Associated British Foods plc (LON:ABF)

Earnings Call: H1 2021

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Apr 20, 2021

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. I will now hand you over to your host, George Weston, Chief Executive Officer to begin today's conference. Thank you. Thank you, Rosie, And 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 have a call Virtually, I so hope that it's the last these are the last set of results, which are dominated by the consequences Of COVID-nineteen. And I 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-nineteen, the last two were just last week, 1 in Peru, 1 in Wisconsin, USA. I think part of the business, there's a sense that we're getting the pandemic, if consequent of the pandemic behind us. But for so much Of ABF. We really are still in the midst of all the difficulties and pain and tragedy. The first half of financial highlights are these and John will go through them in a moment in a great deal more detail. It is significant that we are declaring interim dividend of 6.2p. It's Significant that the gross investment number is still high. And I think it's also significant that we're announcing today that the job retention Money, some GBP 121,000,000 in respect of this financial year are to be repaid. We still have £705,000,000 of cash on the balance sheet despite a very difficult period of cash outflow In the first half during which is being so characterized by lockdown. We've lost then in the slide next That's right. More than £1,100,000,000 of sales, £300,000,000 of lease of profit while the stores have been closed And about £700,000,000 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 by Illovo. We have ample liquidity At the end of the first half, which of course, influences our decisions about both further 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 about the social primarily about the social, but some environmental factors in the Primark supply chain. And we gave an overview for the group on environment. To remind you, the next event is to be held this summer and will have a Primark focus. And 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, but I will include some examples of us tackling these ESG issues across Of the group when we get on to the business by business review Of our performance. With that, let me pass over to John. Okay. Great. Thanks, George. So Let's turn to the income statement. Group revenue was GBP 6,300,000,000 That was a decrease of 18% on last year at constant currency. The most material impact on these results with COVID-nineteen 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 €369,000,000 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 2 £1,000,000. However, if exchange rates remain at current spot levels, we expect some more significant effect For the full year with a translation loss of probably some £30,000,000 This period's unadjusted or statutory operating profit Was €320,000,000 reduced by 8% on last year, a much lower reduction than the decline in adjusted operating profit. And the reason for that is statutory operating properties is stated after a number of things, but after exceptional items. And they decreased From a charge of €309,000,000 last year to €25,000,000 this year. Let's look at those exceptional items in a bit more detail. This year's include an inventory charge of €21,000,000 which relates to The clearing of a certain number of autumn winter seasonal items in the from the stores and those are the stores, Primark stores would have been closed since December. It also includes a $4,000,000 pension service cost For the equalization of guaranteed minimum pensions for historic transfers out of the company's UK Combined Benefit Pension Following a High Court ruling last year. As a reminder, last year's exceptional items included a Primark inventory provision of €4,000,000 If you remember, hardly any of that was actually utilized and we actually reversed all of that Below the line at the full year. And it also included a $25,000,000 charge after the fire at Speedybake Wakefield. So coming on to the rest of the income statement. Profit on sale of businesses, The €5,000,000 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. But 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 $275,000,000 Adjusted on an adjusted basis, the profit before tax It's 50% lower. Alistair 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 £144,000,000 to £111,000,000 obviously reflecting the lower profitability this year. However, You'll see that the adjusted effective tax rate increased substantially, and that was from 22.6% reported at the half year last 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 Plowmark. While we saw the first effects of this Last year, when the effective tax rate reported for the full year was 28.8%, and that was as a result of the lower Primark profit. And that, of course, had increased from the 22.6% reported at the half year. This year, we'll have 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 The adjusted effective tax rate is higher than anticipated in the pre close trading update. And 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's job retention schemes of CAD 121,000,000 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 some 25%. And 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 25.1%. On an unadjusted basis, They declined 25% to 20.5%. 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 £6.2 So turning first to the support provided by job retention schemes And all the European markets where Primark operates. Firstly, I want to point out that the group has only ever made claims In respect of Primark employees. Because of all of our businesses, Primark was the most severely impacted by COVID-nineteen. These schemes did their work because it's enabled us to preserve all the jobs in Primark's 65,000 workforce. So all of those people that they will be coming back. This financial year, We were eligible and have applied for €79,000,000 of job retention scheme support in respect of the first half. At the date of this announcement, that €79,000,000 was up to €121,000,000 Compared to this time last year, The uncertainty relating to Primark has reduced. Some got away, but it's reduced. The vaccination program in the UK is progressing quickly With over half the population now vaccinated, last week we saw record sales week after the reopening of Primark's English and Well Stores, which as a reminder, represents some 40% of our total retail selling space. On the assumption that these stores remain open, Plymouth will return to cash generation. Accordingly, we don't plan to make any further claims To the job retention schemes for which we would have been eligible from the state. So prospectively, Even though we've got some, we will not make claims. We intend to repay the $121,000,000 for which we were eligible this financial year and make that payment before the financial year