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

Great. Thank you for your patience. Thank you all for coming this morning. This review of ABF's annual results for the 52 weeks ending the 16th of September '23. Let me start by just saying that we are thrilled with where this year has ended up, roll the clock back a year, and we thought that we were going to be in a very different place indeed. We've also delivered these results in a year which has been characterized by a lot of headwinds and a significant number of shocks across our businesses. And we think we've managed our way through both really, really well. So strong performance in demanding times. There's real momentum as we come into this year across our retail. The revenues were well ahead in the year, supported by selective pricing well-received ranges. There was a method to the pricing. We knew that the margin was going to come down. We've opened another 27 stores, so the rollout continues. And then we're all really pleased with the consequences and the developments in the digital capability in Primark. Turning on to food. There was significant growth in Ingredients. I will come back to that, of course. Good growth in grocery led by international brands, but also the U.S.-focused businesses delivered very well for us. Sugar sales were well ahead. Profitability was somewhat ahead, but there were shocks in supply chains and crops in that part of the business. Agriculture had a tougher year. It was a difficult year in the agricultural sector. We invested just GBP 1.2 billion back into the business. And some of that investment was around our ESG priorities and I will talk about those later. We've completed since the year-end, the GBP 500 million share buyback. We've announced today another GBP 500 million program called share buybacks and also a special dividend on top of the normal dividend. We will be returning something like GBP 600 million to shareholders this year on top of a CapEx program that's going to be even larger than the one we completed this year. And with that, Eoin, over to you.

Thank you, George. And first of all, just to say, I'm delighted to be here to present my first set of full-year results for ABF. As George said, it was a strong year in circumstances. I'm going to cover these financial highlights in the following slides. But as you can see, we made progress in pretty much all of our financial KPIs with strong growth in revenue, growth in adjusted operating profit and adjusted earnings per share, free cash inflow despite the step-up in investment that George mentioned, and a significant increase in the total dividend. So I'm going to take you through the detail of these different indicators. So I'm going to start with the summary of the performance by business, which George is going to obviously go through in a little bit more detail. So just on a top-line basis, you can see that revenue was ahead in each of our food businesses, grocery, sugar, agriculture and ingredients. The increase in revenue was largely due to price increases across our businesses to mitigate the high levels of inflation. Grocery revenues were well ahead of last year and good progress on profit. Our ingredients businesses had a very good year with revenues and profits significantly ahead, particularly in our AB Mauri division. Agriculture had a more challenging year with declines in compound feeds and markets in the U.K. and China. And sugar had a good year, considering the impact of challenging weather in both Europe and in Africa. Full-year revenues of retail rose significantly, actually increased by 15% on a constant currency basis. Adjusted operating profit for the division was resilient actually despite the high levels of inflation that we saw in the year. And as expected, if you take it from a group perspective, the adjusted operating profit margin for the group declined from 8.4% last year to 7.7% this year as a result of the overall inflation. Performance by geography actually is just set out in appendix in your presentation. And I've noted the increase in adjusted operating profit in North America, which is driven by the success of both our Ingredients businesses and our Grocery businesses there. So let me just walk you from adjusted operating profit of GBP 153 million to adjusted earnings per share. As a reminder, adjusted operating profit rose at 5% on an actual basis. This includes a translation gain of about GBP 17 million, primarily driven by the strengthening of the U.S. dollar, particularly in the first half of the year. Finance income and other financial income both increased as a result of higher interest rates and a higher surplus in our group's, in the group's U.K. defined benefit pension scheme, respectively. Lease interest increased as an increased number of Primark stores with the rollout. And as a result, on an adjusted basis, profit before tax was up just over 8%. The tax rate was up. I'm going to come back to the tax in a separate page, but adjusted earnings per share, however, it still increased by 8% to a record GBP 141.8 per share, benefiting from the reduction in the weighted average number of shares from the buyback. So now comparing that to basic earnings per share. Overall, profit before tax was up 24.5%, benefiting from a lower level of exceptional items in 2023 of EUR 109 million versus the $206 million charge last year. The exceptional items this year include a noncash exceptional item of charge of GBP 41 million in our Grocery division for our Don business in Australia, which has been impacted by a number of different headwinds, a GBP 15 million impairment for our China Sugar business and a GBP 35 million impairment in sugar in Mozambique for write-downs following the damage done from the severe flooding earlier in the year. In retail, we also recognized exceptional impairment charges of GBP 18 million relating to the German stores that were impaired in the previous year. Profit on the sale of noncurrent assets includes the disposal of one of our previous grocery sites in the U.K. Total tax charge for the year was GBP 272 million. It's much reduced from the prior year. As we discussed at the half year, this includes a GBP 58 million tax credit, noncash tax credit relating to Primark Germany. So earnings attributable to equity shareholders was therefore significantly higher, and basic earnings per share were up 52% at GBP 134.2. So look, I'm going to just cover tax and pensions in a little bit more detail. Firstly, tax, this year's adjusted effective tax rate increased to 23.5% from 22.2% last year. This was largely driven by the increase in the U.K. corporation tax rate from 19% to 25% enacted in April of 2023. The tax rate also benefited from the resolution of some previous U.K. tax audits as well. And this is actually reflected in the significant reduction in the provision for uncertain tax provisions at the year-end. Looking ahead, we expect the group's effective tax rate in FY '24 to be broadly in line with FY '23 at this stage. This includes the full-year effect of the increase in the U.K. corporation tax rate. At this stage, the group is not projecting the same level of one-off benefits from the resolution of tax positions. However, given our profit outlook, which George will talk to, we do expect to benefit from the mix of profits by jurisdiction. Cash tax increased in the year just gone largely in line with profit before tax with the increase in profit before tax. However, we expect a much-reduced level of cash tax in 2024 due to overpayments from prior years and the full CapEx expense in claims. So on pensions, I mean is pensions really is a very good news story. And from an accounting perspective, the aggregate surplus increased by 5%. The story for the primary U.K. fine benefit pensions game is very positive. As you may recall, it saw a significant increase in the surplus in the prior year driven by the increase in bond yields, which reduced the liability valuation. The most recent triennial actuarial valuation of the scheme was then carried out in April this year, and therefore, showed a substantial funding surplus of actually just over GBP 1 billion. So as a result, we've agreed with the pension trustees and abatement of our U.K. employer pension contributions on both the defined benefit and the defined contribution schemes. And accordingly, the group will receive a cash benefit of approximately GBP 70 million per year, which has taken effect at the beginning of this financial year. So let me go into cash flow in a little bit more detail. As you'll see, we're now using a new simple measure of free cash flow. And pleasingly, there was a cash inflow in the year totaling GBP 269 million. Let me go through the key components driving this. Obviously, the higher profit we've already discussed. Let me zero in on working capital next. The 2 main factors driving the increase in working capital in the year were, one, the impact of inflation across all our food businesses and 2 higher inventories, particularly in our Sugar and Primark businesses. As a reminder, Primark inventories increased as a result of the demand volatility and uncertainty in logistics and supply chain seen last year. So we now expect a working capital inflow in 2024 as Primark inventory levels normalize. You see the step-up in capital investments that we mentioned earlier. I'll cover the detail of the gross investment by segment in the next slide. As already mentioned, cash tax increased in the year, driven by the increase in profit before tax and all of this adds up to the net free cash inflow. Below free cash flow, there was, of course, the cash outflow of GBP 448 million relating to the share buyback. So as we discussed, this is a new slide. Gross investments stepped up GBP 1.2 billion in the financial year. The increase of the investment in the food business is primarily relates to projects to build capacity. And these include the building of a new sugar factory in Tanzania, completion of a new animal mill in Western Australia, the initiation of the investment in a production facility in Nigeria for over team to serve markets across West Africa and the build of a new powder packing line for AB Enzymes in Finland. In Primark, the increase reflects, of course, the acceleration of our new store program and expenditure to extend our capabilities in both warehouse automation and in technology. And we've made a small number of acquisitions for a total amount of GBP 94 million. That's predominantly in the agriculture segment to expand the strength and breadth of our offer to the dairy sector. Overall, for the group, we do expect that this higher level of gross investment to increase a little over the medium term. So finally, to the group's capital structure and its strong balance sheet position. As mentioned during the financial year, we executed EUR 445 million of the GBP 500 million share buyback program and with the remaining amount completed recently. We ended the year with cash of just under GBP 1.4 billion, with so very strong levels of liquidity, particularly when out of to our $1.5 billion undrawn revolving credit facility. The Board has proposed a final dividend of 33.1p per share, which along with the interim dividend of 14.2p, it results in total ordinary dividends of 47.3p per share for the year. So as a reminder, our capital allocation policy is for the group's financial leverage expresses a ratio of total net debt to adjusted EBITDA to be well under 1.5x. And when financial leverage is consistently below 1x, that may indicate a surplus capital position. So at the end of the financial year, we had financial leverage of just under 1x. So the group continues to prioritize investments in its businesses. And as I said, we expect to increase the spend in each of the next few years, slightly above last year's level. Nevertheless, the Board has decided to return an additional GBP 600 million of capital to shareholders, firstly, through the continuation of a share buyback program, targeting an amount of EUR 500 million in the next 12 months; and secondly, to the payment of a special dividend of 12.7p per share. This is as per the capital allocation policy, but it also reflects the outlook for the group, the strength of the balance sheet and the underlying cash generation of the business. So okay, with that, I'll hand you back to George, who's going to go through the business performance a little bit more detail.

