Hello, and welcome to the Associated British Foods plc interim results presentation. My name is Rosie and I'll be your coordinator for today's event. Please note this call is being recorded, and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad to register your question at any time. If you require assistance, please press star zero and you'll be connected to an operator. I will now hand you over to your host, George Weston, Chief Executive Officer, to begin today's conference. Thank you.
Thank you, Rosie. Thank you everyone for joining this review of our interim results for the 24 weeks ended the 27th of February 2021. I so hope this is the last time that we host a call virtually. I so hope that these are the last set of results which are dominated by the consequences of COVID-19. Even more so, I hope this is the last time I have to put this first slide up. We have now lost 30 people across the group to COVID-19. The last two were just last week, one in Peru, one in Wisconsin, U.S.A. I think in parts of the business, there's a sense that we're getting the consequence of the pandemic behind us. For so much of ABF, we really are still in the midst of all the difficulty and pain and tragedy.
The first half of financial highlights are these. John will go through them in a moment in a great deal more detail. It is significant that we are declaring interim dividends today of GBP 0.062. It's significant that the gross investment number is still high. I think it's also significant that we're announcing today that the job retention money, some GBP 121 million, in respect of this financial year, are to be repaid. We still have GBP 705 million of cash on the balance sheet, despite a very difficult period of cash outflow in the first half, which has been so characterized by lockdown. We've lost more than GBP 1.1 billion of sales, GBP 300 million, at least, of profit while the stores have been closed. About GBP 700 million of cash has flown out of the group in the first half.
We think that the Primark like-for-like sales, when the stores have been open and where the stores have been open, have been very creditable. We are delighted by the performance of the food businesses around the world. Only in grocery, really, has there been a COVID-related following wind. Sugar has been really good, particularly driven Illovo. We have ample liquidity at the end of the first half, which of course influences our decisions about both furlough repayment and dividend. I wanted to say a little bit more now about ESG communications. Obviously, we had a very important meeting with investors on our approach to ESG factors where we covered governance in some detail. We spoke primarily about the social, but some environmental factors in the Primark supply chain. We gave an overview for the group on environment.
To remind you, the next event is to be held this summer, and we'll have a Primark focus. Then in the autumn, we will focus on ABF, but particularly on climate, environment, and carbon. To repeat a point I think we made at the ESG meeting at the beginning of March, we will be incorporating ESG reporting in the regular half year and full year communications starting in November. I will include some examples of us tackling these ESG issues across the group when we get onto the business by business review of our performance. With that, let me pass over to John.
Okay, great. Thanks, George. Let's turn to the income statement. Group revenue was GBP 6.3 billion. That was a decrease of 18% on last year at constant currency. The most material impact on these results with COVID-19 is that most of the Primark stores were closed for more than half of the period that we're looking at. The decline in the group's adjusted operating profit was a consequence of these closures, and at GBP 369 million, was 46% lower than last year. Exchange movements had a minimal effect on the adjusted operating profit in the first half, and we had a very small loss on translation of GBP 2 million. However, if exchange rates remain at current spot levels, we expect a more significant effect for the full year with a translation loss of probably some GBP 30 million.
This period's unadjusted or statutory operating profit was GBP 320 million, reduced by 8% on last year, a much lower reduction than the decline in adjusted operating profit. The reason for that is statutory operating profits is stated after a number of things, but after exceptional items. They decreased from a charge of GBP 390 million last year to GBP 25 million this year. Let's look at those exceptional items in a bit more detail. This year's include an inventory charge of GBP 21 million, which relates to the clearing of a certain number of autumn/winter seasonal items from the stores, and those are the Primark stores that have been closed since December. It also includes a GBP 4 million pension service cost for the equalization of guaranteed minimum pensions for historic transfers out of the company's U.K. defined benefit pension scheme following a High Court ruling last year.
As a reminder, last year's exceptional items included a Primark inventory provision of GBP 284 million. If you remember, hardly any of that was actually utilized, and we actually reversed virtually all of that below the line at the full year. It also included a GBP 25 million charge after the fire at Speedibake, Wakefield. Coming on to the rest of the income statement. Profit on sale of businesses, the GBP 5 million that you see there, follows the transfer of certain used assets in China to the now operational joint venture with Wilmar. Interest and other financial income were in line with last year. Just as a reminder to you all, we adopted IFRS 16 in our statements last year, and so both 2020 and 2021 are stated on that basis. Statutory profit declined by 8% to GBP 275 million.
On an adjusted basis, the profit before tax was 50% lower. As I already mentioned, that's really driven by the exceptional items. Let's turn on to tax. You can see that the actual underlying charge moved from a decline from GBP 144 million-GBP 111 million , obviously reflecting the lower profitability this year. You'll see that the adjusted effective tax rate increased substantially, and that was from 22.6% reported at the half year last year to 34.9% this year. First of all, 34.9% is our best estimate for the effective tax rate for this full financial year, and we've applied that to the half year. The big increase that you see reflects the much lower profitability of Primark.
Well, we saw the first effects of this last year when the effective tax rate reported for the full year was 28.8%. That was as a result of the lower Primark profit. That, of course, had increased from the 22.6% reported at the half year. This year, there are the effects of both the lower profitability, and so there's a mix of tax jurisdiction and also the fact that we will make a tax loss in sum. The adjusted effective tax rate is higher than anticipated in the pre-closed trading update. That's as a result of you should be putting through a reduction in your Primark profitability this year following our announcement of the decision to repay monies from the government job retention schemes of GBP 121 million.
Looking into next year, the group's effective tax rate will fall as the effects of the pandemic on Primark's business diminishes and its profitability recovers. I would say the group's effective tax rate for a normalized trading year for Primark to be probably about 25%. That's obviously subject to any corporation tax rate increases we might see over the next few years. Adjusted earnings per share were 59% below last year at GBP 0.251. On an unadjusted basis, they declined 25% to GBP 0.205. You'll remember that we didn't declare a dividend last year. I now want to take you through the context for the declaration of the interim dividend this year of GBP 0.062. Turning first to the support provided by job retention schemes in all the European markets where Primark operates.
I want to point out that the group has only ever made claims in respect of Primark employees. Of all of our businesses, Primark was the most severely impacted by COVID-19. These schemes did their work because it's enabled us to preserve all the jobs in Primark's 65,000 workforce. All of those people, they will be coming back. This financial year, we were eligible and have applied for GBP 79 million of job retention scheme support in respect of the first half. At the date of this announcement, that GBP 79 million has gone up to GBP 121 million. Compared to this time last year, the uncertainty relating to Primark has reduced. It's not gone away, it's reduced. The vaccination program in the U.K. is progressing quickly, with over half the population now vaccinated.
Last week we saw a record sales week after the reopening of Primark's English and Welsh stores, which as a reminder, represents some 40% of our total retail selling space. On the assumption that these stores remain open, Primark will return to cash generation. Accordingly, we don't plan to make any further claims back to the job retention schemes for which we would have been eligible from this date. Prospectively, even though we've got some, we will not make claims. We intend to repay the GBP 121 million for which we were eligible this financial year and make that payment before the financial year end. This includes GBP 72 million to the U.K. government. Dividend.
With the degree of uncertainty now substantially lower, with the net cash that we're reporting for the half year of GBP 705 million, and also we’ve got substantial headroom available, the board has decided to declare an interim dividend for this year. The dividend per share, and George has said this already, has been based purely on the adjusted EPS for the first half. The decision to repay the claims made from the job retention schemes was taken after the year end. This is the way we account for it. The first half income statement does not include the repayments of GBP 79 million in respect of that period. The dividend calculation is based on a pro forma EPS of GBP 0.185, which reflects the deduction of the first half repayment amount, adjusted for tax, and is a reduction from the reported GBP 0.251.