end. This includes £72,000,000 to the UK capital management. So dividend. Well, with the degree of uncertainty now substantially lower, with the net cash that we're reporting For the half year of €705,000,000 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 earnings per share for the first half. The decision to repay the claims made from the job Retention schemes was taken after the year end. So this is the way we account for it. The first half income statement does not include The repayments of the €0.79 in respect of that period. So the dividend calculation is based on a pro form a EPS Of £18.5 which reflects the deduction of the first half repayment amount Adjusted for tax, that is a reduction from the reported 25.1 percent. So it's the basis of the 18.5 percent EPS That we are declaring an interim dividend of 6.2p per share. Just as a reminder, last year that was nil And actually 2 years ago, 12.05p. So the dividend is about half of what we paid 2 years ago. The total payment will be some $49,000,000 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. So net assets have improved again to €9,600,000,000 For €9,100,000,000 at the half year last year. I think the most striking change is the increase in working capital of 7.70 $6,000,000 Well, it won't be a surprise to you that that's been almost entirely driven by an increase in inventory at Primark. So that as a reminder, up to the half year, most of our stores were closed for a period of 10 weeks leading up to At the half year. And so 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 to the Plymouth stock on hand over the last 2 years in a moment. I think it will clearly demonstrate what's going on. So net cash before lease liabilities €705,000,000 which is €96,000,000 down on this time last year. When you reflect on what's going on for a year, I think the to still have that net cash position It's important, but 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, Andy, they've now reached $382,000,000 This is mainly driven by the increase in bond yields, Which we'll know reduces the pension liability, but it was also by higher than expected investment performance for our assets in the main UK scheme. Assets held classified as held for sale here at the half year were For the full year rather, but not for the half year where ABN Mower is used assets in China, which have now been transferred to the joint venture. This is a chart which shows you the Primark stockholding over the last 2 years. And the scale on the left hand side is important to give you just a feel of how many 100 of 1,000,000 and so forth That does vary 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. But it should also serve as a reminder to you of why Primark is so cash generative in the period after Reopening. So it's the one after the half year, twenty twenty, 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 re openings for the remainder of this financial year, we should be expecting a similar movement this year. We expect the stock levels will have returned to more normal levels by the end of this financial year. And then 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 $141,000,000 of free cash. This year, we've seen an outflow of 832 So 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. Some moments 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 Yes. The investment has continued. The reduction in capital expenditure in Primark was the consequence of the difficulties in Actually, due to restrictions to get on-site and for contractors and so forth Caused by COVID-nineteen. I think nevertheless though, we still open 6 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. So the revenue actually was up 8% in grocery at constant currency. And here, we've benefited from Some excellent new product launches during the year, but then we've also responded to the increase In retail channel demand that we've seen over the last year. And it probably is that increasing retail channel demand that We're now lapping the business last year. That's one of the reasons that we think that some of that sales growth will come off. I would highlight that profitable growth profit growth was actually very notable in Twining's overseas. The sugar profit was well ahead of last year, very pleasingly because we're on a track Of improvements in sugar profit, and 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. But I think the phasing in the year is more front ended. Operating profit For both ingredients and agriculture, we're well ahead. Turning to Primark. I think you've anticipated or expected The sales number was reported here. That's a decline from €3,700,000,000 last half year to €2,200,000,000 this And the sales declines, probably if I can break it out, it's about $1,100,000,000 while the stores were closed. And then the remaining decline is the like for likes being some 15% below the prior year While the stores were open. So it's $1,100,000,000 were closed and the other is driven by the like for likes. Profit was much And 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, as we have started the second half, we're in a phase of store openings. So based on the most likely reopening dates, we expect a further loss of $700,000,000 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 And we had previously guided, and that's because we probably got a slippage of 1 or 2 months of the moats when stores We'll reopen in the Eurozone and probably I'll 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. So I would remind you and I think that's what we'll want to get a handle on. So 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. And then just coming on to the segmental analysis By geography, I'm only this is going to be very brief. The sales and profit reductions in the UK and Europe and Africa segments We're driven by the Primark performance. The profit in the Americas benefited actually from the strong performance of ingredients And in Asia Pacific, we should buy improvements in a number of our Chinese businesses. George is going to take you through the performance of each of our This is in more detail. George. Thank you, John. Let me Start the last 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. That store the safety of the stores is paramount. And we have invested significantly In hand sanitizers, in extra cleaning, in people to manage queues Outside the stores in physical plants to keep staff isolated from one another As they run all our TILs. And that work has been good and I have yet to speak or hear about Any difficulties in maintaining proper separation of our customers from one another Or actually, there's very little reporting on people not adhering to our standards around the wearing of masks. Let me turn then Last week, we had a record sales week in England and Wales. In 6 days, Sales were higher than they had ever been in any previous 7 day period. Monday was a record week By some record day by some distance as