Good day, thank you for standing by. Welcome to the Associated British Foods pre-close trading update conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, John Bason, Finance Director. Please go ahead. Thank you very much. Well, good morning, everyone, for the fourth time. Let me start with an apology and thank you everybody for your patience. The with the line dropped a couple of times, and then we had a power surge, which knocked the lines out and also set off a fire alarm, so we thought it was in the best interest to delay the call to 11:00 A.M. I can imagine you all had full mornings, so thank you for reorganizing your time this morning. I'm gonna make a few introductory remarks, and then I think the best value from this is a Q&A session. This is a pre-closed statement, and it deals with the half year. The period has been very positive for us in its strong sales growth and generally good trading. The food businesses have worked hard to recover input cost inflation, and that's through both cost mitigation and through pricing where possible. Primark's traded really well, and that was certainly in the run up to Christmas, but also after the festive season, and we've seen that in particularly January, but also February of this year. Really importantly to me, we've seen that improvement both in the U.K. and in Europe, which I think really sets it aside from really our performance in the second half of the last financial year. As a result, I expect the adjusted operating profit for the half year to be broadly in line with the same period last year. In other words, a few percent below, not least because Primark margin for the half year will now be above 8%. Turning to the full year, we're upgrading our expectations today for the group adjusted operating profit and adjusted earnings per share. At the close of the last financial year, we said that we expected adjusted operating profit and EPS to be lower than the previous year. We now expect both of those to be broadly in line, again, just slightly below where they were. Why is this? Our expectation for full year profit is now better for three of our businesses. Let's start with the food ones first. At Ingredients, we now expect profit to be well ahead of last year, certainly at the half year, but also in the full year. That's really good recovery of input cost inflation at AB Mauri. It's really also strong trading both at AB Mauri and ABFI with higher volumes. I suspect a lot of that is about a recovery for the customers that buy ingredients from us. The second one is our grocery business, I know there's been maybe some concern about the margin decline in our grocery business. I've said really quite consistently for more than a year now that you should expect that as pricing does lag the input cost inflation. Margin will still be down year-on-year, but we do expect better sales and that will lift the operating profit enough to bring the profit for the full year to again be broadly in line with last year. I suspect most of you had a few tens of millions lower profit before. Then, of course, we need to come on to Primark. Trading certainly has been stronger than expected in the first half. It's very evident in the sales numbers that we've given you, and that was certainly driven obviously by pricing, but very, very strongly by strong footfall in all of our stores, and that increase in footfall led to a higher number of transactions and of course our volumes were up. I think for understandable reasons, we'll remain cautious about consumer discretionary spending in the weeks ahead. As we move into the second half, we also lap tougher comparator periods because certainly the last few months I think have certainly benefited from soft declines, driven by the consumer reaction to Omicron. We now believe that sales growth will be ahead of our expectations in the second half of the year. Not at the run rate for the first half, but better than we were expecting. As a result, and also with some lower costs, at Primark's full year margin will now be over 8%. Let's talk a bit about sugar. I think we updated you on the much lower crop, sugar crop, in the U.K. I think I've said to you all that starting with a seven, I've never seen in my times at ABF. Never say never that it won't come back again. I f I can characterize it as an unusual event, then that would be the way to do it. The adjusted operating profit for the full year for sugar probably will be broadly in line, but I think probably now a bit below, where it was last year. Those are the major movements in adjusted operating profit that are driving the upgrade. It's primarily Primark, our grocery up a tad, and then grocery up, and ingredients rather, up a number of tens of millions for the full year. The thing I'd also like to address is the cash outflow. The important thing here is to give you some of the main movements behind the GBP 900 million outflow. Compared to last year, I think I've really set out the key drivers of that. The first one to remember is that inventory levels at Primark, this time last year were at low levels. You'll remember all of the supply chain issues that we were facing over the half year leading up to then, and our level of stock cover was below where we wanted it to be. Probably we had lost some sales as a result. Our stock levels are certainly back. The GBP 900 million outflow is certainly driven by that. The other thing that we're certainly seeing is, surprise, if you've got positive working capital, then the effect of inflation on certainly your stock and receivables, net of your creditors is also there. The other one about Primark is when you're looking at inventory, we've also got a store estate which is some 5% bigger. Remember that the business is actually growing. The other thing about the year-on-year movement is a higher level of CapEx than I think we've become accustomed to in the lead up to COVID. You'll probably remember that the CapEx level then was about GBP 800 million, GBP 850 million. It dropped a little bit during COVID, not surprisingly, because of the difficulty of getting