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

Good morning, and thank you for standing by. Welcome to the Associated British Foods Trading Update Conference Call hosted by George Weston CEO; and Eoin Tonge, CFO. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to George Weston. Please go ahead.

Thank you very much. Good morning, everyone. Thank you all for joining this call. I think we've got a sort of curious egg to take you through. There's actually quite a lot to be pleased with. There's quite a lot to be pleased with in Primark. Europe's going very well. States, we're pleased with Click & Collect rollout, great effective marketing, particularly in Germany, really encouraging. But we move on to the U.K., where the performance, particularly since the budget, I think in common with a number of us who have got an important franchise amongst the least affluent in this country. It's ironic that this first budget should cause, I think, what feels like a sense of shock amongst some of our customers, not helped by lack of weather stimulus at times in the period. It's not all in the U.K., again, though, doom and gloom. We had a good start to the year and a good end to the year. So volatility of performance, but particularly in that warm and worrying period post budget, I think, is -- has driven the like-for-like underperformance. So actually, Christmas wasn't too bad. We're not losing customers according to the switching data we see in any significant numbers to other retailers. In fact, we're the winners in the switching data analysis. Some of our shoppers, therefore, have just stopped shopping. That's what's driven our market share down and our sales performance down. It's an encouraging comment on the -- I think, the control that we have in the company that despite the sales being down in the U.K., the markdown percentage has been well controlled. Our margins we're announcing today through the rest of the year should be fine. And yes, the stock package that we've got is in good shape. Good progress with the initiatives in digital brand and product, which I flagged just a moment ago, 113 stores have Click & Collect. Click & Collect is going well. And in the online trading world, Click & Collect had the best period at a significantly better performance generally across the marketplace than home delivery did. Moving then to the food businesses and starting with grocery. The portfolio performed well overall. We flagged at the beginning of the year or the end of the final year that some of the prices in the United States oils business would inevitably come down, and they have actually by a little less than we'd anticipated. But that decline in pricing plays into sales, good brand growth, though in the U.S. and indeed, in Twinings and other international brands. So the grocery portfolio, good. Ingredients, we had a good period, good growth both in yeast and bakery ingredients and in a number of the specialty ingredients business as well. Sugar, European sugar has been no worse than we had flagged that would be. We have seen -- we've negotiated lower beet prices for next year. So we've got nothing new to say about the recovery of European sugar profitability next year. And Africa, good sales growth in most of the markets, so good. Vivergo, which is part of Sugar, had a disappointing first half with low margins. Bioethanol prices continue to be low. We've reduced our production level at that site, and we need to see prices improve in the second half. In terms of forecast outlook for the full year, Primark is now targeting a low single-digit growth in 2025, reflects our store rollout program, which is on track to contribute around 4% to growth. And then we do anticipate a weaker like-for-like sales growth in the U.K. and Ireland. We don't think the second half, though, will be at the levels that the year-to-date has been at. Operating margin to be for Primark broadly in line with F '21 -- F '24, I beg your pardon, as gross margins have continued to improve even as we step up investment across a number of strategic initiatives in that business. Other segments of the group, there's no change to the guidance we provided in November. So with that, I'll hand over to you to interrogate myself and Eoin. So thank you.

[Operator Instructions] And question comes from the line of William Woods from Bernstein.

Two for me. The first one is on the U.K. Obviously, if this U.K. performance continues, then there's a challenge in the U.K. margin with wage increases and national insurance increases and your ability to offset that. Is it the case that over the next year, you need to -- your U.K. margins will come down and you'll have to offset that with different geographies increasing their margins? Or are there certain things that you can do in the U.K. to help offset that? And then the second question is obviously just looking at recently volatile currency markets. Could you just talk about how you're thinking about the U.S. dollar appreciation affecting your buying, how well covered you are for FY '25 into FY '26, et cetera?

