Associated British Foods PLC

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Earnings Call Transcript 2023-Q2

[George Garfield, Chief Executive Officer]

Thank you all very much for joining us in-person today and thank you for those of you who are online. Before I get into the results presentations, I have a few comments to make about our beloved friends on the right. I think all of you know that today is John’s last time presenting ABF results. He was appointed our Finance Director on the May 4, 1999. Just a week short of – I am sorry, not 40 of 24 years ago, when my daughter who is just graduated from university last summer was 6 months away from being born. We’ve established that he has around for a long time. The big question is, has he been any good? And we have been doing a bit of internal research. This isn’t audited. I warn you.

We have had a look at the 35 million survivors in the FTSE or the companies in the FTSE100 who existed when – in the FTSE100 when John started up as Finance Director. The first point to make and it’s kind of important in a family company, especially when I am family, is that we are still alive. Two-thirds of the constituents aren’t there anymore. We had a bit of a freight during COVID perhaps, but other than that and probably especially during that, John, thank you very much. Here are the total shareholder returns for the best of those 35 survivors. And here are – here are the companies we – here are the number of finance directors that each of them has had during the period.

So if we divide total returns, by total finance directors to get total shareholder return per finance director over the period. And I think we have established that John has not only been good. He has been the best. I have spoken several times over the last since John announced that he wanted to step back about John’s fine judgment around capital allocation and the capital disciplines he has embedded in our processes and in our culture. They are worth saluting again. They are a big reason why we have a good track record. I’ve also spoken about how John has embedded high standards in our accounting and in our controls. Accuracy around numbers is part of our DNA, not least, thanks to John. The basics have done really well at ABF at least most of the time. And we all understand that in a diversified company with loads of devolved authority. Reliable numbers are absolutely vital. You must always know where you are.

I’ve also spoken another – about another one of his superpowers, which is sometimes exhausting energy, most remarkably after nights involving red wine. It is no coincidence that we’re replacing John with an ex-rugby playing Irishman. I haven’t spent much time paying tribute to John’s qualities as a communicator. And so now I will. And I think this is the right time in the place to do it.

In a company like this with a majority shareholder, it is so important that other shareholders feel that relevant information is available to them that their views are listened to, even if we don’t have to do what you tell us to and respected and that they believe what they’re being told. It might sometimes have been hard to get hold of, John, before 7:00 a.m. and after 7 p.m. has worked for many. But I hope you agree that he’s always possessed an extraordinary knowledge of this company. A fantastic insight into what all the different parts are trying to achieve. And for someone trained as a scientist, this is unusual and quite annoying, a first-class ability to bring clarity to has spoken and to his written communications.

I’ve shared so many meetings with John where I’ve marveled at how articulate he is, especially when he’s needing to bring some sense to statements of mine which where I thought I was being totally clear, but sadly no one else did. But for all these abilities to retain information for all his ability to speak in sentences, John’s brilliance, I think, as a communicated rest, most of all on something that he’s never set out to achieve, which is that he gets people to like him. He is a really good bloke who in turn just likes other people. John, I hope you won’t mind me saying this, and it’s a bit personal. But I think some of your ability as a communicator and as a people person, it is founded on your deep Christian faith that leads you to respect value and sometimes just love your fellow man. I don’t think he’s ever really thought of themselves as superior to anyone, and this is a rare and very special quality.

Let me very briefly then introduce Owen, although I suspect many of you know him well already. For a pronunciation lesson, his surname is pronounced – yes. Yes, absolutely. He says by the time he started to correct people at Marks & Spencers who had chosen other versions. It was too late to do so politely, and we don’t want to I repeat that mistake here at ABF. Owen’s job in the next little while is to persuade you all that the wheels won’t fall off when John isn’t here. Today, he’s sitting next to us, largely quietly. I think – and – but will participate in the Q&A, particularly on anything around the outlook statement. The numbers in this presentation for the first half aren’t his.

Let me then turn on to the first half business highlights. This is a much better performance than we’d anticipated last summer. We really are delighted with them. We’ve seen extreme volatile cost movements in all our markets, and we’ve had to take considerable cost mitigation and pricing actions. The food business, in particular, has been very resilient through all this, and we’ve seen an exceptional performance in ingredients that we’ll come back to.

Primark sales were up 19%, driven by footfall pricing and new stores. We’ve seen volume growth in all our markets despite difficult consumer conditions. The decision not to fully recover cost inflation, I think, has been a good one. I think we’ve judged that balance between the need to recover costs and the need to protect our consumers. I think we’ve judged that well. And then – and I’ll come back to it. The new store opening program has been very successful. We’ve seen increased investment across both Primark and the food businesses and some important innovation, particularly the Primark website, which is an ever more evidently valuable part of Primark. First half financial highlights, these group revenues were up 17%. Adjusted operating profit down 7%; adjusted operating profit before tax in line with financing costs moving in our favor. Adjusted earnings per share are down 3%. Interim dividends, the Board has decided upon or up 3, reflecting confidence in the business, gross investment up 17% to £527 million.

And with that, John, over to you.

[John Bason, Chief Financial Officer]

So thanks, George. These results should be seen in the context of significant inflationary pressures really over the last year or so. So group revenue was £9.6 billion, an increase of 21% at actual currency and an increase of 17% at constant currency over last year. The scale of this increase demonstrates the work done by all our businesses to recover input cost inflation that we weren’t able to mitigate through operational efficiencies. Importantly, there were also volume increases and that was notably in Primark and in Ingredients. You will remember that last autumn, we chose not to recover all the input cost inflation in Primark with pricing and the execution of pricing in our food businesses, particularly grocery, have lagged input cost inflation. So the group adjusted operating profit margin in the first half declined as a result. As a consequence, adjusted operating profit declined 3% to £684 million at actual exchange rates and declined 7% at constant currency.

You’ll note that there were no exceptional items in either half year and arriving at the adjusted operating profit. Exchange rate movements were certainly a feature of this half. So sterling was particularly weak at the beginning of the period and the weighted average exchange rate of Sterling against the U.S. dollar was 1.18 in this first half, and that compared to 13.5 million in the same period a year ago. These results include a £29 million benefit on the translation of our non-sterling earnings. This period’s unadjusted or statutory operating profit of £663 million, decreased by 3%. The improvement in net interest expense was driven mainly by the benefit of the increase in interest rates and what was earned on our cash balances. The improvement in other financial income reflected a further substantial increase in the surplus in the group’s defined benefit pension schemes. As a result of the improvements in our financial income, statutory operating profit was ahead at £644 million and then with adjusted profit before tax broadly in line with last year.