It's the basis of the 18.5 EPS that we are declaring an interim dividend of GBP 0.062 per share. Just as a reminder, last year that was nil, and actually two years ago, GBP 0.1205. The dividend is about half what we paid two years ago. The total payment will be some GBP 49 million. Look, as you would expect, the board is going to separately consider the payment of a final dividend, which would be determined by the second half trading and the outlook in the autumn.
Let's move on to the balance sheet. Net assets have improved again to GBP 9.6 billion from GBP 9.1 billion at the half year last year. I think the most striking change is the increase in working capital of GBP 776 million. Well, it won't be a surprise to you that that's been almost entirely driven by an increase in inventory at Primark.
That, as a reminder, up to the half year, most of our stores were closed for a period of 10 weeks leading up to the half year. All orders with our suppliers were honored. The increase in inventory reflects the delivery of goods in transit, and supplier payment terms were not changed. I will show you the changes in Primark stock on hand over the last two years in a moment. I think it will clearly demonstrate what's going on. Net cash before lease liabilities was GBP 705 million, which is GBP 96 million down on this time last year. When you reflect on what's gone on for a year, I think to still have that net cash position, it's important. I think the foregoing of dividends was, over the past year, a big element of that.
Since the start of the financial year, the aggregate net assets of the group's defined benefit pension schemes increased substantially, and they've now reached GBP 382 million. This is mainly driven by the increase in bond yields, which we all know reduces the pension liability, but it was also by higher-than-expected investment performance for our assets in the main U.K. scheme. Assets held classified as held for sale here at the half year were for the full year rather, but not at the half year, were AB Mauri's yeast assets in China, which have now been transferred to the joint venture. This is a chart which shows you the Primark stock holding over the last two years. The scale on the left-hand side is important to give you just a feel of how many hundreds of millions and so forth that that has varied by over that time.
It demonstrates, of course, the scale of the increases during lockdowns, and the lockdowns are those salmon pillars that you can see there. It should also serve as a reminder to you of why Primark is so cash generative in the period after reopening. It's the one after the half year 2020 that we can see that big reduction, and you'll remember that big ramp-up in cash in the second half of last year. Assuming that stores remain open after these reopenings for the remainder of this financial year, we should be expecting a similar movement this year. We expect that stock levels will have returned to more normal levels at the end of this financial year.
Just for your interest, you'll notice that little tick up in inventory towards the end of this financial year, and that's reflecting the receipt of autumn/winter stock, and that's in line with our normal business pattern. Moving on to cash flow. Last half year, the group generated GBP 141 million of free cash. This year, we've seen an outflow of GBP 832 million. The drivers of this change were firstly, the reduction in the adjusted operating profit, but then it really is the much bigger increase in working capital this half-year compared to last. Just a moment on capital investments, and George made reference to it in the summary at the beginning. The capital investment in our food businesses was in line with last year. The investment has continued.
The reduction in capital expenditure in Primark was the consequence of the difficulties in opening stores, actually due to restrictions to get on site and for contractors and so forth, caused by COVID-19. I think nevertheless, though, we still opened six new stores in this first half. We should expect this capital expenditure to pick up from here. No dividends were paid to shareholders in this first half, because clearly they relate to the last financial year. Turning now to the performance by business segment. All of our food segments, Grocery, Sugar, Agriculture, and Ingredients, they all delivered increases in profit, and then in aggregate, the increase was 30% above last year. For Grocery, actually, I would highlight revenue. The revenue actually was up 8% in Grocery at constant currency. Here we've benefited from some excellent new product launches during the year.
We've also responded to the increase in retail channel demand that we've seen over the last year. It probably is that increasing retail channel demand that we're now lapping the start of last year. That's one of the reasons that we think that some of that sales growth will come off. I would highlight the profit growth was actually very notable in Twinings Ovaltine . The sugar profit was well ahead of last year. Very pleasingly, because we're on a track of improvements in sugar profit. Here I would call out Illovo. We expect the Illovo profit to be well ahead of last year as it recovers from last year. George will talk more about it. I think the phasing in the year is more front-ended. Operating profit for both Ingredients and Agriculture were well ahead. Turning to Primark.
I think you've anticipated or expected the sales number we've reported here. That's a decline from GBP 3.7 billion last half year to GBP 2.2 billion this year. The sales declines, probably if I can break it out, it's about GBP 1.1 billion while the stores were closed. The remaining decline is the like-for-likes being some 15% below the prior year while the stores were open. It's GBP 1.1 billion while closed and the others driven by the like-for-likes. Profit was much reduced, that's from the loss of contribution from lower revenue, and that was very partly mitigated by the work done to reduce the operating costs. At the start of the second half, we're in a phase of store reopenings. Based on the most likely reopening dates, we expect a further loss of GBP 0.7 billion of sales relating to store closures in the second half.
A lot of you have picked up on the fact that that is a little higher than we had previously guided, and that's because we've probably got a slippage of one or two months of the months when stores will reopen in the Eurozone, and probably I'd highlight there Germany, France, and the Irish Republic. Once all the stores are open, the operating profit margin will be mainly driven by our like-for-like sales performance. I would remind you, and I think that's what we'll want to get a handle on. I would remind you that in the final quarter of our last financial year, Primark delivered a margin of close to 10% with like-for-likes down 15% on pre-COVID levels. If sales return to pre-COVID levels, if, we could expect operating margins to return broadly to pre-COVID levels.
George will take you through the details of last week's trading following the reopening in England and Wales. Just coming onto the segmental analysis by geography. This is going to be very brief. The sales and profit reductions in the U.K. and Europe and Africa segments were driven by the Primark performance. The profit in the Americas benefited actually from the strong performance of Ingredients and in Asia Pacific, actually by improvements in a number of our Chinese businesses. George is going to take you through the performance of each of our businesses in more detail. George?
Thank you, John. Let me start this time with some comments about the reopening last week of Primark stores in England and Wales. The stores opened safely and successfully. Birmingham on the left-hand side, delighted customer with a big basket, big bag full of gear on the right. The safety of the stores is paramount. We have invested significantly in hand sanitizers, in extra cleaning, in people to manage queues outside the stores, in physical plant to keep staff isolated from one another as they run all our tills. That work has been good, and I have yet to see or hear about any difficulties in maintaining proper separation of our customers from one another. Actually, there's very little reporting on people not adhering to our standards around the wearing of masks. Let me turn then. Oops, a minute.
A, the length of queue, and B, how distanced everyone is from one another. If you run that now, please, Katie. Last week. Well, we had a record sales week in England and Wales. In six days, sales were higher than they had ever been in any previous seven-day period. Monday was a record day by some distance as well. We saw big basket size. We saw good performance in the categories that have performed well last time we reopened. Good sales of nightwear, loungewear, underwear. We also saw a big improvement in footfall on previous reopenings. The total footfall was back to pre-COVID-19 levels, and it was improved significantly in our city center stores as well as our out-of-town ones, and even in the destination stores in Manchester, Birmingham, and the two Oxford Street stores. Big difference in footfall in those destinations.
Whereas last time, as I indicated, we sold a lot of lockdown gear, this time women's fashion, in particular, had a fantastic first week, not only in clothes but also in accessories, handbags, jewelry, and then lipstick and makeup also had a good week. We really do think that our customers are thinking differently this time that they come out of lockdown. If that was then last week, let me turn back to the period as a whole. Obviously, severe impact of store closures across Europe and the U.K. -15% like-for-likes compared with last year for the periods that the stores which were able to trade were open. I would call out the agility, and I'll demonstrate some of it, of the management team, both at the store level, but also in the center in Dublin, to be very agile through this period.