And let me start with Grocery, which the companies in which did a very good job of recovering cash cost and inflation through the year, particularly in the second half, we lagged costs in the first half and then caught up in the second. International brands, and I'll put a slide on them in just a moment, are traded well. The U.S.-focused brands had a particularly good year, and then Allied Bakeries improved considerably, particularly again in the second half of the year. Just focusing on the international brands within the portfolio then. Twinings strong sales in U.K., U.S., Australia and France, and good growth in fruit and hub infusions, which is where the growth in the hot beverages category is coming from. Sales there are nearly as large as black teas now across Twinings. We did 3 or 4 important marketing trials, trials of advertising in the course of the year. That has led or is leading to more significant marketing spend in Twinings this year based on the feedback and the learning that we got from those trials. Ovaltine next then, strength in Brazil, Switzerland and Nigeria, tougher time in Thailand, China and then Myanmar. And as Eoin mentioned, building we're beginning to build, it will be an important plant in Nigeria to supply West Africa. The brand still has historic resonance up and down the coast of West Africa, and we think that there is good growth there for us. Patak's half of sales outside the U.K., that's why it's on this list. Blue Dragon is growing well outside the U.K., in particular, and the United States, most notably. And then Mazzetti, nearly half of its sales that [indiscernible] are now outside Europe. These international brands obviously just have access to bigger markets, more markets and more growth. Turning then on to the U.S.-focused businesses. Mazola is now firmly established as the leading brand in U.S. edible oils category. It had a good year of both margin growth and also sales growth. We were previously constrained in our volumes. We've got a new production capability in Chicago, and there is more available corn oil in the U.S. market than they had been previously. Fleishman's East part of the bakery, one of the bakery ingredients that we've got in the States, again, very good year. It's regained the share lost during COVID where it couldn't supply the very elevated demand. But demand remains strong. So some of the new home bakers who acquired the habits during lockdown are still baking with us. And we think that we're now seeing into this year homemaking strength caused by people choosing to bake at home. It's a cheaper form of entertainment for families, I think than going out to movies or whatever else. Stratas joint venture had another year of trading exceptionally well. Improved sales, good oil procurement. It's a very profitable business and has been for a while for us. Back to the U.K., our performance trajectory in our Bakery continues to improve. We won some more volume. We secured good pricing and the operational performance of the business was good through the year. Obviously, more to do, but good progress there. Ryvita is now back on TV, and there is lots of exciting new product development in Ryvita, which you will be seeing in the next few months, positive early results from the advertising and lots of enthusiasm around the new product. After the period end, we bought quite a small business called Capsicana. It's a business that specializes in Latin American and Central American products. We're going to include in the World Foods portfolio so the good important broadening of the cuisines of the world that we now offer from oil foods. I'm sure it will go international in time. Australia, Tip Top did a good job recovering cost inflation. And the construction of the Western Australian Bakery is well underway, and that's going to be an important asset for us. Don was held back by a number of factors. It had to replace its distributor at very short notice when its existing distributor, Scotts folded with very little notice. It's also managed to find labor to replace -- to reduce the labor shortage in Castle Main with the factory. Labor shortages in Australia not quite as bad as they are in Australia, but they're a whole lot worse than anywhere else where we have businesses. On to Ingredients. So large increase in raw material cost, very large increases in raw material and other input costs. But the pricing in this part of ABF, the pricing actions we took were I think the best of anywhere in the group. And volumes were most important held up even as we push prices up significantly. Significant investment in capacity, capability and in Mauri in particular, water treatment, which I'll go on to in a moment. So Mauri, good increases in revenues, good increases in profits. The performance in the States was very strong indeed. Yeast, both for industry and retail, the sales they held up well all around the world, as I say, despite the pricing actions that we took. We put our assets in China into a joint venture with Wilmar to get better distribution coverage in that market. The work to complete that joint venture was completed during the year. And then heavy investment in Mauri. We've completed the new specialty yeast plant at Hull. We are underway with capacity expansion in Brazil. And there are 2 big water treatment plants investments, again, underway, one in Brazil and one in Mexico. Once they're done, the bulk of the cost of improving the water quality in Mauri globally will be completed a little bit left to go, but the back of it will have been broken. ABFI, there's been some softness in the Specialty Ingredients sector. We've seen it in enzymes. We haven't seen it in the East extracts in only where we've had robust demand, good demand from both food and also bio-nutrient customers. It's an important reconstruction of a good part of the Hamburg site are going on there, the fermentation end and also product drying. We're investing in that at the moment. SPI, better manufacturing efficiency helped improve the profits there. Fytexia, the business we bought in phytonutrients 18 months or so, again, is on its acquisition case. Still, we're obviously very pleased with that, and we're pleased with the visibility that we've got of future growth. And then enzymes, the powder packing line is costing us some GBP 30 million, so it's no small investment. Sales have been flat in the one part of the ingredients portfolio, which has always given us growth in the past. We still believe it's destocking in our customers, and it will come to an end, probably later on this calendar year or maybe in the new year. Agriculture, it was a challenging year to be supplying pigs and chickens anywhere with flocks and herd sizes down. Frontier, though that joint venture continued to perform very well in the U.K. market. And then we've made, I think, it's 3 acquisitions in the dairy sector. We think the dairy sector is an interesting subsector of agriculture. There's growth both in the U.K. to come and also globally. We are going after the opportunity, which we think exists to create an integrated sort of full-service supplier to the dairy sector. Sugar, we saw higher sales prices and that offset a number of ills in the business. We saw exceptionally low, particularly European sugar production, that was climate-related but very strong co-products performance, significant improvements in the Illovo and then startup losses in Vivergo, which were greater than we had hoped they would be, although they improved significantly in the second half. Turning to sugar operations, we've seen, I think, 2 offsets that give us