Earnings Call: H2 2019

Nov 5, 2019

Good morning. I forget that I actually need glasses to see stuff now. Thank you all for coming this morning to the review of the 52 weeks ended September 14, 2019. The financial highlights are these. Group revenues are up 2% to GBP 15.8 billion. Adjusted operating profit before tax, up also 2% to GBP 1,406 million. Adjusted EPS, also up 2%. Dividends, we are announcing we intend to raise by 3%. We invested a lot of money back in this business, GBP 837 million of gross investment, and we end the year, though, with net cash of GBP 936 million. The business highlights then are these. Really good growth in Grocery and Primark more than offset the sugar decline that we forecast a year ago. Within Grocery, Twinings Ovaltine showed a strong underlying growth, but we also got good profit growth from margin improvement in Australia, in ACH and in Acetum. AB Sugar, this was the year of low contracted European prices. Those prices have been rising recently. The efficiency improvements that we have talked so much about over the last few years continue. It was a more challenging year for Agricultural and Ingredients, and I will come back to that later on. Primark, a good profit increase. Strong trading in the U.K., Spain, France, Italy, and the U.S. As I indicate, the cash flow in the year was well ahead, too. With that, let me hand over to John for a more forensic look at the financial results. Great. Forensics, there we go. Thanks, George. Okay, good morning. Group revenue was GBP 15.8 billion, an increase of 2% on last year, and adjusted operating profit was GBP 1,421 million, up 1%. This increase in adjusted operating profit included a translation benefit of GBP 9 million. As sterling weakened a little during the year against the U.S. dollar, but actually was pretty consistent against the euro. A table of average and year-end exchange rates for our major currencies is included at the end of your slide pack. The contribution from acquisitions in the period was actually just GBP 4 million, and that was from Yumi's, the producer of premium chilled dips and snacks in Australia, which was purchased at the beginning of the financial year. The results include two exceptional charges, which total the GBP 79 million that you see here. Firstly, an impairment of the property plant and equipment at Allied Bakeries of GBP 65 million. As previously explained, this business is loss-making and in December 2018, notice of termination of our largest private label bread manufacturing contract was received from a major retailer. The impact of the loss in bread volume will be felt from this coming financial year. The carrying value of the assets in this business was no longer supported by our forecasts of its discounted future cash flows, and consequently, a non-cash impairment charge has been taken. George will come on to talk about our plans for further cost reductions in this new financial year, but the costs of which have been included in our outlook for adjusted operating profit for the coming year. Secondly, we took a charge of GBP 14 million in respect of guaranteed minimum pensions following a U.K. High Court ruling in October 2018. Our adjusted profit measure reflects the underlying performance of the businesses and excludes these exceptional items together with profits or losses on disposal of non-current assets, amortization of non-operating intangibles, amortization of acquired inventory fair value adjustments, and that's at ACH, and transaction costs. This period's unadjusted or statutory profit was GBP 1,282 million, 5% down on last year. The GBP 94 million loss on sale of closure of businesses this year mainly represents a non-cash impairment charge against our yeast and bakery ingredients assets in China as a consequence of our agreement signed in August to form a joint venture in China with Wilmar International. This recognizes the reconfiguration of our assets to deliver low-cost production in China. George will describe the commercial opportunities, which we believe to be considerable, for this joint venture later. Completion is subject to regulatory approval. Net interest expense reduced from GBP 35 million to GBP 27 million, primarily due to the maturity in March of $310 million of private placement senior notes. The group has an interest expense despite having net cash on the balance sheet. This expense relates to long-term financing, which are the remaining U.S. private placements. It's also local borrowings, which are maintained as a hedge against assets in high inflation countries. That's really Argentina and some countries in southern Africa. Other financial income increased from GBP 4 million to GBP 12 million due to an increase in the defined benefit pension scheme surplus between the 2017 and the 2018 financial year-ends. Profit before tax was 2% higher than last year, and at GBP 1,406 million on an adjusted basis. Unadjusted or statutory profit before tax was 8% lower, taking into account the higher loss on sale and closure of businesses. Coming on to tax. The effective tax rate, based on the underlying charge, increased marginally from 21.3% to 21.5% this year. Looking ahead to next year, I expect this effective tax rate to increase slightly from this level. Please make sure you put that into your forecasts. As a reminder, the higher credit on intangible amortization last year included the deferred tax benefit resulting from the reduction in the U.S. federal corporation tax, and which you will remember, was in January 2018. Adjusted earnings per share increased by 2% to 137.5 pence. On an unadjusted basis, they were 13% lower at 111.1 pence, which mainly reflects the exceptional items and the higher loss on sale and closure of businesses this year. A final dividend of 33.3 pence per share has been proposed, making total dividends for the year of 46.35 pence, an increase of 3% on last year. Let's move now on to the balance sheet. Net assets increased year on year to GBP 9.6 billion. Tangible and intangible fixed assets increased slightly with capital investment and the acquisitions offsetting the depreciation and the impairments previously described. The increase in working capital is mainly a result of higher inventories at Primark this year-end. This was driven by an earlier phasing of intake of stocks for the autumn, winter range this year, and is actually expected to reverse by the end of the calendar year. Sugar stocks were actually in line with last year. The decline in the net pension asset was driven by the decline in bond yields, and that was seen particularly in August this year, and it impacted all of the group's defined benefit pension schemes. The U.K. scheme, I will remind you, represents about 91% of the group's pension assets, and importantly, even at these bond yield levels, is still in surplus. That would say quite a lot about the financial health of the U.K. defined benefit pension scheme. Deferred tax liabilities declined year-on-year, reflecting the decline in the net pension assets. Assets classified as held for sale represented AB Mauri's assets in China, which will form part of the joint venture with Wilmar International. Net cash of GBP 936 million was GBP 322 million higher than last year. Let's move on to the cash flow. This is a strong cash flow very clearly. Free cash flow of GBP 788 million was both strong and higher than last year's at GBP 557 million. The capital expenditure at Primark in this year is both lower than last year and actually the level of the last few years. This is due to really the phasing of store openings and the store openings in the next financial year, which are weighted to the second half. As a consequence, I expect the capital expenditure for Primark to be higher in the next financial year. The tax outflow of GBP 269 million is the cash tax paid on trading operations and is lower than last year due to timing differences on tax payments made in key jurisdictions. Generally, in the U.K., 50% of the U.K. corporation tax paid in respect of an accounting period is payable in that period, with the remaining 50% being paid in the following period. HMRC has changed that, and those changes will come into effect next year, and that will result in next year, six quarters of tax being paid in the year rather than four. Accordingly, the group's tax cash outflow will be higher next year. The GBP 79 million outflow on the acquisitions line is mainly in respect of Yumi's and also then Anthony's Goods, which was purchased by ACH at the end of our financial year, and George will describe later. Last year included the net cash outlay