things done. The number that I'm looking at for this last year is probably over GBP 900 million. Of course, I'm pleased with that. That shows the pick up in investment in Primark, and that not least given the acceleration of the investment in Primark stores, but then also IT and also the warehouses. Also we've got some very big food projects which are underway. The statement really sets out, I think, the trading performance for each division, and I think I shouldn't take up too much time on that. Okay. Just one thing I would like to highlight. Primark's store opening program is really beginning to drive growth in a meaningful way. What pleases me is that at the half year, The Primark total sales were up 16% and like-for-likes were up 10. What's driving the fix between the two? Well, five of it is driven by the new stores. Interestingly enough, probably three and a bit of that is actually the increase in the average selling space. The other bit is better productivity in those new stores. I can't tell you that every store has opened with sales densities better than the existing state, but virtually all of them have, and some of them in a very significant way. W e're back to that very meaningful contribution to our sales were coming through from that. Just maybe another comment about the abatement of inflation. We've certainly seen obviously less volatility, and in a number of areas, input costs going down. When you come to Primark, in particular, sea freight has come back to where it was. The exchange rate is certainly better than where it was one twenty against the USD today. We're better than one ten that we were looking at for some time last year. The thing to remind you is that the benefits of that will come primarily next year, next financial year. Those higher costs are baked in to the stocks that are in the warehouses now, and that will be sold through to probably about July of this year. We'll start to see those lower costs come through in August and September. That's also the reason for the slight upgrade on that and upfront for Primark today. With that, and a hurried run through there, let me open to questions, and I think there is protocol that you put your questions for us, and then I'll call out to who to answer the questions to. Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. If you'd like to ask a question, please press star one and one. We will now take your first question. One moment, please. One moment. Oh, there we go. Your first question comes from Grace Smalley from Morgan Stanley. Please go ahead. Your line is open. Hi. Good morning. Thank you for taking my questions. I have three on Primark, please. Firstly, on the Primark like-for-likes, could you actually quantify what level of growth you expect in the like-for-likes in the second half, and what that embeds in both in terms of pricing and volume? My second question would just be on the U.S. I think it'd be really helpful if you could comment on the U.S. expansion and the initial results you've seen from the recent acceleration in store openings. Lastly, on Primark margins, clearly you've given the guidance today for 2023. As we look forward to 2024 and beyond, what do you think are reasonable margin targets for Primark, and how quickly can Primark return to double-digit operating margins? Thank you. Great. Thanks, Grace. Thanks for those questions. Let me hit the first one. The second half, so those like-for-likes of 10%, I would expect to be lower in the second half, and maybe 3% lower or 2 percentage points off or whatever in the second half. What would that be primarily driven by? I expect, obviously, a similar level of like-for-like from the prices. Remember, we moved the prices in August, and so the continuity lines all saw the increase there, and that will carry on into the second half. Probably, I would see a higher bit of pricing from spring/summer than we had for autumn/winter, because I think probably a slightly wider part of the range. Remember, not everything we saw price increases on, but I think slightly wider% of the portfolio will go through, so a bit more from pricing. The reason that I think the benefit from volume will be, I think we don't have those softer comps as we go into the second half. I would aim off a little bit, but it would not surprise us if consumers on the volume front are just a little more careful in the second half. That's where I'd be. Certainly, in any other year, strong like-for-likes, but less than the number we've got in the first half. U.S. expansion. We've opened up three stores, and they really are trading well. Some of them are trading exceptionally well. The comment that I made earlier on about the sales densities in those stores are really good, and Queens in particular. You'll notice that the total sales that we're getting from the U.S. are up 12% compared to at 4%. Obviously we've had a very strong sales, and that's from new stores, but as well as the underlying like-for-likes from the U.S. H ow do we feel? We've actually signed really quite a big pipeline of stores now to secure that increase in the number of stores. Remember, it's 60 by 2026. I think this is really going to be a story that I think we all need to watch. Maybe some comments on the U.S. performance are saying, "Well, okay, well, it looks as though the underlying like-for-likes looks a bit soft." Certainly in the lead up to Christmas, where we were lapping in the United States, the stimulus checks. The stimulus, COVID stimulus checks, certainly for, shall we say, that lower demographic, really were significant. Now, that support came off as we came into this new, well into the beginning of 2022. Actually, we've seen an uptick in same and half in our like-for-likes, certainly because we had not the very tough comps of last year, but they've improved. At the moment, yeah, I'm excited by the Primark expansion in the U.S. Coming on to margins, I mean, I suppose it's a statement of the obvious that if we're starting this year with, in 2023, with a margin in the eights rather than a margin in the sevens, then that target of at least 