To do a good job also in reducing costs down some 25%, not including the furlough monies. I've got a few slides to show you on the progress of the U.S. market. Even through lockdown, we've developed fast and well. Again, we've added six new stores in the first half, ranging from Miami to Rome. Here is the profile of the store closures right from the beginning of COVID-19. We only had in this first half that we're talking about, four weeks when all the stores were open. Whereas in the first wave of COVID-19, we had a period of all stores being closed, at no time, this time, did we have all stores closed, but the period where we had most shut was longer than the first time.
We also saw, and I'll come onto some of them, restrictions other than total lockdown employed by many of continental European governments. Let's look at those like-for-likes, -15% across the group. In the U.K., when we were open, we were trading essentially without restrictions other than self-imposed ones. The like-for-likes were -6%. You take out through the period the four major city center stores, it gives you an idea of just how important they are in the sales mix. We traded at -1%. That women's fashion was well down, I think that was a very good performance in the period. In the EU, we were off 20% in the stores that were open, but severe government restrictions on trading whilst we're open, which I'll turn to in a moment.
In the U.S., we were at -3% if you exclude Boston, which is a heavily tourist-focused store and also a store with a lot of student business and the universities in Boston were shut through the program. We think that -3% is an indicative underlying number. Again, during a pandemic, we think that is very credible performance indeed. What were some of these restrictions in European countries? Reduced trading hours and days. A number of markets at times, we couldn't trade at the weekend. We couldn't trade beyond 5:00 in the evening. Sometimes extreme customer occupancy levels limits. At the moment, we can't have more than 50 people in any of our stores in the Netherlands, actually, regardless of their size.
Damrak, which is I think 80,000 sq ft, really is very lightly traded at the moment. In some places, we were limited at times to what merchandise we could sell. Basics and children's wear in some cases. Very extreme restrictions at times on how we could trade. Restrictions really in all our markets on what our customers could do. Obviously, constraints on social and leisure events or their complete banning, and both of those drive sales for us. Apprehension over leaving home, travel distance limits from home. Many times in Spain, you couldn't go more than 5 km from where you lived. Home working and then, of course, very little tourism.
It's well worth saying, though, that the sales that we have made through this period from our European stores, particularly our Spanish stores, even when the like-for-likes were very poor, provided very welcome cash flow during this period. Our sheet would look a whole lot worse if it hadn't been for the cash provided by our Spanish stores in particular. Turning now just to give you an example of how hard life has been for store management in particular. We think that there's been arguably indecision in the U.K. at times through lockdown. Look what the store managers in Oviedo in Spain, just a single example of a store. I think that's some 14 different changes of instruction that that store management has had to adjust to in the first half, No, I beg your pardon, in the period up to the reopening now.
We're still operating under reduced occupancy instruction in that store. I think another example of the agility of the team now at the center of Primark, has been the speed with which we have been able to adapt to a pre-booking system, click and greet, that is operating in certain of our German stores and also in the Netherlands and Belgium. We turned around, we created and disseminated an app on which our customers could book slots up to seven days in advance very, very quickly indeed. If you go on this app, in the Netherlands in particular, there is no availability anytime soon. If you go online, you can buy a slot off someone who does have one. I believe the going rate at the moment is EUR 25 per slot. None of it's coming to us.
Let me turn to the U.S. and just focus on the reasons for our confidence there. We opened three new stores, the much-delayed American Dream, in a new shopping center in New Jersey, which was delayed because the whole shopping center was delayed. We also opened Sawgrass Mills, our first store in Florida. Just outside the period of the first half, we opened our first store in the Midwest State Street in Chicago. We're going to open our next store in Philadelphia Fashion District. We've already got a store in Philadelphia. This will be our second and downtown. That will open later this calendar year. We've signed leases for three stores, all of which I think will be very good for the business.
Queens in New York, Green Acres Mall, which is in Long Island, and Tysons Corner, which will be our first store in or around Washington, D.C. These three new store openings represent, I think, the first stages in our acceleration of growth in the U.S. Here are some pictures for you of Sawgrass Mills above. Even though it's our first store outside the Northeast, the sale, and even though we're in the middle of a pandemic when there are no tourists, Sawgrass Mills sales weekly are second only to those of Brooklyn. That is fantastic. American Dream, only about a third of the retail space in that new shopping center are open. The busiest show in the mall is undoubtedly us. Chicago's State Street, lovely building that John knows only too well, having lived in Chicago some years ago now.
On the left-hand side is on a normal day. Sorry, the center picture is what we did to it on St. Patrick's Day, and then the look and feel of the store at the beginning. It has started strongly as the next picture shows you a very respectable, even by Primark's standards, opening day queue in a market where we were completely new. The slide on the right, I love. It is the growing collection of clothes that one shopper put together, taking instructions from friends and relatives in Brazil for a shopping trip she undertook on their behalf. I think that the total bill for all the gear she bought was about $5,500. What we have in the U.S. is a profitable store model. We've said that before. We have ample warehouse capacity to leverage no more fixed costs.
Keeps on improving and becoming more local in the U.S. The next slide, this NBA license that we have agreed with the NBA is an example of some of the sports licenses we're beginning to be awarded in the U.S. It's an important part of the mix. We didn't have nearly the same participation of license in the U.S. that we have across Europe, and that is being put. The store openings, though, were not just in the U.S. The two new stores in Spain will be great. Our first store in Rome has been a phenomenon when it's been allowed to trade. It's knocked our first Milan store off its perch repeatedly. Italy is developing into an incredibly good market for us.
Sawgrass Mills and American Dream I've mentioned, and then our store near Calais I only mention because it's had the shortest period of trading in the history of a new Primark store. It opened one Friday and was made to close the following day in the afternoon and hasn't reopened since. If physical bricks and mortar keep developing are the essence of the business, the digital and social media is a really important part of our mix. I'm delighted that over the last 12 months, we have not lost any followers on digital or social media. A year ago, we had 22 million followers. We've still got 22 million followers despite being closed for half a period. That digital media has formed an absolutely vital part of communicating our store reopening plans. You can see on the right a post on Twitter and then one on Instagram.
The online communications to our customers form a vital and ever more important part of our marketing mix, and you will see us making further investment in our website, in our digital marketing, in the months and years to come. We couldn't have a Primark presentation without telling you some of the first half top sellers. Many people I'm aware, not including me, bought a lockdown puppy. Not surprisingly, Christmas gifting formed an important part of Christmas sales, at least until we were shut. Stay-at-home kit, phenomenally successful when we were open, and then we sold an improbable number of pairs of pajamas for all those people who didn't see the need to change out of their pajamas at any time during their working day. When you go into stores now, you see great spring/summer fashion.
In womenswear, I'd call that gingham prints, gelato tones, really good ranges in fashion denim that since we reopened last week has gone really, really well. Not as well, though, as seam-free jersey. You can see a display in the U.S. on the right-hand side of that. In England and Wales, it barely touched the sides. We had to choose internally just for the racks of seam-free jersey. Phenomenally successful. We continue to develop the sustainable ranges, working with Disney on some great fashion items, all made with sustainable cotton or recycled polyester. It is performing extremely well in the U.S., now it's performing really well also in England and Wales. We're excited about the development of our sustainable ranges and also of our licensed. Staying on licensed, we have been awarded the license for Pineapple Dance Studios.