on Acetum. Turning now to the performance analysis by business segment. I think you will agree these are a strong set of financial results for grocery. They are a standout for me, with a GBP 45 million growth in operating profit and a margin increase to 10.8% on a reported basis. Remember that the profit includes a one-time cost for the closure of the Twinings tea factory in China. On an underlying basis, profits grew by 14% at constant currency. Grocery also includes other factory costs as well. The decline in the profit at AB Sugar is in line with that expected all year. All of the profit decline for the year was reflected in the first half. In many ways, in my mind, the turning point was at the end of the first half. Profit in the second half was actually both ahead of expectation and last year at AB Sugar. George will outline why we now expect a material increase in our sugar profit for the coming year. The decline in profit in Ingredients is attributable to the AB Mauri business in Argentina. Not only is our business struggling because of the economy there, but we also took a hyperinflationary accounting charge for the first time under IAS 29 this year. Both of those combined are the amount of the decline in profit year-on-year for Ingredients. If current conditions persist, I expect a similar charge in each financial year from here. Profit was up GBP 70 million at Primark. Margin improved by 40 basis points. Importantly, the effect of currency was broadly neutral in the year. It benefited in the first half, but went against us in the second half. This basis improvement at Primark in margin was really driven by cost reductions, better buying, and a lower level of markdowns. Next year, we expect the weakness of sterling during this financial year to have a negative transactional effect on the Primark margin in the first half. Basically, the first half for Primark is locked in. At current exchange rates, a minimal effect in the second half. At this stage, our expectation for the full year margin next year has improved, and we only expect a small reduction on that achieved this year. Central costs increased this year, but they are to a level, if you check it, to just a little above those in 2017. As a reminder, last year included the benefit of a favorable reassessment of our self-insured claims. The disposed closed businesses line refers to the closure of the Vivergo bioethanol plant in August 2018. Return on capital employed for the group declined mainly due to the reduction at AB Sugar. By geography, the decline in U.K. profit was mainly driven by the reduction of British Sugar and the commodity feed businesses in AB Agri. The increased profit in Europe and Africa was driven almost entirely by Primark's Eurozone businesses, and they were particularly France, Iberia, and Italy. It gives you quite an interesting insight into the profitability of those parts of the Primark business. Profit in the Americas grew strongly, with much improved trading by Primark in the U.S., and the operating loss there reduced to a small number. You will remember I talked last year of a loss of about EUR 20 million, but it is a very small number this year. Also then by the profit and margin improvement at ACH. Asia Pacific was impacted by the loss in our Chinese sugar operations and the one-time charge for the Twinings tea factory closure in China, but partially offset by profit growth at George Weston Foods. New accounting standards. Let me just hold you on new accounting standards just for a moment. Details of the adoption of the new accounting standards in the current and future financial years are set out in the significant accounting policies note in the results announcement. The group has this year adopted IFRS 15, and as previously advised, there has been no change to the timing of revenue or profit recognition. The group has also adopted IFRS 9, financial instruments, and there is no material impact to the group. Here I want to come on to the adoption of IFRS 16, leases. First of all, the adoption of that standard is from next financial year, and here are the effects on the group. As referred to at the half year, we are adopting the modified retrospective approach, which is a fancy way of saying we are not changing the comparatives. Nevertheless, I have set out in the financial review, and with further details on the slides to follow, the estimated effects of the standard on these group financial statements and metrics on a pro forma basis. I do not need to tell you that it was a very significant change of accounting for the group for many years. Let me emphasize the following: There is no change to the net cash flows, and there is no change to our business model as a result of adopting the standard. We will recognize lease liabilities at transition of GBP 3.6 billion, which predominantly relate to Primark. 271, or some three-quarters of Primark stores, are leaseholds, with a broadly equal split between the U.K. and the Eurozone. In adopting IFRS 16, is that because I was not entertaining you enough? I do not blame you, but I will still plow on. In adopting IFRS 16, we have made assessments of our likelihood to remain in stores beyond break clauses. The important thing is, and also to renew at the end of the lease term. In particular, if you think of Gran Via in Spain, not only do we have a lease that goes to term, but we have the ability to renew. Our adoption here is we assume that we actually will renew, and so where we are reasonably certain to do, we have reflected this in our lease liability under IFRS 16. The effect on the key Primark metrics I have also included here. From this year's margin of 11.7%, that would increase to 12.5%, and return on capital employed would come down from 29% to 15%. I think 15% you would still see as an incredibly healthy return on capital employed on a lease adjusted basis. The group's adjusted EPS is reduced by 2%. This is the effect on the balance sheet. We will recognize right of use assets of GBP 3.1 billion and lease liabilities of GBP 3.6 billion. You will note that on an IFRS 16 basis, the group will have net debt of GBP 2.7 billion. That would be, if stated under IFRS 16, will be our number at this year-end. Gearing expressed as debt over debt plus equity is a conservative 31%. Moving on to the income statement. A rental expense of GBP 329 million in the income statement is replaced by a GBP 265 million depreciation charge on right of use assets. Adjusted operating profit would have increased by GBP 64 million, GBP 59 million of which is in Primark. Interest expense would have increased by GBP 90 million, and for the group, the resulting interest cover of 14 times is clearly extremely comfortable. Adjusted earnings per share would have decreased by 2%, so the 137.5 will be 134.8 on that restated basis. We will report under IFRS 16 for the first time in our 2020 interim results. George, I will now pass back to you to take us through the performance in the rest of the group. I am not sure how I follow on from that. We have altered the order of this part of the presentation for no reason other than to follow the order that is in the results pack. It has taken us a number of years to get there, but here we are. We start with Grocery, which had an excellent year. Excellent underlying profit growth of 14%. Twinings Ovaltine continues to be a star. We have made some significant acquisitions during the year, Yumi's and Anthony's Goods, and I will come back to both those. Good margin work in George Weston Foods, Chatham and ACH. We continue to invest in the supply chain. There were some major projects completed during the year. Then we did get some price increases and made some good steps towards reducing costs in Allied Bakeries, which I will also come back to. Focusing to begin with, though, on Twinings Ovaltine, strong underlying profit growth and margin growth. The new category, Cold Infuse, is going well. More of that in just a second. The development of herbal teas, the herbal tea range, also good work there. Ovaltine, I have mentioned the past about brand stretch, and I have some examples of that coming on that work also going well. Supply chain investment. To move an entire tea factory from one continent to other is a major undertaking. It was done beautifully. The factory in Swarzędz is working extremely well, and supply chain metrics are all good. Just to linger for a moment on Cold Infuse, it is the biggest commercial initiative for Twinings Ovaltine for several years. Whole new category. We have expanded the range during the year. We have taken it into kids. We have