Sure. Will, it's Eoin here. Look, why don't I have a go at both of those 2 questions, and I'm sure George will jump in. On the first one, look -- yes, look, I mean, I don't think it's any -- how we're going to manage the increase in costs in the U.K., it's still, as we said in November, we're going to manage it through the various different levers we have across our U.K. business. We are doing quite a lot of cost initiatives in the U.K. We're rolling out self-checkouts. We've got other different initiatives, both in-store and outside the store. So we're going to continue to focus on those. Like I think -- I don't think we're kind of looking at anything else radical, and we don't think we need this. The business has a good history of kind of managing its cost base, and we'll continue to do that. The -- and you're probably fair -- it's probably fair to say that there is a little bit of slack that's going to happen in the U.K. is going to be offset by kind of good margin progress elsewhere. So kind of taking a stand back, that's the reasons why we're going to get comfortable with sort of the margin commentary that we gave in the statement. I think, look, we'll come back, I'm sure, to the question around what do we think is going to happen in sales in the U.K., which is kind of embedded into your question. And look, our -- we obviously have to remain a bit cautious about the U.K. consumer. I think it will be unusual if we weren't, coming out of the period we've seen where we've seen that continued volatility. Of course, if that continues for a lot longer, we might have to do some more kind of radical things, but that's not what we have to do right now. I don't know if you want to comment more on that, George, but...

No. I would -- look, U.K. sales from -- within a good chunk of the high street do -- the performance of a number of us does beg the question of what next. Personally, I think the reaction to the budget amongst the least affluent has, in some ways, been overdone. I think there's been a shock and a fear that's driven people to pull in their horns. But the reality isn't that the disposable income in that group has gone down. I think people are just pausing and being very conservative. Now if unemployment starts to rise significantly amongst that group, I think we could have more trouble. But I would have said that there's a good chance that like-for-like sales will be better in the second half than the first half as people get used to the fact that -- or at least they relax a bit from how they were feeling post budget. We did have a very good Christmas. This is sort of the curiosity about it. So there is money about. I think there's been a period when people have been -- part of our shopper base has been very reluctant to spend it.

Yes. And so when we say volatility, we mean it like the -- we had a good strong finish to the back end of last year and the beginning of this year and Christmas, as you say. So when the conditions are good, we see good trading. And so we'll probably come back to that a little bit more. But I think in the sense that like we're in a good place from a margin perspective. I'm not -- we're not over -- there's no kind of -- there's no need to sort of pivot or anything like that in our kind of our overall sort of margin management. Now that brings you on to the next question about FX which is -- I mean, look, managing FX and FX exposure is nothing new to retailers, clothing retailers. So with the dollar strengthening, we will have to consider the impact of that. Now we won't have to consider the impact of that really into sort of the middle of next year because of our hedging. We're well covered for this year and part into next year. So we've got time to consider. As you know, the way the market works is that it tends to react to hedging. There sometimes can be temporal impacts on margin. I think they are temporal because generally, the market tends to react and pricing -- with pricing accordingly. But it's too early to say, I believe, what the impact of that temporal impact will be.

Now we're going to take our next question, and it comes from the line of Sreedhar Mahamkali from UBS.

Maybe 3, please, if you don't mind. The first one, I think you've touched on it, but it will be great if you could elaborate a little bit on the Primark margin resilience. And is there a shape to some of the productivity measures you're thinking about, you're implementing? Is there a shape to the gross margin benefit? Is there a bit more in the first half, a bit less in the second half? If you could just talk about it a little bit more, that will be very helpful. Secondly, George, I know both of you talked about a good start to the year as well. But I know in the release, you've said positive like-for-likes in December in the U.K. Does that mean beginning of the year, I know it's only whatever, 20 days or something. January was also positive like-for-likes in the U.K. That's the second one. The third one, I think Vivergo, you've talked about challenging conditions there on pricing, bioethanol, et cetera. If it does not improve in the second half as you probably are anticipating, what sort of impact are we talking about on the sugar profit outlook, please?

Let me hand the margin resilience over to Eoin. I don't know whether we have January like-for-likes or whether we'd share them if we did.

We wouldn't share them, if we did.

But anyway, I think, look, Sreedhar, what I'd say on this January is that, it's not instructive yet. January is a funny month to talk about whether -- so I think it's -- I wouldn't say it is anything instructive. I think I'm more sort of reflect on the fact that we had a good Christmas, and we had a good September and because the conditions were good, and there was a reason to buy. So I think it's just -- it's too early to give you a pattern beyond that. And Vivergo is affected by oversupply of ethanol both coming from within Europe that will work through and then greater supply out of the States. If these margins don't recover, there's a risk of kind of GBP 10-plus million to the Sugar budget. We hope they will recover, but that's just to give you a sense of what we're talking about.