Let’s come on to tax. So the effective tax rate increased to 24.7%, up from 23.2% at the last half year. This rate is in line, I think, with the guidance previously given. And of course, indicates – includes rather the impact on the blended tax rate for the full year of the increase in U.K. corporation tax which went from 19% to 25% in April. A deferred tax asset arose in relation to the charge taken in last year’s accounts for the impairment of property, plant and equipment and store leases in Primark Germany. A significant proportion of that asset was deemed to be irrecoverable and was written off as an exceptional tax charge last year. As a result of further work undertaken this year, it’s been determined that more of this deferred tax asset is recoverable. And so what you can see here that an exceptional non-cash tax credit of £58 million has been recognized in this half year. We anticipate the effective tax rate for the full year to be close to that reported here for the half year.

So, coming on to earnings and dividends per share. Let me just talk, first of all, about the share buyback program. So we announced that £500 million in November 2022. So actually, in the half year itself, we purchased 8.1 million shares for £140 million. And the shares bought back were canceled. And at the end of the half year, we had 784 million ordinary shares in issue the weighted average, which is the number that you see on this page, was £786 million, which compared to £789 million in the last financial year. As of close of play on Friday, we’ve actually repurchased 12.2 million shares for a total consideration of £219 million. So you can see that we’re getting really very close to the halfway stage in terms of the shares buyback.

Adjusted earnings per share declined 3% to 62.9p. On an unadjusted basis, earnings per share increased to 67p, and that obviously was driven by the difference from the unadjusted by that exceptional deferred tax credit that I’ve just mentioned. The Board has declared an interim dividend of 14.2p per share, and that’s an increase of 3% on last year, which reflects our confidence in our forecast for the outturn for the full financial year.

Now let’s move on to the balance sheet. So, net assets for the group for the half year increased by some £0.9 billion to £11.4 billion. The increase was driven by, first of all, the translation benefit arising from the weakness of sterling between the two half years of some £0.3 billion. Then you’ve got a net investment in tangible fixed assets, and I’ll talk to you about the level of capital expenditure in a moment. A significant improvement in the net pension asset and then an increase in working capital, and that’s obviously partially offset by a reduction in the net cash. And I think the net cash figure is in line with your expectations.

Working capital increased by 1 billion, that’s from the half year to half year. So that’s over the year. Our translation was responsible for 100 million of this increase. And then the other major factors were the impact of inflation. So don’t forget that, which we’ve estimated to be some probably £450 million in terms of adding to the working capital. And then there’s a larger than usual increase in seasonal inventory in our sugar businesses and that’s driven – it’s about £100 million, and that’s certainly driven by – which is a welcome increase, the increased sugar production in Illovo.

I think the balance then are higher inventories across all of our businesses. I want to remind you that Primark a year ago, the inventories actually were too low. If you remember, that reflected the logistics and supply chain difficulties that were experienced in the first half of last year. These inventories have increased somewhat as a result, probably a little higher than you would have expected, but I expect a reduction from this level at the half year to probably the consensus that you’ve got by the financial year-end. Other net financial assets comprise derivative positions arising from our usual hedging activities, which are effective on [indiscernible] currency and energy and the shown year-on-year reflects the volatility in these markets. Under the deferred tax liability increase of £124 million really as a consequence of the increase in the U.K. net pension assets. So now let’s move on to cash flow.

We would not – we not see, as you know, a free cash outflow in the first half of the group. And that really is a normally is driven by a build of sugar inventories in the Northern Hemisphere. What we’ve got here is last year being lower and this year being higher than that normal. So last year, the outflow was unusually low as a result of the much lower inventory at Primark that I’ve just referred to. This half year, I would say the free cash outflow is higher than a typical year. Of course, the cash outflow this year includes £140 million relating to the share buyback program and the remaining increase is mainly driven by higher capital expenditure and then higher working capital outflow.

So let me turn to capital expenditure. First of all, the increase here was driven by – we’ve got a large number of capital projects which are underway. And then there’s also, I think, a recovery from pandemic affected low levels of the last few years. So the increase of the investments in our food businesses primarily relates to projects which are building capacity and looking forward. And Primark, the increase reflects, I think, the welcome acceleration of our new store program and expenditure to expand our capabilities in automation and technology. We expect this higher level of investment to continue over the medium term. So factor that into your cash flows as you look at it.

The increase in working capital in this first half was driven by the factors that I’ve just referred to when talking about the balance sheet. We’ve paid £235 million for the final dividend of the 2022 financial year in this half year. That’s lower than the prior cash outflow. And you’ll note – you’ll remember that, that included a special dividend that was declared in the 2021 financial year. The cash outflow in the first half resulted in net cash before lease liabilities of £586 million at the half year. Net debt, including these liabilities of £3.2 billion was £2.6 billion, and that gives us a financial leverage ratio of 1.2x. We expect a positive free cash flow in the second half of this year. So that certainly includes the continuation of the share buyback program as originally intended. But then, of course, you have the seasonal unwind of Northern Hemisphere sugar inventories, and I suspect there will be a reduction in Primark inventories. I would expect financial leverage to reduce as a result by the financial year-end.

So coming then on to the last slide from me. This is the performance analysis by business segment. So revenue was ahead in each of our food businesses and combined grocery, sugar agriculture and ingredients, that was 17% ahead of last year. Grocery revenues, you can see the increase has moved up there. So we achieved 10% ahead of last year, benefiting from the build of price increases taken. But I think as expected, margin declined, and it moved from 9.6% last year to 8.2% as a result of that lag of implementation of price increases.

I’ve got to say that given the scale of the inflation seen by these businesses, I believe in adjusted operating profit broadly in line with grocery, I think is a very creditable result. AB Sugar revenues were 27% ahead of last year, all that’s driven by higher sugar and co-product prices. The strong performance by Illovo, which is very, very strong, I think, in the first half. More than offset the crop and inflationary challenges of this business, but we now expect full year profit to be below that of last year for the full year. I suspect that the strength of the adjusted operating profit in Ingredients will be ahead of your expectations. AB Mauri delivered a really strong performance in this first half. And ABF Ingredients also performed well and we’re both delivering volume growth as well as strong price execution.

Our Primark total sales for the first half was 17% ahead of last year at constant currency, with increases in all our geographic markets. Trading was significantly better, and that was really driven by the good footfall. And that really was the demonstration of the appeal, I think, of our proposition to new and existing customers. I think very importantly, this represented a really a material improvement in both the U.K. and in Europe on the second half of the last financial year. The benefit of stronger sales than expected drove adjusted operating profit margin up to 8.3%. And that’s certainly higher than we expected last September. So it really is about that volume outperformance which I think is the driver of that. Of course, it was the strength of the U.S. dollar against both sterling and euro and the inflation in fabrics, that resulted in that substantial increase in cost of goods and that was the reason for the decline in the margin.