confidence in the stability of our sugar businesses. Yes, the crop was down, but prices were higher. Yes, energy gas prices were higher in the U.K., but the co-product electricity just about offset all the extra gas prices we were seeing. So net across British Sugar in the year that looked like it could have been kilometers, was just a very small reduction in profitability because we've got these, I think, imperfect that there may be hedges in that business. Azucarera, higher prices offset lower volumes again. So the profitability in Azucarera was slightly up. And then in China, we've taken a one-off non-exceptional charge to recognize the lack of profitability in that business. So in Illovo, then apologies for repeating what I've said in the past. But essentially, we're building a lovely branded retail products business. We saw good growth in prepack-banded sugar in the year in Malawi, in Tanzania and in Zambia, strong pricing. And then across the piece in Illovo, higher sugar production driven by a recovery in Eswatini where there was a strike the previous year and then good production levels in Malawi and good efficiency improvements in South Africa as well. There was severe flooding in Mozambique. Essentially, we lost the Cana State factory is fine. But the Cane factory has been flooded. It won't open this year. And we've taken that exceptional charge to recognize the damage that's been done to that business. And then after, I think a slowish start, the construction of the new sugar factory in Tanzania, another one of our growth retail markets. That project is hitting its straps and development and developing well. Vivergo, we saw significant losses in the first half. We opened this factory just as Russian tanks drove across Ukraine sending wheat, which is the input product that we use in for raw material up through the roof and then also energy prices up through the roof. To make that worth the ethanol price then dropped as Europe found itself, I think, long on ethanol. All those situations resolved. The second-half losses were much reduced. We made money in the final period, and we've continued to turn a profit. So far this year, we really do think the hard times in Vivergo are in the past. Okay, carbon reduction at Sugar. Something like 80% of the whole of ABF's greenhouse gas emissions come out of British Sugar in the U.K. We must, if we're going to make significant inroads into our carbon footprint, start off at British Sugar. It's the gorilla amongst all our operations. And that's why we have completed 17 projects across various sugar processes in the U.K. in the year just gone. Just about all of them have good financial paybacks. I don't want you to think that decarbonizing sugar is going to come at a huge capital cost. It comes at a capital cost but one which brings a return with it. So projects include replacing coal with natural gas in the dryers at Berry sugar factory, improvement of the gas turbine at Wessington elimination of the use of heavy fuel oil in candy and then the installation of more efficient slices again, in the Berry factory. Our carbon footprint in British Sugar is 24% lower than it was in the baseline year of 2017, 2018. And we've published this in the recent TCFD report the carbon transition plan up to 2030 for British Sugar. Right moving to retail, so very good like-for-like sales growth across our markets, some of which undoubted was, of course, pricing. But actually demonstrating after 9 years of not taking pricing that we could and our customers would come back to us was hugely reassuring for us. Our strategy from the beginning was only to partially mitigate inflation. Some of the inflationary costs that we were seeing were clearly temporary. So freight rates being on cotton prices being another. We didn't want to take prices up to recover all that and then find that 6 months later, 12 months later, all those prices have come back down again. So we absorbed the bubble costs. We extended the product ranges, I think, really effectively with premium essentials, the collaborations go from strength to strength and licensing is great. The new stores performed exceptionally well, higher sales densities in the new stores than in the existing estate. The Road Mac store, 27 new stores, 8 in the states. I'll show them to you later. So over 1 million square feet. And then the digital investment, and I've got to talk to more about that continues and quite frankly, it earns its keep. Looking though, by market, to begin with, the U.S. performance, sales increased 11% against the prior year, 10% like-for-like growth. Market share increased. This is the whole market online and off Kantar data, 6.4% to 6.7%. We did have unhelpful weather in the third and fourth quarters. And has been reported at the beginning of this year's period 1, we saw these very hot weather period since then, sales have come back very well indeed. We've now got 192 stores in the U.K. And yes, U.K., really good performance. Across Europe, sales increased 18% against the prior year, 8% like-for-like growth. All countries delivered like-for-like growth. We opened 17 new stores with strong customer demand really in all of those stores and good resulting footfall. Two new markets, Romania and Slovakia. Again, we've been very well received there. And where we have the data, we've seen good market share growth in both France and Spain, big markets for us important markets for us. And the German restructuring is on track. Shoppers are coming back to high streets in Europe just as they are in the U.K. We saw some interesting survey results the other day about people's intentions about shopping in the run-up to Christmas. And I think 44% of people said that they would shop more on high streets than online this year. So I think there's further to go on increasing participation in high street. U.S. performance spend, total sales increased 24%. We opened 8 new stores, mainly in the Northeast. We're actually opening 2 new stores this week. So we'll be at 23 stores in the U.S. by the end of this week and approaching 1 million square feet at that point. The new store trading has been good and we are also expanding our regional footprint. We've signed 2 leases in Texas. These stores which will open, I think, in 2025. I think Texas is going to be a good market for us. The expansion of the product offer is an important success of the business this year. Now having said that, and I'll come back to a moment, there are lots of strong performances from the existing ranges. I don't want you to think that we're sort of running away from failure elsewhere in the rent, we're really not. But this is extra for the Primark offer. So starting from the top left, the edit, which is the premium essentials ranges, we're increasing the number of items in the range, we're increasing the number of stores that carry us. And we're seeing how the online trial goes with the click-and-click tries with added profits. And then the expansion of our collaborations, particularly, of course, Rita Ora. She is our first genuinely global collaboration. She's also very, very authentic Primark shopper. She grew up next to Hammersmith store, which used to be our flagship in the old days when she was young and she said very openly that that's where a lot of our fashion experimentation started was in ranges out of Hammersmith Primark. Licensing continues to grow really well. Barbie was fantastic. We ordered far more stock than we thought it was wise and wish we'd ordered 3 times as much. It's sold for up to sort of 5x what we were selling it for on eBay, and we felt slightly so about that. But