10%, certainly looks the. I suppose the length of the runway to get there and the deliverability of it looks better. So what are the things in our favor for next year? I think currency, as long as long as it stays where it is, there or thereabout. So no massive headwind that previously we would have been thinking about. Then of course, sea freight back to where it is and energy costs lower. Then I think the position for our suppliers. There was a massive demand for goods from our suppliers. Maybe not surprisingly, a lot of that volume demand has gone down, and I think Primark will be well placed. It really does to me feel like there are tailwinds that could support margin expansion next year. Obviously I'll aim off giving you a feel to the number. Thanks, Grace. Perfect. Very clear. Thank you very much. Thank you. We will now go to our next question. One moment please. Your next question comes from the line of Clive Black from Shore Capital Markets. Please go ahead. Your line is open. Well, good morning. Thank you. Thank you for taking the questions and the presentation. Two if I may as well, just around the CapEx. First of all, John, you talked about major grocery or major food projects. Could you give some color around that? Second, given the elevated CapEx base you've touched about already, what about the returns you anticipate going forward from both Primark and in the food business, please? Thank you. Great. Thanks, Clive. Yes, I mean it is obviously couched in the terms of the total expenditure of the group, probably going up towards more the GBP 1 billion mark over the next two years. Let's talk about food first of all. I think what pleases me about the food capital projects is it really is about capacity expansion. So if you look at our Ohly yeast extract business, we're looking at capacity upgrade in Hamburg. Our lens on business we have spent some money on pilot plants and improvements to the facility there. Of course, a very, very big project is the new sugar mill in Tanzania. Let me spend one moment on Tanzania. For me, an exciting one in the sense that we have a really strong, uh, retail brand, but our volumes are constrained such that we can't get to the whole of Tanzania. we are building this new factory, actually with the government as our partner, so they're very, very keen in terms of increasing, uh, domestic supply of sugar in Tanzania, and I think that will come through well. So, I'm rather pleased that, that there's those projects in food are about increasing capacity going forward. If you come to Primark, then really I think it's across three areas. Obviously the addition of the selling space, so to get back up to the million square feet of selling square footage each year, but also IT. Given the building of our digital capability, not least the start of the support for Click & Collect. Also, I think a very good payback in terms of the investment in the warehouses. Moving towards fully automated warehouses are right across the piece. We're pretty well there in the Czech Republic. Very soon we'll be there in Ireland, but there's still some to go on some benefits. Clive my benchmark for CapEx, and I think I've always said this before, is I'm looking for returns of over 15% as a pre-tax return on those investments. That remains the case for this. Thank you, John. That's very clear. Appreciate it. Thanks, Clive. Thank you. We will now go to our next question. Your next question comes from the line of Anne Critchlow from Société Générale. Please go ahead. Your line is open. Good morning. Two questions if I may, please. The first one is about trading at Primark, which does look very strong through the half. I just wondered how volatile that's been week to week, and whether you saw any big spike around the warmer weather in February and so on. Secondly, just to talk a little bit about the website and whether you think the website in the U.K. has been driving footfall into the stores. I know it must be difficult to strip out, but perhaps you can track it somehow. Thank you. Right. Thanks, Anne. Good to hear you. One of the reasons I hate like-for-like over a short period is, yeah, they do bob around and for a variety of reasons. I mean, Anne, if I can characterize January and February, actually January was very strong for us. That was very strong. Whereas I would certainly say into February, still well ahead, but I would say of the two periods, that was the softer of the two. If I'm looking at the trading, from, and I think this is quite instructive, from September, through to the end of the year, we were very encouraged actually by September, early October, because if you can cast your mind back, that was the first spell really of cold weather. People were buying cold outerwear for going out or for that matter, keeping them warm inside. October was much softer. The like-for-like had fallen back. It really accelerated. We had a really good November and December or the Christmas period. That's really, I think, how I'd characterize the like-for-like over maybe shorter periods of time. The second question is the one about the website. The website is very exciting for us. It's got to be the basis for the that digital engagement with our customers. Remember, we're coming from a background where the website is best. We'll say if you like a magazine showing some of the latest things rather than the place that you could go to sort of look in the comfort of your own home or wherever you are, to see what the whole of the Primark range is. You're right, you know, sort of measuring what people look at on the website, going through to the actual stores, is hard. The thing that we really find most encouraging is, if you look at the U.K., the traffic has certainly doubled where it was. The number of pages that people are loading on is at least double what it was. It's the store checker which is starting to really come through. At least one in five visits, people are going to the store checker. Well, you're not doing that just out of fun, are you? You are planning a visit to the store. I think in Ireland, I think