The segmental analysis by geography, I think I set out in an appendix for you. But I think just to cast a glance of it I think of note is the increase in the adjusted operating profit in North America, which is getting on for double. And that really is driven by the success of our grocery and ingredients businesses there. So George, thank you very much for the words that you said. So this really is the last time that I’ve got the pleasure of addressing you all. I think this is my 48 presentation. So it’s really, really quite a number. So I think something really must have kept me going for 24 years, at least you would expect that. I think in reality, there are probably many things. But primarily, what I would like to say is that I’ve really enjoyed talking to you about a business that I both love and believe in. It’s never been boring. Not least because engaging with you a lot, has always been stimulating that time is challenging.

So my thanks from my engagement with you all, and at that point, really for the last time, pass it back to George. Thank you.

[George Garfield, Chief Executive Officer]

I think £1.50 this morning at Primark just to the right. Starting then with Primark with retail where trading was significantly better than we’d anticipated back in September and I’ll come back from that for that. In particular, we’re delighted by the increase in footfall in the U.K. and Europe, both. And then, as John said, higher sales drove and higher footfall drove the profit margin up to 8.3%.

We can see a route still back to double-digit margins. But for now, 8.3 is much better than we feel it was going to be. The new stores, we opened 1.5 million square feet, 13 new stores, and they’ve been really successful. The sales densities across the 13 are significantly higher than the company average. The 530 stores ambition is alive and well as each new store opens as well as they have been doing, we get more and more excited. The digital development is really very important, the rollout of the improved website. I’ll show you more about that in a moment. And then the click-and-collect trial in the Northeast has gone sufficiently well that we’re going to extend it and expand it into another 32 stores, which are the London stores and Lakeside and Bluewater, which is just outside the M25.

The German restructuring and growth plan is in place. We’ve got quite a lot to say about that in Germany today. And then we’re also announcing an acceleration of our expansion into Southern states in the United States anchored by a new warehouse in Florida. The sales performance, then like-for-like sales up 10, with obviously higher averaging average selling prices, but higher unit volumes as well as significantly higher footfall. We had feared that by moving our prices up we would lose some of our shoppers who are going to be cash squeezed anyway. That really didn’t happen. We’ve seen a little bit of a reduction in units per transaction, but not all that much.

We thought that we would get to new customers, giving us a try because they were looking for value, and we’ve certainly seen that. We’ve also, I think, done a very good job of attracting customers who would previously have shopped in some of the high street stores that went bust during COVID. And then I think that the last part is I think the website is undoubtedly driving traffic.

So U.K. like-for-likes are up 15 and our value market share has gone from 6.2% to 6.5%. And I’ll show you how that’s built over time. Europe, excluding the U.K., like-for-like sales are up again, higher average selling prices, higher footfall and much improved performances in Spain, France and then Germany as well. And then sales in the U.S. are 11% higher. So we had 6.1% by value units – value share of the U.K. clothing market that’s online and offline combined in 2019. Went up by a little bit in 2020, we will then largely shut.

Last year, we got all that traditional share back. despite the growth in online participation in the clothing market. And this year, we’ve increased at a rate that we haven’t seen for some while. So we are growing share in the U.K. in particular, we’re monitoring. In Germany, we saw like-for-like sales increased 13%, absolutely great. We’ve recently rolled out the website with the stock tracker. We think that will be particularly relevant in the German market.

We have – we need to – and we are addressing the profitability of the current estate. It’s still profitable in total but sales densities are too low, and they’re too low because many of our stores are too big and they’re too close to one another. We’ve already closed 2 stores in Germany, and 1 of the Berlin stores in the half year, actually install, we closed outside the period. And today, we’re announcing our intention to close 4 more stores, obviously, in consultation with employee representatives which are Frankfurt, Gelsenkirchen, Krefeld and Kaisers Lawson. Having most recently reduced the size of the Hanover store, we’re going to be consulting on reducing the size of more stores.

The average German store is 50% larger than in other markets. But Germany is a big country. There are many Germans who live in areas not within shopping distance of Primark. And we plan to invest in new locations where there’s not – where we’re not yet present. We’ve designed a new smaller store model, probably around 20,000 square feet. And we’re actively looking for new space for those. We’re in negotiations with potential new locations. And we’ll share more of that with you later on in the year.

So Primark digital, the much improved customer website is now live in the U.K., Republican of Ireland, Germany and Spain, which launched last week. On average traffic is considerably up 60% to 100% up on prior. And usage of the stock checker function is running at around 20%, which we think is really good. We think that, that is driving footfall into stores and we really are very pleased with the impact the new site is having. Italy is the next market to go followed by the U.S. and France. We’ll have all the markets, all 16 of our markets with the new website before the end of the summer.

The click-and-collect trial has progressed well. As you know, it’s only in 25 stores and only on kidswear. We’re seeing good basket sizes purchased online. We’re seeing them good attachment rates in stores, and we’re seeing low rates of return lower than we’d anticipated, even given that kids wear typically as a lower rate of return than some of the other categories. We’re sufficiently confident to roll it out into the London stores, we’re refitting the old customer service desks to be collect, collection points. And that will be done by July or so.

Digital engagement more generally then and let me in a moment, show you this video. The customers produce most of our content. It really is a lovely business model. This video we’re going to show you was watched nearly 0.5 million times. We didn’t produce it. We have our own TikTok channels, but there are so many. And TikTok is the major channel now for us. This is the increasingly famous [indiscernible] which is to spring/summer, I think what [indiscernible], but leggings were to the autumn.

[Video Presentation]

[George Garfield, Chief Executive Officer]

I think some of them have been interesting. The first one, the cold weather essentials sold early in the season, I think we all sat inside, I certainly did in the study. I didn’t have the flash velvet leggings, attempting not to turn the central heating on. And sales of winter ranges, particularly those two products were quite phenomenal. So cold weather essentials. Now of course, we also had a very good Christmas [indiscernible] as we did the effective Christmas the year before. We’ve also seen in the period, and we’re not quite sure where it’s coming from early buying of holiday ranges, maybe because our availability is much better than it was a year ago. But we’ve got into holiday gear much earlier, so in this first half. And then I’m delighted, health and beauty is performing extremely well. I think on the back of – well, obviously, more socializing, but also really good quality ranges that we offer great product, obviously, fantastic prices. Sales of skin care and other health and beauty products are well, well ahead.