anyway, licensing, very strong, important licenses in the States NBA licenses and Disney and others, Netflix, all going well. And then bottom right, this is an important part of the business. It's also quite a large part of the business for us. So accessible and affordable products to support women at all stages in their lives. And quite frankly, some of the products that we carry in this range are ones where a woman who have been asked to pay a huge amount in the past, and we don't think they should. We're getting well known for these ranges. Margin then. We decided, as I say, not to fully recover inflation. I'm sure it was the right thing to do. But it did bring down our margin from 9.8% the year before to 8.2%. In the first half, higher cost of bought in goods, freight rates, labor rates, energy costs just about everything in the first half. And then the second half bought-in goods went up again, particularly on the back of dollar strength. This was when we got the pound down to about $107. But freight rates started to come off in the second half, particularly in quarter 4. Obviously, some costs will stick labor costs, in particular. We've increased wages in this country, shop wages by 24% over 2 years. But there is a lot big following wind in some of the other big categories, particularly freight, but also cotton artificial fabrics and to some extent, just construction, fabrication costs in sourcing markets where we're benefiting, I think, from demand being subdued, can't expect the stock loss. This has been much reported. I'm glad that there is good coordinated action in this country, in particular, now underway. It's targeting, in particular, the gangs who I think have been responsible for a fair amount of the stock loss that we've seen over the last year. Turning to digital, then we're transforming the digital capability of Primark. It will be as good as any one, I think, by the time we're done. Obviously, we've got the enhanced website in all 16 countries now and the stock checker. It's undoubtedly driving sales as it was always intended to do. But digital is about so much more than simply the stock checker and the website. It's about driving traffic to our website, primark.com, through organic search through CRM-selected performance marketing trials. We've been running all of those in the year. We've had some good results from the marketing trials as well. We also think that there's opportunity to leverage the power of that social media engagement that we have, which we really just didn't foothills of that work, but it's good, it's got so much potential for us. The second Click trial is going well for time. But I think the biggest story here is the digital road map that we have. We're still to decide whether Click & Collect is a commercial opportunity for us or not. It's going well so far. Other investments, our self-checkout technology is well received by our customers. We got it in 22 stores. This a big program of installing self-checkouts in other stores this year. So for instance, I think we've got 50 refits in the year, and it will go into all 50 of those. And Click & Collect's 57 stores now within the U.K., and we've got womenswear in U.S. as well. The rollout, 27 new stores in the period, 8 in the U.S., 6 in Central and Eastern Europe with 3 in Poland, 2 in Romania and the first store in Slovakia. And then 4 stores in each of Italy and France, all very well received, 3 in Spain and 1 in the U.K. We have very little doubt that we will get to our 530 stores by the end of 2026. We have very little doubt that we'll keep on going after that as well. We're beginning to get visibility for footprint expansion beyond 2026, and I'm sure we'll have more to say about that in due course. The states that we've announced in America include Texas, Virginia, North Carolina and Michigan, so all the way from the Northeast. Primark Cares, So 55% of all the clothing units we sell or we sold this year, contain recycled or more sustainably sourced material. That's up from 45%, 46% of all our cotton clothing, so nearly half contains cotton is organic recycled or sourced from the Primark Sustainable Cotton program, which on a major award at the recent Reuters sustainability awards. It's a phenomenal program. We're now up over 300,000 farmers trained. The results of that training are reduction in use of agricultural inputs, reduce reduction in water, increase in sales prices to the farmer, increases in farmer income, increase in biodiversity on to farmer. It's a remarkable program. So we've adopted science-based targets then around carbon emissions for Primark. Scope 3 emissions actually increased this year as we expected them to do as we increased volumes. We expect that number to start coming down. I think sooner rather than later, I was in Bangladesh recently, and you can see the work that's going on in the supply chain to tackle carbon intensity. I have my name attached also to 2 effluent treatment plants just outside Dhaka, which I proudly cut the ribbon on there. So the work is going on in the sourcing countries, it's going to take time. In the meanwhile, we're doing a super job on scope 1 and 2 emissions, 70% of our stores are now powered by renewable or low carbon intensity electricity and 141 stores have switched to energy lighting efficiency. Again, that installation of low-energy light bulbs is a very profitable investment for us, along with cutting store usage by about 30% or electricity usage. And the rollout of the low energy light bulbs continues this year as well. Okay. Group outlook. Let me start by going back to my first comment, I really am pleased with how we managed our way through 2023. They are good results, and they were made in the face of significant headwinds, significant disruptions. It feels like those disruptions are, if not completely over, much reduced. The fact that we've been talking about weather events, bad trading weather makes a happy change from talking about perhaps the loss of the Chinese supply chain through [indiscernible] last Christmas or being unable to get stock into the Spanish depot, the Christmas before or, of course, all the COVID closures. It feels like we're stable again. And when we're stable, I think we can do great things. We're expecting a year this year on the back of that stability of meaningful progress. It's going to come from sugar, the British Sugar, the U.K. sugar crop at the moment is looking very good. And we've got to get it out of the ground, but that usually happens a lot better than we were last year. And then the removal of those losses from Vivergo will make will give us decent growth in its own right. And then in Primark, we'll see sales growth. We'll see space expansion, modest like-for-like growth is in our forecast, underpinned by the value we offer product relevance and stretch and then the digital program platform and in the first half, limited pricing as well. We'll see that strong recovery in gross margin and on the back of reducing costs. And the operating profit margin here, we expect to be above 10%. There's further improvement possible from that number, depending on sales levels. Strong cash generation. Obviously, we start the year with a strong balance sheet. We know that there's a working capital unwind to come this year. We've got the benefit of the tax prepayment. We've got the benefit, and it will last longer than a single year of the pensions payment holiday. There's lots going on. There's lots of investment. I think it's all based now on much firmer, more stable footings than it's been for a while. So I think we're going to have a good year. Thank you.