It supports our workout gear, sales of which have been very strong as well. So far, I've been talking about versions of what we've already sold. Let me now turn just briefly to developments of product ranges. Parenthood launch is important and is very, very new. We now have an extremely good range of maternity wear, and sales of that last week were very encouraging. We are expanding our Baby World collection, so babies clothing, 50% of which will be made from sustainable or recycled fabric. Then we are also dedicating more space, more range to an expansion of lifestyle and home. If any of you wants to go down to Oxford Street East. Now we have a great display on the lower ground floor of what I'm talking about. Fantastic rates of sale within Lifestyle at home when we're open.
As of today, we're trading from 60% of our total retail selling space including those markets where there are severe restrictions, we've actually got 70% of our total retail selling space open. By the end of April, we expect to be trading near 70% of our total retail selling space with few restrictions and nearly 80% including the restricted areas. We've still got a lot of space left to reopen. As the vaccine programs roll out in our European markets, we expect that we will get all our stores open again. We also expect to add a net 700,000 sq ft of new selling space this financial year. Chicago open in the second half, we've also got this list of stores starting with Prague, which is much delayed, and ending with Tamworth.
For all that this is a business expanding rapidly across a wide range of places, Tamworth will be great for us. The store growth prospects, we're accelerating the pace of new store openings again, driven by growth in the U.S., but also by the opportunity for expansion that we see in existing markets, France, Spain, Portugal, and Italy. We're just getting started in Eastern Europe. I believe that our Slovenian store reopened today. Right. Let me then turn to our food businesses and start with the consequences of COVID-19 on the food business. We have provided safe and nutritious food all around the world under the most demanding of conditions. During this first period, we've seen high rates of COVID-related absence again in a number of our factories.
We have barely lost a shift because of this, and it's testament to the ingenuity, the dedication of many thousands of people. Of course, we've seen increased volumes through retail sales channels. We've seen reduced foodservice and on-the-go volumes in a number of our businesses. We've also seen, particularly in our ingredients businesses, a lot of opportunity to show customers new products that they might use in their own operations. We simply can't get face to face and a lot of the selling in an ingredients business has to be face to face. If I then go through sector by sector and starting with sugar.
Significantly improved profitability in sugar, nowhere near yet the levels of a few years back, but the improvement in profitability in Illovo actually was the driver of most of this improvement and is particularly welcome after a year last year when the situation was quite difficult there. The performance improvement program all around the world continues to deliver, and we still have a visibility of cost reduction opportunities ahead of us. In British Sugar, so here in the U.K., we've had a very difficult year due to virus yellows, and I will focus on that in a moment. We've decided to reopen the bioethanol plant in Hull, which has been mothballed for three or four years now.
There'll be a cost that we'll take this year for the reopening of that business, but with the British government committed to introducing E10 to the petrol supply chain, we think that it will be sensible to reopen that plant. The effect on adding E10 to the petrol supply chain is much greater, so in terms of reduction of carbon from the transport fleet in the U.K., is much greater and much quicker than any short-term increase in the number of electric vehicles. Also, and I've talked about energy reduction programs, we're still at it. Let me turn to Illovo and also include in that some of the water reduction opportunities that we are availing ourselves of. Significant cost reductions in Illovo have come through this year.
The retail branded sales continue to grow, and that is great. That is good, sustainable business for the very long run. Better pricing discipline was evident across the Illovo business. You need that in markets where there is high inflation rates, as there is in a couple of our domestic markets in Africa. Lockdown drove domestic volumes up. Including in South Africa, you'll remember us bemoaning sugar reductions in South Africa. Well, it came to some extent. We have benefited from a higher world sugar price, but actually most of the sugar that we sell now from Illovo doesn't go onto the world market, so that's a consequence. A year ago, COVID gave us particular difficulties in restarting the Mozambique factory when the campaign started in that country. On the bottom right is an example of investment in drip irrigation.
It leads to a step change in water usage. Essentially, you have a series of pipes running through cane fields, which precisely measure water fed to the roots of the cane, rather than either spraying it on the top or flooding the field. With the water reduction also comes a large reduction in the power required to move the water to the irrigation points. Good projects. We have a long-term project to replace a lot of the current irrigation systems with drip. In the U.K., back there, we only processed this campaign, only produced 900,000 tons of sugar, down from the nearly 1.2 million tons of a year ago. The reason for that was the very high prevalence of virus yellows. Many of our growers, in particular areas, parts of the country, saw their yields reduced dramatically by infestations of virus yellows.
Not in all parts of the country, but where it hit hard, it hit very hard indeed. In the 2021 campaign, which is now largely in the ground, we expect to see about 1 million tons of sugar that we can produce from the high yields we expect to characterize this year's harvest. Spain production was in line last year. China production was ahead. Factory performance was good and pay by sugar content increased from something like 30% of all the sugar beet we bought to 70%. Let me just show you what's happened in the world sugar prices. When we were together a year ago, they were very low. They've recovered very significantly. Actually, the beginning of March this year, they were very high.
It's come off a bit to an extent, sugar prices are well ahead of where they were last year, when all commodities dropped globally. That world sugar pricing has driven up the European sugar price to much more satisfactory levels. We go into the next negotiating round with this as the backdrop. Staying in British Sugar, let me just show you some examples of energy projects that have been completed this year. We are pressing pulp at our biggest factory, Wissington, to drive much more of the water out of it before we put it through dryers. If you think of that enormous spiral in the left-hand picture as being a mangle, we are pressing water out of the pulp in large quantities. On the right-hand side is really a descaling plant at Newark.
If you can get lime scale out of the operation, then again, you need a lot less power to operate the whole of the operation, or a significantly less amount of power. Just to remind you, our sugar businesses around the world represent a big majority of the total energy that we use across the whole of ABF. Significant projects to reduce energy in British Sugar are important and contribute significantly to ABF's ability to reduce energy consumption as a whole. The Vivergo bioethanol plant which will allow, as I say, the net CO2 to be emitted by the car fleets in the U.K. to come down on the back of E10. Turning to Ingredients, AB Mauri has seen another period of high demand for retail yeast and other bakery ingredients driven by the boom in home baking.
The yeast and bakery ingredients joint venture with Wilmar is progressing well. South American businesses have performed really well despite difficult economic and social conditions. We'll all have read about the consequence of the pandemic in Brazil, which is the largest of our bakery ingredients markets in South America. We completed a new global technology center for bakery ingredients, for novel bakery ingredients, in the Netherlands. This is an important facility, which will allow us to accelerate the development of new intellectual property, new ways of baking and making all sorts of baked products which we then roll out across our sales teams around the world. There is an ongoing investment, it's been running for some while, to increase the capacity of our effluent treatment plants. AB Sugar produces most of ABF's CO2, Mauri produces most of our effluent, or at least did.
We have a big project underway, I think the spend is something like GBP 20 million, to improve the form of the effluent treatment in Brazil. The Pederneiras plant is a very large one. It will have a effluent treatment plant which will satisfy present and future requirements for COD and BOD effluent loads. ABF Ingredients, just very briefly, strong growth from nutritional and pharmaceutical lipids. Although we don't make them, pharmaceutical lipids are carriers for both the Moderna and Pfizer vaccines. As I say, produced by someone else, we're in that business too. A further good progress from our business in Hamburg that makes yeast extracts. Agriculture also had a very creditable first half. AB Vista feed enzyme volumes held up much better than we'd feared they would.
