Associated British Foods plc (LON:ABF)

Earnings Call: H2 2020

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Nov 3, 2020

Hello, and welcome to the Associated British Foods PLC annual results presentation. My name is Jess, and I will be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you will be connected to an operator. I will now hand you over to your host, George Weston, Chief Executive Officer, to begin today's call. Thank you. Thank you, Jess, and thank you all for joining me for this review of the year to the 12th of September 2020. Let me start this time with just a few reflections on the year. We have lost 9 colleagues to COVID around the world, and we remember them. We also have so many people in the food companies, in Primark, who have been quite extraordinarily committed to producing food for us all, for making shops safe, for keeping the business going. COVID, I think, has demonstrated the resilience and the adaptability of our food businesses. Perhaps with a devolved operating model, we have been well placed to respond quickly to an obviously very rapidly changing and challenging environment. There are many people in ABF lower down in the organization who are used to making decisions and led us all through this period. I think COVID-19, this period, has also demonstrated the strength of Primark. Since reopening, I think it has demonstrated the power of the brand and John and I will both talk about that later on. I think it has also demonstrated the operational excellence of our supply chain, of our store leadership, and of our capabilities in our Dublin buying office. Having a conservative balance strength has been a great strength for us all. In a way, not just financially, it has also given us operating freedom at important times, and we will mention that again later. The breadth of our operations, having a number of places which were all the food companies generating cash in the second half was obviously a strength as well. Let me now turn, though, to the financial highlights of the year. The group revenues, GBP 13.9 billion. The adjusted operating profit, GBP 1.024 million. Profit before tax of GBP 914 million and adjusted earnings per share then at 81.1 pence. We paid no dividend in the year, and as you will know by now I am sure, we are not declaring one today. We still invested GBP 640 million back into the business. We generated more cash in the year than at any prior year in ABF's history. We are strongly positioned as we begin to face close down again in terms of having a robust balance sheet. Business highlights, then let me turn to that slide. The food businesses delivered an adjusted operating profit increase of 26%. The first half was very good and it continued, in fact, accelerated into the second half. Outstanding grocery performance throughout the year with significant margin and sales improvement. Not all the benefit came because of COVID in our food businesses or in our grocery businesses. AB Sugar saw a substantial increase in its profitability with the recovery in European sugar prices, which we expected. Ingredients and agriculture were both ahead. Good sales of enzymes, yeast, and bakery ingredients in particular. Primark, through the year, had a good first half. Good sales performance in Northern Europe in particular. You will remember that from our half year presentation. Decisive and hard actions had to be taken when we were shut down in March to mitigate the operating losses while we were closed for an average of 11 weeks per store. Despite that, we honored all the orders to our garment suppliers. Since reopening have placed a further more than GBP 1 billion of new orders. We traded strongly in the months since reopening, high cash generation, in particular. We opened a number of new stores in new markets, Poland in particular, Florida, since the beginning of the year end, and those have been successful openings, and we will talk about them later. Let me just go back to what we were looking at in March. So this was the cash generation in the first half of the year before lockdown, and then this was the first cash flow forecast we saw after the stores shut. We assumed, we were obliged to assume, that the lockdown would last till year end. Had it done so, and had we taken no actions to mitigate cash outflow, we would have ended the year with GBP 2.5 billion in debt, which was rather more than the debt capacity we had when we shut the stores. It begs the question of what those cash flow mitigations were. The operating costs of Primark, we halved them very quickly. The biggest part of that was being able to access the job retention schemes, the furlough schemes. We received GBP 98 million from governments all across Europe for 68,000 jobs, which we had furloughed at Primark. Given the uncertainty of the time, our ability to access those furlough schemes was absolutely vital. I have no doubt we would have been laying people off in large numbers if we had not had access to those furlough schemes. Salaries were reduced for all other retail employees and executives, and for a significant number of senior executives at ABF as well. The government helped out by giving us relief on business rates. You will remember we engaged with landlords on lease agreements and came to a good set of agreements where many landlords supported us. Of course, we reduced discretionary capital and operating expenditure in Primark as well. We canceled a significant number of orders in the Primark supply chain, and then over time, we put them all back in place. In the end, we took everything on the original trading terms that we had ordered prior to lockdown, and that was really important. The food businesses traded better. We asked them to manage their capital expenditure and their working capital and to produce extra cash for us. They did that sensationally well. Of course, we decided not to declare an interim dividend. The consequence of all those actions then was this. That was the original forecast, which I have just shown you, and this was the cash generation as it turned out. By the end of the year, we had more cash than we started lockdown with by some way, GBP 1.55 billion of cash on the balance sheet. Let me just mention that moment where our original GBP 800 million of cash was so valuable, and that was when we had to commit to autumn/winter stock. We were down to the last GBP 100 million of cash, so almost the low point of the blue line. We had to place orders for GBP 900 million to give ourselves stock to sell through autumn/winter. We took that decision. I think we had the Austrian stores and the Dutch stores open only when we started placing those orders. If it hadn't been for the GBP 800 million of cash, we would have been within 300 million of our banking facilities. I dare say we would have taken a different set of decisions or delayed decisions on autumn/winter stock ordering and suffered for that. Let me stop there and pass over to John for a more forensic look at our financial results. Great. Okay. Thanks, George. Good morning. Let me start with a reminder. This is the first financial year in which we report following the adoption of IFRS 16 leases, and that's using the modified retrospective approach. As a result, the statutory numbers for 2019 are stated on an IAS 17 basis. I'm going to take you through the income statement, balance sheets and cash flow as reported. I'll then take you through a reconciliation between the reported and IFRS pro forma comparatives for 2019. To provide the best understanding of the performance of our businesses, and especially Primark, the segmental tables are presented on an IFRS 16 pro forma basis. Along with the usual tables of exchange rates at the end of this presentation, I've also included the segmentals on a reported basis, and these next few schedules on an IFRS 16 pro forma basis for completeness. Group revenue was GBP 13.9 billion, a decline of 12% on last year. This decline was mainly seen in our financial third quarter, and that really was the period in which the Primark stores were closed. The decline in the full-year adjusted operating profit by 28% to GBP 1.024 billion was a direct consequence of this. I estimate that Primark lost some GBP 2 billion of sales and some GBP 650 million of profit as a result of COVID-19. Our food businesses delivered us a very strong performance this year, and their aggregate adjusted operating profit increased, as George has just said, by 26%. Arriving at the adjusted operating profit, exceptional items totaling GBP 156 million this year were excluded. The next slide gives you detail of those. The half year, you will remember, we recognized an exceptional charge of GBP 284 million as a provision against the carrying value of Primark's inventory. At the time of that announcement, the dates of the reopening of the stores were not known, and over half of the provision related to stock that was on display in the closed stores. The earlier reopening of the stores, but especially the subsequent successful trading of the seasonal spring-summer merchandise, avoided the need for this provision entirely. At the year-end, we actually have a different, but a markdown provision of GBP 22 million, and that was created for the inventory stored on our behalf by suppliers, which were there holding it for longer than usual as a result of the pandemic. The 25 million costs arising from the closure of our Speedibake Wakefield factory, recorded at the half year following the fire in February, has been more than offset by the insurance proceeds of 30 million received in the second half to give us a credit of 5 million for the full year. The 116 million exceptional relates to a one-time non-cash asset write-down of several Primark stores, mainly in Germany. It includes the asset write-down on those stores which will be downsized in the coming year. in the light of the beet volumes contracted by Azucarera in the second crop after reducing the beet price, we have revised our financial forecast for this business. That, as a result, has led to a one-time non-cash write-off of the goodwill of that business of GBP 23 million. The unadjusted all statutory operating profit was 37% down on last year, reflecting the decline in adjusted operating profit and also the increase in the exceptional items that I have just spoken to. Net interest expense increased from 27 million to 113 million, as it included lease interest of 84 million this year following the adoption of IFRS 16. Profit before tax declined to GBP 686 million, and the decline on an adjusted basis was 35%. Let us just come on to tax. The effective tax rate increased from 21.5% to 28.8%. This increase was mainly a result of the much lower Primark profit in the U.K. and Ireland this year. With the important caveat that corporation tax rates stay at their current levels, I expect next year's effective tax rate to fall