Good morning, this is Richard Chamberlain from RBC. Can I maybe then just start with a couple on Primark. George, you talked about sort of modest like-for-like outlook for the coming year, but it would sound like you had a good start to Q1, probably going to get more benefits from the enhanced website still to come and so on. So what should we read into that? Is that just a function of sort of price normalization through the course of the year, and maybe, I guess, tougher comps, why you're only guiding to modest? And then how are you seeing the overall sort of costing environment, particularly in Asia? I think there's been some recent disruption in Bangladesh factory shut in. So when you said, I think you were recently just over there, but how are you seeing the overall costing, we are on minimum wage rates going up quite a lot in various sourcing markets. So just interested in your thoughts on that?

Yes. There are, I think, particularly in the period up to Christmas, there are tougher comps this year than there were last year. That's one of the reasons to hold back the like-for-like forecast into the year. And then the second reason is just caution around consumer spending. I think Germany is probably in a recession whether we get there or not, I don't know, but we'll be close. So I think it would be ambitious to forecast like-for-likes at 2 header level, but we think we'll get some. Yes, you get the benefit of pricing in the first half of the year. So that is one benefit. You won't get that to the second half of the year. On the flip side, arguably should have softer comps in the second half of the year. So that's the kind of moving parts on the overall modest guidance. And then the costs, we've built in an assumption of high wage rate inflation in Bangladesh into our caustic models. And I hope that what we're seeing at the moment is it's just the sort of febrile end of a long wage negotiation. But of course, that wage negotiation then goes into an election campaign, which in Bangladesh always creates a degree of disruption. We've seen both before in Bangladesh and the supply chain has never really suffered more than very temporarily. So I think we're cautiously okay. I'm feeling a whole lot as worried about this one than I was about Omicron a year ago in China. Yes, it's becoming more sophisticated. It's a very important market for us. So I don't take anything for granted there. But whereas Bangladesh has got its problems, I think the China supply chain is working very well. which is the first time I can say that in 3 years. So net-net, across the supply chain into Primark, it's fine. It was some of that disruption in supply chains and uncertainty that led us to the higher stock levels than we might have wanted last year and which is coming out of the system this year.