well. We saw big basket sizes. We saw good performance in the categories as it performed well last time we reopened. We reopened, so Good sales of nightwear, loungewear, underwear, but we also saw A big improvement in footfall on previous reopening. So the total footfall It was back to pre COVID-nineteen 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 of in Manchester, Birmingham And the 2 Oxford Street stores, big difference in footfall in those destinations. And then whereas last time as I indicated, we sold A lot of lockdown gear this time, fashion, women's fashion in particular had a fantastic 1st 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 UK, Minus 15% like for likes compared with last year for the stores 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. It's I've got a few slides to show you on the progress Of the American market, even through lockdown, we've developed fast and well. And Again, we've added 6 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. So We only had in this first half that we're talking about 4 weeks when all the stores were open. But Whereas in the first wave of COVID, we had a period of all stores being closed, at no time At this time, did we have all stores closed, but the period where we had most shut was longer than the first And we also saw, and I'll come on to some of them, restrictions other than total unemployed by many of European Continental European Governance. So let's Look at those like for likes minus 15 across the group. In the UK, when we open, we were trading Essentially without restrictions other than self imposed ones. The like for likes were minus 6. If you take out through the period the 4 major city center stores, It gives an idea of just how important they are in the sales mix. We traded at minus 1%. Given that women's fashion was well down, I think that was a very, 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. And then in the U. S, We were at minus 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, that number 3 is a that minus 3 It's a indicative underlying number. And again, during a pandemic, we think that is very credible performance Indeed. So what were some of these restrictions Well reduced trading hours and days, number of markets at times we couldn't trade at the weekend, we couldn't trade beyond 5 o'clock in the evening. Sometimes extreme customer occupancy levels limits. At the moment, we can't have more than People in any of our stores in the Netherlands, actually regardless of their size, so Danrak, which is I think 80,000 square feet, Really is very, very lightly traded at the moment. And in some places, we were limited at times to what merchandise we could sell. So basics And Childrenswear, in some cases, very extreme restrictions at times on how we could Trade. And then 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 those drive sales for us, apprehension of leaving home, Travel distance limits from home, many times in Spain, you couldn't go more than 5 kilometers from where you lived, I'm 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 balance 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. Kay, at times through lockdown, look what's the store managers in Oviedo in Spain, just a single example of the store. I think that's some 14 different changes of instruction But 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, but we're still operating under reduced occupancy Instruction in that store. I think another example of the agility of the team, Now I think 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 After 7 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 of someone who does have one. I believe the going rate at the moment is €25 per slot. None of it's coming to us. Let me then Turn to the U. S. And just focus on the reasons for our confidence there. We opened 3 new stores, the much delayed American dream In the new shopping center in New Jersey, it was very close because the whole shopping center was delayed. We also opened Sawgrass Mills, our first store In Florida and then 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. And then we've signed leases for 3 stores, all of which I think We'll be very good for the business. Queens in New York, Greenacre Mall, which is in Long Island and Tysons Corner, Which will be our 1st store in and around in or around Washington, D. C. We are now these 3 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 Strauss Mills above. Even though it's our 1st 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. We are Flying in Florida and that is fantastic. And then 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. And then 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. The right hand side sorry, the center picture is what we did to us on St. Patrick's Day and then The look and feel of the store in the beginning, it has started strongly as the next picture shows you Very respectable even by Primark's standards, our opening day Q 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 Till was the total bill for all the gears she bought was about So 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 states. And 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 I'll 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 states that we did that we have across Europe and that is being put. So the store openings though were not just in the States. The 2 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 1st 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 Trele, I only mentioned because it's had the shortest period of trading in the history of a new Primark store. It's opened on Friday And was made to close the following day in the afternoon and hasn't reopened since. So 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. And I'm delighted that over the last 12 months, we have not lost Any followers on digital social media? A year ago, we had 22,000,000 followers. We still got 22,000,000 followers Despite being closed for half period, they play 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 communications online communications to our customers form a vital and ever more important part of our marketing mix, And you will see us making further investments in our website, in our digital marketing in the months 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're open. And then we sold And then probable 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 springsummer fashion, women's wear, I'd call that gingham prints, gelato Tones and then really good ranges in fashion Denim that since we reopened last week has gone really, really well, not as well low as SeamFree Jersey. You can see the display in the states on the right hand side of that. In England and Wales, it barely touched Besides, we had to talk to you internally just for The Racks of the Seamfries Jersey, phenomenally successful. We continue to develop the sustainable ranges working in this with Disney on