Yes. And so -- and then back to Primark margin resilience. I mean, I think -- so this year is characterized by -- I mean, gross margins continuing to be strong or good, let's just say, I don't know whether it's strong is the right term anymore, and holding up and being resilient. So within that, as George mentioned before, markdown continues to be managed very well. I think it is a feature of the Primark model sometimes that we probably don't give it enough credence here is that we manage markdown very well. And so there's no kind of concerns in that regard. Stock loss isn't getting worse. And we continue to -- there is obviously a little bit of tailwind in gross margins from FX and just generally good purchasing, et cetera, and so on. So gross margins are holding up well, and that is a kind of first half and a second half phenomenon. The FX tailwind sort of comes off a little bit into the second half, but it's still there. And then obviously, that's offset by quite a lot going on down below the line as there always is in a group of our size, which is we've obviously got the inflation. We're obviously investing in quite a lot of new stuff that we still firmly believe in, whether it be the digital, whether it's technology or whether it's in brand. And we continue -- and of course, we continue, but we step up a little bit our cost initiatives. And those cost initiatives are sort of broad ranging. I don't think it's sort of a new phenomenon. It's just a bit more of a refocus on what we do as a business, which is managing our costs within our stores in as effective way as we possibly can and then managing our supply chain in an effective way as we possibly can and managing our center in as effective way as we possibly can. The one thing that's kind of obviously a little bit uncertain in all of that is freight. Obviously, the new -- more recent news would kind of tend to paint a more positive picture there, but we're not assuming anything -- any change from current situation.

I think -- sorry, as a reminder, you don't need, but I'll give it anyway. U.K. and Ireland is where we've seen these disappointing sales figures. The rest of the group has been good. And the rest of the group is now significantly over half of our total sales. So there's just mix protection, geographic mix protection to the business. And that number is -- that percentage is only growing.

Yes, as we can see here.

Yes.

Now we're going to take our next question, and the question comes from the line of Grace Smalley from Morgan Stanley.

My first one would just be -- sorry to ask you again on the U.K. consumer, but just anything you could say in terms of the volatility you've seen? Is it largely traffic? Or how are you seeing that weakness come through in terms of traffic versus average basket or any color you could give there? And then for your Primark like-for-like expectation for the full year, what does that now -- for down low singles, what does that embed in terms of what you're thinking from like volumes versus mix versus pricing? And then my last question, to your point on the international markets, maybe focusing on Europe in particular, which you've called out as being strong for you. Just what you're seeing in terms of the European consumer in your different markets and the health there relative to the more subdued U.K. consumer and then Primark's positioning within those markets?

Okay. The first question has been both footfall and units per transaction in the slow market. So it's both driving sales down. And let me pass the second question over to Eoin.

Yes. Well, vol mix for the remainder of the year, I mean, a little bit of mix benefit is what we'd say. We're continuing to get a little bit of mix benefit from our sort of range architecture. So that's good. And look, we're hopeful we're going to get back to sort of kind of more volume neutral in the U.K., but we sort of obviously have to remain a little bit cautious.

And then the European consumer, I suppose, anecdotally is in a difficult place as well, a bit better in Spain, a bit better in Portugal than we would have seen last year. But they are continuing to shop with us. I think you always hesitate to mention the weather, but I think there was less warm weather across much of Continental Europe than there was in the U.K. and Ireland. And so there was stimulus there was weather stimulus for there. Look, if you look at where we lost sales in the U.K., it was all in the cold weather categories, and we didn't lose that in our European consumer. the European consumer, Germany, in particular, France is not in a great place.

Yes. I mean it's actually interesting, the Ireland performance actually, which it was the weakest country outside of the U.K. But it was a lot better than the U.K. and -- because it had the same weather patterns, but it didn't have probably the same level of consumer challenge.

But didn't have a budget in October.

Yes. Yes.

Now we're going to take our next question, and the question comes from the line of Clive Black from Shore Capital.

Coming away from Primark. First of all, I just wondered whether the grocery performance overall was at the sort of more mellow side of your expectations around building momentum. And in that respect, maybe you could talk about how you see your market shares, the price volume mix and perhaps whether there may be a need for a little bit more promotional activity if the markets are a little flatter? And then just for the purpose of clarity, George, on your comments around sugar, are you retaining the expectation that in FY '26, you anticipate a notable bounce or recovery from the guidance down from last summer that hits this year?

