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Earnings Transcript for ASBFF - Q4 Fiscal Year 2024

George Weston: Thank you all, then, very much for coming to this review of ABF full year results for the 52 weeks ended 14th of September 2024. And I'm aware that there are some people online, and welcome to you too. It's a much easier job delivering today's results to those of the last four years. They're really very strong. A substantial improvement in profitability with operating profit up 38%, adjusted earnings per share up 39%. And then, even better than the operating profit increase has been the increase in cash generation up to GBP1.4 billion. That's an increase of a cool GBP1.1 billion on last year. Material improvements in our return on capital employed increasing to 18.1% from 13.6% in the year before. They're not just strong financial results. They're also -- we've also had a year of very good operational progress across the group. This has included strong execution in marketing campaigns, new product development and capital projects. The marketing campaigns -- the product development got awfully stalled in the supply chain disruption and the inflation battles that we've refought in years gone by. We’ve seen a return to normality in our markets and our supply chains. There are still some bumps, but overall, many fewer. I think it's not just been about the environment. We've also seen the results of our consistent multiyear investment across the group. And this year just gone, we invested another GBP1.3 billion that will underpin future growth. It will also enable us to deliver on our most important ESG priorities. But even a year of this record investments, we continue to increase our capital returns to shareholders. Our proposed total dividend for 2024 represents an increase in -- of 50%. Over the last two years, we'll have returned approximately GBP2.3 billion to shareholders through dividends and share buybacks. Looking at these investments, specifically, we were investing even through COVID. New stores, depots for Primark increased capacity and capability in our food businesses, and I'll take you through some examples of that through this presentation. Expenditure on sustainability projects, most of which come with a good financial return as well. And then a few acquisitions that are small in the grand scheme of things, but important. This next slide puts our profit delivery and margin recovery in the context of the last four years. In 2019, we were at 9.4% margin in 2024 we're at 10%. We've gone elsewhere. We went elsewhere in the intervening years. We're much more in line with what we were delivering before the disruption of COVID and the consequent inflation and disruption. With that, let me hand over to Eoin to go through this year's financial results in more detail. And then I'll review this year's strategic and operational progress within the businesses. Eoin?
Eoin Tonge: All right. Okay. It's green. It's not working. Okay. Thank you, George. So look, I'm just going to just take you through the results in a little bit more detail. Starting with revenue, you'll see group revenue was GBP20.1 billion, 4% ahead on a constant currency basis, with sales growth in retail and most of the food businesses. But the performance in adjusted operating profit was incredibly strong, up 38% on a constant currency basis to GBP1,998 million. And I'm going to go into each segment in turn in a moment. But as you can see, that improvement was driven by Retail, but also strong performances in Grocery, Ingredients and Sugar with all divisions advancing. It's worth just noting, at this point actually, that the increase for the group was 32% at actual exchange rates with an adverse translation movement of GBP97 million in the year. So, of course, the significant increases in adjusted operating profit meant that we had very strong margin improvement, within the individual segments and for the group as a whole, as George has said, from 7.7% to 10%. So let me take you through some of those drivers of the performance by segment, starting with Retail and it's a bit on this slide, so I'll take -- go through it slowly. I'll also actually just -- no doubt that we've added some disclosure to Primark in the announcement today, we've broken down the business into more discrete country segments. And in the appendix to this presentation, we've given some historical performance by those new subsegments. So in the year, we had 6% growth at constant currency, with strong performance in our key growth markets, particularly in the US, France, Spain, Italy, and Central and Eastern Europe. And we also had good growth in our largest market in the UK and a good recovery in Northern Europe. George is going to provide a little bit more color on those markets in a moment. As we saw before, we achieved a significant recovery in operating margin to 11.7%, and adjusted operating profit increased from GBP735 million to just over GBP1.1 billion. This was driven by increased gross margins, which was supported by an increase in price in H1, but most notably by an easing in input costs. Remember that this is after we chose not to cover the full inflation in FY '23. The increase in gross margins was partially offset by our labor cost inflation, and we are also investing in initiatives across digital, product and brands to continue our growth momentum. It's worth noting that a combination of this profit increase, and the normalization of working, capital has driven a