I now want to turn to some extensions of our offer. We’ve seen Debenhams disappear. We’ve seen warehouse principles, Jane Norman, Peacock, [indiscernible], etcetera, etcetera. There are many, many shoppers looking for new places on the high street to do their clothes shopping. And we have deliberately set out to attract them with products they might not have associated with Primark in the past. So the edit goes from strength to strength. Premium fabrics, in particular, fantastic value but at higher price points than we would have seen in Primark stores in the past.

The [indiscernible], which is basically a smart casual clothing for men, again, fantastic. Chem in most markets, people got no idea who Chems, but they know great clothes. And again, really good quality clothing at prices which are well under what you would expect to pay for those sorts of products. And then the second range from Paula Echevarria, who is a Spanish actress and social media leader, again, product selling well everywhere. The sales of this sort of offer, which we haven’t typically had in the past are growing very quickly, and it’s very exciting. As I say, it’s part of the reason that we’re seeing footfall going up. It’s not just kind of wealth effect driving people to shop cheaper. It’s because our offer has expanded and done so very attractively.

So Primark Cares, let me tell you a little bit more about where we are there. We’re launching – well, we have launched our first circular collection. So these are closed designed with the principles developed by the Ellen MacArthur Foundation. So they closed which is designed to be recycled. Less mix fabric, less sort of buttons and zips and other things that hinder recyclability. We are taking all the design and buying teams through these principles. This is just the start. At the moment, we’ve got 30 products.

We are much further ahead in using recycled or more sustainably sourced material in our existing goods. So at this time last year, we’re up at 39% of products having sustain that we saw store recycled content to them, and now we’re at half. We continue to expand the sustainable cotton program. It’s the largest in the world in the fashion industry already. We’re up to about 70 – 275,000 farmers trained in it. Just as a reminder, it’s been running now for 12 years. We’re not sort of late into sustainable agriculture. We’re expanding the program into Turkey, a moment where Bangladesh, Pakistan, India and China, Turkey next. And then during the half year, we published our first sustainability and ethics progress report. It’s very comprehensive, and it’s very straightforward and honest, it’s a serious document.

Moving then to some of the new stores, as I say, 13 in the period. I’ve illustrated Italy because it’s such a great market for us now. I think we’re only up to 8 stores, so much growth left in that market. France, [indiscernible], we were worrying at the back end of COVID, that perhaps they had been damaged to our business in France. It turns out not to be the case. And then Eastern Europe is becoming increasingly interesting. This is our first store in Romania, we’ll open our first store in Hungary in the next 12 months or so. And Poland sales densities are accelerating. It’s really great. Czech Republic has bounced right back as well. But I want to focus this time around on the American journey.

Here are the 3 stores we opened in the first half, all in New York State. Jamaica Avenue, Roosevelt Field, which is the southern end of Long Island and then City Point in Brooklyn, very successful openings where chasing are less affluent customer with stores, which, as I say, 30,000 to 35,000 square feet. And they are really resonating with our consumers. So we’ve opened 3 more stores. We’ve got 5 more to open in the second half. We’ve already got Buffalo opened, the first shopper in the queue on opening day was from across the border in Canada, and we think that there’s going to be a nice transborder trade into that Buffalo store.

We signed two new leases also in the period, second store in Florida and then New Jersey. We’re accelerating the opening of stores in the Southern states and for the first time, including Texas. Texas has a big Hispanic population. It’s a lower-cost area to do business is the fastest-growing state in the U.S. And whatever our prejudices might lead us to think actually they address very similarly to our American stress in many of our other U.S. markets. To support that sudden growth, we’re opening the second distribution center in Jacksonville, Florida and there it is on the right hand side.

Finally, then on Primark second half outlook. We’re beginning to benefit from reduced sea freight costs and energy costs. But because of currency differences the cost of bolting goods in the second half this year is higher than the same period last year. So that will offset some of the cost savings. Much tougher like-for-like comparators in the second half, but we will see like-for-like growth. And I think it’s right that we remain cautious about consumer spending.

Let me then move on to Food. So pricing of sugar is and the coproducts in both our European and African markets are significantly higher than they were a year ago, and that’s obviously to our advantage. But we’ve paid significantly more for sugar beets for cane and particularly for energy. The higher volumes are in Illovo are very welcome because we’re supplying into growing markets, particularly Tanzania, Malawi and Zambia.

We had about this difficult growing season for the sugar beet crop in the U.K. last year and about as difficult a harvesting program campaign this year with particularly frozen beat and then rotting beat. I’ve got more to say at Vivergo at this stage of just acknowledged that we made a loss in that business in the first half. We only produced 0.75 million tons of sugar, we would normally think that 1 million tons was sort of our baseline. And the sugar that we did produce was harder to extract from the beet.

Actually, compared with the last difficult harvest, which was 2012, we were much better equipped to process frost damage beet than we were there. And then although we saw significantly higher gas costs and just a reminder, we use a great deal of natural gas in our sugar operations. Those were offset to a considerable extent by the value of the electricity that we’re selling from the combined heat and power plant through the same period.

Spain, drought in the south of Spain reduced our crop there. We paid more for energy in that market, too. We got higher sugar prices, but in the first half, energy costs were greater than the sugar price increases. The second half that will reverse, we have done a very good job on sugar pricing in the Spanish market, and that will come through in the second half. In the second half in the U.K., we will see the profit effect of us having to buy in sugar to supply customers. So the margin in sugar in the U.K. will go down. And then China, very COVID affected.

Turning to Illovo then where the profit has been significantly ahead, improved sugar prices, not least because pre-packed sugar, retail sugar continues to grow and grow strongly, increased production exactly where we wanted it in Malawi and Zambia. The South African sugar industry is going through a very difficult time. Two of our competitors in their version of Chapter 11 or receivership. And we’re not immune to the pressures that have caused them such distress.

We’ve seen severe flooding in Mozambique in Arcana states, cane state there. We grow sugar on flood plain. And 2002, there was a flood, and then just a few weeks ago, there was another one, which has wiped out the vast majority of the sugarcane that we’re growing there. In some places, it was under 8 meters of water. We’ve taken a charge to reflect the writing off of the value of that sugarcane in this first half year. And then the new Tanzania sugar plant is progressing. It will be out to see it in a couple of weeks’ time.

Vivergo, right? We know how to run the plant. The plant runs well at design capacity, and that’s the first time I can say that with certainty since we commissioned in 2014, so that’s great. We opened it into a uniquely difficult time for the European ethanol industry with high energy costs, high wheat costs and the bioethanol plant, the price across Europe that was affected by the import of a large amount of American and Brazilian ethanol. We couldn’t have had a worse time to be opening negative margins – much greater negative margins than the industry has seen for a long, long time.

We remain confident in the prospects for this business. The second half will be a whole lot better than the first half. And we see no reason why this business shouldn’t be sustainably profitable in the future.