actually the store checker is possibly even higher. So for me, without the sort of the detailed diagnostics of somebody who looked at the website and then standing inside the store, that use of that facility, I think is probably for me, one of the best indicators for this. Just as a reminder, the website is now in the Republic of Ireland. I mean, they loved it in the first couple of weeks. You know, the store traffic was well up on I think the traffic for the earlier website. Of course then we did, we told you in the statement of where it's going to go next. I think it's a very, very important building block for us. Obviously we'll add more facilities to that as we go forward. Okay, thanks. Thanks, Sarah. Thank you. Thank you. We will now go to the next question. One moment please. Your next question comes to the line of Georgina Johanan from JP Morgan. Please go ahead. Your line is open. Good morning. Thanks for taking my questions. I've got two, please. The first one was just in terms of the path back to a double-digit operating margin at Primark, just following on from Grace's question. I mean, am I right in understanding that with freight normalizing, that should be something in the region of 200+ basis points of benefit minimum, potentially even larger, and therefore actually you could be back to a double-digit margin as early as fiscal 2024 or is there something I'm missing there, please, John? My second question, thanks for the update in terms of the website. I was just wondering if you could provide a bit of color around how the Click & Collect trial is going. Are you seeing, you know, is that driving incremental footfall into those particular stores? What are you seeing on returns rates and so on and so forth? Thank you very much. Great. Thanks very much. Well, Georgina, if I said yes to your first one, I think that everybody would get very excited that we're back to 10% next year. I think unfortunately the answer to that is I don't think that is the case. What was the freight contract that we had? We had a fixed price contract for fiscal 2022. We really missed a lot of that very big increase in sea freight prices. We then came into this year and the first two quarters of this year are freight costs at higher, but still below the spot for each quarter. For the second half of this year, we're back to, and we've got a new contract with Maersk. That would mean that we're really back to the pre-COVID levels. I'm not quite sure where your numbers came from, but I don't think it's 2 percentage points or 200 basis points. Let me put it this way, it is an important improvement, but remember it's for the first half of this year. Certainly we weren't seeing the top of the market, but there's definitely a benefit and a significant one going into next year. I mean, it's lower energy costs, it's lower freight, and I think I suspect our supplier prices, we should be sharper on those, not least because, they're not so much in demand and also they've seen some of their commodity prices go down. Okay. The second question was. Website cover- Yes. Click & Collect. Click & Collect. Okay. The first thing to go is everybody reads these words so carefully to what you are saying and not, or you're not saying. First of all, it's been running for maybe 10 weeks now. I think the time really to come back with the diagnostic of what we're seeing and then also what our plans are, I think is in April at the half year results. L et me hold my comments until then, because I think that's the time when we can give you a bigger feedback. As you can imagine, there are some things which are great, and then there are some things you go, "Oh, well, maybe that's not quite to expectation." You want to look and take all of those things into account. At this stage, Georgina, I'll hold it at that, but we'll give you, promise you a fuller review in April. Understood. Thank you very much. Thank you. We will now go to your next question. Your next question comes from the line of Richard Chamberlain from RBC. Please go ahead. Your line is open. Thanks very much. Morning, John. Good morning. A couple for me, please. First, I just wondered if you can just comment a little bit more on the performance of recent store openings, how quickly they are performing, and how quickly they're sort of ramping up, and whether you expect a sort of similar conversion to sales in the second half. I guess the space pipeline's going to accelerate. The second one was just on U.K. labor costs for Primark in view of minimum wage and any cost efficiencies you're seeing there, please. Great. Okay. Thank you. Right. Yeah. Thank you. I think honestly, the ramp-up really does depend on where we're opening. You know, actually one of the store openings was the best one I'd ever seen, in that the one near Naples, we were getting queues outside the store every morning of the week after we opened. Not just the first morning, you know, the Primark, it really is all about, I think, brand awareness and how strong that brand awareness is where we're going. Italy, I think is a really an amazing country for opportunity for us. They really do love us there, and I think those ramp-ups are immediate. Bucharest, here we go. I haven't been into Romania and so on. Really strong. That's something. I then would say somewhere else like Poland, a slow event. I think in parts of the United States, I think if we're moving. What's very encouraging, there is where we've got some stores established, like the greater New York metropolitan area, we are increasingly known in that area, and we're seeing. Still, but it is a ramp-up that will take a couple of years. I think as we move into, the sort of, let's say the Carolinas or Maryland or start to move further west in the U.S. where we are less known, then I expect that ramp-up to maybe take two or three years. I think your comment, your question I think is a good one. I think as we move into even more real white space in parts of the United States, I think we should probably see maybe a lower initial productivity from those stores. In terms of labor, I don't want