This is Arthur from Societe Generale, can I ask about the sugar margin, please? And the outlook for that, both this year with the closeout of the Vivergo loss, but also for the medium term. I think previously, you referenced the FY '17 margin, which I think was 12%. So just wondering if you think you can get back there.

Look, there are 2 sources of volatility in sugar. One is market volatility and the other one is sort of crop-related. We'll never get rid of the crop-related one because it's just what happens. But the market one, I think, in Europe, in particular, has been dampened down in the year since the regime reform shock, which was back in 2017, which is why we use that as a reference year. I think that there is sort of more market discipline across Europe than there has been for a few years. So I think that's a good thing. Quite frankly, also, we benefited from uncertainty that Brexit causes. So it's tougher to get sugar into this country from France and Holland and Belgium that might have been in the past. So I think that supports our position. The world sugar price, I think, will remain elevated for a little while, but high prices tend to fix high prices. So we're not going to be seeing $0.26 sugar in 3 years' time, 2 years' time. But I think through this crop year, I think those higher world market prices are likely to remain in place. After that, I don't know.

Good morning, Warwick Okines from BNP Paribas. I've got 2 questions, please. The first one on Primark. Could you just say a little bit about your supply chain investment? You've talked in the past about automation and maybe depot investments in the U.S.

Yes.

And then second question is, you've got a couple of either loss-making or close to loss-making businesses. Just be helpful to get a bit of quantum or movement year-on-year. I'm talking about how like bakeries, Primark, Germany and Vivergo as well.

The supply chain investment. Look, both because depot labor is hard to come by, but also because there's financial opportunity in automating. We are going through a multiyear program of automating both our depots beginning in Europe. And it's both pallet handling and also case handling. We've done the pallet handling in Holland. We have done actually pace handler in the Czech Republic. We're doing both at the same time in Ireland. We're doubling back to Roosendaal [Technical Difficulty]. So I think the problem [Technical Difficulty] less than 10 years, more than 5 worth of investment in warehouses in Europe. In the States, I think we need to be more cautious about putting a lot of capital into a depot structure, which might not be the right footprint for the long run. So I'd rather leave a higher depot cost in place there than put tens and tens of millions into a warehouse in the wrong that turns out to be in the wrong place.

And Jacksonville is in some way kind of a relatively low-ish cost approach to serving the southern part of the U.S.

But Jacksonville will be fine for Texas to begin with, but won't be in the long run now. So is Jacksonville actually the right place in the longer might depend on growth in the Southeast of the states. Just on your second question, yes, I mean, obviously, we're making good progress in all of the, as you call it, the loss-making businesses. I mean, Germany isn't loss-making, so it doesn't have as much of a drag. So I'll kind of say that will move on next year in the same direction as all of the Primark businesses because it will obviously benefit from gross margin benefits in the same way as all of the Primark locations. Allied Bakeries, I mean we don't give quite the quantum there, but it is a meaningful impact year-on-year. I would kind of say in terms of overall grocery, the reason why we're kind of saying grocery is sort of flattish, is that there are sort of ups and downs. We have tough comps in our U.S. grocery businesses, for example, which offset some of the full-year benefit effect of Allied Bakeries, for example. And then Vivergo, Vivergo was a substantial loss this year like sort of to use previous tens of millions and we hope it will be flattish this year for Vivergo. So I mean, it is good that we don't have the drags but we obviously have to work on all those 3 we just mentioned.

Nick Coulter, from Citi, 3, if I may. Firstly, with slightly higher levels of CapEx, should we expect that to be reflected in slightly higher levels of medium-term growth? And I guess that's another way of asking about your paybacks as CapEx creeps up. And then I guess, allied to that, could you talk about the white space in Primark? It sounds like post-2026 is coming into view. But how do you think about maturity and opportunity in your different country markets? You just get speaking insights on the U.S. in your last comments. And then lastly, if I may, can I ask about the rationale for the split special buyback. That's probably quite unusual in market practice.

Let me do some of the growth CapEx. So most of the food product food projects, I think with the exception of the water treatment plant in Mauri and at least the last 2 big ones in that division. Our growth are predicated on growth. So the Western Australian feed mill, which is done will help grow volumes in that lovely market. Actually, the bakery in WA is more replacement in very old capacity. So 60 years old. But Tanzania is all about growth. the yeast, the fermentation end of Oli is all about debottlenecking of that growth business. What are the ones, so Tanzania I've mentioned. Ingredients, the packing plant in enzymes, we just have to do because it's an allergen. I would say probably 2/3 of the spend has got a sort of above 15% payback associated with it, give or take. Where do we go from there? And obviously, the same with Primark. I mean we've got pretty disciplined paybacks and return to our hurdles across all the business, but that obviously applies to Primark as well. And so we look at that very tightly. Then white space in Primark, Eoin?

Yes, we're thinking about white space in 2 areas. I mean, clearly, some of these lovely markets like Italy and France, there's just geographical, there's just quite a lot of. So I think in France, we're up to about 40 stores or so in Italy, we're closer to 20. I don't think we'll ever get to the same sort of store density population that we've got in the U.K. So I don't think France is going to get up to 190. But I would hope it wouldn't be far off 75%. Italy probably something similar. So just fill in of the big trading areas and then the state as a whole new is a whole new opportunity of white space. We also wonder whether there are more fill-in opportunities in smaller trading locations. So in Spain and now Portugal, we're opening smaller stores, 20,000 square feet stores in smaller trading areas, and they're working very, very well for us. So again, and maybe not in the U.K. where we've got a got 190, but in some of the other markets where we might think that 75 in Italy will be enough. Actually, maybe there's an opportunity for smaller stores beyond the way we've looked at stores in the past. So I think there is plenty of opportunity for space addition for a while yet. And then in Poland, we've only got our 4 stores. And then in the decision around split, well, look, I mean, first of all, I bring it back to the capital allocation policy. So obviously, we determined we had $100 million of excess to look to return. The share buyback has been effective in an efficient way of returning capital to shareholders. Obviously, we took quite a bit of advice on this. As you might notice, there's as much a serious science to this whole topic. But we felt that the buyback worked on $500 million is about right in terms of the scale of that in 12 months. And so we topped it up with a special dividend. We also were thoughtful of all of our shareholders when we think of special dividends, particularly smaller shareholders. So that was factored into our thinking as well. So if you [indiscernible] the special dividend and the share buyback are about the same size this year. The total dividend and the share buyback in both around sort of GBP 500 million.

A couple of questions on Primark and one on cash flow, please. I guess first one is the more than 10% margin this year, to what extent is it dependent on the modest like-for-like you've talked to, it feels like it isn't gross margin driven and all that? And the second one, can you perhaps paint medium-term picture for Primark margins, how do we get to sort of low double digits? What might be the drivers from here on? Is it operating leverage or some of these losses that we talked about earlier, Germany, et cetera. And the third one, just a really technical one on cash flow, if you don't mind. Working capital, cash tax and pension benefits this year in terms of cash flow, to what extent some of these will persist into next year, particularly cash tax and pension, if you could talk through those?