Yes, Clive, I don't know if many other people who would have described our grocery performance as mellow, but it's not a bad word. It -- let me do the sugar bounce first. We've seen nothing to make us think that we won't see it, and we've locked in the cost reduction part, which is numerous tens of millions of pounds worth of margin improvement. It's too early to have any certainty about the recovery of pricing across the European market. We know that a fair amount of supply will come out, the Ukrainian sugar situation of this year won't repeat and the acreage will be down. But until we know where the acreage for the crop in '26 is -- actually is. And until we start to see some of the yield data that we -- again, we won't know what supply in Europe looks like. But we've seen nothing to make us think that we won't get the recovery. Some of the spot sales in Spain are a bit better, but again, nothing to draw strong conclusions from. Grocery, as it always is, is a -- there are a number of different businesses in there from kind of Australian baking through to ACH in the States and Twinings. No, cutting to the answer to your question, I think we've got the price volume equation more or less right in most places, Twinings brand internationally is growing very well. There is still some disruption to markets in Southeast Asia, but actually Thailand is looking better, and there's a bit of growth in China now. We are fighting to recover chocolate cost increases. We'd rather do that than sell volume in Ovaltine. We know there's an elasticity effect of repricing Ovaltine to take account of the chocolate spike, but we've really got no choice. The Australian consumer is recovering a bit. We're seeing premium bread sales in Australia, at least kind of bumping along what we see as the bottom. We think we've got pricing in a pretty good place, though in AUS. U.K. bread, you'll know we lost some volume in one of our major accounts. I don't think we're in a position to get that back with price in this year. So we live with that one. I could go into more detail, but I think I won't -- the answer to your question is no. We haven't seen volume declines on the back of margin expansion. And if we did reduce prices, I'm not sure it would work for us. I think -- sorry, the one exception to that, which we're already underway with is more promotional work around Mazola in parts of the U.S., not everywhere, but in some of the markets in the U.S. where price elasticity works for us.

Okay. Listen, I appreciate the tour de force. So I guess then what you're basically saying is we shouldn't be too concerned given a more sedate trading momentum that your margins will necessarily come under pressure. You're feeling reasonably robust about your margins in Grocery?

I'm feeling it. In the U.K., there is inflationary cost potentially in packaging legislation, and there's always something moving up in price but it feels okay at the moment. The one area -- I mean, you -- the sales performance, I think, probably looks more mellow than it really is because of the pricing reduction in Mazola as the corn oil, raw corn oil costs have come down. That's the big driver of us -- and sorry, and bakery volume.

Now we're going to take our next question, and the question comes from the line of Richard Chamberlain from RBC.

A couple from me, please, back on Primark. I wondered if you can give me an update on the plans for the Click & Collect trial, whether the softer performance in the U.K. is making you think you might want to accelerate the rollout somewhat I think given the sort of shift to online, we seem to have seen particularly around sort of key events or in the run-up to key events. And then on the performance in Southern Europe, I wondered if you could just sort of give a quick comment on like-for-like trends there by market. I mean, clearly, Northern Europe was strong, but how about Southern Europe? Are you still seeing some impact of cannibalization there from new store openings? That would be helpful.

Okay, Richard. On Primark Click & Collect, we've got a rollout program that we'll see Click & Collect available in just about all the stores by the year-end. That is locked and loaded. Yes, Click and Collect performance is encouraging and our choice of to trade online through Click & Collect looks a better and better one as the growth in online has seemed to be kind of heavily skewed towards the Click & Collect sector rather than home delivery. So we think we're in the right place. We're going through the rollout at pace. We'll be done by year-end. I'm not sure there's much we can do to get stores that are going to be -- have Click & Collect in July, for example, available to them in kind of April. So we're just on that. Southern Europe, Spain, Portugal, decent positive like-for-likes. France, we're actually anniversarying -- it's not so much cannibalization as anniversarying opening halo periods. So France is flatter, but still we love our French business. And Italy, we're now through -- whether the French one to be considered Southern Europeans is another question. But anyway, Italy, we are through, by and large, that halo effect. And then like-for-like performance in existing stores in Eastern Europe, very good.

Now we're going to take our next question, and the question comes from the line of Gary Martin from Davy.

I just have a few here. Just on Primark, and I hate to dwell on the Primark like-for-like. But just in terms of the year ahead, if -- George, I think you mentioned that if you did encounter like-for-like growth that was maybe more -- I don't want to use the word structural, but kind of softer for longer that there may be some weapons in the Primark arsenal just to combat that. Could you just drive -- could you just maybe go through that in a little bit more detail?