to say exactly where we'll come out with the in terms of the U.K., the increase is actually in April. Let me put it this way, we are very aware that a number of our employees, particularly in the stores, are closer to living wage and minimum wages, and I think recognize that at the very least, those people at that sort of level are getting CPI, if not CPI, slightly plus. I think we'll keep a close eye on labor availability, which it still is, it hasn't eased totally. It's probably, it's not as acute as it was, but I think certainly something to keep our eye on. You mentioned cost efficiencies. Absolutely. The automation in the warehouses is a key one where obviously you're talking about people on much higher wage rates. I think the thing that we are looking at is, and I didn't put anything in the statement, but it is self-checkout. You know, we are increasingly encouraged by that, and I think looking at really the capital cost of achieving it and how best to do that. I think that's one to keep your eye out for, if you like, a meaningful contribution to that in the coming years. Thanks, Richard. Got it. Okay. Thanks a lot, John. Thank you. We'll now go to our next question. One moment please. Your next question comes from the line of Paul Rossington from HSBC. Please go ahead. Your line is open. Good morning. Thank you for taking my questions. Two please. Can you just say whether we should expect any further working capital or inventory build in the second half of the year across the wider group? My second question would be, to what extent do you think the Primark business is currently benefiting from customers trading down as opposed to kind of underlying market sustainability or stability? Thank you. Great. Thank you. Okay. working capital. The, there is, there's no doubt that we've seen a big increase in working capital and I think, let me put it this way. I think there will be a renewed focus on our working capital for the second half. I think it will be one that we look at carefully. The working capital will come down in some areas. Remember that the sugar inventories will come down, which is that Northern Hemisphere build in the first half, actually will come down. I think in terms of maybe safety stocks, you know, by a number of businesses which, you know, I think was absolutely right to ensure continuity, if not better pricing, for some of the, for the imports. I think we're not seeing really supply chain disruptions. I think those are the areas that I think we would look at, as well as probably the number of weeks cover at Primark. I think it will be an area for focus for the second half. I wouldn't see a, other than the sugar decline, a big fall. I think, Paul, quite frankly, it should be an area of focus for us in the second half. Trading down, it's the old chestnut, isn't it for Primark? It's one that I've never liked around Primark. I think you, I think you've all known that. In that trading down has a temporal feel about it. You know, when you get your money back, you go back to where you came from. Maybe I believe this because, you know, I'm Primark through and through, but I think the loyalty we get when people come to Primark is huge. I think what we are seeing over time is a number of people that, you know, who are making the choice. 'Cause we're seeing people, the switching data I've seen shows people coming to us. I think that for me, what is not to like? I mean, maybe you're into ultra-high fashion or whatever it may be, but if you're into stuff that all of us want, Primark's got it. You know, from. It isn't just one or two items, but it's the range. It's great value, and clearly people, they'll actually enjoy the experience of shopping in store. Yeah, of course, could there always be some who go, "Well, you know, I'm a bit down on my luck, and maybe it's just Primark that will do for me." I think the vast majority say, this isn't a trade-off, and Primark becomes, I think, a regular part of the repertoire. The switching analysis to me has never shown massive switching away from us. Thanks, John. Thank you. Thank you. We will now go to the next question. The next question comes from the line of Adam Cochrane from Deutsche Bank. Please go ahead. Your line is open. Hi. Good morning, John. Just maybe a quick one on grocery, if that's okay? When you think about the catch up of pricing versus input costs, as we look forward over the next six to 12 to 18 months, when do you think you'll be able to start to recover your EBIT margins in grocery? As input costs come down, do you actually then get more pushback from retailers on trying to pass through the prices when they can see the raw materials coming down? Thanks. Adam, thanks. Thanks for asking me about grocery. I'll be really very happy to talk about it. Look, I mean, and the interplay between ourselves and the retailers is clearly going to be a dynamic as we look forward. What, what phase are we in at the moment? Let's, let's make it very clear that we are still in the phase of price increases going through, Adam, that are recovering the very big increases in input costs that we've seen to date. And although, the inflationary increases have abated, many of them are still going up. There's a difference between inflation and deflation. Now, and that's, that will inform my comment about the retailers in a moment. I think that we will see that margin hit to grocery. Clearly, if I'm guiding to the full year profit being in line with last year, but it's gonna be down in the first half, but then we are slowing that margin decline. My expectation would be that we'll obviously have the full year benefit of the price increases we've taken this year. Oh, and by the way, it's very evident that you can start to see those, the full effects of those prices coming through with grocery up sales 10% compared to 9% only a few weeks ago. Clearly it's more than that in those last few weeks. You said about costs coming down. You know, there are a number of things. Remember energy, which drives a lot of the input costs, is still higher than pre-COVID levels. We may get to the place where some commodities are deflationary, but I'm not seeing too many of those at the moment. You know, I've seen prices coming back in a lot of these commodity areas, but I haven't seen them going back below where they were. In terms of negotiations with the retailers, and look, it's a hot topic at the moment, because the end consumer clearly is going to be resistant to the price increases, puts pressure on the retailer, puts pressure on us. The thing that I do feel is that we've still got a ways to go here in terms of our recovering the input costs that we've got. Is it fair to say that it's taken you longer than you originally thought to get those price or maybe just the inflation's been higher than you anticipated? 