from this level, probably to some 25%, as Primark's profitability is expected to improve. Adjusted earnings per share, as George has shown, declined by 41% to 81.1 pence. Much consideration has been given by the board to the payment of a dividend for this financial year. Our experience of the cash outflow, following the restrictions that required us to close all of our stores in March, and the increasing number of restrictions as we speak, leads us to be cautious. On balance, we have elected not to propose a final dividend for the year whilst we monitor the impact of COVID-19 on Primark during this important trading season. Let us move on to the balance sheet. Net assets were marginally below last year, at 9.4 billion, and reflect the reduction of 150 million arising from the adoption of IFRS 16. You'll also note that we now have recognized right of use assets of some GBP 3 billion and lease liabilities of GBP 3.6 billion at the year-end. Net cash increased from GBP 936 million last year to GBP 1,556 million this year. This outcome was driven not only by better trading in the fourth quarter than expected, but also by a much lower level of working capital, and that's across the group, than is usual at this time of year. In particular, later than normal timing of orders for Primark's autumn-winter ranges and lower food inventories as a consequence of higher consumer demand. The working capital benefit that I think is there will reverse in the first half of 2021 financial year. Deferred tax moves from a liability last year to a very small asset this year. This reflects the recognition of a tax asset arising from the implementation of IFRS 16 and also it reflects the non-cash store impairment charge that I've already talked about. The move from a net pension surplus of GBP 33 million last year to a net deficit of GBP 66 million this year was really driven by the decline in bond yields that we're all very familiar with. However, just let me remind you, given the scale of the assets in our defined benefit schemes, we consider this liability of GBP 66 million to be modest. Let's go on to cash flow. Free cash flow improved from GBP 788 last year to GBP 898 million this year. I've already spoken about the decline in the adjusted profit that you see at the top of this slide. The effects of the adoption of IFRS 16 include a higher add back of depreciation, which now includes depreciation on right of use assets, and then also you can see in there the repayment of lease liabilities. Last year's cash flow included the IAS 17 rental expense. Our capital expenditure investment was still substantial this year. The reduction in our food businesses from GBP 325 million to GBP 245 million was expected as a number of major projects were completed in the 2019 financial year. The store opening program for Primark, however, was delayed by restrictions, and those are restrictions as a result of COVID, and that was particularly on access to complete the fit-out of our stores. As a result, some of Primark's capital expenditure has slipped into the 2020 financial year, and that really accounts for the reduction, which we weren't expecting, from the GBP 355 last year to the GBP 316 million this year. Nevertheless, and George will show it later, we still successfully opened 12 new stores in the year and predicts obviously more for next year. Changes made by HMRC to the timing of U.K. corporation tax payments came into effect this year. This full year includes six quarterly payments compared to the usual four quarters. The increase in cash flow that you would have expected from that, however, has been more than offset by the lower tax payable as a result of the lower profit. A reminder that the GBP 278 million that you see here on the dividends paid line is the final dividend declared and then paid in this year, but declared for the previous financial year. On to the IFRS 16 pro forma comparatives. I think I've really shown you this before, but it's just a quick scoop through it. This shows the pro forma effect of IFRS 16 on the 2019 full year. Adjusted operating profit increases by GBP 61 million and the interest on lease liabilities amounted to GBP 82 million. The net effect is to reduce the adjusted operating profit before tax last year by GBP 21 million. Adjusted EPS reflects this dilution, and the 137.5 pence reported last year becomes 135.4 pence, obviously on a comparable basis. The effect on the key Primark metrics are worth highlighting. Margin last year would have increased from, and that's the operating profit margin, from 11.7% to 12.4%, and return on capital employed because of the right to use assets falls from 29%, but still to a very healthy 15%. Let's come on to the segmental analysis. As I said, these are on a IFRS 16 pro forma basis. All of our food businesses delivered an increase in profit this year. Food sales, however, were held back. You probably noticed they're not moving too much year-on-year, but they were held back by adverse currency, I estimate across the piece about GBP 150 million. And also in the grocery segment, the exit from the private label bread contract in Allied Bakeries. Our grocery businesses delivered a really strong performance. Adjusted operating profit of 15% and margin increasing from 10.9% to 12.4%. I want to point out the following. Our businesses achieved the plans that were set out a year ago to deliver the margin improvement, and that's actually very evident in how much they delivered with the improvements that we actually saw at the first half. These businesses also then responded to the increase in demand for food sold through the retail channel during the second half as a result of COVID-19. These higher volumes more than offset the products sold to out-of-home and food service channels. Profit growth was the most notable in Twinings, Ovaltine, ACH, AB World Foods, and Silver Spoon. The operating result for Allied Bakeries improved this year, and that actually followed the implementation of some very significant cost savings during the year. These results also include a write-down of GBP 15 million non-cash, and that relates to the carrying values of Allied Bakeries distribution assets, and that follows the July announcement of our exit from the Co-op contract. Sugar delivered a substantial profit increase this year as a result of higher European prices in British Sugar and Azucarera. It's also a much-improved crop in China and further reductions in the costs of the sugar production in all of our businesses. This was partially offset by lower profits at Illovo, and that was mainly driven by a reduction in domestic demand in South Africa. With the benefits of firm European sugar prices and profit improvements in Illovo, we expect an increase in profit in this new financial year. Operating profit for ingredients was well ahead, driven by AB Mauri, which responded to an increase in demand in some markets, an exceptional increase for its yeast and bakery ingredients. Let's turn to Primark. The business performed well in the first half of the year. Most of the sales decline, as I said, we saw in the third quarter, mitigating the OpEx and indeed the cash flow, and George has already described that, resulting from the store closures was a huge task. The reduction in monthly overhead costs by 50% while the store was closed actually was a major achievement. Primark trading since reopening to the end of the year was strong. Like for like sales were 85% of the same period last year. The thing for me, which is the most important, is that the operating profit margin at these sales levels was high single digit, and that clearly is a pointer to the profitability of our business going forward. Central costs declined, reflecting lower expenses in the second half of the year as a result of COVID-19 restrictions. This is worthwhile just putting on one slide. This is my summary of the effect of, in this financial year, the effect of COVID-19 on Primark. I've mentioned the GBP 2 billion in sales, GBP 650 million in lost profit. While the stores were closed, we saw a cash outflow of GBP 800 million, and that's worth bearing in mind. If I can ever describe GBP 22 million as modest, then let me do it at least for once. The year-end stock provision of GBP 22 million, actually, given the scale of what's happened to stock, actually is modest, but that is the provision that we've got. Coming on to segmental analysis by geography. Lower sales and profits in Primark were the driver for the reduction that we see here in the U.K., and then the Europe and Africa segment. Within Europe and the Africa segment, the profit improvement in Azucarera broadly offsets the profit decline in Illovo. The profit in the Americas very pleasingly moved ahead and benefited from the strong performance from ACH and AB Mauri yeast and bakery ingredients. Asia Pacific benefits from a big improvement in China, and that's both our sugar operations and AB Mauri. Liquidity has been a focus for all major companies this year as a result of COVID-19. I'm not going to linger too much. The most important number for you is GBP 3.1 billion of liquidity. Just to say that the RCF since the half year, we've successfully extended the date of that to July 2023, and we prudently sought a waiver of the covenant test of that in February 2021, and that remains in place. At that point, I'll hand over to George. Thank you. Thank you very much, John. Let me start with our grocery businesses, which saw a very strong both financial and operational performance. They managed to increase output, in some cases dramatically. They kept people safe in all the factories. In fact, across all our foods companies around the world, we think perhaps five or maybe six people were infected with COVID while they were at work. We created very rapidly, very safe working conditions. Most of all, often in really difficult times with high levels of absence, they kept going, producing more food for consumers all around the world. They absolutely played their part. Retail demand increased, in our case, more than food service declined. That's just the nature of the mix of our businesses. Twinings Ovaltine, their profit growth, now many years standing, continued. Mazola and home baking increases drove a very good performance in ACH. Both those were largely COVID inspired. Silver Spoon and World Foods, likewise, they ended up well ahead of last year. The improvement in George Weston Foods, which is probably now five years in place, continued. Tip Top sales were good and more than offset COVID related declines in this case in our meat business, Don, which supplies a lot of meat into food service in Australia. Twinings Ovaltine, just spending a little bit more time on it. Strong profit and margin improvement. We benefited from the completion of the supply chain changes of the previous two years. We saw significant supply chain savings. Black