of how you'll be judging the rollout potential of this trial. I guess you'll be looking at some sort of return on investment. But what would you include in that investment? Would it also include the tech stack which you put in for the website in any case? And would you roll out if the incremental profit was negative, but you thought it could turn positive in the future?

Thanks, Anne. So let me touch on the distribution center. I mean by its very nature it clearly is different to our existing really highly efficient, but it's really about the cartons in and cartons out for the deliveries to the stores. So I think by its nature, and the picking nature of it. I think it is a separate facility. And I don't think there's much of a problem about that. So I think the key for us will be where the best location Well, I think location is broadly there. Or what's the size of it as we hopefully scale this. So that would be answering the first one. And then the second one is -- yes, but in terms of what are we looking for in terms of return. There is a return on our investment but I think what we're really looking for, and George mentioned it earlier on, is those incremental sales and the margin that we get from that. So I think the capital investments probably is not the big determinant here. So I think that's really the economic criteria for this.

And would you perhaps extend the trial even if the marginal profit wasn't positive, but might be in the future?

Well, look, I mean, the trial is about ensuring that this goes well. We think we've got all of the major elements of this for success. So let's take the trial to optimize it, okay?

Sorry, it's George. Just to say if this isn't a commercial opportunity, we'll stop. But whether -- if we're close to it -- I mean, we know that we can take a lot of cost out through automation at a later date. We'll have some idea about the sales. But we're not doing this because we feel we have to. We're doing it because we think there's a commercial opportunity. It will be that that determines whether we take it further or not.

Could we have another question, please?

Of course, the next question comes from the line of Roland French from Davy.

I think largely, my questions have been asked, so I've got a couple on the pad. John, you gave some color around the phasing of margin next year in the Food business. I was wondering can you do similarly for Primark in context of FX and hedging and any cost initiatives that might be accruing on outside of the business? And then secondly, just staying on the economics of the trial, and I guess you've given some color there around incremental margin and incremental profit growth. But just if you took together the investment today, just trying to dial into what might be the required level of incremental sales needed, I guess, to hit your return hurdle and maybe stated alternatively, if you think about the level of traffic you're seeing on the sites [ wash ], what website conversion you might need? I know you've talked at the deck about 15% visitors using the stock checker, but even just some broad parameters around what you might be in -- what you might require, I guess, on that side to hit your hurdles and I'll leave at that.

Yes, sure. Roland, thanks very much for that. So on Primark margin, first of all, by the way, I don't think we've said it on this call. We are reiterating our expectation of a full year margin this year of 10%. So that's we're feeling confident about delivery of that for this year. As we look into next year, I don't really want at this stage to give guidance on the margin either first half, second half. But maybe let me talk about some of the puts and takes on the Primark margin for next year. So the first thing is, if we're looking at the positives of the business overall as we go into next year. Like-for-likes, of 2023 on 2022, we expect to be up because, of course, we will have the exit rates of like-for-likes, and that's against the lower like-for-likes at the beginning of this financial year. So that's number one. Number two, we're really accelerating. And George made reference to really quite an exciting store opening program, particularly in the run-up to this Christmas season. So we'll get more sales coming through from that as well. And then, of course, there's the price increases that we've referred to coming through for both for autumn/winter and spring/summer. In terms of the input cost inflation, -- the -- we've been dealing with sea freight for some time and let's see where that goes. It's come up a little bit from the top but still well above the levels that we've seeing certainly 18 months ago. The economic change that's really accelerated really over the last month or so is exchange rate. So the -- it's really about dollar strengthening. So we've seen the dollar strengthen somewhat against both sterling and the euro. So I think it really is dealing with that as we go into first [ week ] okay? So I'm leaving it as, here are the puts and takes, but I don't want to sort of pin this on an exact margin for next year. The economics of the trial. The reason that I wanted Paul to refer to the capital cost of the trial itself quite frankly, is low, it's de minimis. So the -- that's why in terms of -- it's not about return on capital employed, it really is about incremental profitable sales from Click & Collect. And that's really what we will look at going forward.

Okay, That's great. And just one quick follow-up maybe for Paul. Just the nature of the 40% exclusive products. You mentioned through the call that there's an element, that there's a 4-week exclusivity period for some products. Does that include -- is that included in the 40%? Or is that 40% new products on the list?

Paul, straight over to you.

I'm not sure I know exactly. It's -- the 40% is products not available for sale in any store. So therefore, the exclusive period excludes the -- excluded within the 40%.

Great. Thanks, Roland. I think we've got just another question. So if we go for that, then I can take the question that's outstanding, please.

Fantastic. So the final question for the call today comes from the line of Olivia Townsend from UBS.

I have 2 questions, please. First is just on Primark inventory levels. I know you don't typically give an indication at Q3, but I was just wondering since we've seen other retailers in the sector reporting elevated inventory levels, I was just wondering if you could give an indication of how much inventory you're carrying relative to what you would expect to carry at this time of year. And then the second question is on just customer behavior. So again, if you have seen any indication of consumers trading down, lower basket values, things like that? That would be very helpful.

Okay. Thanks, Olivia. So let me answer it as an overview, and I will ask Paul to maybe make some comments on it. Look, the U.K. is trading low. You can see that I don't think we're going to have any sort of any inventory problem. So the inventory levels that we've got are not a cause for concern for us. Continental Europe, as you've seen, is slower. But we've not got a major inventory problem. So Paul, you may want to add to that, but I don't think it's something that we would want to highlight for people.

No, I think in terms of inventory levels, I think we're in very good shape, actually. Spring/summer selling through, autumn/winter coming in as planned. We have no intention to put away any stock into next pre-summer. So we'll exit spring clean ready to launch autumn/winter.

Thanks, Paul. So we're in great shape on that one. So maybe on customer behavior. Look, as a general comment, I don't think we are seeing -- well, it's hard to determine that the cost [ of Ukraine ] crisis is having a big effect on us. The biggest effect that we are seeing on customer behavior is the coming out of COVID. So it is the return, that's socializing and the consequence for fashion sales. It is the people going on holiday [indiscernible] they've not been able to do for 3 years and the fact that, that's got a lot on travel. Do you want to give anymore color on that, Paul?

Yes. I think 2 things really in terms of customer behavior. Firstly, in terms of the product categories that we're seeing consumers buying into. Obviously, we saw a huge sort of spike in the sales of [indiscernible] during sort of COVID impacted periods of time. We are seeing the trend now for holiday or going out, [indiscernible], for example, bouncing back. So I think the product mixes are starting to normalize a bit more. The other thing we're seeing is that overperformance that we saw in retail parks and the underperformance in city centers is also starting to level out. We have seen a good reaction in our U.K. city centers in Liverpool, Manchester, Newcastle, Birmingham and London. So I think we're starting to see normality return in terms of some of those sort of peculiar trends we saw during COVID that are starting to normalize now.

Absolutely. Thank God. Thanks so much, Paul. Look, that -- I think that then all of the questions that we had. Obviously, we're available for you if there are further follow-ups that you would like, obviously, over today or over the coming weeks. So thank you very much for attending this update, and we'll be in touch soon. Thank you now.

Thank you very much for joining in today's call. You may now disconnect your handsets.