Successful new products are also launched through AB Vista, reducing the need for antibiotics in animals around the world. That project is going well. AB Neo is a new business that we created within AB Agri, that specializes in improving the performance of young animals. It is particularly driven out of our business in Spain. Animal feed performance in China, much improved. We are announcing substantial investments in a new and efficient animal feed mill in the East of England. This will be a very big operation indeed. Let me turn now to grocery, where we've seen, as John alluded to, strong revenue growth, higher food volumes through retail sales on the back of COVID-19, but also good growth internationally for a number of our brands, particularly Twinings, Ovaltine, which I'll come back to.
We did see lower margins in Mazola and in the first half, and also our meat business, Don in Australia, and I'll turn to those in a moment. Lots of focus at the moment in our grocery businesses in reducing packaging, making it more recyclable, trying to get rid of single-use plastic. Worth calling out because it speaks to how ABF works, there's a very nice sustainable rice program in Pakistan that has benefited from learnings that we've made in Primark, in Primark's sustainable cotton program, which is operating in the same country. The same disciplines, the same benefits that we can bring to farming communities in Pakistan to make their production of rice more sustainable. Turning to Twinings, good new product launches, successful new product launches in the area of wellness in particular.
Some of those have come in France, where the performance in the first half has been great. Exciting development of sales of Twinings tea through e-commerce platforms in China. Growth there is now very good. Inevitably, we've been sitting at home drinking more tea than we did before lockdown. That largely offsets the decrease in out-of-home consumption of both tea and Ovaltine across the world. Ovaltine itself then had a good period with good strong sales growth. Thailand seems to be back on track and Nigeria, again, much improved. COVID. In Thailand, we sell a lot of Ovaltine for people in some Tetra Pak for people to drink on the go, and they haven't been. Then also in Ovaltine, I'll show you some pictures at the moment, exciting foodservice growth for Ovaltine in China.
Here's just some examples of new product launches for Twinings in France. Wellness, flavored teas, and then organic under the La Tisanière brand in that country. Here then is Ovaltine in China. We are supplying Ovaltine to a number of very big foodservice operators, just as we do in Brazil. We believe that the rates of sale of these products, which are branded with Ovaltine, and of course taste very Ovaltine-y, are delighting those foodservice customers who are taking them. Repositioning of the brand from being really one for children, which is the positioning in a lot of the rest of Southeast Asia, into a foodservice delight based around taste and crunch.
Twinings, Ovaltine isn't the only fast growing international part of our grocery business. Acetum has had a very good year developing the Mazzetti brand, and we've had very good launches in some of its relaunches in some of its biggest markets, particularly Germany, U.K., and Australia, growing very well. AB World Foods, so that's Patak's and Blue Dragon brands in particular, is growing well internationally. It's had a very good, very encouraging period of growth in the United States, where we think the acceptability of Indian food in particular, or the interest in Indian food, is increasing quite quickly. Increased demand helped this top list of businesses, Silver Spoon, Jordans, Dorset Cereals, Ryvita, and yeast in North America in particular. Westmill Foods supplies foodservice and is therefore part of the ABF portfolio that's had a very tough time.
In this first half, they've done some really good work supporting South Asian and Chinese restaurants in this country to make the transition from eat-in restaurants to takeaways. In the second lockdown, these businesses, Indian restaurants, Chinese restaurants, have performed much better than they did first time around, not least because of the very practical support and guidance that Westmill Foods has given them. Allied Bakeries, the revenues in the first half were in line with last year. We've done a good job getting the costs related to supplying the Co-op out of the business and once more, the efforts of everyone in bread to overcome all the challenges that COVID-19 has thrown at them have been amazing for me. In North America, the bakery businesses have delivered strong growth. People inevitably cooking more at home and entertaining their children through baking has helped the traditional brands.
It's also helped Anthony's Goods, which you remember is an online business that we bought in California probably two years ago now. Mazola's had a much higher time on the back of significantly rising commodity costs and actually lower availability of refined corn oil in the U.S. It's been a very difficult time for Mazola and for all, actually, the businesses in edible oil, retail edible oil, in the U.S. ACH Mexico has been improving for a number of years and had another good period, particularly actually in recovering higher commodity costs. George Weston Foods has been great. Excellent performance at Tip Top, our bakery business there. Very good sales and profit growth. Yumi's, which is reasonably new to ABF now, is developing quickly. It's been a delight to watch the success of Yumi's under the existing management, but with our oversight being applied.
We have now committed to a significant investment in the new animal feed mill in the west of Australia. The animal feed business in Australia is going well. The only difficult part of the entirety of our business in Australia and New Zealand has been the consequence of the Victorian government putting very severe restrictions on all meat producers in Victoria during lockdown, not just us, but the whole of the industry. We were very restricted when we were allowed to be opened in the volumes that we could produce, the staff we could employ, and we have lost business as a consequence to other Australian states, which will take a little while to come back, although we're working on it. I love this slide, which I've now got up.
It is of an area of New South Wales flooded by the heavy rains that you will have seen a little while ago. The first thing to note is even in times of severe flooding, the sun shines. If you look closely on the left-hand side, you can see our bakery distribution teams getting the bread out to their customers by boat because there's no other way. The commitment to customer service has always been an extraordinary characteristic of Tip Top, and excellent customer service, I think, is one of the reasons why we have been outperforming the rest of the Australian bread industry. These guys are great when the difficulties mount, whether it be fire or flood. Let me then end with some comments about the outlook and a summary of the whole. In Primark, obviously fantastically reassuring first week in England and Wales last week.
We expect the second half results to be significantly ahead of last year, but still held back by the later reopening of stores, as John's mentioned. The second half inevitably will be very cash generative in Primark, as we sell through the stock that John referred to earlier. I think it's important that we get the job retention repayment behind us. Softer food production performance in the second half is to be expected. Firstly, we're lapping a very COVID affected period last year, and I so hope this year is less COVID affected for most of us, in Europe in particular, and therefore that the retail volumes go down. The sugar profitability, the improvements from Illovo will last through the year. We're on track for those at the beginning. John mentioned the effect of full year of the current exchange rate on our profit outlook.
In summary, lots of good work going on in ESG communication. The presentation we did before is a major development in how we communicate and what we communicate with you on. In the first half, the food businesses have been great. Adjusted operating profit up 30%, that is a fantastic number. Not just grocery performance, but also improvement in AB Sugar and coming from exactly where we needed to come, which was Illovo. Primark store closures have cost us a huge amount in sales and profit, and cash. There's palpable relief from one end of ABF to the other, really, now that we've got so many of our stores reopened and the cash flow has reversed. We're opening a number of stores in the second half. We're succeeding in our new markets.
We're accelerating our new store openings in those new markets in particular, we really are as convinced as we've ever been in the long-term growth prospects for Primark. Let me end there. Thank you for hearing us out. If we could go on to your questions, please.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad and you'll be advised when to go ahead. Our first question comes from the line of Anne Critchlow from Societe Generale. Please go ahead.
Good morning, and thanks for taking my questions. I've got two, please. The first one about Primark space. In the pipeline for next year, do you still have about 1 million sq ft of space planned, please? The second question on the Primark margin. I think it was 190-basis-point improvement, the operating margin in the first half. Was most of that coming through at the gross margin level due to currency and lower markdowns? Thank you.
Okay. Let me have first go and then John will correct me. Primark space, I think what we can see now is slightly under 1 million sq ft, but will probably be higher than the 700,000 that we expect to open this year. There's always a little bit of uncertainty, particularly about reopenings that are scheduled towards the back end of the year. In terms of margin, actually in gross margin, the following wind of currency is offset largely by increased costs of fabric, both cotton and manmade fabrics, and also freight increases. Not much change really in gross margin.