tea, herbal teas, both drove growth around the world. We launched a new range of infusions, top right, in the U.S., U.K., and France. They have traded well. We saw increased home consumption in tea in many of our markets. In some of our markets, tea is a more out of home occasion, and there we saw sales decline. In particular, though, Ovaltine saw weaker impulse sales in both Thailand and Vietnam, which are both big markets for us. So Ovaltine had a rough time in out of home consumption in Thailand. We've seen successful new product launches, though, in Switzerland and Brazil and outside Thailand the sales growth of Ovaltine has continued well this year. Moving across our grocery portfolio into North America, we sold out of every bottle of Mazola we could produce. Demand is still high. We saw extraordinary increases in demand for bakery ingredients. We think the underlying demand for home baking yeast probably went up 500%, and we managed to supply 243% sales increase, which was pretty good going. Finally, in the U.S., a small acquisition we made the previous year, Anthony's Goods, performed well, not only in supplying increased levels of demand on the West Coast of the United States, but also keeping its operations going in lockdown. They did a very good job. As I mentioned before, George Weston Foods, good sales of Tip Top bread, good sales of anything for breakfast. Australians were all locked down, having breakfast at lunch at home. As they went into lockdown, they bought large tubs of Yumi's dips, and they were also introduced to new ranges of veggie bites and vegetarian burgers, and took to them enthusiastically, too. We are very excited about the prospects for Yumi's. As I mentioned before, Don was impacted by the decline in food service particularly. We supply all the bacon for McDonald's in Australia. AB World Foods had a record year by some way. Demand at its peak for Patak's sauces went up by 45% with all the curry houses and Chinese restaurants shut in the U.K. People tried to recreate, very successfully I am sure, Indian and Chinese food at home, and they bought into Patak's and Blue Dragon as well. We sold out again of all the capacity for all the products we made, including poppadoms and naan bread. Patak's and Blue Dragon growth internationally was good. Held back by capacity constraints, which we will address in years to come, but the internationalization of that business is progressing really well. We bought a lovely but small business, Al'Fez, which is the leading brand of North African and Middle Eastern cuisine in Britain. We will roll production of it into our supply chain and give it sales reach in the U.K. and outside. We are excited also by Al'Fez. Acetum, our balsamic vinegar business in Italy, seeing sales and profit growth from the very start of lockdown in northern Italy, in a factory where we lost one of our people to the disease, was really a remarkable display of organization and commitment by many people. Sales and profits grew at Acetum, and we are particularly pleased to see the growth in sales of the Mazzetti brand of balsamic vinegar in a number of markets where we have launched it. The internationalization of the Mazzetti brand sits behind the business case for the purchase of Acetum, and it is going well. In the U.K., as John said, we stopped supply of a major private label contract during the year. We also took the decision to end the very unprofitable Co-op contract, and we will take the costs that are associated with that out in the next year, as we took the costs associated with the first contract out in the year just gone. We saw 13% sales increase of bread through COVID and the operating result as a consequence of getting these costs out and also sales uplift. We saw profits improve. Westmill Foods is heavily exposed to Chinese and Indian restaurants. If you like, it is the flip side of AB World Foods in the U.K. It saw significantly reduced demand into those sectors. But where it supplied retail, noodles, rice in particular, sales were very strong. If you like, the star in terms of volume uplift across all our retail businesses has been Silver Spoon in the U.K., which supplies a very large amount of baking ingredients, both flour and sugar, other ingredients as well, like yeast, into U.K. consumers. Profits were well ahead. Mind you, if you couldn't make money this year out of bakery ingredients sold into home, you should take your bat and ball home and get into something else. We did our very best to supply all the demand that was in place, that was created by the new generation of home bakers. I think actually in the end, we did a pretty good job. If people are baking at home in the second lockdown, we have got rather more capacity than we did back in April and May. We hope that some of the new generation of home bakers will realize what a wonderful activity it is and stay with it when the world returns to normal. Moving from grocery then across to our sugar businesses, we've had another year of good delivery of cost savings. As much as ever before, we have visibility in the next couple of years of where the cost savings are going to come from next, particularly Africa and the U.K. And those cost savings, which now the productivity improvement program that goes back many years now has transformed the competitiveness and profitability of our sugar portfolio. We expected, we saw higher prices in our European businesses. In the U.K., where we've had a number of 2-year, multi-year, pricing agreements with customers, this year, we will see those lower prices on the second half of 2-year agreements fall away and be replaced with higher prices. I expect to see further improvement in British Sugar this year. British Sugar has returned to profit very nicely. The returns we make from what before 2017 was really a bedrock of profit and cash generation at ABF, that's coming back and coming back well. Much improved performances in both Spain and China were also evident in the year, and John has flagged the improved crop in China. Illovo was disappointing. Market demand reduced in South Africa. The South Africans have been a little bit later into replacing sugar with artificial sweeteners in beverages. That's what's driven that market demand down. It's a shift that occurred 4 years ago in Europe. Let me say a little bit more about Illovo. The demand reduction in South Africa, we've responded by closing our mill in the south, in Natal, Umzimkulu, and there are good cost improvement programs in place in Illovo. Next year we'll see benefits from them coming through. All our other African markets continue to grow. Sugar consumption in all of them is very low. Our routes to markets are very good now. We are the brand leader in all these markets, and I think we've got years of growth ahead in these other important markets. This year, though, there has been an impact from COVID-19. It's made the movement of both people and goods much more difficult, and it's caused, in some places, difficulty in operating complex machinery without the technicians that we need to get kicked up and running again. It's also caused big restrictions queues at the borders. We have significant regional sales, which will be more difficult to execute this year. On top of all that, we had a particularly early onset of the rainy season, in Tanzania in particular, which is a good market for us, and we lost production at the back end of the campaign. Turning then back to Europe, and here is the Commission published prices. This is the price of sugar that the EU thinks pertains across Europe. You can see in the right-hand side, the increase in prices from the low point back in October 2019. October 2017 was when deregulation occurred. We are coming back into something approaching stability in Europe, if we are not already there, and pricing is better as a consequence of it. Agriculture next. Feed enzymes strongly ahead in the year. Our feed enzymes go into a quarter of the chickens produced on the planet. It was really important in terms of the resilience of the supply chain that our factory in Finland, in Rajamäki, was able to supply increased demand, often for safety stock. It did and the highly trained plant operators at that enzyme factory are all kept well throughout the first wave of COVID-19, and it is important that we keep them safe and disease-free in the second half. U.K. feed sales were very robust. We supply feed. We feed anything up to 40% of the chickens and pigs in this country, and again, there was no interruption in supply from any of our factories at any point during lockdown, and that was incredibly important for the food supply chain in the U.K. But food service is a big driver of demand for poultry. With the closure of food service, the demand for poultry has reduced, and therefore our overall feed sales in the U.K. are down as well. Internationally, feed businesses have been good. Frontier, which is actually a big business in the arable sector of the U.K., suffered from the horrible weather that characterized last financial year. If I move then onto our ingredients businesses, as I say, this is a part of ABF which has been growing very significantly and strongly for a number of years now, and this last year was no exception. It was driven by AB Mauri in particular, where we saw very strong trading in China and in the Americas, particularly around supply of yeast into home bakers. We displayed great agility in China and the Americas in increasing our capacity to supply the home consumers of yeast. We did a tremendous job. There was also an important shift, significant shift during lockdown from craft bakers and food service into the industrial bakery sector. We have a strong presence, a stronger presence, particularly in the Americas, in the industrial bakery sector than perhaps in craft. We benefited from that shift to industrial bakery sector. We invested now about 18 months ago in a plant to make non-dairy whipped topping in Brazil. It is basically a cream substitute that doesn't go off in a hot climate, and that business has boomed since that investment. Last but not least, we completed, actually just the beginning of this financial year, the important joint venture with Wilmar, for bakery ingredients in China. The performance in China, not least because that agility in the supply of home-baked yeast, had a very good year even before the joint venture. The technical side of our ingredients portfolio, so the most science and technology-based part of our entire food portfolio, ABF Ingredients, had a more mixed performance. Strong enzyme sales, both in feed and food applications, excellent progress in yeast extracts, in a factory in Hamburg, a company called Ohly. It makes specialty ingredients increasingly for the meat-free sector, and there is good growth, I believe, to be had for Ohly from meat-free. We have a nice business in California