Yes, look I think the behavior of the consumer, I think the behavior of the least affluent consumer in the U.K. is really difficult to predict because whereas they haven't had money taken off them, they have been -- they are -- they have to be worrying about the security of their jobs. But maybe you get that behind you quite quickly and all this talk about unemployment turns into nothing or maybe it turns into something for real. I just don't know, and I don't want to speculate. Things we can do -- well, we -- I think in the last results presentation, we took you through the drivers of commercial performance, whether it's within license, whether it's within new categories, whether it is the benefits of things like paid advertising, which does seem to work quite well for us. So there's a huge amount of energy in building sales participation. The growth of license is one thing. The collaborations have been very strong. The Edit, Paula Echevarría, these areas are going very well. So there are sources in the U.K. of sales gain. And actually, if you look at the switching data, we are taking share still from the mid-market. So some of that's working. And then as I say, in Europe, we're right, I think, to be very pleased with how things are going. And the improvement in Germany also is very -- we're in a growth phase again now in Germany. We're opening 2 stores before year-end. The advertising has been moving shopper sentiment and moving it well. So...

I mean, yes, look, I'll just add to it. I mean, I think contrary to some external narrative here, there's no sort of pivot moment for us even in the U.K. Like we've got to continue to do all the really good stuff that we're doing. If I look at the ranges for going into spring/summer, they're all kind of directed towards this type of environment. But if the consumer is weak and doesn't want to spend, you're going to have to -- we're going to have to manage through that. But that's not going to last forever. So -- but I think our newness, both in collaborations and in licenses is all very, very positive. And I think we should feel pretty comfortable on that. If there's an underlying question and that is whether we think pricing is part of our arsenal, like we're not under pressure on entry price points. So there's no -- that's not something that needs to be triggered.

That's really helpful. And maybe if I could just move across the Atlantic and maybe let's stick with pricing there. Just in terms of any potential tariffs, which may get implemented over the next few months potentially. Is there a degree of comfort there that you could selectively increase pricing in the U.S.? And what's your view in terms of potential elasticity there?

Yes. The answer is yes. And it comes from -- there are 2 things that give us comfort about that. Firstly, I think there are still areas of our business in the States where the price gaps to our competition are bigger than they need to be. So there's some room there. But secondly, if we're going to pay tariffs, so are our competitors. So I think the -- in all likelihood, the whole market will move up a bit. If it feels very manageable in truth.

And now we're going to take our next question, and the question comes from line of Vandita Sood from Citi.

I just wanted to start with one on the grocery brands. Do you have a view on food inflation and what you're seeing as you're negotiating with buyers? And more broadly, I just wanted to understand how it works for you if dynamic shifts and preferences shift between branded versus own label as I'm sure you have your own brands, but also you do some white label manufacturing. So if you could talk about how that impacts you for a business as a whole? And then the second one on Click & Collect. If I remember, when you first launched this, a key part of the business case was the attachment sales that you might expect when people come in to collect their parcels. Are you able to comment on how this is playing out? And then just a small one on -- you've said 4% space growth expected this year on Primark. And I just wanted to understand if the outlook for the LTOs is still 4% to 5%. That's all.

Okay. Thanks, Vandita. There really are -- I mean, there are 2 areas of food inflation, which are leading us to try to renegotiate prices at the moment. The big one is Ovaltine, I've mentioned before and recovery of chocolate. And that is -- pricing is tough in Europe, and there are elasticities in Southeast Asia. So that's not a comfortable experience. But we have no choice but to get through it given the extent of the chocolate inflation. Interestingly, I think probably the biggest place where we're supplying both white label and brand and where the mix is most important is Australian bakery, where actually Tip Top, the branded sales are holding up pretty well. And although the bakery market is off a bit, it's off by less in Tip Top than it is in private label. So we're pleased with that. Everywhere else, I think there's nothing really new to report kind of normal...

Kind of normal.

It's sort of normal business as usual.

I mean, negotiations with buyers is always, yes, always good fun, but it's not a -- I think it's more kind of normal stuff.

And packaging taxes will lead to pricing renegotiation across the U.K., we've got to get through that.

I think it's actually an important point to say, actually on our kind of key Grocery brands is we're investing significantly in the brands themselves and marketing, et cetera, and so on. So that's an important context when you're actually speaking to your retail counterpart because it's a -- you're looking to seek to raise the overall value of the total category by investing. So it's a different context.

Yes. And just to remind you, the Grocery portfolio is much more heavily branded than it is own label but own label pays some of the bills. And then on Click & Collect attachment sales, they're good. They're -- we modeled a certain level. We're really comfortable with how that's turned out.