Yes, the above 10% margin is set on, we think these modest ambitions for like-for-like growth. I think there's probably more upside on growth than there is downside from sales, but I wouldn't rule out having a disaster season somewhere. So I think that post 10% has flows off that, but only to an extent. Medium term, I think there are 2 things I'd point to. Firstly, I think the competitive dynamics that Primark faces into in its markets and its supply chain hasn't changed dramatically since before COVID. So I'm not sure which Mr. Porter's 5 forces has changed to change the underlying profitability of this business. I think this is a double-digit margin business was in the past. I don't think that anything significant has changed. So I think we're okay. There is also, though, a specific that we may not be seeing much of it now because we're putting quite a lot of cost into things like digital, but there is volume leverage on margin. available to us. Yes. I still think there's quite a bit of operating leverage still available in Primark, not just from the space expansion, although, but that's a big driver of that. Obviously, it gives you more scale in terms of how you deal with suppliers and also as we leverage investments as we see and we still got automation benefits in supply chain. So I still think there's quite a bit of operating leverage to go after in the business as the business grows, which suggests that double-digit margins are sustainable. And obviously, we will continue the model is to continue to invest in price to make sure that we're the lowest cost price operator. So that I think that model works. On the cash flow items, the cash tax is pretty much one-off in the year, we believe. You almost need to think of it [ cash ex ] would have been lower when you think of all the super deductions that came out of COVID. It should have been lower the year just gone on this year, but it's all really falling into next year. It's kind of the most simplest way to describe it. But it should normalize into FY '25. Pensions is ongoing. That benefit is with the surplus that we have there, we would expect that to be for quite a long time. And working capital, I do expect it to be a decent inflow this year as particularly in Primark normalization. And I think there's pockets of places to keep on going on working capital, but I think it will be more of a one-off next year, and I hope a little bit of improvement in years to come, but it's probably a little bit early for me to say that. So for now, I would suggest it's more of a one-off into next year. It is connected to Triennial, but given the level of surplus, it's very hard to imagine a scenario. It's a pretty derisked scheme now. So it's hard to imagine a scenario where that would have to restart.

This is William Woods from Bernstein. Just building on the question on margins. Obviously, you've talked about gross margin a lot. How much do you think midterm, there's an opportunity for both OpEx and labor efficiencies and also the geographical mix to help on margins? And then on digital, 2 questions. Why don't you sell licensed products online? And secondly, how comfortable are you with the in-store pick and pack model at the moment? And should we expect in the midterm for you to move to a dedicated fulfillment site for Click & Collect orders.

Look, what I hope Click & Collect offices is range expansion. It's not primarily a service offering. So quite frankly, if we've got it on the shelf in the store, I'd prefer the customer picked themselves rather than we that work into doing it for them. So pick in store, no, it's not what we're about. It's about giving people in smaller stores. And then in all stores, small stores access to a bigger part of the range that they might be able to get if they went to one of the big stores and everyone to have access to new products that we don't, quite frankly, have faced for even in the big stores. License, well, we'll see where we get to with the trial of 2 things to see whether this is an incremental opportunity for us. We do [indiscernible] if we prove our point, then we will expand the proportion of the offer or the categories where we have Click & Collect as an option, but we'll prove the point first. Yes. I mean it's kind of a similar answer to the question before in terms of places to go. I mean, yes, I'd like to think there are still some pockets of individual markets where the margin is below the average where we can bring it up. I think the bigger opportunity is really leverage on investment. I mean I think the U.S. is a good example, right? We've obviously put a lot of investments into the U.S. and it's in growth phase. So obviously, as you grow, you will leverage that investment. So I think that's probably the bigger opportunity in terms of OpEx. But look, clearly, if there's places to improve, we've talked about Germany as well.

It's Adam Cochrane from Deutsche Bank. A couple of questions, please. When you sort of real all of the news about weight loss drugs, GLP and things. What proportion of your food businesses do you think that might have a potential impact on it? And in terms of your longer-term strategic thinking, when you're looking at M&A and acquisitions and things, is going down a more healthy route so an option that you might look forward to as we go forward. And then secondly, you talked about what's structurally changed or nothing has structurally changed within the market. You've always had a very low price point, really very proud of that. How do you think your price point would compare to the likes of [indiscernible], are you prepared to match their prices even if they're product is of potentially lower quality than your own?

On that last one first. We match like-for-like prices. So there is a job to do to make sure that you're comparing similar project products. But yes, our business strategy is to be the lowest priced, and that is what it is. I don't think inherently that they are the low-cost model, particularly if some of the freight subsidies are removed some of the tax subsidies are removed. I think that they've got a lot of cost to be introduced into their businesses GLP, Yes. Firstly, let me say, I think these drugs are completely fantastic. I married into the medical professional. I have friends who've spent their whole lives trying to get weight off people who are pre-diabetic and failing. And for the first time in their careers, they actually have something that works. Whether that changes some of the focus of the obesity debate, I don't know, if you can target weight loss from the people that really needed maybe some of the general dialogue around healthy eating changes into kind of healthy eating rather than trying to get people to eat less, which has been something we've been trying for 60 years and failing to do. So, I think societally, it's great. Look, we've been observing some while that population growth isn't really happening in most of our markets. So trying to sell more calories hasn't been part of our ambitions for a long time. I'd also point out that in the U.K., in our grocery products in the U.K., something over 80% don't get caught up by the HFSS rules. So we're already in a very healthy part of the market, we're in parts of our grocery business like hot beverages, we're trying to premiumize, we're try to premiumize in Acetum. That's much more what our business is about in grocery. So no, I don't feel any concern at all about calorie consumption being reduced by people that really should be reducing their calorie consumption.

And I mean, on M&A, I think, yes, it would feature into how we think about M&A, like you always look at long-term growth potentials of businesses. So it's any held not concerned there are any health sort of headwinds, et cetera and so on, it would be a feature of what you would look at when you look at a brand in M&A?