taken it into the U.K., sorry, into the U.S. now. It is allowing us to serve a younger consumer, and that is a good thing. Much more to come on that, I suspect, in years to come. It is still early days, though, in Cold Infuse, but it is going very well. Superblends, their success, I think, emphasizes the ability of the Twinings team to extend the brand beyond black tea. This picks up on the need to supply people with hot beverages, which have health benefits to them as well as hydration benefits. The Superblends work, again, being done very successfully. Onto Ovaltine, Ovomaltine. We have talked in the past about brand stretch in Brazil, sorry, in Switzerland, being such a big part of that company's success. We are underway in Brazil as well. We have a strong position on the left-hand side, historically in milkshakes, both in McDonald's and a chain called Bob's. But now, much more in confectionery in Brazil, and again, that work is exciting us. If we are building the business of groceries organically through good commercial initiatives, we are also building it through acquisition. Let me talk about three of these now. The first is Yumi's, which we bought in Australia just at the beginning of the year. It is the market-leading producer of dips and other vegetarian food in Australia. It is a brand with tremendous food values. They make all their dips straight from vegetables rather than from processed vegetables. The business has been growing at about 20% a year for the three years, the last year under our ownership. The category is growing quickly. We have launched into falafels and veggie bites in the last few months as well. That is also going well. There's nice overlap with the Don's, our meat business' chilled supply chain, which we're beginning to access as well. That's Yumi's. In the States, as you'll know, ACH has a very solid position in bakery ingredients, in retail bakery ingredients, corn starch, corn syrup, retail yeast, and so forth. These are good, solid businesses which don't have, sadly, an enormous amount of growth characterizing them, whereas Anthony's does. Anthony's is based in California. It is a blender and online marketer of specialty ingredients. What do I mean by that? Things like cauliflower flour, almond flour, other new baking ingredients. It will complement the product offering we have in ACH. There is a lot of growth, I think, still to come. Its roots to market is an interesting one, too. It doesn't go through retail. It goes through Amazon online platforms, which in their own right are growing quickly. Anthony's, again, fast-growing category, just as Yumi's is. Two years ago now or so, we bought Acetum. The financial performance of Acetum in the last 12 months has been very gratifying. Must prices, that's the raw material that goes into the making of balsamic vinegar, rose significantly just as we bought this company. They came back down again, so the profit went up. The strategy here is to build the premium brand in the category of balsamic vinegar to do it globally, and a lot of work has gone on positioning the Mazzetti brand, which will be our branded vehicle. We've launched it in the U.K. and the U.S., and there's been some really good work done. So those are the three recent acquisitions in grocery. They're all branded or increasingly branded. They're all in fast-growing categories, and they all have reach beyond their home markets. Going back to, if you like, the core of grocery and starting with George Weston Foods, which had a very good year. Just to put George Weston Foods in a bit of context, which we haven't really talked about in the past. It is Australia's largest food manufacturer, and it is now Australia's largest employer in the manufacturing sector in total. It's a very significant business. It's been in Australia since 1951. And the profit increase in the last couple of years has been really good. Good commodity gains in both wheat and also meat, but also margin growth and sales growth in Tip Top and also in Don. Let me show you just briefly, so I can draw breath myself, an ad that Tip Top has been running and give you some insight into the strength of that brand and the commercial work that leads to that strength. Isn't it funny how different our kids are? The way they do things their own way and have different tastes. Luckily, Tip Top has a range of bread that has all the fiber, vitamins, and minerals they need in white, whole meal, and kids' grains. Tip Top's the one. The one for everyone. Two things to mention. Firstly, the health credentials of bread in Australia are very real. Secondly, the consistency of advertising, that jingle, "Got on your mouth" has been running in Australia since 1972. They know it well. North America, ACH had a very, very good year, good margin improvement, helped by commodity gains undoubtedly, but also by share gains for Mazola brand. It is now the leading brand in edible oil in the U.S. market. Good work has gone on to get it there. Back into the U.K., I want to call out AB World Foods, which had a really good year. AB World Foods' major brands are Patak's and Blue Dragon. Strong growth in the U.K., strong growth internationally, but record years for both Patak's and Blue Dragon. Meal kits and poppadoms, in particular, have been areas of strong growth. We've been growing in grocery through good commercial work. Initially, we've been growing through acquisition. We've been growing through good margin management. We've also been investing heavily, particularly in the last 18 months, in the supply chain to sit behind our grocery businesses. That is our fourth noodle line. We have a tremendous noodle business in the U.K. and Trafford Park. The Ryvita Bardney site is now up and running properly. I think I've shown you this picture, well, sorry, pictures of Bardney for some while. My favorite statistic is that Ryvita plant is 250 meters long. It's an absolute monster, as is the tea factory in Swarzędz in Poland, which now supplies the world with all its Twinings tea, except that produced for the U.K. market in the U.K. Allied Bakeries then. Difficult position, difficult market to be in, bread. We achieved some price increases in the year. We lost our largest private label account. That led to the closure of Cardiff Bakery and other work to reduce the cost base, both in the year just gone, and that work continues. Just to linger on the excellence of the grocery performance now over a number of years, and I don't usually include five-year charts in my presentation here, but from 2015 to 2019, we've added GBP 95 million to the profit of this part of ABF. It really is a gem. Talking of gems, sugar. These low prices characterized the European market all through last year, although, as John said, they were getting slightly better in the second half. Illovo continues to be highly profitable, and I'll show you a little bit more of that in a moment. We expect to see that the year we're now in, European sugar prices, which are now higher, flowing through into the profitability of this part of ABF, and I hope that continuation of profit improvement will be a feature of future years, too. The cost reduction work across all parts of sugar continued. If low prices weren't enough of a headache in Europe, we also had in this division a very poor beet harvest to process in China. The reason to believe on European sugar prices, and I'm going to take a little bit perhaps more of your time that you might want on sugar prices in the world and in Europe. This first chart is the movement in world sugar prices going back to 2016. So at 22 cents, everyone was making a ton of money. It produced new capacity, as it will. Prices came down, and they've remained pretty flat ever since. A little tick up most recently, but I wouldn't read too much into it. We're sitting in a world and have been of 12.5 to 14 cent sugar, which historically is low. If we then go onto our next slide, this is the evolution of prices in Europe, where British Sugar and Azucarera play. In the old days, before deregulation, the European sugar prices were set by supply and demand in Europe and had nothing to do with the world price. That changed in 2017 when deregulation of the old quota system occurred in Europe, and prices came down with a clunk. They came down further than anyone had expected because production, along with the deregulation of the markets, production rose quite a lot, both because sugar producers set out to produce more, and then we had a very, very favorable crop and a huge sugar supply through 2017, 2018. What we've seen since December 2018, though, is a decoupling of the prices on the world market and Europe. So the European prices are significantly higher. The gap between world prices, right-hand scale, sorry, left-hand scale, and European prices, right-hand scale, is much larger than it was last year. The prices that led to the profitability of the year we've reported on are those of the small gap where we're now selling sugar, and we have some old contracts to work our way through as well, so we won't get all the benefit, is the result of the increased gap. If I then move, why has that happened? Well, it's this. The red line above the axis is European deficit importing sugar out of the world to supply itself. 