which supplies protein crisps for the bars market. The bars market in California has collapsed, and with it, the demand for protein crisps at PGP International had a very tough time. Abitec saw increased competition in one of its contracts and had to give up margin because of that. This has been a year where we have invested both capital and also revenue in improving our research and development capability, not least in the purchase of a business in Sweden called Larodan, which has great expertise in lipids. It makes research-grade lipids, and it will give ABITEC, which is our lipids producer in the States, a significant new R&D capability. Let me just pause there before I move on to Primark and have a glass of water. Right. I will start on Primark with just giving you the latest information on the trading restrictions that we face. Here they are. At the moment, 19% of our selling space is shut. When England closes down on Thursday, that number will go up to 57%. Wales will reopen on Monday, we expect, but only 8 stores there. So significant closures that take us through current information to the beginning of December, other than in Belgium, where closures will run through to the middle of December. Obviously, not great news. We expect to lose GBP 375 million of sales through this period. Before the closure in Ireland and week to date in England, we have seen very strong sales periods. We would expect to see strong sales when we reopen in December, should we be allowed to do so. I think it would be enormously helpful for our consumers, for ourselves, if we were allowed to extend our trading hours from reopening in December in the run-up to Christmas. On top of the actual store closures, we also see at the moment trading hours restrictions in Portugal, Spain, Netherlands, Italy and Belgium. We have seen this movie before. We have operational plans to manage the operational consequences of the closures. We will honor all the orders that we have in place with suppliers. Most of those orders, which are currently unpaid for, relate to stock that will be for the spring, summer 2021, and therefore is all very relevant to our future. We will take whatever steps we can, and again, we have experience of doing this, to reduce operating costs everywhere for the period of our closure. Just to show you the closures again and the square footages of the top half of this chart, the stores which are closed and then the open stores below. Just to put that in a graph, on slide 38, on the left-hand side is what we saw in terms of footage available to customers through April and May, and then the reopening, and at the moment, what we are looking into with the closure of the English stores on Thursday. So we are some way off either the length or the depth of the closures we saw back in March, April. Without doubt, there will be a significant hit to sales. There are differences to last time. Some stores are trading, that makes a difference, and the duration at the moment is shorter. Then, of course, we do have the experience from last time in the supply chain. We know where all the inventory is. We have got experience of applying for furlough schemes if we decide to do that this time around. The operations of the stores, both in closing and also then in reopening, are well understood. We had to plan extensively how we were going to reopen the stores safely last time around. We do not have to do that this time around. As John has shown you earlier, we have an even more robust pile of cash to draw down on than we did last time around. That is what I have to say about the situation we are currently faced into. Let me go more broadly then into the performance, I think, of Primark through the year as a whole. The first half was encouraging. It was particularly encouraging in Northern Europe, where we have had undeniable problems in years gone by. It did feel as if we were making very good progress there. GBP 650 million is the number we reckoned that we did not. The profit number, profit cost of the first closures of the business back in April and May. We think we would have made more than GBP 1 billion in Primark this year, and obviously, we made rather less. The sales when we reopened have been very encouraging. GBP 2 billion of sales since we got stores up and trading again. I think that has demonstrated the relevance and the appeal of the business. 52% of U.K. shoppers say that they are still nervous of going back to the high street, and yet our like for likes in Britain, outside those four stores in Oxford Street, Birmingham, and Manchester, were 95% of the prior year. We have lost no clothing market share comparing when we were open to the period before COVID. So although shopping online for clothing has increased, we have the same market share across all other ways people have of buying clothes. Fully half of our core consumers bought nothing during lockdown. They waited until we reopened, and then they came flooding back to our stores. So we think that the relevance, the appeal of Primark has been more clearly demonstrated through COVID than ever before. I think what we have also. We knew we had good shop leadership. We knew we had good supply chain capabilities. Those two areas have been absolutely magnificent through this period. They have been incredibly tested and have stood up to whatever COVID has thrown at them. It is an outstanding set of capabilities in the business. When we reopened, we did so in our communications and our actions in stores on creating a safe environment for our customers and our employees. I think we surprised a lot of people who might have remembered Primark stores for being a bit of a scrum in just how orderly and carefully controlled our stores have been. U.K., as I have mentioned, all channel market share in line with pre-COVID levels. The other things since reopening, I think we have begun to display the acceleration of our sustainability agenda. We opened 12 new stores, including our first store in Poland, and we end the year with 384 stores. We have opened, I think, three since then. We are now at 387. Let me just show you a couple of pictures. This is of reopening. I think that across all our markets, we looked like we had put the most thought of any retailer into the post-COVID world in terms of signage, in terms of protection bottom right for our till operators and people queuing up for them, and also in terms of managing the flow of people through our stores. That top right is about 6:00 A.M., the morning of the reopening of our Mary Street store in Dublin. Next slide, the press response to our opening in England. Let us go on to the next slide then. I think I have gone through this. I want to bring out that U.S. point, excluding the big store in Boston, which is one of these city center destinations where we are seeing lower sales everywhere. If you take that out, stores post reopening in the States are like for likes are in line with pre-COVID times. We are trading better in the U.S. underlying than in any of our other markets. To have these high like-for-like levels with 52% of the population is nervous about going shopping, I think gives you a strong indication of the appeal and relevance of the business. New stores in the year, we opened 12 new stores. This is Trafford Centre in Manchester. All of them are trading well. Next slide. Four new stores in France. We had 1,000 people queuing up on the day of opening in Paris Plaisir, which I think is a shopping center to the west of town. We have seen no cannibalization in our other six stores around Paris. Italy, second store in Milan, trading really well. Poland, good. Spain, good. The store to the right is the lovely location store on the Ramblas in Barcelona, which has no tourists in it. We have been waiting to get onto the Ramblas for all 12 years we have been trading in Spain, and we opened this in the midst of COVID. It will be a great store for us. Go on, please. This is Plaisir in France. The French market is an increasingly important one, and we see some of our highest sales densities anywhere in France. Next, Central and Eastern Europe. The right-hand side is a very well-ordered queue on the day of opening of our first Primark store in Poland. It will be a good market for us. The brand is well-known, and that store is trading even in this COVID environment at above our budgeted levels. We will open a store this financial year, our first store in the Czech Republic. Eastern Europe is looking like a very relevant, good, strong market for us. Let me spend a little bit of time talking to you about the United States. This is Sawgrass Mills, the busiest shopping center in Florida that usually sees 25 million South Americans visiting it every year to buy clothes. Not so many this year. But we had a queue of 300 people on opening day in the States, which is semi at least lockdown and where the brand is not known. A very encouraging start in Sawgrass Mills. I suspect this store in time will prove to be too small. It is 135,000 sq ft stores that we now see as our ideal size. Let me show you why by giving you the example of Danbury, Connecticut, where we reduced the size in May 2018 from 54 to 34,000 sq ft. You can see the sales density. I draw your attention to the last three lines. The sales did not move. We lost no sales, as a consequence of which the sales densities went up to a very adequate level, and the store on a store basis went from making a small loss to a good profit. We have a proven profitable store model in the U.S. Since we reopened, trading has been as strong as any of our markets. The stores that we have open now pay for all the overhead, so the business as a whole is at break-even. There is still two-thirds of our original warehouse available for expansion. Those two new stores since year-end, Sawgrass Mills and American Dream, both of them trading well. We have two new stores confirmed for 2021, one in Chicago in a good retail street in that city, and then another store in the autumn in Philadelphia. When Chicago opens, we will have a store in the Midwest. We will have the stores in the Northeast, and we will have a store in Florida. We are accelerating based on that profitable store model I showed you with the illustration of Danbury. We are accelerating the building of the new store pipeline. If America is important to our future, so is sustainability. Sustainability, we firmly believe, should not come with a higher price tag. We are going to get all the single-use plastic out of Primark. We have already removed 175 million units of plastic hangers and packaging. 86 million labels and stickers have gone, and a further 300 million labels and stickers will go this year. We have the largest Sustainable cotton program of any clothing retailer on the planet. We will have trained 160,000 cotton farmers by 2022. This autumn, there are 60 million units of clothing and other items like towels and sheets made out of cotton that our cotton farmers who we have trained have produced for us, 60 million. This is not niche. We have more than doubled the products in store made from recyclable plastic, nylon, and cotton. 