'Cause Well, no, yeah. Are we gonna get back to the sort of pre-COVID margins or not, I suppose? What sort of time frame? Is it one year, two years, or hard to tell? No, no. I appreciate that question. I didn't like the first well, the question because the anticipation is it's about what pricing you've got and what do you see. Look, what really has happened here, Adam, is it was the scale of that inflation that I don't think anybody was expecting when you were back at the beginning, the back end of 2021. First talking to the market really about inflation was January of 2022. I think even then I didn't expect the scale of it. You know, it is across our food businesses this year, you've probably got the thick end of GBP 1 billion of higher costs coming through. You know, it isn't, it isn't like something you do on a Friday afternoon. You know, I've got it in here yet. You know, it is a management priority, and in some ways you go, "Well, actually even with the profit being close to last year, given the scale of the GBP hundreds of millions that are affecting each business," well, that's where it was. I think not having seen the scale of this inflation to be where we are, I think is good and look, you're then into, well, is it one price increase or is it two in a year? Having gone from years whether or not. It's not, it's not over. You know, the inflation thing isn't over. You know, I suppose I'm giving a broader message there, Adam, which is you start to go, "Well, okay, well, prices are coming down now, it's over." Well, you know, there are still price increases, which are still planned for here. You know, you could be many, many months in the negotiation on the settlement of that. Okay. That's great. Thanks. Thanks, Adam. Thank you. We'll now go to the next question. Your next question comes from the line of Gary Martin from Davy. Please go ahead. Your line is open. Morning all. Thanks for taking my questions. Just a couple of questions here on Primark. Just firstly, on European trading in Primark, has this reached pre-COVID levels and do you think there's been any market share expansion in continental Europe in H1? That's my first question. Just secondly, just touching on labor cost again, just bridging Primark operating profit from FY 2022 to FY 2023, would you be able to provide an indication of the quantum of labor cost increases as a headwind margin in FY 2023? Thanks. Great. Okay. Thanks, Gary. The first one is. Where are we? Sorry. Yes. In Europe. The like-for-likes in Europe are on a three-year stack, are a bit below pre-COVID levels. Whereby I mean that, in fact recent trading probably very low single digit. You know, that -16% that we had in the second half of the last financial year has massively improved to where it is. Now, what I would say, and maybe you think you would say that anyway, John, is getting absolutely back to pre-COVID levels is what's needed. Of course I would, you know, you would like that, but it's really something all about the sales density. Putting Germany to one side, we've got sales densities in Europe back to where we need them for the profitability of the business. Rather than just here is a benchmark and everything isn't good unless you actually get there, I think getting close to the pre-COVID levels will be almost or really draws a line under that COVID recovery. By the way, I think we really are seeing this year some of those volume increases against Omicron affected last year, particularly in Germany. I mean, our German sales are year-on-year up 12%, and that's because, you know, there were government restrictions requiring COVID passports to get into the stores. That performance I think is good. You asked about market share. Well, the ones that we lo ok, we're getting more data on the markets. The Spanish market in particular will be one which would say that our market shares are either in line, if not slightly ahead. Of course we've added some selling space. I think we're into the U.K., which is probably way over delivered. We're well ahead of pre-COVID levels now, just a bit below the continental Europe. I think it's game over as far as that's concerned. This is a basis that we can move from. Gary, sorry, just ask me the second question again, if you don't mind. Yeah, labor cost. Just different labor costs, just bridging between FY 2022 and FY 2023 operating margin, just how big what's the magnitude of labor costs are like? Well, I'm loath to give you a number, but let's put it this way. In terms of our overheads, the labor cost is the major driver of that, and not least in northern continental Europe where that is. In terms of an inflationary increase, the higher percentage given the fact that we have a number of particularly store employees closer to the living wage and the minimum wage, I think we are seeing a higher inflationary number in that. It is significant, but obviously we factor this in, but it's also why, going back to Richard's question, that the area of cost efficiencies, you know, in the stores and ways that we can mitigate that, I think becomes even more important. Thanks, Gary. Excellent. Thanks so much. Thank you. We will now go to our next question. Your next question comes from the line of Nick Coulter from Citi. Please go ahead. Your line is open. Morning, John. Thank you for hosting the call. To add actually on grocery, please, if