Turning to grocery. Last 18 months in grocery have been about cost recovery. And it’s been really difficult because the cost increases have just kept on coming. So you achieve, you negotiate your way to higher prices and then you got to start again and do whatever. The best news is that I think that process of chasing increasing costs has at least from now come to an end.

We don’t – we think that our pricing actions are largely done. Commodity prices can explode again. But for now, we’ve – we’re done with most of the pricing. We’ve recovered by and large, the cash costs we haven’t recovered – maintained the margins that we were enjoying before the inflation kicked off. So there is a job of work to be done to build margins back. We will start to see the beneficial effects of pricing on our margins, though, in the second half, including in bread.

The performance of our U.S. businesses, both ACH and Stratas come back to has been expanding – outstanding, and I’ll call that out here. And then really in response to recession and people being more and more tempted by own label, we’re increasing – we’ve increased our brand investments. We think that in the long run, that’s the right thing to do even though even though the consumers are looking for value. Diving into different parts of the grocery businesses then Twinings Ovaltine, revenues are well ahead, marketing investment is well up. Here’s an example of some advertising of the wellness ranges in London. The wellness ranges keep on increasing in sales. That’s very encouraging. And then geographically, we saw particularly good performances in the U.S. and in Australia. Also a lot of price that we’ve had to take in Twinings.

Ovaltine though has had a more difficult time with strong performances in Switzerland and Brazil. Thailand has been very difficult, particularly on powder, and it’s our biggest single Ovaltine market. And then markets have been disrupted, obviously, for very different reasons in Myanmar and in China. China is coming back and Myanmar is better than it had previously been.

UK Grocery, the sales increase was the consequence of pricing. Increased marketing investment though in the World Food brand, so that’s Patak’s and Blue Dragon, Jordans Dorset Ryvita have all seen a great deal of both of commercial activity, both in terms of launching new products, but also in the communications around them. And then Mazzetti similarly increase in marketing spend. Let me just show you the new Jordans.

[Video Presentation]

[George Garfield, Chief Executive Officer]

That taste by nature is the new positioning of the Jordans brand.

Turning then to Allied Bakeries where we have secured significant pricing which was absolutely justified. The trajectory of performance is encouraging. The second half, in particular, we will see the benefits of that pricing becoming evident there is lots more to be done with the business. But compared with the dark times that followed the invasion of Ukraine and the increase in wheat and energy prices, in particular, we’re in a much, much better place.

The styles of the show in grocery, ACH and Stratas, sadly a joint venture, but nonetheless, half of the good thing is still a good thing. So very strong trading performance in ACH. Mazola is now firmly established as the number one as a leading branded vegetable oil in that market. And Fleischmann’s, our bakery ingredients business has recovered really well from COVID, where it was out of stock for a long period. So all the market share that we enjoyed before, which I thought we would take 2 or 3 years to recover if we ever recovered it. We’ve got back.

Pricing actions to cover inflationary costs, again, really good. And then Stratas benefits from the U.S. market, like many of the UK food market switching to home label oil where it’s the long – where it’s the largest supplier by some way. So good volumes and then really good margin management in that business. So both businesses well ahead.

Australia, Tip Top traded well. It’s had to cope with a very difficult wheat harvest – difficult – more difficult to make bread in Australia than I can ever remember. But the cost of doing that has been recovered well in the marketplace. We’re rebuilding the Western Australian bakery. It’s by some way, the largest in Australia, and it’s an important asset for us – in now and in the future.

Don KRC, probably part of ABF that’s had most trouble with – most trouble filling all the jobs we’ve had to – we’ve had a year of 18 months of not having enough staff. That is easing as it does, we’re able to produce more product. And that’s what we’ve been doing, and it’s going quite well.

Ingredients has been great. AB Mauri in particular, where they have very successfully recovered cost inflation. And then they are the part of the group, which is now benefiting from some reduction in those costs and it’s – and they are holding on to margin to some margin expansion in Mauri – but also the performance in Brazil in the wider bakery ingredients category has been very strong. Significant investments in new plants, first in capacity in Brazil and in India. And then as these two pictures show next in specialty yeast production. There is a lot of yeast used in industry, which isn’t other than in industries – other than bakery, and this is a plant in Hull, which is designed specifically to cater with the smaller volumes and closer product quality tolerances that some of these other industries require.

And then on the right-hand side, a big investment in Brazil in the treatment of effluent that’s natural treatment plan, which gets us well ahead of the water standards required now in Brazil and the standards that we would anticipate coming into effect in the future. So there is a big investment in Brazilian water.

ABFI has had a good period to with good sales and profit growth. We’ve reinvested the benefits of sales growth within the Enzyme business by increasing spend in R&D and in sales coverage. The significant capital investment going on in our yeast extracts plant in Hamburg to increase the capacity and to increase the capability of that plant. And then for Fytexia, which we bought the Vita Nutrient business that we bought last year is performing well and certainly to our expectations when we bought it.

Finally, agriculture. It’s been a more difficult year in revenues are ahead. They are obviously going to be headed with commodity prices. Frontier, the grain trading fertilizer joint venture we have is trading very well. UK animal feed is difficult. The poultry – the chicken market is down on, I think, affordability for affordability reasons, and the pig market has been weak. And then finally, the business in China – nice business we have in China, but a slower recovery of volumes since the pandemic. Since restrictions, particularly on interprovincial movement of goods has it’s taking longer to recover. I think we’re there now.

Here’s a picture of one of our new investments in the food businesses, which is the Western Australian feed mill – this is a great asset. It is by some way the larger scale producer in the West Australian monogastric market. And it’s commissioning very well. It is – the Western Australian market is a very well protected – the one that’s very well protected by geography. And we’re now very strongly placed in that market with this new [indiscernible].

Moving on to the bit that Owen has got to help deliver, the full year outlook. So we expect the operating profit to be modestly ahead at the final year. We expect ingredients to be well ahead. But to an extent that increase in profitability there will be offset by reduced profit in sugar. Our grocery will be slightly ahead for the full year with the benefit of the pricing actions we’ve taken.

Primark will be ahead of last year’s second half. And margins for the full year will be similar to what we’ve seen in this first half at 8.3%. So full year adjusted operating profit and earnings per share were broadly in line with last year. As I say, we expect to be there or there about – or thereabouts for the full year. Summary of all this, much better first half performance than we anticipated last September. Keep on reminding myself that just how gloomy we were back in September. I now recognize having celebrated that the wheels didn’t completely fall off that we need to move on from where we survived to getting back to rebuilding margin and rebuilding and increasing profitability. But you hear from the podium of a big sir relief.