Some great fashion items all made with our sustainable cotton or recycled polyester. It has It is performing extremely well in the States and 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 Studio. It supports our workout gear Sales of which have been very, very strong as well. So far, I've been talking about what versions of what we've already sold. Let me now turn just briefly to developments Our product ranges parenthood launch is important and is very, very new. So We now have an extremely good range of clothes for 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. And then we are also dedicating more space, more range To improve lifestyle to an expansion of lifestyle and home, if any of you want 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 the time 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 got actually got 70% of all 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. So we've still got a lot of space Left to reopen, but 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 square feet of new selling space this financial For year, Chicago opened in the second half, but 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, Ben, 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 and Portugal and Italy, and we're just getting started And in Eastern Europe, I believe that our Slovenian store reopened today. Right. Let me then turn to our Foods businesses And start with the consequences of COVID-nineteen in the first 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 to because of it and its testaments are to The ingenuity, the dedication of many thousands of people. We've seen increased volumes through retail sales Channels, of course, we have 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 If I then go through sector by sector and starting with sugar, Significantly improved profitability in sugar, nowhere near Yet the levels are a few years back, but the improvement in profitability in the low cost is constantly 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 during Adjutu, 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 3 or 4 years now. There will 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 chain supply chain, we think that it will be Sensible to reopen that plant. The effect on reduce on adding E10 To the petrol supply chain is much greater. So in terms of reduction of carbon From the transport fleet in the UK is much greater and much quicker than Any short term increase in the number of electric vehicles. We've also been continuing to invest really quite heavily in both In reducing how much water we need to use in our operations and also and I 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 off. So 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 an era in markets where there is High inflation rates as there is in some of our in a couple of our domestic markets in Africa. Lockdown drove domestic volumes up, including in South Africa. You'll have heard, You'll remember us bemoaning sugar reductions in South Africa. Well, it came to some 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 That's not a consequence. And then a year ago, COVID gave us particularly difficult particularly particular difficulties in restarting the Mozambique At Factory, when the campaign started in that country. So on the bottom right is an example of Investment in drip irrigation 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. So good projects. We have a long term project to replace a lot of the current irrigation systems with TRUV. In the U. K. Then, back there, we only processed this campaign, only produced 900,000 tonnes of sugar, Down from nearly 1,200,000 tonnes of a year ago. And the reason for that was the very high prevalence of Virus Yellows. I have Many of our growers in particular areas, parts of the country saw their yields reduced dramatically By infestations and virus yellow. It's 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 1,000,000 tonnes of sugar that we can produce from the high yields we expect to characterize this year's This is HarvEst. Spain production was in line last year and then China production was ahead. Our 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, you see, they were very high. It's come off a bit that to an extent. But oil prices are well ahead of where they were last year, when all commodities dropped And hello, Billy. That world sugar pricing has driven up the European sugar price To much more satisfactory levels and 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 a much more of the water out of it before we put it through dryers, if you think of that enormous spiral And the left hand picture is being a mangle. We are pressing water out of the pulp in large quantities. And then on the right hand side is really a descaling plant at Newark. If you can get limescale out of the operation, then again, you need a lot less power to operate the whole of The operator was 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, so significant projects to reduce energy In British Sugar, are important in ABF that contribute significantly to ABF's ability to reduce energy consumption As a whole. And then that the Virgo bioethanol plant, which will allow, so say, the CO2 emitted by The car net CO2 to be admitted by the car fleets in the UK to come down on the back of the 10. Turning to Ingredients. AB Mowry 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, really well despite difficult economic And social conditions. We'll have all 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 In Ology Center for Bakery Ingredients and Novel Bakery Ingredients in the Netherlands, this is an important facility, Which will allow us to accelerate the development of new intellectual property and new ways of Baking and making all sorts of baked products, which we then roll out Across our sales teams around the world. And there is an ongoing investment. It's been running for some while To increase the capacity of our effluent treatment plants, if Sugar produces most of ABS CO2. Maui produces most of our effluent or at least did. We have A big project underway. I think the spend is something like $20,000,000 to improve the performance of the effluent treatment In Brazil, the Pedineras plant is a very large one, and it will have A effluent treatment plant, which will satisfy present and future requirements for COD and BOD are Effluent Loads. ABF Ingredients then 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, I was going to say produced by someone else, but we're in that business too. And then further good progress from our Business in Hamburg that makes yeast extracts. Agriculture also had very creditable first half. AV Vista Feed enzyme volumes held up much better than we'd feared that they would. Successful new products are also launched through Vista To reduce 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. And then we are announcing substantial investments