Great. Thank you.
The next question comes from the line of Clive Black from Shore Capital Markets. Please go ahead.
Thank you. Thank you, George Weston and John Bason. I'll ask two questions if I may. Firstly, it was interesting John Bason's comment about Primark margins going forward. I just wondered with all the learnings you've had through the pandemic, whether there were grounds for cautious optimism that you would have a more efficient base to allow positive operational gearing to come through if there is a period of uninterrupted trading over the next 6 to 18 months, really. Just secondly, George Weston, you clearly are in a much brighter mood today, which is good to hear. I just wondered, could you give us an updated thought process on the U.S.A. in terms of where the potential for Primark is there now it's a profitable business? Thank you.
Yeah. Clive, hi. Let me just answer this question first. What we believe now, we started as a Northeast, we started our learnings in the Northeast. Now the brand is relevant anywhere east of the Mississippi, which is, I think, something like 65% of the U.S. population. The success in Florida, the success in Chicago, recent though it is, I think gives us confidence that the brand is relevant really throughout the East United States. From that distribution hub in New Jersey, in Bethlehem, we believe we can service anywhere east of the Mississippi, for now. That feels great, really, when you combine it in particular with the profitability of stores at an individual store level. These 35,000 sq ft stores just do work very well for us. Then some of the brand measures, which I won't share, are also looking good.
I wanted to turn to John for questions of leverage and margin. Equally, there is some new fixed costs that we're going to put into the business, particularly around the sustainability communications. I think particularly around online communications. We are likely also to put some costs into sustainable ranges themselves. I wouldn't model an increase in margin coming from just sales growth in the medium term. In the short term, absolutely. As we come back to near normal levels of sale, we'll see that leverage coming through.
We are still building aspects of our total cost base.
I'm hoping, complementing what George has said, that he's right to highlight where those costs have come through. I think when you've taken a lot of discretionary costs out of the business, the Primark managements are being very careful which elements you add back.
Yeah.
Probably focus of those costs that you add back, and I think as like any great retailer, they will constantly look at how they operate in terms of labor costs and so forth going ahead. That's really how I think I would look at it.
Okay. Thanks, guys. George, can I just ask a quick follow-up in terms of, is your thinking about the potential of the U.S. opportunity, has that adjusted over the last 12 months?
Yeah, it has. It's come from three places, really, my increased confidence. The first one is just a longer period of good trading. You sort of look at good results for a while and go, will it last? Well, it's lasted. The second one has been the robustness of the sales levels through COVID-19, and also the maybe short-term response, in sales to government checks landing on everyone's letterbox. We've had a very strong period of sales in the immediate aftermath of that. Then it's the relevance in different geographies.
Yeah.
That you go, well, okay, maybe we're not just a brand for the Northeast. Yeah. It feels like that we're at the early stages of a multi-year development journey.
Happy to hear. Best if you do that. Thank you.
The next question comes from the line of Aneesha Sherman from Bernstein. Please go ahead.
Hi. Good morning. I have two questions as well, George and John. The first one is on Primark. You say in the release that Primark profits should be somewhat lower than last year. Does that include the GBP 121 million furlough repayment? Is that going on Primark's P&L, meaning the underlying profitability should actually exceed last year? Is that last year's guidance x the furlough repayment? Yeah, go ahead.
I think the guidance is that even if we had not repaid the furlough monies, then I think it would be a bit below last year. Obviously the GBP 121 million takes it somewhat below last year. Okay. I don't think the profitability would have been ahead of the GBP 350 million, GBP 360 million that we had last year anyway, if that's clear.
Yes, that's very clear. Okay. My second question is, given the strong performance in the English and Welsh stores and the optimistic tone we heard this morning, are you expecting all the English and Welsh stores to make a profit in H2?
Yes. We would. Yeah.
Okay. Thank you very much.
The important change from last time is the much better improvement of those four destination stores.
Yeah, absolutely.
Yeah. Okay. Thank you.
I think it's very important. Look, Aneesha, by the time we're into the fourth quarter, we'll be getting a much better feel, depending on where those like-for-like settle out, where the margins look. I would see the U.K. stores as being a very good guide for that.
Okay. Thank you.
The next question comes from the line of James Grzinic from Jefferies. Please go ahead.
Yes. Good morning, George and John. I had two quick ones as well. The first one is, are you already looking to change the supply chain setup that feeds into Primark U.S.? Are you really looking at changing it from an extension of the European supply chain? The second one, George, can you perhaps talk about how the Oracle program and the rollout is progressing at Primark? Presumably it is generating or will generate considerable efficiency savings to then reinvest in some of the areas that you touched on.
Yeah. We are looking to change the supply chain into the United States, but that work hasn't really begun yet. We just can't do much during COVID-19. It will change. It's on our list of ways of improving the profitability of the American business. Oracle really is a driver more of better, more relevant information than it is a cost-saving program. It's also an enormous enabler for all sorts of things. Not least multi-currency operations becomes so much easier, with Oracle financials. With any IT program, my experience is particularly towards the end of them, you're very ill-advised to say, "Yeah, it's brilliant." We'll tell you when it's done. So far so good, but there is some perilous waters to cross still before we can sort of sit back and say, "Well, that was hard, but it's done.
George is always right to point out the risks, and I would be with him on that. The thing I would say, however, is that, in terms of ordering right the way through to the stock management in the stores, I'm pleased to say that we're now fully operating is order through to the stock into the warehouse. The last bit then is taking Oracle into the stores themselves for the stock management and all of that, and that's really what we'll be looking at over the next six months.
That last bit is really important in terms of telling us where we've got stock and where we don't.
Understood.
We'll get so much more clarity of what the stock holdings in-store actually are once that last piece is done.
Just to reiterate, all that piece of work is supposed to be completed within the next six months?
Yeah. I hate targets. You're going to have me really, James. Look, we're a number of years into this. I'd really compliment the work that's gone on by the Primark team. It's not done till it's done. That's the sort of timetable we're looking at.
Got it. Thank you.
Thanks.
The next question comes from the line of Richard Chamberlain from RBC Capital Markets. Please go ahead.
Thank you. Morning, guys. A couple from me, please. First one's on Primark. I wondered, maybe George, you could give us an update on the composition of Primark's inventory, just in terms of how much is being carried forward, your balance between home related stuff, or sort of occasion going out wear. That's the first one. On Ingredients, can you just talk through why you expect the profits to fall in the second half and to be stable for the year? I mean, I presume it's mainly a tough comparable issue, anything else to mention there on Ingredients for the second half? Thanks.
Let me tackle the second one first. Yes. This time last year, customers stocked up on the sort of ingredients that we supply. The sales level saw a great surge in the first half of last year. We don't expect that to be repeated this time. We think that sales will drop, simply because.
Tough comparable, yeah.
It's a tough comparable.
Okay, thanks.
Moving across to Primark inventory. We've got about GBP 150 million of spring/summer inventory that we put away last year, and about GBP 200 million -
GBP 260 million
GBP 260 million, I beg your pardon, of autumn/winter that we have just put away. We were very careful as we selected what to put away and what to try to clear, that we only put away either items where the fashion component was low, so you put away sweatshirts and T-shirts and things which are as this year as they are last year. We only put away ranges which had not been brought out and shown to customers last time round.
Okay.
One of the things that we are particularly pleased about in this first week of opening, is we've had almost no reports of people saying, "Oh, we've seen it before. This was out on the shelf last year." Even though a fair amount of what we're selling now is put-away stock from last spring/summer. The customer just doesn't.