The full year guidance is unchanged. I remind you of the, I think, significant decision to expand the footprint of Primark in the south of the estates and particularly into Texas. And a reminder of that increased investment, both in Primark with the acceleration and also the investment in those of significant opportunities in food. Thank you very much, and over to you.

[John Bason, Chief Financial Officer]

So what we will do is we will go to some Q&A, and we will take – we will take questions, I think, first of all, from the room. We’ve got some people online. So those that are online, you’re very welcome to ask questions, but I think I’ll take people in the room first. So I can go with. Warren can I please...

[Warren Ackerman, Barclays Bank]

Before I ask a question, John, I just want to say on behalf of all the analysts and investors have been absolutely pleasure working with you all these years. As one of your house brokers. We’ve had our ups and our downs – has the same more ups and downs, but it’s certainly been fun and educational and that’s not just a Primark comment or an ABF comment. And George, you’ve already said it. I mean, John, you’re one of the good guys and your passion for the business is undimmed, which I think is a rarity these days. I do think you’ll be a great ambassador for Primark in your new role. And I’m sure your advice to the Board will be much appreciated. Hopefully, it leaves you some time to explore your passions outside work, and that’s not just a comment on wine. And Owen, welcome to the role. ABF is a pretty unique company, a unique culture of my early observations, I think you’ll be quite well suited to it. Big shoes to fill. I’m confident you will. The only caveat is that you’ll need to first figure out John’s unique style of guiding us.

I mean, okay, in terms of – couple of questions. And the first one is just on operating costs at Primark. Can you talk a little bit about margins, why margins in the second half will be only similar to the first half? And then what your thoughts on margins are into next year, it be quite useful to sort of understand a little bit on some of the kind of moving parts around freight cost and energy, any kind of numbers around any of those and when hedging rolls off help us to have a margin bridge that we always ask about is super useful.

And then just secondly, on non-Primark, there is lots of moving pieces up and down. It’d be great to sort of understand a little bit what you’re thinking about profits, John, on sugar ingredients and grocery seems to me that sugar profits are lower, but grocery and ingredients higher. Could you maybe just flesh that out a little bit for us for ‘23? And how much of those ups and downs then flow into next year’s ‘24 numbers? So it’s quite a long-winded couple of questions, but – thank you.

[John Bason, Chief Financial Officer]

So first of all, thanks for your words at the beginning. Okay, so I’ll have go mark and you can be thinking about the remainder. So I think the one thing that George mentioned in Primark, which just has to be worked through is the impact of the FX in the second half because I think people sort of kind of forget around when we do our buying and so on. But when we did our buying sterling was particularly weak, if you recall. So actually, we do get a more pronounced impact of FX into the second half that we actually even had in the first half. And that actually is relevant as we look into next year as well because actually, there is no particular boom of FX into next year because if you look at the blended rate overall for the whole financial year of FY ‘23, I mean, at spot sand today, it’s pretty much stand on, right? So you’re getting a bit of a weakness in the second half. And then as I say into next year, you’re not getting a huge sort of like huge benefit.

In terms of the other moving parts, George talked about freight getting better. It is getting better, and we have a – it is going back to kind of more normal levels of roughly around $2,000 a container, but that’s happening at the back end of our second half. So it’s not we’re not going the full benefit of that in the second half, or it’s happening through the half. But of course, we do get that benefit into next year, which is a benefit into next year. And then in terms of fabric costs, which is the other big moving part. We have – it is – prices have come back, and we do have to get it a little bit less pronounced impact in the second half of the year. And we do see hopefully benefit on it into next year.

So there are, I would say, the big moving parts. But the reasons if the narrow question, the primary reasons why sort of margins aren’t kind of expanding into the second half is that kind of FX component, which you spoke about. I think that’s it on primary yes.

[George Garfield, Chief Executive Officer]

Let me start off with sugar. We never have enough sugar to sell when prices are high. That’s why prices are high. So we’re sitting here with – in some frustration, looking at the world market prices sort of $0.24, $0.25. A if though we had a decent UK sugar crop going into next year and the energy prices stayed lower. And we weren’t having to buy in very expensive sugar next year, we would have a much better year the second half of this year, though we will see profits lower because that’s the time when the margins get squeezed by the need to supply customers with sugar that’s been brought in.

We would hope that ingredients have a fair chance of holding on to the margins they are making at the moment. And maybe if some of the input costs came down at least delaying the rate at which they pass them on. I think that’s probably easier to further up the value chain you are. But I think it will be sort of a one-off effect into next year. Second half margins in – or profitability in both yeast and specialty Ingredients, I think will be good again. And then grocery we will see better margin in the second half than we’ve seen for the first half or I think probably even the second half of last year. But we wouldn’t get not to the extent of getting back historic margins margin, the 10% that John works so hard to achieve over ‘23 is still way off.

[John Bason, Chief Financial Officer]

Thanks so much. Let’s take the next question. Yes. Georgina.

[Georgina Johanan, JPMorgan]

Thank you. Excuse me. Georgina Johanan from JPMorgan. And echoing were, thanks to John, of course, hopefully goes without saying – two questions from me, please. Firstly, just in terms of pricing, I mean, as we sort of look ahead 12 months, 18 months in Primark, will be at a stage where hopefully freight costs are pretty much normalize, hopefully, energy costs have normalized. And indeed, hopefully, we’re back to a kind of normal world obviously, there will be some high single-digit, low double-digit pricing that cumulatively has gone through in the Primark business. How do you think about that on a mid-term basis? Like is that something that you would potentially give back to the consumer? Or do you see that as like a structural setup?

[John Bason, Chief Financial Officer]

I mean we will always price as we need to price to remain the most competitive clothing retailer. How do I think about it? Well, we didn’t – the pricing actions we took didn’t recover all the cost inflation. So we’ve got some way to go with some of these lower costs simply to build the bucket back where we emptied it. Some of the cost increases that we’ve seen, particularly labor, are with us to stay. And although energy is well off the peaks, it’s still significantly higher than where it came from.

So – but with the combination of some following wind and if currency moves for us again, and we keep seeing these volume – these footfall increases, those are the moving parts that move us back to double-digit margins. But I don’t want people to race ahead of themselves and think that it’s the second half or the second half or the first half of next year. I think that’s all very unlikely very, very unlikely but it’s moving in the right direction, yes.

[Georgina Johanan, JPMorgan]

Thank you. And then my second one was just on the Click and Collect trial. And I was wondering if you could share any more metrics around that, please. So for example, in the stores where the trial is in place, what sort of like-for-like uptick you’ve seen versus the rest of the UK stores? And indeed, anything that you can share on like incremental margin dilution from the cost associated.