in a new An 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, but also good growth internationally for a number of our brands, Particularly Twinings Oval team, which I'll come back to. We did see lower margins in Missoula and In the first half and also our meat business, Don, in Australia, and I'll turn to those in a moment. And then 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. Also worth calling out because it speaks to how ABF works, there's a very nice sustainable rice program in Pakistan This has benefited from learnings that we've made in Primark, in Primark's sustainable cotton program, which is operating In the same country, so the same disciplines, the same benefits that we can bring to farming communities in Pakistan How to make that production of rice more sustainable. Turning to Twinings, good new project Product launches, successful new product launches, are 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. The growth rate is now very good. And 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 on the Thailand in Thailand, we sell a Lots of Ovaltine for people in some Tetra Pak for people to drink on the go and they haven't been. And then also in Ovaltine, And I'll show you a picture some pictures at the moment, exciting foodservice growth for Ovaltine in China. So here's just some examples of new product launches for Twinings in France, Wellness Flavored Teas and then Organic under the Latisse and Niere brand in that And here then is Ovaltine in China. We are supplying Ovaltine to a number of very big now Foodservice operators, just as we do in Brazil. And we believe that the rates of sale of these products, which are branded with Ovaltine And of course, Taste Very Obalteany are delighting those foodservice customers Who are taking the 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 food service delight based around taste and crunch. Twinings Ovaltine isn't the only fast growing international part of our grocery business. Cheatham Has seen has had a very good year developing the Mercedes 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, very well. And then AB World Foods, so that's Patax and Blue Dragon brands in particular, 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 All the interest in Indian Foods is increasing quite quickly. Increased demand helped This top list of businesses, Silver Spring, Jordan, Storoz at Raebisa and yeast in North America in particular. It's well worthwhile although Westmore Food Supply is food And therefore, part of the ABF portfolio that's had a very tough time. In this first half, they've done some really, 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 traditional well, these businesses, Indian restaurants, Chinese restaurants have performed much better than they did first time around, not least The very practical support and guidance that West Mill Foods has given. 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-nineteen has thrown at them, have been amazing for me. In North America, the bakery businesses 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 2 years ago now. Mazola has had a much higher time on the back of significantly rising commodity costs And actually lower availability of refined corn oil in the States. It's been a very difficult time for Mazorla and for all actually the Businesses in the edible inedible oil, retail edible oil in the States. ACH Mexico Has been improving for a number of years and then another good period, particularly actually in recovering higher commodity costs. Sure, questions. It has been great. Excellent performance at Tiptop, our bakery business there, Very, 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 Youmed 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 We're 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. But 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 a Extraordinary characteristic of TypTap 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. So in Primark, obviously, fantastically reassuring 1st 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 As John mentioned, the second half inevitably will be very cash generative in Primark As we sell through the working the stock that John referred to earlier, and I think it's important that we get the job retention repayment behind us. Softer food Our performance in the second half is to be expected. Firstly, we're lapping a very a COVID effective period last year. And I so hope this year is less COVID affected for most of us In Europe, in particular, and therefore, 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 In ESG Communication, the presentation we did before It's 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 improvements in AB Sugar and coming from exactly where we needed to come, which was a low though. But Store Primark store closures have cost us a huge amount in sales and profit And cash. And 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 core openings in those new markets in particular, and 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. And if we could go on to your questions, please. Thank you. So 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 2, Please. The first one is about Primark space. In the pipeline for next year, do you still have about 1,000,000 square feet of space Planned, please. And then the second question on the Primark margin. So I think it was 190 basis points improvement to 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 drag me. Primark space, I think, will be what we can see now is slightly under 1,000,000 square feet, 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 by largely by increased costs Of fabric, both cotton and manmade fabrics and also freight increases. So not much change really in gross margin. Great. Thank you. The next question comes from the line of Clive Black from Shaw Capital Markets. Please go ahead. Thank you, George and John. I'll ask 2 questions, if I may. Firstly, it's interesting John's comment about Primark margins going forward. And I just wondered with all the learnings you've had in 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. And then just secondly, George, you clearly I'm in a much brighter mood today, which is good to hear. I just wonder, could you give us an updated Thought process on the USA in terms of where that where the potential for Primark is there now, it's a profitable business. Thank you. Yes. Clive, hi. Let me just answer this question first. We think what we believe now that whereas we started in the Northeast, we started our learnings in the Northeast. 