40 million items in store this year are made from recycled plastic, essentially. Last but not least, and this is very important, I think, part of getting the whole of the U.K. clothing industry to a much more sustainable place. We have launched the recycling scheme in store. Any clothing that you bought from anywhere, if you deposit it here in a Primark store, we will get it back into the reuse and recycling world. As a pickup point for clothing, we think that this is a great asset in the supply chain. Profits from the scheme and recycled clothing does have a value. Profits from that will go to UNICEF. No Primark presentation would be complete without showing you some of the top sellers. Not surprisingly, it is all heavily COVID affected. Loungewear, so zip-through hoodies, sweatpants, and then phenomenal performance on pajamas in all our markets have characterized the period since reopening. False nails, eyelashes have sold extremely well. In particular, lipstick not so much. Not much point in having lipstick smudging underneath your face mask. Those face masks, we are selling in large quantities as well. GBP 2.50 for two. Licensed product we've mentioned before. We've increased the number of licenses that we're offering in store. Particularly, we're getting into gaming and then some of the Netflix franchises so licensing continues to grow. If we are allowed to open for Christmas, and I suspect we will be at least in many places, then we have a great range of Christmas gifts and Christmas cheeriness available at very good prices to everyone. As I say, please, authorities, let us trade more hours in the run-up to Christmas, and we can give thousands more families a better Christmas than they might otherwise have. Again, just going back to the point about the resonance of the brand. The number of social media followers is up 10% year-on-year. The bigger point is that through lockdown, we didn't lose our communications, our contact online with our consumers. 22 million followers without a transactional website is a phenomenal testament to the relevance of Primark in the lives of our shoppers. Let me summarize then and go back to the beginning. The food business is very strong profit increase through the year. Outstanding performance in so many different ways in our grocery businesses. AB Sugar, exactly where we hoped it would be with a rebound from the consequences of reform in 2017, and more to come. Ingredients and agriculture ahead as well. Primark, good first half progress and then, I think, astonishingly good performance both operationally and in terms of sales as well since reopening. A year of very strong cash generation, which has left us well-placed for the perils of the next, I hope, only a few months. In terms of outlook, clearly there is significant impact of increasing government restrictions on Primark. We don't know how long things will last. We don't know where they will be. We don't know whether this will be a one-off closure or whether there'll be more to come before we've got COVID behind us. I've got to here without mentioning Brexit, but that is coming up on the rails fast. We have had plenty of time to make good contingency plans for the disruption that I think will inevitably occur, either with a deal or worse, without. We are lucky, and it is more luck than judgment, that our businesses don't move many products across the English Channel, so a disruption for us will be a small deal. It'll still have some effect, but not as much as it will for others. Financially, we have as many parts of the group that will win from a no-deal Brexit as will lose. Grocery continued substantial profit in the year ahead. Further profit growth, I think in sugar, both in Europe and in Illovo. Primark, we've got to look through this period of closure to the excitement of selling space expansion and particularly the acceleration in the U.S. But also in these exciting new markets in Eastern Europe. Based on what we currently see, have access to, we fully expect Primark's profits to be ahead in the year we're now in. We have the people, we have the cash resources in abundance to meet the challenges ahead. I think it's absolutely right that we're investing in the future, not only in Primark, but also in the food businesses. Thank you very much for that, for listening to me, and let me hand over to you for questions, and John will come back on the line. As a reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad. You will be advised when to ask your question. We will take the first question from Clive Black from Shore Capital Markets. Please go ahead. Good morning, gentlemen, and thank you for your presentation, and sorry for your losses in the business. A couple of questions from me, please. Firstly, could you give an indication of the CapEx for the current year, 2021 year? And maybe also your expectation for where ABF goes from a geographical perspective over the next two or three years. Secondly, could you make some comments about within the retail business your experiences on lease costs and how you anticipate those to evolve on property costs, not just in the U.K., but more broadly on an international level for Primark, please. Thank you very much. Thank you. John, do you want to handle the expected CapEx this year? Yeah. Hi, Clive. I think CapEx for the coming year, assuming we can get into it, maybe about GBP 700 million. So you can see an increase from where we were. We asked the food companies to cut back on CapEx where they could. That was back in March. We probably took about GBP 50 million of spend out of the year just gone, which will go back largely into this year. As we go into this series of shutdowns, we have not asked the food companies to delay CapEx at this stage. Geographical expansion, I think the most relevant geographical expansions are Primark Eastern Europe and in the U.S. We think that from the depot in Bethlehem we can access everywhere east of the Mississippi, and we will be looking at opportunities anywhere in that region. Probably Twinings, Ovaltine won't be expanding into new geographies, but it will be deepening penetration into those markets. China, for both Twinings and Ovaltine brands, is building quite nicely. Brazil, likewise. World Foods has set up its own distribution and selling capability and marketing capability in the U.S., where we think Indian cuisine, in particular, has growing relevance, as indeed it has in the southern part of Europe. We're seeing good sales growth for Patak's across the more southerly parts of Europe. What have I missed? Increase in selling capability for our specialty ingredients businesses into the Far East has been a characteristic of the last couple of years, and we've got more to add there. Then actually selling capability to some of our European produced ingredients in the U.S., I think is something that we want to get on with there. Let me stop with those ones. So a fair amount of internationalization still to come, but not necessarily in new geographies apart from Primark. On leases? Yes. Oh, yeah, sorry. On lease costs. Look, I've said about this, I think there's no doubt that the lease costs of the high street's been repriced. It was repriced before we got into COVID-19, it's repriced now. So I think as we look forward, then the leases that I think retailers and certainly ourselves are prepared to sign up to will be at much lower rents than those that have prevailed in the past. Actually, I think we'll be more flexible. So in terms of break clauses and so forth in it. I think everybody on the call is aware the length of our existing leases is somewhat longer because of the maturity of Primark maybe compared to certain other retailers. But nevertheless, we have some tens of stores that have break clauses or renegotiations coming up in the coming year. I think as a long-term outlook, occupancy costs for us will go down, and that will be a reflection of that. That is not about renegotiation of existing lease terms, but I think that is the way it will go. Then just a final question, if I may. Not particularly original one, but George, in your comments on Primark, there was no real addressing of the thorny issue of online retailing. I just wonder, particularly with another lockdown, around whether click and collect is going up the agenda for the Primark management. Thank you. Whether we end up doing click and collect or not will not be a response to COVID. We could not do it properly. It is not something a business of the scale of Primark can snatch at. I think quite frankly, we demonstrated last year that when we are open, we trade very, very well and we trade our way out of the consequences of our stores closed. If we do ever get into click and collect, it will be because it is additive to our business, not because it is trying to protect us from something that we are not Sorry. It will not be to address a weakness. I think, just to repeat a theme of mine today, I think COVID has demonstrated to us all just how strong Primark is. If we do click and collect in the future, it will be to make the business even stronger. Thank you very much and all the best for the future, guys. Thanks very much. Thanks, Todd. The next question comes from the line of Warren Ackerman from Barclays. Please go ahead. Good morning, George, John. It's Warren here at Barclays. I've got two main questions and one's for housekeeping. The first main question is around lockdown 2, the GBP 375 million revenue impact. I know there's lots of moving parts around the EBIT, John. You talked about 50% operating cost reduction last time. Just interested if you can maybe give us a bit of sense of how you're thinking around all the different moving parts on what impact that could have on the EBIT next year. What monthly profit cash sensitivity should we think about if U.K. lockdown were to continue beyond early December? The second one is more back to market share on Primark. John, maybe George, could you talk a little bit about the detail on market share? What are your market shares like offline versus online? Where are you taking that share? I saw some data showing that your offline shares are up 50%. Is that ballpark right? I would be interested in any color you can share around share. Just a housekeeping, I want to squeeze it in quickly, two, around that central costs are much lower. Why was that, John? Then working capital reversal in the first half, how much should we think about? Thanks. I think if you- I will talk through it too sometimes. Yeah, let me sketch out an answer and then let John fill in the details. If you looked at the cash outflow and profit impact of lockdown one, you could