you could quantify or talk to the price volume dynamic in the half, I guess if there's a mix impact, in there as well. I have a couple of follow-ups on Primark, if I may, please. Right. Okay. look at the I suppose, yeah, Nick, I mean, you're talking about grocery. First of all, let me just comment on ingredients, if I may. there, we've not only had price increases, but volume increases, and that's why. Mm. That's why the ingredient segment is doing as well as it is. In terms of the grocery segment, yes, there is some volume decline on some of our brands. Yeah. It won't surprise you that we have seen some categories trading down, or for that matter, a move to own label in some of the others. I think whether you go from bread through to cereals, then we have seen some volume offset there. Do you think that volume switches at some point this year or is it into next year that you see a flat or positive volume dynamic? I certainly don't expect that. I mean, look, Sometimes there's that initial reaction to price increases. Actually in some categories, we saw some initial quite big ones, but then they've actually come back. I would expect the volumes to reassert themselves as we go into next year. Great. Thank you. Just a couple on Primark, please. Firstly, just come back on the new stores or space impact, specifically in the second quarter. It looks super strong, like double-digit strong. Should we continue, should we expect that to wrap around? Should it continue for the stores already opened? Secondly, apologies, another one on pricing. If you're able to share the level of pricing that you achieved in the first half, please. Right. Okay. That's pricing in Primark you're asking about? Yes, please. Yeah. Okay, fine. Look, I mean, in terms of the stores, I mean, our experience is that, when stores open well, they continue. Okay? We don't see a massive drop-off. Those that are trading their socks off, actually, I expect them to continue. Then the question is how will the other stores that we open in the second half, how do they contribute to that? I think a lot of the locations that we're looking at, I think should be trading well. I think, a strong new store contribution to the sales increase, I think should be a feature that we're looking at on an ongoing basis. It's on the same level as the second quarter, John? Should it taper? 'Cause it's very strong in the second quarter, or seems that way. Yeah. It is. Look, I wouldn't say quite that second quarter, because I hate extrapolating, you know, sort of eight weeks, Nick, across the piece, but still strong. Okay? Thank you. I wouldn't extrapolate it the same way. Thank you. Then pricing, if you would. Yeah. Okay. look, I'll give it to you. The average price increase that we're looking at in the first half, maybe some 8%-9%. Price realization are a little lower than that. What we have seen is probably 1 or 2 percentage points of negative sales mix. That to me is not surprising where if somebody's going into, if it's men going in to buy shorts, going for the lower price shorts rather than the higher one. I think price realization may be about 7% in the first half. Super. Thank you, sir. Right. Thank you. Thanks. Thank you. We will now go to your next question. Your next question comes from the line of Anubhav Malhotra from Liberum. Please go ahead. Your line is open. Hi, John. Thanks for taking my questions. I've got a couple on Primark, really. Firstly, on the margins, maybe if you could help me differentiate a bit between the U.K. and Continental Europe in terms of the extent of margin declines you have been seeing in both those markets. Believe coming out of the fact that they are very different like-for-like that you are seeing, and maybe a slight different in the cost pressures in both these markets also. Then the second one was on Germany, and if you have any update on the review of the store portfolio there. Thank you. Great. Thank you. Okay. Yes, I mean, the effects of the like-for-likes, you're absolutely right. It does, you know, given the better like-for-like performance in the U.K., that means that the U.K. margins are very strong and absolutely back to where they were driven by the sales densities. Of course, what you have got is you've got that decline in the gross margin, which of course is affecting all of the stores across the U.K. The bigger effect on the margin is that on the net margin, is that decline in gross margin, which we're seeing whether it's Europe or the U.K. The second order effect then is where the sales densities have come back to. It's better in the U.K. than in Europe, that's very much the second order effect. To, you know, the nub of your question is a recovery of margins in Europe, I would expect them to recover to very good levels as we improve the gross margin. You know, the like-for-likes being a little bit below pre-COVID levels, I think is very much a secondary effect. It's really driven by those gross margin recovery. That's going back to exchange rates and it's going back to the sea freights and all of the costs that go into that. Just coming on to Germany for a moment. I mentioned earlier on that we've got a good sales level in Germany overall. You know, the fact that I mentioned that sales are up year on year 12%, was really to indicate to you that, you know, it's not a, it's not a one-way trip. You know, there was a real effect and a probably a bigger effect in Germany as a result of the restrictions relating to COVID. Obviously this year we're recovering from that. Sales densities are lower than we should have, but really to give us a decent net margin. To give you a feel, you know, sort of the average German sales density is probably half what it is in France. You know, the fact that we're looking at both the number of stores that we've got and then also, how big the stores are in our existing, we're looking at both of those things. Again, I'm gonna put it off to April on this one to give you a fuller update. I think by then, you know, discussions with landlords and not least works councils, we should have a clear review of