Yeah. Okay, got it. Thanks very much.
Yeah. Thanks, Richard.
The next question comes from the line of Warren Ackerman from Barclays. Please go ahead.
Morning, George, John. It's Warren here at Barclays. A couple questions from me as well. On AB Sugar, we haven't touched on that one. It was a strong H1. I was wondering whether you could say where spot EU prices are, because obviously on your chart, I think EUR 390 a ton, I guess that's a European Commission number that's lagged, and what that means going into next year, I suppose, on AB Sugar. Sort of related to that, the Illovo point, it sounds like you're saying that some of the profit recovery is being phased from H2 into H1 pull forward. I was just wondering whether you can confirm that and any kind of moving parts around Illovo timing would be useful. Just secondly, on grocery, you are striking a more cautious tone.
Just wondering how much of a margin impact do you expect from higher corn oil for brands like Mazola? It sounds like that's where the pressure point is in the U.S. I also note weak Australia, George Weston Foods, particularly the meats business. Where do you think grocery might end up for the year? Those are my two. Thank you.
Okay.
EU prices first, George. Do you want to do that?
Yeah, why don't you do it?
Yeah. Let's do the EU price one. The chart that we showed is actually the prices for sugar by the way, across Europe. They do vary. There are some parts of the EU which are lower. Those prices that are broadly pertaining in the U.K. are higher than those. There is a bit of the lag, which we've always seen in the European Commission reporting of this. If you're looking at spots prices, which you know I don't really like because they're always small volumes and so forth.
Yeah
in reporting. Mid 400s would be the sorts of prices of EUR per ton that we're looking at. What is the prospects as we look into to next year? Well, you can see that there's not a big increase in EU production as we look ahead. The stock position is tight. The production does not look as though it's going to really rebound strongly next year. What does that mean? Compared to the British Sugar prices that we've got at the moment, probably small up.
Okay.
Don't.
No.
It's the absence of the negative warrant. There's no major undermining of that.
It's notable that the frosts in France, which took out so much of John's wine crop in that country in the last few weeks have also done significant damage to plantings of sugar beet in France.
Yeah.
The producer may well produce less sugar on the back of that. Turning to grocery, the impact in Mazola of both volume reductions, and also much higher corn oil prices, we expect to be in the tens of millions of dollars. If I move to Australia and Don, there's probably, we would see a sort of AUD 10 million switch. Things are actually getting better in Australia with the improvement in foodservice demand, which is a significant part of what Don supplies into. Maybe Don will have a better second half than we feared only a month ago or so. Those give you the shape of the downsides there.
Okay. Could I maybe just squeeze one more in, just on Primark and on currency as we think about modeling 2022, given dollar sterling and dollar euro. Obviously, it's an impact for 2022. Obviously sterling's moving around, but it does look like quite a notable kind of translation positive for 2022. Are you able to give us, John, any kind of sort of sensitivity around dollar sterling and sterling euro, just as we think about bought in for next year?
Well, I think it's probably premature to give too much on that other than very broad. When you look at the movement in exchange rates, they can move pretty quickly. Let me put it this way. The current spots for the dollar and the euro, which are really the two key numbers, they would give a margin upside. If they were to continue for the whole of the year, it would probably be a three-figure profit number. We are looking at offsets on that of particularly sea freight and a number of the other costs that would go there. I would not be penciling in any sort of major upsides, because I think we're seeing. At least we do have that tailwind. It's absolutely right. You can see the scale of that currency upside, but we're looking at some of the other things.
At the moment, the good news would be.
Yeah
we feel that the gross margin is certainly supported at these levels, and let's see where we go over the next coming months.
All right. Thanks, guys.
I think I'd turn it around and say if it wasn't for these currencies, we'd have some really nasty headwinds.
Right. Got it. Thanks.
To get away with simply the doubling of freight rates, we'll have done a good day's work.
Yeah. Okay. Thank you, guys.
The next question comes from the line of Simon Irwin from Credit Suisse. Please go ahead
Good morning. Couple of questions for you then. How are you thinking about M&A now? The balance sheet is pretty solid, and obviously you're much more confident about the world ahead. Do you see opportunities out there that perhaps weren't there in a pre-COVID world? Just within the grocery business, obviously some of the markets you're working in, notably Australia, are obviously well past reopening now. What kind of trends are you seeing there? Are you seeing a total reversal of eating from home and out-of-home trends, or is it much more moderate than that?
That's interesting. M&A opportunity. Yeah. The scale of the cash outflow at the height of the closures this year, I think, would give any sane combination of chief executive and finance director pause before they committed the rest of their balance to an M&A venture. GBP 650 million of cash outflow in the period because of closure is just an enormous number. We don't have anything like enough certainty to say that there won't be another lockdown in the autumn, or when those important markets of Germany, France, Italy, Ireland will come back to normal. I think we just have to be cautious for the time being. In the meantime, if there are modest levels of expenditure required for particularly strategic M&A opportunities, we will take them. We've been doing so.
We bought, I'm not sure if we talked to you about it last, about a little company in Sweden.
Yeah
called Larodan, which has great expertise in polar lipids. I was mentioning the pharmaceutical lipids. Well, that's about improving our capabilities at the R&D end of that. I don't think there are even a dozen people at Larodan, but gee, it was too nice an opportunity to miss to improve our intellectual property and our ability to develop more in that sector. Expect that sort of thing to continue. The kind of multi-hundred- million GBP expenditures, I don't think we're in the mood for it. I think another reason, though, for not being in the mood is that, and maybe we'll talk about it more next time we're together, there is a really nice pipeline of business development opportunities based around capital and other areas developing across the portfolio. We've mentioned some of these feed mills.
There is a lot more beside that we're looking into at the moment.
I don't think we've seen a real uptick in-
Yeah
in interest in that.
Yes
good result.
That would be, I think, my answer to that, to the M&A part. In Australia, yeah, we're seeing, well, two things, I think, to call out. The first one is to return to much more normal levels of volume in foodservice led by QSR, quick service restaurants, in particular, where we have good representation both with Tip Top and Don. That's great. The second thing that we're seeing, well, it's what we're not seeing, which is recession. We thought that some of our premium brands, sales of Twinings in Australia are very strong. We're the market leader by value, and I think volume as well in the Australian tea market. The absence of a recession in Australia, which I thought was a nailed on certainty, I think is giving us oxygen in our more premium priced businesses.
I think if we were sitting together six months ago, I think John and I would've said, "We're going to have the mother and father of all recessions around the world, and Twinings, in particular, is going to have a miserable time of it because of that." We're not seeing that at all, and I think we're more likely to have a consumer boom than a consumer recession.
Excellent. Well, let's hope you're right. Thank you.
Yeah. Absolutely. Thanks.
Apologies for the delay. The next question comes from the line of Warwick Okines from Exane. Please go ahead.
Good morning, George and John. Two questions back on Primark, please. Could you say a bit more about Primark's medium term strategy in the U.K.? Before COVID, it had been a store refurb, I think sort of low single digit space growth story through enlargement. Is that unchanged by COVID? What sort of rent reductions are you seeing in your end of lease discussions? Could you give a sense of the proportion that Primark's goods are which are made from sustainable or recycled fabrics at the moment, please?
Okay. The medium-term strategy in the U.K. is not significantly changed. We've got the store portfolio by and large, that we think we need in the medium and probably long-term too. I think there is, though, an opportunity with the demise of some of our competitors, to expand the ranges we sell in certain categories. We're onto that. It's too early to tell whether we are benefiting from other people's demise in the week that we've been trading so far, but we would hope that there's room for us to benefit from the loss of some of our high street competitors. That's new, obviously. Sustainable recycled percentages of total. Yeah. I will get back to you. I know that when we closed, we had something like 60 million items of clothing made from sustainable cotton, and I think 20 million from recycled polyester.