The only part of the portfolio where we're encouraged by population growth trends is Africa, where our sugar businesses should benefit from rising populations and by rising wealth. They obviously are a long way away from having obesity problem.

It's Anubhav Malhotra Liberum, I've got a couple of questions. Firstly, on Click & Collect in womenswear. I don't know if you already discussed this and I may have missed it, but how was the performance has been so far Click & Collect in womenswear? And then secondly, on the thinking behind opening smaller stores and you seem to be a lot more open to it now, is the fact that you are rolling out a Click & Collect option online. Is that a factor in their thinking head opening smaller stores because you can offer a greater range to the customer through the online Click & Collect option? Or do you will open them if they are generating sufficient returns even without the Click & Collect offer?

I think at this level, where we are in our Click & Collect journey, you've got to look at stores in their own rate because we don't know whether we're still going to be doing lined in a year's time. So no, it's about the experience most immediately that we've been having in the smaller stores in Spain, in particular, the profitability of them. And then that pulls us back to our, I suppose, our knowledge is that we've always had, but haven't really thought about too much about the success of many smaller stores in Ireland. We've got stores that trade profit will be 7,000 square feet. I don't think we'll go there, but we can trade stores in the right circumstances on quite small footages and we're seeking Spain. On Click & Collect womenswear, what I can tell you is that the basket sizes are good. The attachment baskets are good. the percentage of people attaching is okay, and the return rates on womenswear are okay. What we don't know, and why we needed to go to the stores is what the cannibalization effect on other stores who are not in Click & Collect is. So how much are you simply substituting people across into a less profitable channel? That's why we need a good amount of data. And kids' wear has benefited from womenswear being added. So we're still gathering is the main point. And particularly to drive that incrementality equation. That's the focus.

Gary Martin here from Davy. Just a couple of questions just on Primark, just to begin with, I think you mentioned previously that you had done some selective price reductions across the children's range. Has this had any incremental benefit? And if so, do you expect to roll out further kind of spot and targeted pricing reductions? And then just secondly, just on the FY '24 Primark margin, I think you'd mentioned previously, given the kind of pervasive and persistent nature of stock losses that you had baked in some negative impact into FY '24. What sounds like this actually seems to be moving in the right direction. I see to be a heavy crackdown on this. If this dose subside, do you expect it to have a benefit to FY '24 Primark margin?

I mean, on stock loss quickly. I mean we've largely assumed the continuation of what I mean just a modest improvement, we don't want to be completely defeated on stock loss, but it does feel a very tough battle to fight. We're obviously showing quite a lot of resources at it. But I think at this point in time, given where society to circumstance is, I think assuming a level of continuation is probably kind of the prudent right thing to do. But obviously, as I say, we're going to try our best to contract it. I don't think it's going to be a big feature of the margin dynamics into FY '24 would be my view. Second price reductions? Yes. I mean we think it's a benefit on kids wear. To an extent, I'd go to a slightly different place, which is that well we exist to give the best value. We've talked a lot about collaborations with retail or and all sorts of things. I think to reinforce our price leadership message and invest in price is absolutely the right thing to be doing, particularly for sort of less affluent families with kids who I think are probably the hardest off. I think it's really important that we just signal to them that we are for them.

Good morning, it's James Grzinic from Jefferies. Two quick ones. First one, have you considered increasing the payout rate, it just feels like it's almost like a legacy of a margin profile and the volatility in the business, it simply doesn't have that anymore. And secondly, the 8.5% like-for-like in the past year for Primark, can you please split that into price, like-for-like price and mix impacts? And how you think about those 2 drivers within that modest like-for-like for the year ahead?

Let me answer partially or introduce what I'm going to say. We've had a bit of a clear-out at the office recently, and someone handed me remarks that my father made in 1977. It was actually at the AGM. And he started off by refusing to apologize for a payout ratio, which was 4.5x. And I can only imagine him rolling in his grave that we've got to 3. We looked at all aspects of capital returns and came to conclusion. This was the widest one, and maybe we're too early on in this kind of cash position to change payout ratios, be my view, you may [indiscernible]. Yes. Look, we did review it, and we'll keep all these things under review. I think our capital allocation policy largely works actually to I don't see that doesn't see it being a problem. I think our dividend payout is well-understood and it's healthy. But yes, but it's a good point. I don't think it's wise to be forecasting. We're willing to tell you what next year is going to bring. To get in the world of speculation beyond that, I don't think is a particularly valuable thing for us to be doing it. Who knows what's going to change, there's a lot of uncertainty. I mean price volume mix, I mean, a small amount of volume, most of it was priced in that 8.5%. Just a small amount of mix, I think it was kind of a mix kind of sort of netted itself out in the end actually for the year. So predominantly, it's pricing, and just a small amount of volume. Most of that was in the first half of the year. Second half of the year was less volume and it was more price. As we roll forward into this year, as I think I said before, we kind of expect about 1 percentage point on price for the full year. And then obviously, we're hoping for the rest of the volume to drive the modest like-for-like, not expecting a huge amount of mix. He also said in the forecast, it would be futile to give a forecast, so we won't go.

Paul Rossington here from HSBC. Can you just give some kind of quantum of what you actually expect Primark inventories to come down by over the course of the full year? And then any just guidance, any guidance on the split of store openings in this year, H1 versus H2?

Primark inventories, I mean, it should come down by at least a couple of hundred million, so in terms of working capital inflow. So that's what I've been hoping for. I think we'll have to get back to you on the store openings on H1 and H2. I think it's relatively even across the year, but I'd have to just double-check. To 9 stores in H1. There you go. [indiscernible], I think we're probably running towards the end here. Have we any questions on the web? No. Great. Thank you. Thanks very much.

Do you want to say anything about reporting?

Yes. Just one point to make in the appendix page, something. There a just a note on, we're just modifying our financial calendar just a little bit in terms of how we're reporting next year for primary update Jan trading update, obviously, in terms of final and then in September pre-close. So that's the rhythm for next year. Thanks very much.

Thank you.