2017, that big crop, we became a net exporter of sugar, and the prices were set directly in reference to the world price. In fact, they were, in some cases, lower than the world price because you had to get the sugar to the world market. The trade balance has moved back into balance. We're no longer, as European producers, exporting large amounts of sugar. In fact, most of the time, most months now, we're importing it again. The prices in Europe, therefore, can decouple largely from the world supply, or at least could be linked to import parity, which is the cost then of getting world sugar into Europe and all the costs associated with that. That's why the prices have gone up. If we remain a net importer of sugar, then we'll see those prices, they'll move around, but they'll move around at a higher level than the prices that characterize the market in the year that we're reporting on. But the largest part of our sugar portfolio has got nothing to do with Europe. It's Illovo, Africa's largest sugar producer. The world prices were low. The prices remained good in Illovo. We're protected by geography, we're protected by import regime, and increasingly, we're protected by brand and distribution capability. This was a business that, in the past, used to export a lot of sugar into Europe. It doesn't do so now. It places it into the growing African sugar market, and it does so with brand and with distribution capability. The distribution of sugar in African markets is a difficult task. We do it increasingly well. You need to think about Illovo sugar sales in Europe as FMCG, not commodity. It's branded grocery products, and they're really important in their markets. We have very good positions. This is a completely different, in its nature, type of business from the European sugar businesses. We've talked for the last few years about cost reduction in our sugar businesses. That continues. There were some particular highlights in the year just gone. We reduced the price we pay farmers for sugar beet in Spain from EUR 32 a ton to 26. That has been very painful for our farmer partners in Spain and absolutely necessary for the long-term survival of the sugar industry in Spain. But we've done it, and we're working through that now. We've got sugar beet. We've got our raw material to a sensible price. British Sugar overhead reduction, both in the factories and also at head office, continues and will keep on continuing for a while yet. Whereas a year ago, we had no ability to measure the sugar content of beets coming into our factories in China, we've given ourselves the capacity to do so now. So the crop in China is much better this year. When the sugar comes into the factory, it is measured for sugar content, and we pay on sugar content, not on weight, which we did before. That has been a really important initiative, which will prevent, I think, the recurrence of the situation that we lived with last year. We think there's substantial further opportunity from cost initiatives. It's been going five or six years, and I think it's got several years to go. One other part of our sugar portfolio that I just want to linger on for a moment. This is co-product development. We are making an increased contribution from a whole range of products. We're really good across our sugar businesses at adding value to products other than the sugar that we extract from either cane or beet. We sell a lot of animal feed. We sell a lot of electricity in the U.K. We make biogas in the U.K. We make ethanol. We sell liquid CO2. In the last year, last 18 months, let me mention two very profitable ones. Furfural, which is an extract from sugar cane, once you've taken the sugar out, is a release agent for the casting business. We make this in South Africa. It supplies the world, and is a lovely business, as is John's favorite, pharmaceutical cannabis. We're using the waste CO2 and heat from the Wissington Sugar Factory, and the fact that this factory is 17 miles away from anywhere, and therefore fairly protected from people that might want to just break a pane of glass and help themselves. They shouldn't because the THC levels of this cannabis is very low. But we are the largest cannabis producers, legitimate ones, in Europe. 45 acres of it under glass. We are a really important part of the supply chain of a really important pharmaceutical, which goes into the treatment of rare childhood epilepsies. Our partner, GW Pharma, I think is the only company that has gone through full clinical trials of cannabidiol in the treatment of these conditions. We supply pesticide free guaranteed dose cannabidiol from this site. While we are on agriculture, and perhaps a less exciting part of it than cannabis growing, AB Agri had a tougher year. What we are trying to do in this business is pivot from a very strong but commoditized U.K. business primarily, to one which is much more international, and is much more value added. That work is underway. AB Vista, which sells animal feed enzymes, is the best part of it. Actually, despite a more difficult year in the more competitive animal feed enzyme, the profitability of AB Vista was in line. It is the commoditized part of the U.K. business that had a tougher time this year. There was a smaller U.K. sugar beet crop, and therefore, AB Agri takes to market the co-products from sugar beets, so molasses sugar beet feed, and there was simply less of it to sell. When we shut Vivergo, we mothballed Vivergo, we also removed from Agri, the margins made from selling the co-products out of that ethanol plant. Then, and this was slightly self-inflicted, lower margins through the year in animal compound feed, also in the U.K. These parts of the business which struggled are, I think, not our future. They are an important part of what we will always do, but where we are taking this business is into value added and offshore. Ingredients, two parts to the ingredients business, AB Mauri, and then ABFi. Starting with Agri. Trading-wise, good performance everywhere, apart from, as John has mentioned to you, Argentina. In fact, all that decline from 143 to 136 across both parts of the ingredients portfolio, is straight out of Argentina. So if Argentina had not happened, we had not had to take hyperinflation, if the margins had not come down, we would have been ahead in operating profit level. But we were not. So strong performance in the States. Then, again, just to give you a sense of where we are headed with ABF Ingredients, we are investing in other products to take to market through the supply chain, the distribution capability we have. We can get products to 50,000 bakeries every day in Brazil. We can do the same in Argentina. We can do the same in parts of India. We invested in a non-dairy whipped creamer plant in Brazil. The same bakeries that are taking our yeast and other bread improvers, also use non-dairy whipped creamer, and that is a really good project. We have been making a series of bolt-on acquisitions over a couple of years, in bakery ingredients as well. We bought this year an Italian manufacturer of bakery ingredients called Italmill. It has some new capabilities that we did not previously possess, but it also allows us good synergy opportunities, in Italy. Just, I think, at the end of the previous year, we bought a company off Hovis called Holgran, which has real expertise in malted grains and seeds for bakery businesses, and we can internationalize that capability in the future. The last one then to mention, and this is a big deal, the joint venture with Wilmar in China combines our knowhow in yeast and bakery ingredients with Wilmar's distribution capability. They are a major supplier of flour to the Chinese market, and they are a major supplier of edible oils. They have got one of the very best distribution capabilities in all of China. Quite frankly, we never managed to build something of equivalent excellence in our bakery and yeast ingredients business. Now through this