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 The brand will is relevant really throughout the East United States. And from that distribution hub in New Jersey, Bethlehem, We believe we can service anywhere east of the Mississippi for now. So That is that feels great really when you combine it in particular with The profitability of stores at an individual store level at these 35,000 square feet Stores just do work very well for us. And 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 time off margin. There will be some, but 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. And we Are likely also to put some costs into sustainable ranges themselves. So I wouldn't model an increase in margin coming from, I suppose just sales growth in the medium term. In the short term, absolutely. As we come back to sort of near normal, that was the sale we'll see That leverage coming through. We are still building aspects of Total cost base. I mean, I think to I'm hoping complementing what George has said that He's right to highlight while those costs have come through. I think when you are when you've taken a lot of costs, discretionary costs out of the business, The PMA management are being very careful which elements you add back. So 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 Of labor costs and so forth, going ahead. So 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? Yes, it has. And it's come from Three places really, my increased confidence. The first one is just a longer period of good trading. You still look at Good results for a while ago, will it last? Will it lasted? The second one has been the robustness of The sales levels through COVID and also the short 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. And then it's the relevance in different geographies. Yes. That's well, okay, maybe we're not just a brand for the Northeast. So, yes. It feels like that we're at the early stages of a multi, multi year Development journey. Happy to hear and best to do that. Thank you. The next question comes from the line of Anisha Sherman from Bernstein. Please go ahead. Hi, good morning. I have two questions as well George and John. The first one is on Primark. So you say in the release that Primark profit should be somewhat lower than Last year, does that include the £121,000,000 furlough repayment? Is that going on Primark's P and L, meaning the underlying profitability should actually exceed last year or is that last year's guidance ex the furlough repayment? I think the guidance is that If we had not even if we had not repaid the follow monies, then I think it will be a bit below last year. And then obviously, the 121,000,000 takes Somewhat below last year. Okay. So I don't think the profitability would have been ahead of the $350,000,000 $360,000,000 that we had last year anyway. So that's if that's clear. Yes, that's very clear. Okay. And then 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. Yes, we would. Yes. Okay. Thank you very much. The important Change from last time, it's the much better improvement of those 4 destination stores. Yes. Okay. Thank you. I think it's very important. I'm looking at the show, I mean, by the time we're into the Q4, we'll be getting a much better feel depending on where those like for like settle out, By the margins look. But they I would see the UK 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 2 quick ones as well. The first one is, are you already looking to Change the supply chain set up that feeds into Primark U. S, are you really looking at Changing it from an extension of the European supply chain. And 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. Yes. We are looking to change the supply chain into United States, but that work hasn't really begun yet. We just can't do much during COVID, but 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 I'll advise to say, yes, 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 risk, and I will be with him on that. The thing I would say, however, is that In terms of ordering to right the way through to the stock management in the stores, the I'm pleased to say that our fully operating is order through to the stock into the warehouse. So 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 6 months. And that last bit is really important In terms of telling us where we've got stock and where we don't. So once it gets so much more clarity of what the stock holdings in Store actually are once that last piece is done. And then so just to reiterate, all that piece of work is supposed To be completed within the next 6 months. Yes. I hate targets, but you're going to be James, look, we're a number of years into this. I'd really complement the work that's gone on By the Primark team. It's not done till it's done, but 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. Please go ahead. Thank you. Good morning, guys. A couple for me, please. First one is on Primark. I wondered Maybe George, you can give us an update on the composition of Primart inventory just in terms of How much has been carried forward? Your balance between home related stuff or sort of occasion going out where? That's the first one. And then on Ingredients, can you just talk through why you expect the profits to fall in the second half and to be stable I mean, I presume it's mainly a tough comparable issue, but 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. So the sales level Saw a great surge in the first half of last year, and we don't expect that to be repeated this time. So we think that sales will Tropp, simply because Tough comparable, yes. Yes. It's a tough comparable. Okay. Thanks. Moving across to Primark inventory, we've got about £150,000,000 of springsummer inventory that we put away last year And about $200,000,000 $260,000,000 $260,000,000 dollars 260,000 dollars 260,000 I beg your pardon of autumn winter that we have just Put away. Now 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 year as they are last year. And we only put away ranges, which had not been brought out and shown to customers last time around. Okay. So one of the things that we are particularly pleased about in this 1st week of opening 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 springsummer. The customer just doesn't Yes. Okay. Thanks very much. Thanks, Rosy. The next question comes from the line of Warren Ackerman from Barclays. Please go ahead. Good morning, George. John, it's Warren here at Barclays. A couple of questions for me as well. So on sugar, we haven't touched on that one. It was a strong H1. I was wondering whether you can say where spot EU prices are because obviously on your chart, I think €3.90 a tonne, that's a I guess that's the EU Commission number that's lagged. And what that means going into next year, I suppose, on sugar? And then sort of related to that, the Illovo points, it sounds like you're saying that some of the profit recovery has been phased from H2 into H1 Paul Ford. Just wondering whether you can confirm that and any kind of moving parts around a LOVO timing would be useful. And then just secondly on grocery, I mean, you are striking a more cautious tone. Just wondering how much of a margin impact Do you expect from kind of higher corn oil for brands like Mazzola? It sounds like that's where the pressure point