probably give yourself a pretty good answer to what the lockdown two, should it go on for several months, what it might look like. The share offline, yeah, we have seen those increases in market share in the offline trade too. I cannot believe they reflect a future where everyone is comfortable going back down to the high street. We have a younger demographic in our stores, and that younger demographic is more willing, I think, to go down to stores than older folks. So I have no doubt that some other brands will build back some of their market share in the future. I think probably the most encouraging market share information is really against all comers. We had 3 months where you could only buy clothes either in a supermarket or online, and we came out of that having not lost market share. That, for me, is the bigger testament to the strength of the brand. Let me at that point hand over to John for more detail. Yes. Okay. Thanks, George. The first thing about the GBP 375 million is obviously that is for sales that we would lose. By the way, that is just simply taking what we have forecast for those stores for the periods of which have been announced. I think the approach you take to taking cost out depends on the time period that the stores are likely to be closed for. Not that I am trying to dodge the question, I just really want to show that we will look at this quite, if I can describe it as flexibly looking forward. Look, there will be some costs that will fall away because they are variable costs that relate to the actual stores. There are then various other costs that then go to occupancy and to employee costs. If the period is literally for 1 month, then I do not think we will get a reduction of 50% that we saw for the much longer period. What I would urge you to do is roughly take a 75% fall through or a 25% reduction in the operating cost for this period. Clearly, if the timeframe changes, then I think we look at that again. You asked about cash. I have got to say, I have learned quite a lot about cash flow over the last few months. Not least, the timing of it. Warren, I think what you would see is of the GBP 375 million, let us put it this way, you do not have sales of GBP 375 million. Your first cut would be your cash goes down by GBP 375 million. Yeah. But I do not think that would be the case. I think the immediate effect would probably be a cash reduction of, let us say some GBP 300 million, but quite a bit of, at least half of that or whatever, would come back in many months later. Because basically, remember the continuity stock that is not sold, we then do not need to order that continuity stock as earlier, at the same time as we did before. Probably it's the immediate cash outflow that you would see, and then, you would probably get a good half of that, at least back, probably maybe three, four months down the road. Just coming on to a couple other cash flow elements. Yes, you rightly picked up on the working capital position at the end of the year. Let me give you a number, maybe GBP 200 million coming back, as we pay for orders for autumn, winter. That's literally, we are paying them on time, but the handover was later than is normally the case. So that gives you a feel that we've obviously got the cash reserves to be able to do this, but it's that immediate effect and then seeing some of it come back. Sorry, just adding a minor point to that. We had assumed that stock levels in our food businesses would recover in the first half of this year. I think it's now likely they won't. I would say yes. So there won't be cash going out for inventory building. Of course. And that central cost. That's probably GBP 100 million. Okay. You're right to pick up on central costs. Look, not to a too fine point on Warren. You look at all of the costs that go with people traveling, and you're looking at various elements, a lot of those variable costs really have gone out of the business. I would see some of that coming back. It's not a new low level. I think as a lot of the normal activity would come back, you'd get some of it. If I were penciling in a number for this new financial year, I'd go back to the number of last year. Okay. Okay, very useful. Thank you, guys. Thanks, Warren. The next question comes from the line of Simon Irwin from Credit Suisse. Please go ahead. Hi, gentlemen. A few questions for you. Just firstly, on Primark, can you just talk a little bit more about what you've done to the model in Eastern Europe for the Poland opening, particularly in terms of how you've priced and ranged it? What differences you've made, say, compared with say Germany or whatever, in order to be competitive in that market. Secondly, on Primark, can you just talk a little bit about input costs for the current year, in terms of what you're seeing in terms of FX and buying terms? Then just, finally on Sugar, are there any issues around the current year crop, for British Sugar? How confident are you in Illovo rebounding? Let's Poland first. Okay, Poland. In Poland, we have priced as we price everywhere, which is on the basis that we will be the lowest priced player on everything. That's what we've done. The ranges, typically we put in the range to begin with that we sort of best expect to sell, and then we adapt it very quickly. We expect that Poland will be maybe quite like Germany in having a higher participation of what John referred to as continuity items. So non-fashion, I think, will be probably a bigger share of the market. But children's wear we expect to do well in Poland, too. Input costs for the year. Cotton is well under control. Artificial fabrics are well down. Air freight is violently up, but we use very little of it. Labor costs in our supplier markets are similarly pretty unremarkable, so very little inflation there. George, if I could just come in there. Yes. So actually, we have seen a good bit of deflation in a number of the raw materials coming through. So from cotton to a lot of the polyesters and so forth. Then the other thing, of course, is that the current exchange rate, who knows where it will go as a result of other elections today or Brexit at the end of the year. But should it stay at this rate, then that is a favorable exchange rate. So I think not only I think is the dollar buying price better, but then the exchange rate will go for us. So I think that is a bit of a tailwind there. On early estimates, and early estimates can be misleading, we expect the U.K. sugar crop to be down maybe 15% on field yield. The early estimates are unreliable because you tend to harvest your worst beet first. But that's what we're seeing, sort of 15%-25% loss of yield in the early beet coming into the factory. The acreage is up a bit, but we expect to see the overall production of sugar in the U.K. down maybe by about 100,000 tons. It could be over 1 million, but we don't know if it'll be over by much. The same situation is apparent across Northern Europe. In Spain, I think we're fine. We don't have the same damage to our crops that we have in Northern Europe. Thank you. Illovo rebound. Illovo has actually started the year reasonably well. These are important months for them because they are in the middle of harvest. We have a good degree of confidence of the cost savings getting embedded. We have increasingly good sight of pricing actions we need to take in highly inflationary environments like Zambia. I think we are feeling more solid about Illovo this year than we were this time last year. Brilliant. That is very complete. Thank you. Okay. Thanks, Simon. The next question comes from the line of Georgina Johanan from J.P. Morgan. Please go ahead. Hi. Thanks for taking my questions. Hi. I've got three if possible, please. The first one is a follow-up, really. I think you touched on this, John, just in terms of the orders that you placed for autumn/winter stock, I think you said one and a quarter billion or so. What do you think your ability is to carry that over into next year, perhaps including some comments around the seasonal element of the product rather than the continuity product, just if you were to end up being closed for longer than anticipated? That's my first one, please. Second question was just if you could make any comments on pricing in the U.K. and elsewhere, just very anecdotally. It looks like some of your prices are sort of nudged higher year-on-year, but perhaps that's unfair. Then third was just a clarification question. John, you said about expecting 25% OpEx reduction in closed weeks. Just to clarify, were you talking about a 25% OpEx reduction for the space that's closed, or were you talking about 25% overall, given the amount of space that is closed? Thank you. Okay. Let's take the last one first because it's easy. No, I was talking about 25% of the OpEx of stores that are closed. Rather than the whole estate. I've got to say, Georgie, that coming into this year, the guys at Primark have been very forensic and very careful on cost. I would have to say that not all of the cost that we had previously has actually come back anyway. But the 25% relates to those stores that are closed. I think if we do that one. So we're doing them in reverse order. Pricing in the U.K., we haven't increased a like-for-like price in nine years, like-for-like garments. No, our prices have not been nudged higher. What you will be seeing, though, is higher quality, particularly in women's fashion ranges that we might not have carried before that have more fashionability and perhaps more material cost in them. We think that we have permission from our customers to carry more, what I would cautiously call more upmarket product, and you may well be seeing some of that. I hope that your view of women's fashion in particular is that it's more interesting this year than it may have been for a while. George, can I just come in? Yeah. Just only with a small point. I don't know what data or how you got the feel, Georgie. Maybe one small element of that may be, I think we genuinely have had, depending on which trading period you're looking at, a lower level of markdown. So maybe if you're looking at net selling prices net of that may be something that's there. But generally, sticker prices, if anything, have gone down rather than up. We know that. And then George is right. The ASP certainly, in terms of the ranges, has gone there. But like-for-like items, absolutely not. The average selling price is up just a little bit, but it's on mix. A mix. It is mix. What can we do with stock that we've got in the warehouses and the shops now if we're locked down? Well, it depends how long the lockdown goes for. We have some spring/summer, as John has said, in warehouses ready for next summer. It's only product which is either spring/summer continuity or ranges which consumers haven't seen before, so won't be fashion damaged. We would very much attempt to maintain those same