joint venture, we will have access to it. We will also invest in a new yeast factory up on the site of one of Wilmar's oil facilities. It will be very low cost. We will be using molasses and corn syrup as a feedstock. We will have access to low energy costs, and it will transform the cost base of our business in China. ABF Ingredients, well, given I am moving on to Primark shortly, and we start talking about pharma excipients and plant proteins, and you might be wanting to move on, I will not say too much about it. It was a good year. The food and bakery enzymes business continues developing yeast extracts. All good, and all very much on health trend. Then the pharma excipients and plant protein crisps were indeed well ahead. We lost Arthur Ryan this year. He was a man who built a phenomenal retail business, and we are all forever indebted to him for doing that. My grandfather, Garfield, an uncle, recruited Arthur to run a single store, which became Penneys in 1969. They knew they were hiring a really good trader. What three generations of Westons have learnt in the 40 years that followed, was that Arthur was also a great leader, a great business builder, and he had the most extraordinary relentless desire to serve his customers. That drive remains, I think, at the heart of Primark today. A truly great man. Ironically, in the year of his death, the brand achieved its 50th anniversary of the opening of that first store in Mary Street. It is now fully 10 years since Arthur handed the baton over to Paul, who continued Arthur's legacy of innovation in retail. Let me head from there then to a look at the year just gone in Primark. Clearly, the operating profit up 8% was very strong. The sales growth and the profit growth came particularly from U.K., Spain, France, Italy, and the U.S. John has already mentioned it, but it is worth repeating the margin point. There was no currency effect. That improvement in margin came all through better trading. Reduced markdown was the biggest part of it. That is the consequence of on-trend ranges and stock tight control. It is also the consequence of cost reduction. We consolidated the buying offices from two to one in Dublin. That will give us cost saving, but also efficiency in ways of working. We have started to focus more on store efficiency. That will lead to improvements in customer experience, in stock availability, and also we think in years to come, in cost. We added 800,000 sq ft of net selling space. Like for likes, we were disappointingly down 2%. I am now going to though perhaps dig underneath that sales performance and have a bit more of a look at the different markets that Primark serve and the characteristics of them. It is right that we start in Ireland, where we have tremendous customer loyalty in the home market, 50 years of trading. It really is an iconic part of the Irish retail world, and trading was very solid in the year just gone. In the U.K. in the year just gone, we extended volume leadership, which is now significant in the marketplace. Sales were up 2.5%. Like for likes, were down 1%, but I think even being down 1%, significantly outperformed what is a very weak and difficult market in the U.K. We opened important new stores, Birmingham most notably, and there is a lot of learning that I will start to take you through from Birmingham. We also opened our first store after many years of trying in Bluewater and Milton Keynes. It is worth mentioning Hastings. We opened a store in Hastings. Do not think many other high street retailers opened a new store in Hastings. It is a good store. We will make money out of it. It is the nicest store in town. These smaller U.K. markets are really important to us, and we have a very strong position in so many of them. We also, during the year, starting in the U.K. in particular, have been developing other customer propositions, what in the trade are known as experiential offerings, and trialing all the stuff at Birmingham. Let me show you some of that. Quite a big beauty installation in Birmingham, the Harry Potter store, a hairdresser, and Disney's first restaurant outside the theme parks. In Manchester then, we opened a great cafe, Central Perk. It is the 25th anniversary of Friends, and this is my favorite cafe in all the Primark estate. U.K. and Ireland, very solid, outperforming the marketplace, still investing, and still both in new locations and new concepts. If I move then on to Iberia, Spain and Portugal, then include France and Italy in this section. It is now 28% of our business by sales. Sales were well ahead in the year just gone, and like-for-like growth was achieved in all the markets. In Iberia, we now have 56 stores. We are opening four in 2020. We have started with the rolling out experiential retail offer, horrible phrase, and I will show you the first example of that in just a second. We think that there is significant further growth opportunity in Iberia. We have got 56 stores. There are many markets we are still not trading in, and we will keep going there for some years yet. In France, we are up to five stores. We are opening five more in 2020. Really excellent performance in that market, both in sales growth and also margin growth. That is despite very tough trading circumstances with the, particularly on Saturdays, with the Gilets Jaunes demonstrations throughout that year. Our newest store, second newest now, in Toulouse, was shut down part or all of each Saturday throughout the year and is still affected by demonstrations there. Italy, we have four stores. We are opening two in 2020. I wish it was 22, but we have all got to be patient. Trading has been very strong, and there is a good medium-term pipeline for new stores. Only two in 2020, but we are gathering a head of steam. Just to give me another break as well, let me show you a little video of Sevilla Lagoh, which is the newest Spanish store. Thank you for your patience watching that. The things that have become, firstly, 18 months ago, we didn't have any stores in Sevilla, now we've got two, and that'll do us for the time being. Secondly, you saw the restaurant or the coffee bar and the nail bar, both firsts in the Spanish market, but more to come. Moving on to the U.S. then, where we saw strong sales growth, both from good like-for-likes throughout the year, like-for-like growth throughout the year, and then a really excellent first-year trading of Brooklyn. Those, combined with various other management actions, reduced the operating loss very significantly in the year. We have a profitable store model now. We've successfully downsized three stores, and that has pushed the store profitability up well. We've developed a good leadership team there. It's taken a while, but we now have good leadership. We understand our U.S. customer in particular. We think now we've got the right product in the U.S. market. We've got the confidence to expand. There are four new stores announced, so American Dream in New Jersey, Sawgrass Mills, Florida, they'll both open this year, we think. State Street in Chicago in the year after. That's the picture artist's impression of that store, so up into the Midwest. Fashion District in Philadelphia we just announced today. That'll be a good store, too, in downtown Philadelphia. There are more stores in the pipeline, which we haven't announced. We obviously have available warehouse capacity. We are pushing the accelerator very deliberately now in the U.S. Central and Eastern Europe we think is a significant opportunity for us. There's a large population, there's high brand awareness, and we think we have a differentiated offer. We opened the first store in Slovenia in June last year. Sales have been great, exceeded our expectations. We're opening the first store in Poland in 2020 in spring, and we've signed our first store in the Czech Republic. That'll be in Wenceslas Square in Prague, and I think we'll open that one in 2021. Lots of opportunity to expand still, and good performance in so many parts of the Primark estate over the last 12 months. We've had a good hard look at our German business to try to get under the skin of its problems, and we are confident now that we do understand the problem. Our ranges have been inadequately tailored to the German market. We failed to communicate those ranges. We haven't done a good enough job of correcting misconceptions of the supply chain ethics and the sustainability credentials of this business. Store standards, in many cases, haven't been good enough. Some of the stores, quite frankly, are just too big. What are we doing? We've got a new managing director who