[George Garfield, Chief Executive Officer]

One of the reasons we’re expanding the trial to another 32 stores is that we don’t have a big enough data set to really dig into the margin point. We wouldn’t expect just one category with kidswear that we would see much increase in footfall, and it’s too early to see that. And there is been so much noise as well around with good footfall anyway. The disentangling at all is quite frankly not possible. What we’ve seen though is higher-than-expected basket sizes, which is a driver of cost of transaction and higher-than-expected pickup baskets – when people in stores, which again talks to incrementality. And then maybe because it’s kidswear, but we’ve modeled for the fact that we’re seeing lower returns than – so those profitability metrics drivers are all encouraging. Too early, too smaller days set to be able to tell you much more with any degree of precision.

[John Bason, Chief Financial Officer]

Thanks. Okines from BNP Paribas

[Warwick Okines, BNP Paribas Exane]

Good morning. Warwick Okines from BNP Paribas Exane. Two questions, please. The first is on pricing actually as well. Could you just talk about when you have or need to make a decision about autumn/winter pricing and what your initial thoughts are for that season into next year, please? And secondly, George, you mentioned that the new stores that you’ve opened this half of deliver better sales densities than the existing estate. Could you just talk about why you think that’s the case? Is that purely geographic mix or something about the format, etcetera?

[George Garfield, Chief Executive Officer]

On that point first, and I might move the pricing one on to colleagues. On those stores, I think it’s both. It’s Italy in particular. And then it’s the smaller stores in the Americas and elsewhere. So it is mix. If you go back a few years, new stores were heavily skewed towards countries like Germany, Italy, the UK, etcetera. So it’s a bit – it’s a better mix. on pricing through the rest of...

[John Bason, Chief Financial Officer]

That’s one point to what said about the new stores. I think it is that reminder, I think – and we’re going to keep it at the front of our mind. It’s the white space opportunity that still parked and so when you look at these stores opening in Italy, they are welcoming a Primark to the area for the first time. winces all the way over in Romania, that was the case. And so I think it’s that reminder, we’re not just filling in ever smaller spaces. There is a lot of white space that we’re going out there. And I think that is a good reflection.

[George Garfield, Chief Executive Officer]

And I think one other thing that it points to is it’s how well the brand is known in these European markets. You get to really good sales densities on day 1. Yes. Chuck, do you want to go on.

[Unidentified Analyst]

Well, I mean – I think the pricing – most of the pricing decisions for all winter, we’re already locked in to a certain extent. So we will see a little bit of a continuation of pricing into autumn/winter. I think it’s more spring/summer is where you’ll start to get the kind of really the stability, I would say...

[George Garfield, Chief Executive Officer]

But that will be less than mid-single digit – is that fair?

[Unidentified Analyst]

Yes, I think so in total portfolio. Yes, Yes.

[George Garfield, Chief Executive Officer]

Lower amount, smaller proportion of the range. Yes. So it’s very more limited than people may have thought it at the point. Martin Donna from [indiscernible].

[Unidentified Analyst]

Yes. Good morning. [indiscernible]. A couple of questions on the U.S., if I can. What gives you the confidence really behind the expansion of the rollout in the South. Is that customer feedback? Is it really across from Florida or other stores? Or is it just a store ability given that the market is probably better for property there. And also in the U.S., given what you said about the new store openings on the smaller groups under rightsizing, where are U.S. sales densities now versus U.S. Sorry, versus group average? Are we now getting U.S. up towards the group average?

[George Garfield, Chief Executive Officer]

Yes. I mean, basically, we’re not – we’re pretty close to group average with U.S. stored entities. Why the rollout and particularly in the South, I think that the first Florida store has shown us that we’re relevant in that market. Now that store Sawgrass, has two distinct customer bases. The first one is a tourist. But the second one is local less affluent Hispanic. And that’s one of the customer segments that we think we appeal to in particular. And the – what in ACH terminology we call is well.

I think the Smile region. Texas is a big part of that. the Southeast is a big part of it. And of course, New York is the other big part. And the success in New York, I think also has really crossed into the South. It’s attractive that the store build costs and store operating costs are lower, but the model works perfectly well in the Northeast, too. And so yes, no, it’s confidence that we’ve got a customer base. We’ve got a model. We’ve got an increasingly stable team, it’s been time for a while to put up it down.

[John Bason, Chief Financial Officer]

Thanks, Martin. We will go with Adam Cochrane in the middle place here.

[Adam Cochrane, Deutsche Bank]

Adam Cochrane, Deutsche Bank. On the U.S., can you just – obviously, with the increase in store openings, what the preopening costs, what’s the drag on profitability from as you’re opening three, four, five, eight stores a year. What does that mean for the trajectory of profits in the U.S. And then one on slightly shorter term. There is been a lot of talk about the weather in the UK being quite wet. You talked about spring/summer, current your phrase, exactly encouraging or respectable or something. Has that been very by region quite a lot? So can we – is it possible to give us a little bit of flavor for how that current trading is evolving within your positive outlook like-for-likes for the second half.

[George Garfield, Chief Executive Officer]

Okay. If I can answer that first one and then pass it on to Owen. The weather in the UK, in particular, Oka Island has been shocking. Given that, we could be really encouraged by the sales levels in those two markets, those two bigger markets. Now I would have said that with more confidence a week ago because last week was particularly shocking. And sales were hit by more than we’ve been seeing previously. In Spain and Portugal, we are well ahead, well ahead. We’ve got – and that’s built the competence in the spring/summer ranges. But until we actually see the weather term, we won’t know whether that confidence is misplaced or as particularly Iberian thing. We still could do with us on shining in the UK. I think we all good.

[George Garfield, Chief Executive Officer]

Yes, look, it will be a bit of a drag, particularly as you’re kind of building scale in the U.S., the impact of having a store unoccupied at least on the overall portfolio is going to be a drag while – particularly when the smaller number of stores. So – but I don’t think that’s hugely relevant to the overall kind of group performance. It’s more when we look at the U.S., we’ve got to take that out when we look at the underlying profitability, but it will be a drag for a number of years because it’s an expansion market place for us. I mean the other place, which is a drag on profitability is supply chain and the cost of distribution, which at the moment is relatively manual and expensive. So that’s something that in time, we will we will want to invest in behind. And so David, the two kind of big drags on profitability.

[John Bason, Chief Financial Officer]

Yes. If you think about the EBIT margin basis point drag from the U.S. So the U.S. is getting a bigger sales base. The drag on EBIT margins could be worth calling out at some stage just to help us see what the rest of the business looks like and how you...

[George Garfield, Chief Executive Officer]

Yes. Yes. But it’s not material right now. Yes, yes. 17 stores out 400 our I mean actually, we’d want to because we want to demonstrate the underlying performance. Yes.