is in the U. S. I also know weaker Australia, George Weston Foods, particularly the meats business. And where do you think kind of grocery might kind of end up for the year? Those are my 2. Thank you. Okay. It's okay. I want to hear about it. Yes. Let's do the EU price one. Yes, Well, the chart that we showed is actually the prices for sugar right the way across By the way, across Europe. They do vary. So there are some parts of the EU which are lower. So those prices that are Broadly pertaining in the UK are higher than those. There is a bit of the lag, which we've always seen in the European Commission reporting of it. So if you're looking at spot prices, which I don't really like because there's always Small volumes and sales for reporting. Mid-400s would be the sorts of prices That's of euros per tonne that we're looking at. So what is the prospects as we look into next year? Well, You can see that there's not a big increase in EU production as we look ahead. So the stock position is tight. The production does not look as though it's going to really rebound strongly next year. So what does that mean? Compared to the British sugar prices that we've got At the moment, probably small up, but don't No. But there's no major the absence of the negative, Warren. 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 significant damage to our plantings of sugar beet in France. So the business purpose producer may well have some well, may well produce Less sugar on the back of that. Turning to grocery, the impact in Missoula Of both volume reductions and also much higher corn oil prices, we expect to be in the tens of 1,000,000 of dollars. If I move to Australia and Don, there's probably we would see a So the $10,000,000 Australian dollar switch. Now things are actually getting better in Australia with the improvement in food service Demand, which is a significant part of what Dom supplies into. So maybe Dom will have a better second half than We feared only a month ago or so, but those give you the shape of the downside. Okay. Can 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? But obviously, Sterling is 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 You're brought in for next year. Well, I think it's probably premature to give too much on that other than Very well. I mean, 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 2 key They would give a margin upside. If they were to continue for the whole of the year, it would probably be a 3 figure profit number. But we are looking at offsets on that of particularly seed phrase And the number of the other costs that would go there. So I would not be penciling in any sort of major upsides because I think we're seeing But at least we do have that tailwind. I mean, it's obviously right. You can see the scale Of that currency upside, but we're looking at some of the other things. So at the moment, the good news would be Yes. We feel that the gross margin is certainly supportive of these levels. And let's see where we go over the next coming months. I think if I turn it around and say if it wasn't for these currencies, we'd have some really nasty headwinds. Right. Got it. Thanks. Freight rates are just we guess it was simply the doubling of freight rates. We have done a good day's work. Yes. 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. How are you thinking about M and 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? And just within the grocery business, obviously some of the markets you're working in notably Australia Obviously, kind of well past reopening now. What kind of trends are you seeing there? I mean, are you seeing the kind of a total reversal of Kind of eating from home and out of home trends or is it much more moderate than that? That's interesting. M and A opportunity, yes, the scale of the cash outflow at the height of the closures this year, I think, would give Any sign combination of Chief Executive and Finance Director pause before they committed the rest of their balance To an M and A venture. £650,000,000 of cash outflow in the period Because of closure, it's just an enormous number. And we don't have anything like the certainty, Enough certainty to say that there won't be enough another lockdown in the autumn or when those important markets of Germany, France, Italy will Ireland will come back to normal. So I think we just have to be cautious for the time being. In the meantime, If there are modest expenditure levels modest levels of expenditure required For particularly strategic M and A opportunities, we will take them. And we've been doing so. We bought I'm not sure we talked to you last after about a little company in Sweden called Laradan, which has great expertise In polar lipids, I was mentioning the pharmaceutical lipids. Well, that's about improving our capabilities at the R and D end of that. So Yes. It's I don't think there are even a dozen people at Laradam, but gee, it was too Nice and opportunity to miss to improve our intellectual property and our ability to develop more in that sector. Expect that sort of thing to continue, but the kind of multi 100,000,000 pound 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 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. And I think we're seeing a real uptick in, yes, an interest in that. So that's a good fit for us. Yes. So that would be, I think, My answer is that to the M and A part. And then in Australia, yes, 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 food service led by QSR, Cook service restaurants, in particular, where we have good representation, both with Tip Top And Don, so that's great. And then 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 with a market leader By value and I think volume as well in the Australian tea market. And the absence of a recession in Australia, which I thought was a nailed on certainty, I think it's giving us oxygen in our more premium priced businesses. I think if we were sitting together 6 months ago, I think John and I would have 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. And 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, I hope you're right. Thank you. Apologies for the delay. The next question comes from the line of Warwick O'Kane from Exane. Please go ahead. Yes. Good morning, George and John. Two questions back on Primark, please. Firstly, could you say a bit more about Primark's medium term strategy In the UK, before COVID, it had been a store refurb and I think sort of low single digit space growth story through enlargements. Is that unchanged by COVID? And what sort of rent reductions are you seeing in your end of lease discussions? And secondly, can you give us 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 UK is not significantly Change, we've got the store portfolio by and large, but 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. And we're onto that. It's too early to tell whether we are benefiting from other people's