Yes. I mean metrics just in general are continuing to kind of hold up across all the Click & Collects, whether it be the basket size in the actual first purchase or indeed the attachment rate stroke, a basket size of the seconds purchase. So they're all holding up pretty well.

There's nothing to scare us either in the returns rate in Click & Collect.

No, nothing on returns. And then, yes, you're right to say that we're still -- I mean we're still pretty comfortable on the white space opportunity going forward, contributing 4% to 5%. I mean, look, the store rollout is going really well across the whole space. I know we know we haven't spent any time talking about it, but all the kind of the sort of new store openings across the various different countries we've had have been very, very good and very strong. So that's an important part of the continued growth story.

I think it's reemphasizing a part of that. When you go into white space, there's always a danger you choose the wrong location. We've had very few kind of errors duds in the last -- well, really since COVID.

And now we're going to take our next question, and the question comes from the line of Adam Cochrane from Deutsche Bank.

Just a couple of questions on Primark, please. With the -- I think we discussed this before, but the price architecture at Primark, you mentioned collaborations and licenses just briefly. Would you be able to talk about whether within your range, those more premium areas have done better than the, let's say, the average. So are you sort of seeing an increase in mix driven by what you're putting out? Or is it equally driven by what the consumer wants to buy? And where I'm sort of going with this is, is your range sort of price architecture, the more premium ranges that you've talked about, is there any difference between what that looks like in the U.K. and what that might look like in some other European countries, please?

Okay. The only market where there's a difference in the range architecture that's worth noting is Germany, where we have greater success, we have really good success with some of the more premium products within the range. So actually, some of the -- some of what we're so pleased with the German recovery is that the mix gets better and better.

Yes. I mean, I think -- look, I think we're -- it's a very sort of gradual move on mix, right? This is not like there's no -- we're not shifting the mix significantly. But there is a little bit of a sort of, I think we said it before, a tailwind on mix as we sort of kind of continue to develop that architecture. But it's very soggy. And it has to be because fundamentally, we have to be rooted in value at all kind of price points. That's what we have to be. Interestingly, contrary to, I think, some other narrative in the marketplace, we didn't see in the period just gone like a shift to a particular part of the mix. It was sort of kind of like there wasn't -- I heard one retailer talking about kind of a move to more premium products. That -- I think our price architecture is different, right? It's just different. So I just don't think we saw kind of a particular shift to it in the mix.

And then secondly, it does feel like we have consumers shopping more when they have a reason to an event or maybe it's a weather catalyst. Is there anything that you can do to -- because you're not a heavily promotional organization. Is there anything you can do to try and create more opportunities for the customer to shop because the volatility, I think, is -- for any retailer, I think volatility is probably unhelpful to manage the business. So when you sort of think about any changes in customer shopping habits around that, do you have any levers that you can pull or you can just put the products there and the customers come when they come?

No, we've got 2 levers, which are important and are reasonably new. The first one is that digital connection that we're building very fast and is now quite big. So we can we can communicate events ranges much better than we used to be able to. And paid marketing, as I say, is part of that mix and is a very useful part of it. The second one is Click & Collect. We can derisk event ranges by making those ranges available in Click & Collect rather than putting them into every store. So that was always part of our thinking on Click & Collect was it allowed us -- it allows us to support range -- to support events better and more safely than we might have been able to in the past.

I think if I'd just add, there might be a third one, which is more around products and just making some -- increasing a little bit less weather-dependent products, whether it be performance wear kind of licensed sports, that type of -- those types of products. And that's the other lever that we pull and we probably need to pull a little bit more. I think the one thing I would say to you, Adam, actually, just on volatility. I think if any retailer is able to manage volatility, it's Primark. The way we're set up is kind of -- almost kind of allows -- enables you to be able to manage some of that volatility. So hence, our margin is kind of resilient. So I'm not saying that we want to keep it forever, but that is one of the features.

Finally, the only retailer that's come across that hasn't complained about the cost of national insurance in the statements and called out a big number in pound notes to say this is the cost of national insurance and minimum wages. Is that because it's something you can just absorb and you're happy with it? Or is it that -- it's just that you can't change it, so let's not talk about it?