[John Bason, Chief Financial Officer]

Okay. Great. So it’s got Richard Chamberlain over here.

[Richard Chamberlain, RBC Capital Markets]

Thank you. Good morning. Yes. Richard Chamberlain RBC. Can I ask a couple on Germany, please, for Primark. I just wondered what some traction you’re getting now with the Primark Cares campaign, how that’s going in the German market. It sounds like you still think a lot of the issues there are more sort of locational, but I just wondered how the brand perception is changing. And also in Germany, how the upgraded digital offer has been received and whether that’s sort of helping...

[George Garfield, Chief Executive Officer]

So the upgraded digital offer is very new. It’s sort of a Fortnite ago. So – but we would have – we know our customers will appreciate it. I don’t want to get into national stereotypes, but they’ll appreciate it. And they told us that they wanted. It’s – we know we’ve got work to do on the brand. I think the – it’s not only Primark cares that will resonate, although Germans by nature are pretty skeptical about claims that companies make about the achievements. I think some of the new higher-priced products will resonate well in Germany better fabrics, in particular, will work for us. So yes, it’s all in the mix. Brand will recover most, I think, because of changes in perception on product.

[Richard Chamberlain, RBC Capital Markets]

Are you moving more towards sort of more localized approach as well in Germany in terms of marketing? And is that helping?

[George Garfield, Chief Executive Officer]

Yes. Yes. German media is very local. And Yes. There is work that we’re doing on making sure that we’ve got the assortment right range each trading location. They are quite different. And at the moment, they should be quite different at the moment they are insufficiently different. So that’s in the mix too.

[Richard Chamberlain, RBC Capital Markets]

Thank you.

[John Bason, Chief Financial Officer]

Thanks so much. Okay. Nick Coulter.

[Nick Coulter, Citigroup]

Thank you. Nick Coulter from Citi. Two If I may, please. First, can I just press on the double-digit margin target for Primark. If it’s possible to kind of what time frame should we think about for that recovery. Is that kind of medium term trying to get some sort of long stop or trajectory for that double digits operation.

[George Garfield, Chief Executive Officer]

Yes, I think we probably wouldn’t have put it in if we didn’t think it was medium-term, right? So and then you’ll ask me what’s the medium-term mean? I think, look, it’s – the when we look into second half of this year and into next year, there is enough confidence to give me in terms of the easing of the cost of goods, particularly as cost of goods and how the businesses held up, like you shouldn’t kind of ignore that, that we’re on the right trajectory. But the same to a few people early on, we’re not out of the woods yet, right? You still got a lot of cost ingredients that are still higher than obviously previous to the [indiscernible] sector and so on. So we’re still not out of the world. And we – so we’re going to be – remain to be a little bit cautious about that trajectory and where – and how that comes. But certainly, it’s moving in the right direction. So – and we wouldn’t have said we’ve got the confidence to get back there if we didn’t think it was medium-term.

[Nick Coulter, Citigroup]

That’s helpful. Another crystal ball question. Noting your comments on grocery pricing. It feels like you’re kind of going over the top, so to speak. When do you think you might get into a position of kind of year-over-year volume increases for grocery? Is that 6 months, a year, 18 months? What’s the rough thought process?

[George Garfield, Chief Executive Officer]

On cost recovery, we haven’t gone over the top. So we’ve, in most places, got care cost back. There is – consumers are looking – obviously looking for value and their own label is growing. Discounter sales are growing in both Twinings and Mazzetti sort of premium brands in their category. We have to work harder to persuade people that it’s worth spending those sorts of money on. So I think volume growth in most of the categories is quite an ambitious thing to be hoping for in the next – and into consumer sentiment changes.

[Nick Coulter, Citigroup]

So you’re talking about a 12-month trajectory.

[George Garfield, Chief Executive Officer]

You have imagine so, yes. But that’s reason why we’re getting number front for in a lot of the brands on the marketing side of things in terms of repositioning the brands as you kind of exit this period.

[Nick Coulter, Citigroup]

Understood. Very helpful. Thank you.

[John Bason, Chief Financial Officer]

Thanks, Nick.

[Unidentified Analyst]

Just a few quick ones. Firstly, just on the sugar crop, when will you have confidence that farmers will plant this year given [indiscernible] of last year? On Eastern Europe, you’ve been, what, 3 years now. I know going in, you had some caution around pricing, range and costs. What have you learned so far that kind of gives you confidence in the rollout and then just finally, if you can give us an update on the self-checkout trial given the comments that you made about labor being structurally more expensive?

[George Garfield, Chief Executive Officer]

Yes. Okay. So sugar I am told as of yesterday that about 70% of the acreage, which we expected to be growing this year is now in the ground. We still have some of the heavy land in East Anglia is still to be shown, but we think it will be. Last year, we didn’t have a problem getting crops on. It was everything that happened thereafter combination drought, flood, disease, you name it, the farmer endured it. And then, as I say, we had frost, which stopped the growing and actually – the damage was exacerbated by the disease that we’d suffered at the end of the summer, which was probably the consequence of the drought, so on and so forth. So it’s going to be better this year, isn’t it?

That was in Eastern Europe. Some and some I mean very the central product is a very different market from Krakoff. And Poland, in particular, is very price competitive. We would expect that. We do that. But we’re getting footfall and we’re getting sales volumes increasing well. The ranges that sell are there is nothing particular to call out for on differences there checkout.

And then self-checkout. Yes, I mean it’s going fine on self-checkout. I mean the returns are stack up. As you can imagine, they would do in a high labor environment. So we will be continuing to invest in uptake across the network. I still think there is work to be done that across the board on the customer experience, but that’s – we will keep an eye on that. As we open new stores in the States, they are all opening with self-checkout.

[John Bason, Chief Financial Officer]

Yes. Right. Okay. Anne Critchlow, come along and quick flow, please.

[Anne Critchlow, Societe Generale]

Anne Critchlow. Two questions on Click & Collect, please. I know it’s early days. But are you finding that customers around the smaller stores are particularly appreciating it. you’re going to offer them 4x the range? And then secondly, if you could just comment on add-on purchases, whether it’s met your expectations?

[George Garfield, Chief Executive Officer]

Add-on purchases have more than met our expectations. So that’s great. And there seems to be no correlation that we can determine so far on those 24 stores – 25 stores. between store size or location or and attractiveness of Click & Collect.

[Anne Critchlow, Societe Generale]

Thank you.

[John Bason, Chief Financial Officer]

Okay. Thank you. So I think we made it quite good. Okay. So we don’t have anybody online than to ask my question. So I think if the answer any more questions, thank you very much for your time today. Very good.

[George Garfield, Chief Executive Officer]

Thank you.