Our 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, And that's new, obviously. Sustainable recycled percentages of total, yes. I will get back to you. I know that when we closed, we had something like 60,000,000 Items of clothing made from sustainable cotton and I think $20,000,000 from recycled Polyester, but I don't have those numbers as a proportion of everything we sell in my head yet at the moment. Okay. No problem. And just so I'm going to grab the boxes perhaps? And we don't. Certainly, the sustainable cotton program is I think it's the largest in In Clothing Retail Globally. Yes. So, Warren, just to make you know, when you asked about the UK Footprint. I suppose it's often in the context of maybe other retailers. Rent. On rent. I'll just talk about footprint. The you say, Austin, in the context of other people pulling their footprint back, that's Not the intent. And 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? Oh, up to 50%, really quite a significant one. So and what we are as keen To get those wherever there is a break or a lease coming towards the end in the UK. 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. But at least there will be a drumbeat of a number of things coming up, I think, every year as we go forward. So just being facetious at the moment. If we can halve the rents and get rid of all the rates, we'll be in business. Yes, easy. Brilliant. All right. Thanks very much. Yes. Thanks. The next question comes from the line of Georgina Johanan from JPMorgan. Please go ahead. Good morning. Thanks for taking my questions. 2 or 3 for 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 the 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 kind of Neighboring, cities and so on and any plans to kind of develop brand awareness in the U. S, perhaps it's a digital Just anything you can share there would be helpful. And then finally, just on sustainability, you mentioned that we should be mindful of kind of Sort of fixed costs kind of going into the Primark P and L around sustainability. Is that sort of are you The sustainable fabrics to kind of be more expensive on average or is it around communication or is it something out there that I perhaps haven't touched on. Thank you. So I'll touch on just the look, I don't have an absolute number at the head, but I would say A handful of leases in the UK come up for negotiation each year. So that's the sort of number you should be looking at. And that would be then out of, actually for the UK number, let's say, there's probably 180 stores or something. So that's the sort of Just a reminder of 2 things. Firstly, we own a fair chunk of the space in the UK. And then secondly, we do have some long a fair chunk of long leaseholds. But I think Between 5 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 have. So we are 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, but 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. Yes. And 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 from we've only got 12 stores. But certainly, the reopening sorry, the opening of Chicago and also Florida was accompanied by a good level of digital engagements In both cases. Great. Thank you. Okay. The next question comes from the line of Roland French from Davy. Please go ahead. Hi. Good morning, George. Good morning, John. I hope you're keeping well. I've got 3 questions, if I could. 2 on Primark I'm on on the food business. So the first one is just in relation to the U. S. I just want to get a sense around the U. S. Customer. And I guess how that It differs from a typical British European customer. What's he or she buying? I know you alluded to more licensed goods. 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 Per unit economics there. And then kind of similarly your end sales mix in the UK, and this is somewhat of a longer dated question. Like you called out some of The NPD verticals that you might be focusing in on over the next couple of quarters around maternity, around babywear, homeware, I think some licensing Deal is there as well. Do you see that basket mix evolving over the next 12 to 18 months from kind of traditional clothing apparel? And 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, Rosy. Sorry, that is just The U. S. Customer our best U. S. Customer is less affluent On average, I think than our European, including English and Irish customer At the moment. So if you look at the sites that we are going into, We are chasing, I would call it, the Brooklyn customer. And a significant proportion of the floor of our business at At the moment is made up of less affluent people of Hispanic origin. So Few 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 we The trip to 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. Now if they turn out to be smaller than we think, they'll do something else. The flexibility Primark commercial teams is notable, but We think that there are 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. Well, it's very much up to the individual Businesses in the group to manage, a, the commodity position, Obviously, with central oversight, but 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. Yes. Maybe just a bit of guidance. We are very unlikely to go long. That is a point. So there is hedging Around the group, but it would normally be of a much shorter duration. So you won't find us often Really going massively out of the money because we're taking a view on our long term that tax rate costs are away from us. And so as a result, you asked what's the strategy in In terms 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 follow And we wouldn't respond. So that's the way we'd look at it. So we're not about taking long positions. They vary by months. But then certainly pricing is a major leap that you do want to be able to pull. Then you have the lag or whatever effects When the prices come through compared to the commodity cost. Got it. Thanks, Collin. We now have time for one final question and this is a follow-up question from the line of Anisha 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. And 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? And are you also putting in some variable Sales linked portion into those leases. Thank you. Typically, we now want 5 year break clauses. It will be an exceptional store that where we'll accept openings that doesn't have a 5 year break in it. And 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. So I will now hand back to George Weston for any closing remarks. No, I think we've had a very good session and 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 It's 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, so thank you very much for coming and look forward to seeing you and reminding yourself what you will look like maybe when we next get together In 6 months' time. So 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.

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