I don't have those numbers as a proportion of everything we sell in my head yet, at the moment.
Okay, no problem. Just on rent reductions, perhaps?
We don't. Certainly, the sustainable cotton program, I think it's the largest in clothing retail globally.
Yeah.
Warwick, just to let you know, when you asked about the U.K. footprint, I suppose it's often in the context of maybe other retailers.
On rent.
On rent. I'll just talk about footprint. The street often in the context of other people pulling their footprint back. That's not the intent. I think George's comment about, if I can describe it as the organic growth, certainly in terms of ranges and so forth, I think is really a key going forward. What sort of rent reductions are we seeing? Up to 50%, really quite significant ones. We are as keen to get those wherever there is a break or a lease coming towards the end in the U.K. Obviously, that will give us a tailwind for a number of years. I mean rather than it being scrunched into the next few years of seeing that, we'll actually see that probably over a number of years to come.
At least there will be a drumbeat of a number of these coming up, I think every year as we go forward.
Just being facetious for a moment, if we can halve the rents and get rid of all the rates, we will be in business.
Yeah, easy. Brilliant. All right. Thanks very much.
Yes, thanks.
The next question comes from the line of Georgina Johanan from JP Morgan. Please go ahead.
Good morning. Thanks for taking my questions, two or three from me, please. First of all, perhaps just a follow-up to the last question on the rent reduction. Is it possible just to give us a kind of average of roughly what proportion of the U.K. portfolio is coming up for renewal kind of each year on average, just to give us a sense, please? The second question was on the U.S. and brand awareness, and really whether you feel there's like a halo effect developing into neighboring cities and so on, and any plans to develop brand awareness in the U.S. Perhaps it's a digital strategy, but just anything you can share there would be helpful. Finally, just on sustainability, you mentioned that we should be mindful of fixed costs kind of going into the Primark P&L around sustainability.
Are you expecting the sustainable fabrics to be more expensive on average, or is it around communication, or is it something else there that I perhaps haven't touched on? Thank you.
Should I touch on just the. Look, I don't have an absolute number in my head, but I would say a handful of leases in the U.K. come up for negotiation each year. That's the sort of number you should be looking at. That would be then out of actually for the U.K. number, let's say there's probably 180 stores or something. That's the sort of context of it.
Just a reminder of two things. Firstly, we own a fair chunk of the space in the U.K.
Yeah.
Secondly, we do have a fair chunk of long leaseholds. I think between five and 10 stores a year are likely to come up each year for the next few years. On the sustainability question of extra cost, I think there's some transition costs that we will bear. You may see that a number of our ranges are no longer hung on plastic coat hangers. They're on cardboard ones. We pay a significantly higher cost for that cardboard at the moment, but it is the task of the supply chain people to sort out the production levels and also the cost of that new type of coat hanger. Undoubtedly, there is a cost to be borne in the meantime. Sustainable cotton, recycled cotton, in time, we hope will come at the same cost as cotton available now. Yeah.
It's all really important that we do manage to produce garments at the same price because fundamentally, we believe that sustainable product shouldn't come at a premium. Going on to the U.S., I don't have brand measures that I'm willing to share with you at the moment. The marketing has to be very local, whether it is digital or other means, because if you don't go local, you just waste so much when we've only got 12 stores. Certainly, the opening of Chicago and also Florida was accompanied by a good level of digital engagement in both cases.
Great. Thank you.
Okay.
The next question comes from the line of Roland French from Davy. Please go ahead.
Hi. Morning, George. Morning, John. Hope you're keeping well. I've got three questions, if I could, two on Primark and one on the food business. The first on Primark is just in relation to the U.S. I just wanted to get a sense around the U.S. customer, and I guess how that customer differs from a typical British or European customer. What's he or she buying? I know you alluded to more licensed goods, and that's a feature of the U.S. market there, but what's the basket mix looking like? Maybe some color around densities, just to give us a sense of customer or even per unit economics there. Then similarly around sales mix in the U.K., and this is somewhat of a longer data question.
You called out some of the NPD verticals that you might be focusing in on over the next couple of quarters around maternity, around baby wear, home wear, I think some licensing deals there as well. Do you see that basket mix evolving over the next 12 to 18 months from traditional clothing apparel? Then just finally on commodity inflation, clearly there's several pockets across the food businesses, but maybe you might remind us how you typically deal with that, either through pricing or natural or even synthetic hedging. Thanks, George.
Yeah. Sorry, let me just scroll down. Our best U.S. customer is less affluent on average, I think, than our European, including English and Irish customer at the moment. If you look at the sites that we are going into, we are chasing, I would call it, the Brooklyn customer. A significant proportion of the Florida business at the moment is made up of less affluent people of Hispanic origin. Fewer fashion-led visits at the moment. It's exactly what we saw when we went into Spain. It took us longer to develop fashion credentials, and I think that's inevitable than it did to excite less affluent people around the value for money that a trip to a Primark store will unlock. In the U.K., yes, we will continue to develop maternity, baby, and home. We think there's really good opportunity in all.
There's obviously a space constraint in all this, but we think that there are opportunities. If they turn out to be smaller than we think, we'll do something else. The flexibility of Primark commercial teams is notable. We really do believe that there are good opportunities in all three areas. I think the baby area will only strengthen as we get later on this year towards the autumn/winter collection. Commodities and how we manage them. It's very much up to the individual businesses in the group to manage, A, the commodity position, obviously with central oversight. It is for Tip Top in Australia to work with our mills on hedging strategies rather than for the center to do it, and the same is true around all the rest of the group.
Sorry, if I could add to this.
Yeah.
We're very unlikely to go long.
Yeah.
That is the point. There is hedging around the group, but it would normally be of a much shorter duration. You won't find us often really going massively out of the money because we're taking a view on our long term that's actually got away from us. As a result, you asked what's the strategy in terms then of pricing. By and large, it is pricing that we would react to unless we felt that there was a mountain, and then we'll borrow through it and we wouldn't respond. That's the way we'd look at it. We're not about taking long positions. They vary by months. Certainly pricing is a major lever that you do want to be able to pull. You have the lag or whatever effects of when the prices come through compared to the commodity cost.
Got it. Thanks for the color.
We now have time for one final question. This is a follow-up question from the line of Aneesha Sherman from Bernstein. Please go ahead.
Hi. Thank you for taking my quick follow-up question. It's just going back to the point around rents. I was just wondering, as you open new stores both within the U.K. and outside, and you renegotiate rents, what is your typical lease length on the newly signed leases? Are you also putting in some variable sales linked portion into those leases? Thank you.
Typically, we now want five-year break clauses. It'll be an exceptional store where we'll accept a letting that doesn't have a five-year break in it. No, we don't put variable sales levels into any of our leases.
Okay, thank you.
Good.
Okay. Thank you.
We have run out of time. I will now hand back to George Weston for any closing remarks.
I think we've had a very good session. I don't think I need to repeat things I've said before other than to say I hope that the world is gradually returning to normal, at least in the lives of all of us on the call, even if it's going to take a while longer for many of our colleagues. Thank you very much for coming. Look forward to seeing you and reminding yourself what you will look like maybe when we next get together in six months' time. Thank you all very much.
Yes. Goodbye all. Thank you.
Thank you everyone for joining. That concludes today's conference, and you may now disconnect.