Well, it's a little bit of both. We voted -- the country voted for a labor party knowing that taxes would go up and they've gone up. And I think it's good democratic decision -- sorry, if it's a democratic decision and you respect it, knowing what the labor government is going to do. Yes, we do have ways of offsetting some of it. It still hurts. I think it's really damaging for all of us that have -- it's not so much the increase in the absolute rate of national insurance. It's the increase of national insurance payable down to people who are doing sort of limited hours. So it's the reduction in the cut in that I think is particularly hard both financially, but also for those people themselves, we'll just employ less of them. So yes, it's -- I think the absolute number is a bit lower. We'd anticipated the national -- sorry, the living wage increase and what did everyone expect?

Yes. I mean I think we are being vocal about the second order effects, which is the impacts on the lower income households who have got more fear of -- or are actually experiencing unemployment or fear of unemployment because of the things that George has just spoken about. So we're being vocal now about the second order effects rather than the actual necessarily direct that first order of course.

And we'll go and take our next question, and the question comes from the line of Anubhav Malhotra from Panmure Liberum.

I've got a couple. Firstly, on sales at Primark, do you think there was any impact of a pull forward of sales into September for cold weather products that may have got reflected there in weaker October and November numbers as well along with the other reasons that you have mentioned? And then secondly, you did mention the least affluent consumer and the second order impact that unemployment -- could be had on unemployment from the recent budget. I know it's difficult to say for the overall market, but what you are budgeting for Primark, maybe both in terms of your existing staff and in terms of your hiring plans for Primark as a result of the budget, if you could give any idea on that, too.

Yes. I mean without doubt, there was a pull-through into the back end of last year. It was -- and it was very strong. When you do have weather stimulus, we tend to outtrade the rest of the -- outperform the rest of the high street, and we undertrade it when the weather is not working. So the pull-through was big. It -- yes, it didn't help these figures, but...

No. It just goes to just remind you that like we had a -- beginning of the period was very strong at the end of the period was very strong. But when you average it out, of course, we can't hide behind the figure. But yes, you're right. But when the conditions are good, we are trading well and actually outperforming the market. The second one on hiring plans. I mean, generally, we're in a kind of a still obviously expansionary mode. Even in the U.K., like we still open new stores in the U.K. and so on. Of course, it gives you cause for thought around the additional costs you have and how to manage those through. But I think we're more fortunate than most that we can kind of sort of manage those through without significant impacts to workforce.

There's one other point in there that's worth making that it isn't really financially relevant, but I think is societally important. We are a really good first employer. We're a really good employer of people coming back from being out of the workforce. We're a really good employer of difficult -- of people who are going to take a while to adjust and may not be able to adjust. I think in all those areas, we are going to be more cautious in the future because of changes to employment legislation than we've been in the past. And I think that, that is a real shame.

And now we'll go and take our next question, and the question comes from the line of James Grzinic from Jefferies.

Just a very quick follow-up question to those of Richard, around the U.S. and the U.S. like-for-like. I presume you've got a growing number of mature stores some a few years old. Can you perhaps help us trying to understand what the LFLs of those locations are as you expand the footprint of the business more and more in the U.S.?

Yes. I mean -- thanks, James. I mean the like-for-like continues to be sort of a little bit of a challenge in the U.S. because we're doing so many things, we're opening so many new stores relative to the number of stores that we have. So -- and as a result, we've got 2 -- we've got the usual 2 effects, a combination of cannibalization. The thing that's impacting like-for-like the most actually is halo effect. So the -- which is what we call halo effect is when you've got stores that were non like-for-like last year come into like-for-like and they are lapping quite challenging -- sorry, quite -- not challenging, quite the excitement of the opening phase, et cetera, and so on. So that impacts like-for-like. If I kind of strip all that down, like-for-likes are sort of -- there's still a little bit of kind of the older -- some of the older portfolio is still a little bit of a drag on like-for-likes, but we're kind of getting more close back to like-for-like neutral and the progression on that, as we get more and more scale, in the like-for-like number has been positive. So that's kind of really what's happening. As we said previously before, the stores we've opened really since 2020 have, in general, been performing well, good strong profit margin and good densities. So we're happy with them.

And now we're going to take our next question. And the question comes from the line of Georgina Johanan from JPMorgan.

Just a question on the buying environment more generally, please, and what you're seeing in terms of capacity availability and so on? We saw another value retailer this week talking about materially lower factory gate prices. Is that something you're seeing? Would you expect that to sort of improve further given everything that's happening in the U.S.? And yes, if you could just talk a little bit about any sort of support or not as the case may be that you're getting there, that would be really helpful, please.