things on that. The direction of travel is very clear. Thank you very much. Thank you. We will now go to your next question. Your next question comes from the line of Sreedhar Mahamkali from UBS. Please go ahead. Your line is open. Hi. Good morning, John. Thanks for hosting the call. Just a couple of questions. One, to follow up on the previous question on Germany, please. Just in terms of expectations in April, what are we looking? Are we likely to get a clearer picture in terms of the number of stores and space, and how we should think about profitability from the repositioning exercise? Or is that a little bit too much to expect already in April? The second one is on the U.S. Given your expansion there and the comments on sales densities earlier in the call, can you also share any thoughts in terms of how we should think about profit contribution from the U.S. this year and perhaps going into next year? Any color there will be super helpful. Thank you. Great. Okay. Thanks, Sreedhar. I think if it's the full picture for Germany, I think you'll be disappointed in April because, you know, you've got multiple counterparties here really to discuss with. Not least, you know, works council for each store and obviously landlords for each store. What I think you will get probably is certainly a very clear picture on where, particularly where we've got freeholds of stores. So what's in our gift. I think you'll get quite a clear picture on that, as well as likely where there are downsizings. I think that will be a full picture. I think s reedhar, it will probably stop a little bit short of really that full picture that probably you would like. Let me say the following. It's not tinkering at the edges on this one. I t is, you know, it will be an important restructuring. For a business that is close to breakeven at the moment, then I would have every expectation that we should be getting, maybe not double-digit net margins from Germany, but certainly higher single-digit margins from it. I think that's very possible. It's really taking out that overhead to actually fit the sales densities that we've got. In terms of U.S. and the profit contribution, this is a key year, isn't it? In terms of, we're adding a lot of selling space and, of course, we're not opening any warehouses yet. In other words we are amortizing the overhead from that. I can tell you that every store we open, and that's what the model is all about, is we'll give a positive store contribution. It should be a leverage thing. I think, looking over, you know, probably not to achieve this year because we've got quite a. When you sign a lease, the cost starts to come through your P&L even though your store isn't open, and then you can have a number of months before the store opens. There's a lot of, if you like, pre-opening costs, sort of within the P&L. You should be expecting a really quite a steady climb in the net margin. Certainly we get into 2024. I've got no reason to see why in the long term, a margin from our U.S. business in line with the average is entirely possible. Thank you. Thanks, Sreedhar. Thank you. We will now take our last question for today. The last question comes from the line of Warwick Okines from BNP Paribas. Please go ahead. Your line is open. Hi, John. Thanks for the marathon call. Two quick ones if I may. The first is a clarification on Primark sales, and this risks being a bit of a stupid question, but you bridged most of the 6 percentage point gap between constant currency revenue growth and like-for-like. What was the other 100%? Is that some space reopening after lockdowns? Secondly, on ingredients, you're clearly still seeing a lot of growth when others in the market are seeing destocking at their customers. Why do you think that is? Is that geography or product category within ingredients? Thanks very much. Yes. Okay. Great. Well, thanks, Warwick. Yeah. Let's have a look at the bridge between the 10 and the 16%. You're right. Thanks for pulling it out. I think probably about 1% is the fact that last year, because the reaction to Omicron in the Netherlands and also in Austria meant that the stores closed there, not for a long period, but for maybe some weeks. I think that really is contributing about 1%. You go 10%, 3% average selling growth, 2% store productivity, and then 1% for the stores that closed last year. Okay? That's where I think is it. Ingredients, I think what's happening here, we've got a number of specialty ingredients and you can imagine it's really all about the formulation of the products by our customers. I think we're all aware that for the really the FMCG clients mostly that are our customers, and that's pharma as well. That a lot of new formulations were really put to one side. It was concentrating on the higher margin stuff. All of that's come back, and it's come back in spades. We're seeing a much higher level of product innovation. I think our teams have been very focused on it. I think at some point, Chris is with me, I think really a deeper dive into our ingredients businesses is worthwhile. W e'll get to a level of profitability here, Warwick, that not to put too fine a point on it, I'd love to have a two in front of it, where it would be a few GBP hundred million. I think it's well worth really spending a bit more time with you guys on that because we've got a, particularly in our specialty ingredient area, Fabienne is, if I may call by name, one of our chief executives, is a very capable, very focused chief executive, and she's always been focused on the front end. I think it's paying off in spades. I think we've got some highly performing commercial teams in that area. That's coming through. Okay, Warwick, thank you very much. Listen, we're over time and, Warwick, thanks for describing it as a marathon. Hopefully, not all of you are puffing and panting at the end of this, but hopefully you felt that was an efficient way of dealing with this this morning. Thank you very much for your time, everyone. Thank you. This does conclude today's conference call. 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