Same operating principles. If the consumer has seen it, we don't want to show it to them again in a year's time. But if they haven't or if it is acceptably the same product because it's continuity, then we can put it away. How much that will be, we just don't know. As I say, we would love to have as many hours as we can to trade through, particularly the Christmas ranges, in December when we're allowed to reopen in these markets. That's very helpful. Thank you. Just as a follow-up on that point then, I suppose with the orders having been placed for autumn winter, Yeah if the closures are to continue, given that the selling season for autumn winter is, I guess, traditionally shorter than summer, Yeah should we be putting a bit of extra markdown into our models as we go into the new calendar year? Would that be a sensible assumption? Look, we are. The U.K. closure in particular, which is the big one, is so new that we're still doing the work of working out precisely what we've got, where it is, what we think we'll sell of it in December, and what actions we might take on markdown. But it's simply too early. Even if these dates are the ones that come to pass, to give you a steer on it, in a couple of days' time, we'll be better placed. But right now, quite frankly, we don't know. That makes a lot of sense. Thank you very much. Great. The next question comes from the line of David Holmes from Bank of America. Please go ahead. Hi, guys. Thanks for taking the questions. Just a couple on margins. Firstly, I think you've highlighted the top-line impact of the destination city center stores. What kind of drag have these been on Primark's margins during the year? Secondly, John, you mentioned that Primark had been high single digit margins since reopening. Should we expect, and are you hoping to progress on that level in FY 2021? Just on margins within the food businesses, I think you delivered good progress this year. What are the moving parts as we move into 2021 on the food margins? Let's just touch on the Primark margins, first of all. I really wanted to make that comment, and you probably heard the deliberation in my voice when I was saying it. I wanted to make the point that at 85% of pre-COVID level sales with the existing structure, we are delivering a high digit margin for that last quarter. As you look into 2021, assuming no change in the. Let's put lockdowns to one side, David. Let's just say the stores are open. We are confident of the. As long as our stores are open, we're trading well. Let's just take those like for likes from the end of last year. If you apply them to this year, then absolutely we would expect a margin in the high single digit. I think we've made it clear that those like-for-likes actually reflect spend, overall spend in all channels in the category. We know that it's very event-driven and there are certain things that people are not buying at the moment. If you then subscribe to that there will be some normalization in that spend, as we can do as a society more things, then you would expect that spend to go up. I'm not saying it goes back to 100 where it was before, but there are certain things that we know that people are not buying at the moment. Then we would expect our sales to go up and our margin would go up with it. That's the sort of, if you like, the key driver to that. I would then also say that, yeah, the Primark team are very focused on cost and would look at that. Does that give you a help of how we're looking at it, David? Yeah, that's useful, John. I guess just linked to that, I think would be helpful to understand how important those large destination stores are to, I guess, the margin build up at Primark. Well, I think that like-for-like decline is coming out of two things. It's coming out of the large stores, and I think the numbers in the U.K. give you an idea. I think you can probably work out what the sales in the large stores have declined by. I think you would have to assume that through next year, with the lack of tourism that's likely to pertain, those big store sales won't increase all that much. Secondly, sales losses are coming out of what John has said, these events. We didn't buy into Halloween at all. Christmas jumpers, we bought very few of them. Party gear for Christmas, we bought very little of it, and so forth. That's the other place for the sales loss. Probably it's not far kind of equal sales coming out of one and the other? Yeah. David, I must admit, I'm not trying to avoid it, I just don't think I have in my head the effect of, let's say, the 16 stores and the effect of the overall on margin. The thing I would say, though, is that it's also the stores that we've got in retail parks, the sales are well ahead of last year. Right. So there is the benefits on margin from those. Some number of tens of basis points is probably where I would go, but that's from the top of my head at the moment. No worries. Thanks. That's really helpful. Then food margin- Yeah to some extent, it depends on how quickly food service opens up again and how big a recessionary impact there is on businesses like Twinings, which is a high margin business, and being so, may suffer more in a recession than some other food businesses. The higher volumes do drive margins, and the still reasonably subdued level of promotional activity drives margins too, in grocery. So I think, well, who knows? Yeah. Because we don't have answers to either of those questions. But you'd have to assume that the Twinings margin of sales level, and therefore there is a mix effect on margin of Twinings original sales growth declining and then volumes at some point in the year will return to something more like normal. But when that is, we don't know. Yes. It's not many weeks ago that we were assuming that food service would be back in time for Christmas. Well, that's clearly not happening. But I think just on grocery overall, George has laid it out. The fourth quarter surprised us with the higher levels of retail volumes than we had otherwise thought. So for our businesses, that's going through into this year. But still lower levels of food service. I think you can hear our caution. Look, I would say a small margin decline for the grocery segment as a whole and don't have any profit growth in there for this coming year is a placeholder for the moment. I say it's a placeholder because we'll see how it goes. But don't just add on another big profit increase on. That's my caution as we see how these trends work through. The Twinings supply chain changes had a nice effect on the margin of the entire grocery group, and that won't repeat. We don't have an equivalent project anywhere else in grocery. So I think it is all commercial mix this year, and I think that's going to get worse. Cool. Thanks a lot, guys. I appreciate I didn't have a question pool, but that's really useful. Yeah. No. When you get one, David, come and join us, will you? Yeah. Will do. I'm just thinking of time. So it's quarter to. Maybe if we can just have a couple. Yeah. Okay. Okay. We'll attempt to answer the next questions quicker so we can get more in. The next question comes from the line of Anne Critchlow from Société Générale. Please go ahead. Good morning. Thanks. Just one question from me, thank you. About Germany Primark. Could you talk a little bit about any underlying progress you are seeing? And also just remind us how many stores did you downsize last year, how many still to go? I think you said two this year. Is it a sort of Danbury type situation where you take them from loss to profit going down to, say, 35 square feet? Yes. So we have taken down three, and they have been successful. We have great new leadership in Germany. The operational disciplines are much better. The in-store disciplines are improving. We have a good suite of communications about the ranges. We are oversupplying sustainable and recycled materials into Germany. The German consumer, though, is even more cautious about coming down to the high street than the British one. So the post-COVID like for likes are lower in Germany than they are in the U.K. But I think fundamentally the business is getting stronger and that downsizing will continue. Thank you. The next question comes from the line of Anubhav Malhotra from Liberum. Please go ahead. Hi, guys. I have a couple of questions, should be straightforward. The first one is how has trading been impacted- We've done a lot of time. Yeah. How has trading been impacted in markets where you have seen restrictions on trading hours like Portugal, Spain, Italy? Secondly, have you seen any change in consumer perception of the brand, post your recent sustainability initiatives that you have taken? Have you made any studies to understand that? Thank you. Okay. I do beg your pardon. I think probably because of our line. Jess, could we ask the questioner if he could just give the whole question again, please? Sure. I think we only got the last part. Excuse me. Yes. We can hear you now. Please give your question again. Thank you. My first question was around trading in the market where you have seen restriction on trading hours, like Portugal, Spain, and how has trading been impacted? Have you been seeing any kind of queues formation because there are less hours for people to come in and shop? If that could have an impact as the winter comes in. Secondly, on your brand perception after the recent sustainability initiative that you have taken, have you made any studies to understand has there been a change in consumer perception? Thank you. Yes. Okay. On trading hours, as you rightly say, Spain and Portugal. Portugal has never allowed more than one person per 20 square meters since reopening, and that has had a marked impact on sales, where perhaps cost us 20% or 30% of our prior sales has been restriction on number of people we can have in stores. In Spain, the restrictions on trading hours are more recent, but essentially, we make a good proportion of our sales after 6:00 in the evening, and essentially, we've lost about half of those trading hours. We are beginning to see an impact. We're trying to disaggregate that from nervousness about coming to shopping centers at all. It's hard to do, but it certainly has an effect. In Italy, we're not allowed to trade three of our stores at the weekends at all, and that has marked effect. In Italy, we have queues. In Portugal, we've had queues right the way through, and in Spain increasingly now. It's why we think that having extended shopping hours, not fewer shopping hours, is a way of making shopping safer. We would think that's a really good idea. In terms of are we tracking the impact of the sustainability agendas, not really at this stage. We're pretty recently into the September campaign. We have lots of good anecdotes, but we don't have hard metrics. Thank you. Thank you. The next question comes from the line of Warwick