Yes. It's a good question. I think there's a lot of -- obviously, there's a lot of things happening in this space. And I don't think they've all kind of worked through because depending on where the direction of travel in the U.S. and whether tariffs and also currency, what that has an impact for kind of prices in country, I think, still remains to be seen. I mean we already saw quite a comeback on capacity from an overcapacity coming out of COVID when all the U.S. brands had effectively wanted to stock up on a post-COVID basis. So there was a lot of -- there was a capacity constraint, and that kind of unwound a lot into last year. So it's definitely okay conditions, I would say. And I think it still remains to be seen how the moving parts will kind of work their way through. I think there's still a little bit too many moving parts. Obviously, kind of the whole sort of China question still has to see how the whole plays out as well. But it's definitely a more favorable position for retailers at the moment.

That's really helpful. And then I guess just a follow-up around like payment terms because I think the same value retailer was talking about how they had reduced sped up payment terms. We've seen others do that. Is that something that you sort of would consider doing in a more challenging environment to sort of support profitability, just given the strength of the balance sheet?

Look, we have always maintained attractive payment terms for our suppliers. We've always wanted them to grow. So to take -- to give them a working capital challenge has always been the wrong thing to do. And quite frankly, also funding Working capital has always been cheaper in the West than it is in the developing markets. And again, it's always been crazy, we thought, to impose long trading terms on people. We want our suppliers to be able to take a Primark contract to the bank. And that's been, as I said, part of the relationship we've had with -- we drive very hard bargains on pricing, everything else. We want to derisk in the relationship. And that's -- if others are moving towards where we've always been, then fine. But I think that's the point is I think the context is key here. We are good payers.

And now we're going to take our last question for today. Just give us a moment. And the question comes from the line of Vandita Sood from Citi.

Just a quick follow-up. You've talked a couple of times about how you're particularly strong at managing markdowns. Just wanted to understand what you do differently and what gives you more flexibility? And maybe if you can share how much stock is typically open to buy?

Well, we're not going to give the last piece. But look, I mean, well, I can sort of help a little bit the last piece. I mean, because we -- I mean, we have more of a both a push and a pull model, right? So that is quite important because that means the actual store manager can actually manage their own individual store stock package a bit. And that means that they can react and 50 or so percent is continuity stock, and that means you can actually -- you can manage to pull as you kind of see how it goes through. So that's quite important. And then on the sort of kind of seasonal stock, we're just quite good, again, on a relatively store on a regional basis to sort of sense when we've got slow-moving stock and we can move. And don't forget, like because our price points are low, we only have to -- we don't have to go for huge depth of cuts to manage the movement of markdown. So it's a combination of all of that is what kind of helps with managing markdown.

There's also -- I mean we can't do it from the U.K. now for obvious post-Brexit reasons. But we're also able to move stock between depots. If we've got too much stock in one, then we can -- in somewhere in Europe, we can move it to another one where the sales might be better. And that's particularly useful at the change of seasons where, for example, you might sell board shorts for longer in Spain than you do in Germany. So we moved some of the stock down there.

There are no further questions for today. And I would like now to hand the conference over to your speaker, George Weston to any closing remarks.

Well, look, I mean, I think just -- I think from our side of things, we'll be reporting for the half year. Thank you for very much for your question. I don't know, George, anything?

Yes. No, just to go back to what I said being a curious egg of an update. We're actually really pleased with so much of what's going on in Primark and particularly in the kind of more strategic areas, this is a business which is trying to roll out into new markets and deepen our presence in new markets. And that's gone really, really well. The digital engagement has grown really well. That's important Click & Collect is the right place to be. We're doing it well. We're seeing the benefits of it. We'll see more of that in the future. But we can't hide behind that with the sales performance in the U.K., which was disappointing if we've -- but volatile, but still disappointing. So yes, more to be pleased with, I think, in a business that tries to look in the long term than to be alarmed by. I mean, I think we -- the least affluent shopper, I think there's a good chance that they'll recover their nerve in the second half. We derisked our forecasts for the second half because of what we see in the first. But I'm not in nearly as gloomy a place about that shopper as some of the commentary might be because they do have the money. The minimum wages did go up. Employment has ticked up a bit, unemployment has ticked up a bit, but not by much. So good reason, I think, to be at least a little bit hopeful in the U.K. and as I say, everywhere else, really good.

So I think thank you. And we'll hope hopefully talk to you all soon.

Good. Thanks all.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.

Thank you.

Thank you.