started in July and a strengthened management team around her. We've started local marketing campaigns. That work is underway, both in terms of posters, but also social media engagement. We're overweighting sustainable cotton ranges in German stores. Five of the top seven or eight stores for sale of sustainable cotton jeans are now in Germany. That gives us confidence that if we can put more sustainable product in German stores, then consumers will buy them. We're trialing new store configurations as well. We have a very good childrenswear business in Germany, but I think in many stores, we don't give it adequate provenance. We're beginning to do so. Store efficiency work will make a big difference to the profitability of our German stores. German labor, of course, is expensive. Then a selected number of stores, we are reducing the footage. We've completed that work at one store, which I think is Braunschweig. Those are our markets then, both last year and into the future. Let me move on to product, which of course is at the heart of everything we do. Top-selling lines for 2019 Broderie, textured mini dresses, floral mini dresses as well. Looking into what's in store now, neutrals, tailoring, checks, these are all trends which are selling through well. Prints also. That's autumn/winter. Licensed goes from strength to strength. There is an increasingly strong symbiotic relationship between the brand owners and Primark in licensed. So Friends, Toy Story. At Friends we have a range that coincides with the 25th anniversary celebrations. Toy Story 4 is in the market. Then a gaming range is selling well, too. Licensed continues across into kidswear. Disney, of course, is important in that. Party wear ranges are very good at the moment, and then Christmas is always great. Christmas gifting this year will be a bigger part of our offer than it's been in the past. The Harry Potter Advent calendar has come and gone and will come back again, so don't worry too much about that. Disney gifting and then the favorite from last year, the Fam Jams, are back in a store near you, too. The participation in Christmas gifting away from clothing will go up. Health and beauty is our fastest growing department. Collaboration with influencers on new ranges is really important. License is really important. Social media engagement is really important. We go from strength to strength in health and beauty. Sustainability is an increasingly significant part of all our lives. It's very, very important to Primark and the Primark buyers who are, of course, young and very aware. We've had sustainable cotton pajamas since 2017. We've sold 14 million pairs of them. We do sustainability at scale. The range of product that now has our sustainable cotton in them includes denim, nightwear, bedding, and towels. We are increasing the number of farmers we're working with in India, Pakistan, and then China fivefold to 160,000 over the next couple of years. It's the biggest program, I think, in the retail industry anywhere. 160,000 farmers. Working directly with them allows us to do something else which is unique, which is to trace the cotton they grow from farm all the way through to the store. I don't think anyone else at scale can say the same thing of their sustainable cotton, that they can trace it all the way through the supply chain. Cotton isn't the only part of the range where sustainability becomes increasingly significant. Our own label cosmetics brand has Leaping Bunny accreditation, which is the gold standard for cruelty-free, so not tested on animals. Also, there are an increasing number of ranges in sportswear, in particular, using recycled polyester in store. To communicate everything we do, we've replaced our website. It is getting 2 million visitors per week. It has much greater utility in terms of telling people visiting it what is actually available in store. We had, this time last year, 13 million followers on the various social media platforms. We now got 20 million. Online is really important to us. We're very good at it. We're investing in it. If you want the clothes, you need to come down to the high street to collect them, which of course, is the most sustainable way of shopping rather than have someone in a van deliver them to you in your house. We are also making more use of collaborations. Kim has been absolutely fantastic. Stacy Solomon, similarly. Then two important collaborations. Our first collaboration in Germany with Viktoria and Sarina, who are actually Austrian, will be the start of many more collaborations, I think, in Germany. Then Dulceida, who really is a phenomenon in the Spanish market, and she is also the first collaboration we've undertaken in Spain. For those of you who like record keeping, then let me move you on to our selling space expansion this year. We've opened 13 stores, 800,000 sq ft. Looking forward, we suspect that we will open more space this year. There'll be significant stores. Trafford Center is an important market that we've never managed to get into and now are. Sevilla Lagoh, obviously, is open. Two stores in the center of Barcelona. They'll be great. France, five stores. Italy, two. We think we'll get Rome open in the year. It may fall just into the year afterwards. Then two more stores in the States, Poland, and the end of the pipeline in Germany, in Kiel, and a fourth store in Berlin. Just to summarize Primark's year. Good year for profit growth. U.K. outperformance in a very weak market. Good developments, exciting developments of the proposition. We really have gripped the German problem. Expansion. There's lots more selling space addition to come over many years because we have so many markets in which we are relevant and where we're really just getting started. The entry into Central and Eastern Europe and Poland, we think will be really good. Just to summarize the year, grocery and Primark growth more than offset the sugar decline. That sugar decline is over, and this was a year of strong cash flow, which leaves us, I think, well-positioned for another year of strong growth, both in profits and margin in grocery, the bounce back in sugar, the continuation and acceleration of Primark selling space, albeit, and we don't know where currency's headed, of course, with some small margin reduction. We expect to see a progress in adjusted EPS as a consequence of all that. Thank you very much. Right. Thanks, George. At that point, let's open it to Q&A. Warren, Laura, if you could do Warren at the far end there. Morning, John. Morning, George. Warren Ackerman here at Barclays. I have a couple for you. First one is on current trading for Primark for period 1. Any comments on the U.K., Germany, rest of Europe would be appreciated. Secondly, George, you mentioned you wanted to press the accelerator in the U.S. Just interested if you can elaborate why now and what that means to you in terms of store numbers. Then finally on Primark margin, John, I think the perception is it is a currency thing, but clearly there is a lot of moving parts on Primark margin other than just currency. Could you maybe walk us through what those moving parts are, maybe give us some sensitivities around currency, both translation, transactional FX, but also cotton, freight, and other costs? Thank you. Okay, I will do some of that and then John can do some. October was good. Both in the U.K. and, happily, in Northern Europe. Our one more difficult market in Primark, U.S. was good too. The one more difficult market in October was Spain, where it is just warm. It was 35 degrees Celsius in Sevilla when I visited, and the store was full of coats. So very early days. Of course, the stores look really good. The Christmas ranges are coming in now. I think December elections notwithstanding, I think things are fine. Space growth in the States, those four stores and others that we are talking about, I think we have earned ourselves the right to go beyond the nine stores that we opened. We have sorted out, we have learned a lot of lessons, store size, ranges, management capability, I mentioned. The way we have always thought about store expansion in all the other markets is we will open a store. If it trades well, we will open another store. The good thing about the States, but also the perilous part of the States is there is plenty of space you can open, if you think your model is working. But that discipline around selecting the right space, and space which we think is in centers which have a long-term future. That is really important to be conservative about that. But yeah, no, those four and then we are discussing other ones