Okines from Exane BNP Paribas. Please go ahead. Yeah, good morning, George and John. Good morning. Just a couple of questions, please. The first on cost savings. I am not clear on whether you are intending to use furlough in the U.K. for this latest lockdown. Maybe just your thoughts on that. Yes. Secondly, could you just give us an update on Primark's IT implementation? I know you continued that process all the way through. Okay last year, and I think you've launched some trials of go-live for Oracle. Where are you, and what are the next stages for that, please? Warwick, listen. On the first one, on furlough, the schemes, some of them have changed from the original job retention schemes that were in place back in March. We are looking at them. I'm trying to give you broad guidance, but we just need to look at length of time and so implications. It is literally we are looking at them, but I'm not confirming one way or another. All right? That's deliberate on our part, and I'm sure you can imagine that at this stage of where our operations are, that really is perfectly understandable. That's why when I talk about the 25%, I'm not really looking at too much coming through from that, and I'm looking at variable cost savings elsewhere. Does that really address that? Yes. We should assume the 25% doesn't assume- Do that regardless, and then we will look at these job retention schemes. It's fast-moving in terms of accessibility to them, as well as the availability of them, and whether we want to do it. Be very clear, from the original job retention schemes, we made claims from the middle of March, but we stopped in all European countries in the middle of June. It was a very, very finite period, because we felt that that was the responsible thing to do there. You can see that's what we're looking at. IT, so far, so good. We got through many of the hoops, but there are quite a lot left. That is on the big system change. There's a second one, which is a rollout of ePOS. That's going quite well. Great. Thank you. Thanks, Warwick. The next question comes from the line of Adam Cochrane from Citi. Please go ahead. Good morning, guys. A quick one similar to Warwick, really. When you said you discussed at length the dividend payment for this year but decided not to, how do you think about taking government funds for furlough and paying a dividend? How at the board level did you debate that and come to a conclusion, and does that impact taking the furlough scheme in the current financial year, given that you may want to pay a dividend? Look, I think the first priority is to give ourselves the most liquidity we can. We can make decisions about furlough repayments and dividends later on through this period. What we know is it would be irresponsible of us to lock ourselves into any big cash outflows when we don't know what the winter will bring for us. Okay. Secondly, on the retail park performance you're talking about, as you think about new store openings, you might not want to make any long-term decisions based on COVID, but do you think there's opportunities for more stores in retail parks or even smaller format stores on retail parks that's come about from the way consumers are shopping? Well, I think that would be to respond to what we're seeing during COVID. I think your comment about not making long-term commitments based on short-term consequences, but we would certainly apply. We will certainly keep an eye on shopping patterns once we're reopen. We'll watch it very closely to see what longer term shifts there are. In terms of smaller stores, the first market that we're opening smaller stores in is actually Spain, where we think there are a lot of markets where we could trade a 25,000 sq ft store quite successfully. Then, of course, the 35,000 sq ft format in the States. Yeah, there is more flexibility around size of store for market opportunity than there might have been a couple of years ago. Great. Thanks. Thanks, Alan. I think we've probably got just a couple of questions left, I think. Three. Yeah, we've got, I think, three questions. Let's take those. It's a longer time than we normally spend, but I think it's worth it given the circumstances. Next question, please. The next question comes from the line of Anisha Sharma from Bernstein. Please go ahead. Hi. Good morning. Thank you for taking my question so late in the game. I have two. I have one quick one on store openings. You've pushed out some 2020 store openings out into 2021, and I believe some of those are still pending. Is that correct? Will those now be continued to be deferred into Q2 and so on? How does that impact the total net openings for this fiscal year? My other question is on inventory. As you'll be continuing to take on inventory, what are your plans to handle the inventory? Are you going to continue to sort with suppliers and take possession of it later, or will you be renting additional warehouse space to store it? Where does that hit the P&L? Thank you. Thanks, Anisha. Good to hear you. In terms of openings, clearly some were delayed from the 2020 financial year. I think I am almost sure that all of those will be opening this financial year. The problem with the lockdowns is just whether it is access of people to the site to actually get the work done. Could we see maybe some further delays? Possibly, but it feels less so than we did first time around. The reason that when I first looked at the selling space being added in this new financial year, actually, I was pleasantly surprised because the thing that we did have is, as you can imagine for the pipeline, some disruption in terms of the contacts being made to add to that pipeline. I think we are in much better shape in terms of building that pipeline from here. I would be disappointed if too much of what was said to be open this year would get delayed from this year. Inventory? Inventory. Some and some. There is quite a lot of stock at any one point on a boat on their way to us. That we will pay for at the due date, and we will have to put it in a warehouse near the market where we eventually expect to sell it, be that the original capacity or new warehouse capacity we have to take on for the purpose. I think the extra warehouse capacity, the stock that arrived during the first lockdown probably cost us a couple of million GBP in short-term charges. I think most of the stock, which is for later delivery is spring-summer. I suspect, I hope, that the opening of our stores will allow us to trade that stock normally from when it arrives. We bought a fair amount of spring-summer already. We will be cautious, and we will therefore have fully available ranges in stores when spring-summer comes around. We are looking now at the back half of spring-summer and trying to work out how much stock we might need to place orders for the second half of spring-summer. That is a rapidly evolving story. At the moment, not much impact on our P&L of certainly stock that is currently ordered. I think all that will travel into the U.K. and into all our markets on a fairly normal timeline. There may be some continuity stock which we slow down. Okay. Thank you very much. Okay. Thanks, Anisha. The next question comes from the line of Richard Chamberlain from RBC. Please go ahead. Well, thank you. Morning, guys. I will just try and squeeze in a few questions at the end, if that is all right. Yeah, so first one is what was the working capital impact of lower food inventories at the year-end? That is my first one. Then the second one, I guess on sugar George, you may want to comment. Any sort of latest thoughts on how Brexit will impact the sugar business, do you think, going forward to sort of deal or- Yeah or no deal? Am I right that you took an asset impairment for the U.S. as well as Germany and presumably that is it for now, though, is it, in terms of impairments, we shouldn't expect any more in the coming year? The working capital is. The lower stock levels include something around GBP 50 million. Yeah, good. Okay, great. would be the number there. Sugar- Okay, thank you. If there's no deal, then French sugar will go up in price. But the agreement, the quota that is in place for Tate & Lyle, that the 263,000 tons will come into place. But sugar, I would expect, in the event of a long-lasting no deal, will improve. The prices will go up because of reduced competition from European sugar. Then Primark, in the event of no deal, then I think the situation now will be the situation in the future. Sorry, if there is a deal. Primark asset impairment is all about Downtown Crossing. Right. That's it. We can't see that we'll get the footfall through that store that we anticipated when we first opened it. So I think we have to be realistic about that first store. Yeah. Okay. Brilliant. Thanks very much. The next question comes from the line of Katie Hutchinson from Davy. Please go ahead. Hi. Good morning, gentlemen. Two questions from me. This is a more strategic question, but does COVID influence your broader capital allocation model going forward, perhaps more into the food business or into digital? Then just secondly, you might just give some color on how important the Christmas trading period is for sales in a normal year for Primark, and is that stock already in stores for the stores still open? Thank you. Go on, George, you can talk about strategic allocation. Capital allocation. Look, there are lots of uncertainties in food and in Primark. I think it's too early to be saying we should be investing more in this and less in that. We have to see COVID unwind and see what the longer-term consequences of it are. It is said, and I believe it, the trends that were in place before COVID, so the move towards sustainability in both food consumption and also clothing will accelerate. Perhaps the move towards meat-free diets will accelerate. I think we're pretty well-placed to take advantage of all those. So for example, increasing our ability to supply meat-free out of ingredients, that's something that's of interest to us. But early days, and it's based on old trends which we think will accelerate, not how the world has changed because of COVID. Christmas trading is the most intense period of trading in the calendar. The stock, if it is not in the stores, is certainly in the depots and with very little still to arrive. I think that is it. Okay. Fair. Thank you. Thank you very much. Okay. Listen. I think if we can take that as the last question. George, do you want to? No, other than thank you all for joining us in this sort of restricted way and hoping that you all manage to get a good Christmas of some sort. You keep safe, I think particularly over the next few days while we rush around in anticipation of being locked down. See you in person, I hope, at the half year. Very good. From me, thank you, everybody. Thanks. Bye-bye.

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