too. John. Yeah, Warren, I am glad you asked the question about margin because I think sometimes it may be the Primark model is often too simplified to be sterling down. That is not necessarily good for the Primark margin or sterling strengthens and is better. But there are clearly a number of other factors behind the margin. So that is why, certainly in the year that has gone, the margin improvement, actually nothing really came from currency, but it was one very much of a lower level of markdowns, as we said, which is really better buying. So the B&M function, I think, has immensely strengthened Primark across the piece. But also lower costs as well. So I think as we look forward to this coming year, I think the factors to look at are the following. First of all, raw material costs. So there is significant mitigation there from lower cotton. Viscose and polyester prices are well down, so they are factored in there. We are looking at something like a 20% reduction in those. Remember that GSP sourcing, I think, still remains a significant opportunity for Primark. With high 40% of sourcing from China, I think there is much further opportunity for a much higher percentage of GSP sourcing, and that would take out a tariff of about 10% or 12% that is currently added to Chinese source product. That would go to zero. I think the B&M function continues to strengthen in Primark, and we can look forward to certainly a consolidation of that sort of better buying, if you like, and lower markdowns. Then the other one not to be lost in this is cost overhead. I think Primark is increasingly looking at the cost of the operation of stores and the cost generally around the piece. I think margin is clearly the product of all of those things, and these other benefits, if you like, should not be overlooked. We shall go for Anne Critchlow. Thanks. It is Anne Critchlow from SG. Three questions from me, please. At what point will you lock in the FX rate for Primark in the second half, which month? Second question, what was wrong with the products in Germany at Primark, and what are you doing to change that? Then finally, in grocery, Cold Infuse teas. I noticed that very quickly some of the U.K. supermarkets were copying them. Is there anything you can do to protect that innovation? We lock in Primark currency when we place the order. It is a rolling program. We essentially place the order and lock the margin when we do so. There is a several-month lag on currencies coming through. We'll get that, Simon. He'll get there in a moment. Yes, and the placing of those orders averages at about a six-month lead, basically. There's no change to that. I know certain other retailers have maybe taken some views and have gone longer, but that is not the case for us. Okay? It depends on where, obviously, for the second half, so spring-summer of next year, it will be where the exchange rate goes over the next few months here. Okay. Product in Germany is particularly around fabric. We have moved almost all children's now to cotton, whereas in the past, we had more artificial and more manmade fibers. In the fashion ranges, I think we were too fashion forward sometimes for the German consumer. There's no initiative in grocery which won't get copied pretty quickly, both by your competitors and also by own label suppliers. I think there is an advantage in being the first mover in any new market, number one. I think secondly, product taste and performance is absolutely key to this sector, and quite frankly, I think ours taste better. Then you've got to keep moving. Kids is new flavors are new. You've got to be very alive to what's working and what's not in a new category. Thank you. Okay, great. We'll go for Warwick next. Thanks. It is Warwick coming from Exane. Just one question. Just wondering if you would give an update on Primark's IT implementation. Where are you with Oracle? When do you think that will land? What will the stage next be after that? You can do it. Yes. Okay. Oracle financials are in place. They have been in place now for two years and working well. They are nicely embedded. It really is the next stage, which is the retail part of Oracle. I expect we are looking over the next year to be looking towards a pilot, basically, of Oracle and then a rollout beyond that. Okay. Thank you. Okay, let's go forward. Yeah. Adam Cochrane from Citi. A couple of questions on Primark. You talked about more specific product for Germany. Is that something where you're already doing it in other markets where you're having more bespoke product and you weren't doing it for Germany? Is this a departure from where you've been before? Does it change anything in your design and your merchandise office, et cetera? When you're looking at that German performance, are you seeing any spread of that into the Netherlands or Belgium? Is it very German-specific? Is there a potential that the same issues could be in Eastern Europe or in those other markets? Finally, on sustainability, you mentioned a few categories. You've seen H&M and Inditex and others promise 2025 or 2030 sustainability targets. Is that something that you're considering at the moment to put a timeframe on some of these sustainability issues? Our view of targets is that there's so much uncertainty around them. There's never uncertainty about the determination to get there, but there is uncertainty and unknowability about technological developments, supply chain developments, all these things that have to happen. We are nervous about setting targets. We're working very hard in these areas at scale. Where we'll get to, I don't have enough certainty to put it into just going some sort of marketing. We'll tell people how we're getting on, but I think it's better most of the time not to set a target. We don't need the target to motivate us. We are really well motivated to improve the sustainability of this business, which probably starts off as one of the most carbon efficient producers of clothing. It's very hard to see how you can sell a T-shirt or any other item of clothing with a smaller carbon footprint than Primark because of the nature of our supply chain and the efficiencies in it, plus the scale of that sustainable cotton initiative. Lots of very serious, very dedicated work, but I think a target is the wrong way to go. Products in Germany, it's more about having the right range from within the Primark portfolio than adding new things. In all the markets, we add some. It tends to be around color palette, in Iberia, for example, and sometimes it's around material. But we don't need to alter the way that we buy, which is essentially global for all markets, in order to give ourselves the right range in Germany. Other North European markets we treat with a great deal of respect. We obviously have concerns around contagion or whatever. They didn't have their greatest year. We have good businesses though, in Benelux and in Austria. Netherlands was also down like for like this year, but it's more about cannibalization than underlying rejection of the brand. Because it's next door, Rebecca. Yeah. Yeah. Two questions from me, please. Rebecca McClellan at Santander. Firstly, of the German store park or of space, what percentage or number of stores is in minimum hourly requirement at present? You don't really mention Germany and online, but online penetration in apparel is very high in Germany and how much do you think that's actually affecting the performance of the business outside the other issues that you mentioned? I do not know the answer to your first question, but we will come back with an answer if we are willing to give it. Yeah. But I will have to go away. That is one I do not know. Online penetration in Germany is very high. Return rates in Germany for online purchases are eye-watering. I think it is a really bad place for us to go. It is 60%, is not it? Yeah, two thirds, I think. And very questionable sustainability credentials around that business in the market which cares so much about the sustainability of everything. Thanks, Rebecca. We'll try Dr. Black. Clive Black from Shore Capital. I have to say Dulceida will be very welcome in Merseyside. Coming away from Primark, if I may. Firstly, on Twinings, could you just remind us what its reach is from a geographic perspective and whether there are any particular markets that you would still seek to penetrate? Secondly, what is the strategy for Allied Bakeries to the extent? Is it managed decline or do you see a way through it for being an individual business, or would even M&A participate in future plans? If so, do you think it could get through a U.K. CMA? Twinings' reach is very extensive. We divide markets really into the ones where we've got good present prospects for growth. Australia has actually grown faster than most markets in the last while, which is amazing because we have our highest market share there. Then we have markets where we are doing more than seeding, but we are really planting flags for the long term. China and India, in particular, are good, but also South American markets. The market for tea in Brazil has grown very nicely over there, but they're all reasonably small. But we do have roots in the market in all of them and a commercial capability to support those roots to market. Allied Bakeries. Allied Bakeries. We have got to get the capacity that we are operating, both the factory capacity, bakery capacity and also distribution capacity to match the new reality of the demand for bread that the retailers have put our way. There is more to be done there. Cardiff was an important step on that route. We have to keep on trying to delight customers and consumers to buy our bread. It is a tough market. There is a great deal of choice. Is M&A a route forward? What would the CMA think about it? Do not know. Okay, Geoff. Thank you. It is Geoff Ruddell, Morgan Stanley. Just one question, please, about space growth in Primark. You have obviously been very clear on your guidance for the coming year, but in three or four years' time, could you go back to opening 10% space a year, given you are pressing the accelerator on the U.S. and you are going into Eastern Europe and things? I think we are willing to commit to about 1 million square feet in the medium term. We can see that. 10% of an ever bigger denominator is- That would be up to 2 million and that feels like a big one. That feels quite hard. Would we ever open really large amounts of space very quickly in the States? I doubt it. I don't think it would be a sensible thing to do. When you talk about accelerating in the States, obviously you haven't opened any for a while, so in a sense, any growth is acceleration. Yeah. Are we talking about potentially opening 5-10 stores in a year in a few years' time? Obviously, I get the point you're not going to open hundreds and dozens at a time because of the real estate issues. I don't think that's unreasonable. Right. Okay. Thank you. That's exactly right. But that is not what we're targeting. I don't think you want us to rip away in the U.S. I think we've got We know the places we want to go. It is actually making sure that we get those locations. That is what this is about. It is no hold back because we are being cautious. We are saying, we have got the model to roll this out, but let us just make sure we get the right locations. I do not think you wanted any different. Richard? Thank you. Richard Chamberlain, RBC. Just going back to Clive's point on, or topic of Allied Bakeries. How much did the restructuring actually affect the operating income last year as opposed to the exceptional? When do you think you can move closer to break even for that business? Then, I guess, just second on to sort of maybe some general thoughts on capital allocation. I guess now we are starting to get our heads around IFRS 16 and so on. I mean, is there an opportunity for enhanced cash returns, given you have got close to GBP 1 billion, I think now, have not you, on the balance sheet? Well, let me answer the Allied Bakeries one. I think one-time costs, probably about GBP 5 million, GBP 6 million in the year. But we did get a depreciation benefit, having taken the asset write-down at the half year, and that was about 4 or 5. Okay. So a couple of million downside. The comment I was then making is that for the coming year, the guidance we are giving you is probably a smaller loss, but that is actually bearing any further costs and are netted off within that. In other words, there is not an expectation of any exceptionals to come through from that. Okay? The point about the cash is, first and foremost, to redeploy it into the business. Okay. We do not sit on it for any reason than that. We do not sit on it. Obviously, the bolt-ons, the acquisitions you have done in grocery seem to have played out pretty well in recent years. Yeah. I mean, is that a natural area, do you think, for further? Yes. Yes M&A activity? I was trying to give you a sense of what the role of these bolt-ons in different parts of the groups are. Yeah. Undoubtedly, there'll be more of them to come. Yeah. Okay, thanks. Okay, good. Okay. Yes. Oh, this lady's next. Hi, Michelle Wilson from Berenberg. No, yes. Three for me, please, all on Primark. First of all, just on the Germany development, you mentioned reducing square footage of some of the stores. How do you go about that? Will there be any costs associated with that space reduction? On the U.S., is it possible to reach break even in 2020? Or do we need further investment as you move outside the northeast corridor? Finally, just on the U.K., thinking around November trading. Obviously, November trading was weak last year. Is that something that you expect to continue given the impact of Black Friday? Or is there something you could do this year that might offset that? Right. In reverse order, John will interrupt me and No. November started in a sort of deluge on Saturday, and that wasn't a great start to the year. We think given how weak November was last year, for reasons that included Black Friday but weren't limited to it, that there is an opportunity for a better performance. But what are we, in the fourth or something now, so it's a bit early. The U.S. business on a month-to-month basis flirts with break even. Actually, A profit in October, we made a profit. Yes. We're very close. Who knows? I think if we'd had American Dream open from the October intended opening date, I think we probably would have made break even through the year, but that's easy to say. We really are quite close to it. John, on the cost of reducing footage in the space. Yes. Okay. In Germany, there are four stores that have been downsized. The cost of those were taken in the previous financial year. Okay? That's included within the numbers you're already seeing. I think you probably expect that of us, but Licensing. That's under the belt. The process of getting licenses to downsize stores in Germany, even when we own freehold, is torturous. We would have thought that by now we would have reduced the footage in more than one store, but that's just the process you go through. Okay. Simon, at the front here. Yeah. Hi, just three. Firstly, just to follow on from Geoff's questions about sustainability. It's not so much a question about what you're doing. Do you think you're communicating what you're doing well enough, both to customers- Absolutely to, I guess, to kind of broader stakeholders? The second is just can you give some guidance on CapEx for the year? Thirdly, on the thrilling subject to IFRS, can you break down the way you've given us the numbers for food into kind of which bits of food we should be? Is that all in grocery? Can you just give us some thoughts looking forward about the lease interest charge, given that that's front-end loaded, and I guess theoretically should roll off? Yeah. On the sustainability communication, we're getting much better at it. The Primark Cares campaign is well established, and I think we're learning lessons about sometimes less is more in the ESG space in communications with consumers. Compared with 18 months ago, we are immeasurably advanced. There's lots more work to be done in that space, but we are underway, and we are aware of the communication requirement, particularly in markets outside the U.K. We have 75,000 advocates working for us. We have 400 very committed buyers, who all care deeply and who communicate with their social networks. We're getting better. CapEx for the year? CapEx for the year, GBP 800 million, GBP 850 million, that sort of number. You really can answer our IFRS question. Yes. The number in food is actually really quite minimal. Marcus, I am going to get you here. Out of the lease liability of GBP 3.6 billion, I think 0.2 is in food. Would you say mostly in grocery? Say about half in sugar. Half in sugar and half in grocery. Everything grocery. Yes, exactly. In terms of the lease interest charge, remember that the portfolio for Primark continues to grow. I think use the lease interest charge from 2019 as an indicator rather than a mature portfolio where it would fall off. I would think a continuation of that sort of number. Thank you. All done? Thank you very much indeed. Thank you very much. Thank you.