material recovery in return on average capital employed, also, which has increased from 12% to 18.7%. So moving on to Grocery. We've achieved significant profit growth and margin improvement here also, all the while investing in brand activity to drive longer-term growth. Sales grew at 4% on a constant currency basis, reflecting good performance across a number of our leading international brands, in Twinings in particular, but also at our regionally focused brands and at our US focused brands, in particular. Again, here, we've added some additional disclosure to give you a sense of the weighting of revenue by region. Ease in input prices, input costs have contributed to our margin improvement to 12.1%, but so has the improvement year-on-year in our bakeries business in the UK and the strong performance of our US brands that I've noted. And the latter effect of this performance in our US brands began to normalize in Q4. Overall, we've seen a substantial improvement in our return on average capital employed increasing from 30% to 35.8%, which actually, even if you adjust for the contribution we get with -- from our significant JV in the segment Stratas, it's still very strong and is above 30%. At Ingredients, we've been pleased with our performance here. We've seen a strong improvement in profitability while continuing to invest in growth. Overall, adjusted operating profit was up 12%. Our yeast and bakeries ingredients who -- delivered robust sales and margin recovery and was the driver of that improvement. Specialty Ingredients faced some impact due to customer destocking in the first half of the year but showed improvement in the second half. And we're very excited about the long-term potential of these businesses. Our Sugar division actually delivered significant growth in both sales and profitability in FY '24. Obviously, we need to break the business down largely to two components
George Weston: Great. Let me start with Retail, where sales were up 6% in 2024, and we're pleased with that. We had strong performances and what we're defining now is our growth markets in Europe
Q - William Woods: Good morning. William Woods from Bernstein. I've got three on Primark. The first one is when you look at your Primark margin, you obviously guided to flat for this year after a big boost in the last year. When you look beyond, is this the ceiling to Primark's margin or is an aspiration to take that higher? Okay, one by one.
George Weston: I think -- I mean what we've seen -- what we've seen in the past has been a Primark margin around this sort of level, but there's -- it moves around a bit. Currency moves around, trading success moves around. We're comfortable where it -- with where it is now. Primark is a business which we wish to grow through volume rather than margin. So it's come back to a good level. Maybe it can go up a bit, maybe it will go down a bit, but we're at a level which kind of works for us.
William Woods: Got you. The second one is, so I've been to quite a lot of the US stores over the last year or so. You've got quite a different mall strategy, particularly in the newer ones, right? So, you look at Tysons Corner being quite premium, for example. You look at some of the more factory outlet style -- type of malls. Could you give some color on the US store strategy, which mall types are working, which customers you're getting traction with, that kind of thing?
George Weston: Yeah. It's a good question. We work -- the brand works particularly well in the less premium malls. It works very well in areas like Queens, Brooklyn. It still works in premium. One of the best stores, for example, is -- I can't believe I always forget the -- it's -- I know it because my auntie lives nearby it, she doesn't buy everything there. So we work in good regional malls, too. We've got a couple of stores where we're scratching our heads wondering why it's not working quite so well. But only a couple. But essentially, we think that we're relevant to both. Mid-market for now. But where we've got opportunities for less premium malls, we'll grab those by preference. We're very interested to see what happens on the Mexican border in Texas, where interest -- we got five stores signed up in Texas. We suspect they're going to be really, really good because we know that we've -- we're very attractive to a Hispanic shopper.
William Woods: Perfect. And the final one is just on the Primark management team. Obviously, haven't had a COO for a while, CFO. Is that still vacant? Have you had any movements in bolstering that management team?
George Weston: Yeah. No big changes. So we now have a Finance Director, who came from within and who's very good. And underneath Adrian is a very much strengthened finance function. So we've got depth in finance, which is greater than we've had before. We've got a new COO in Nigel Jones, who has started very well. We have a saying across ABF that they're all heroes at this stage. But he's landed extremely well and brings he's capabilities, particularly around cost base management, that we -- I think we've been a bit light on recently. So where -- that team, the breadth of that team, the depth of that team is stronger than I've seen over the last 20 years.
William Woods: Excellent. Thank you.
Warwick Okines: Warwick Okines, BNP Paribas Exane. Just on that cost management then, George, perhaps you could comment on the ways that Primark can mitigate some of the cost pressures coming to the UK, particularly from April?
George Weston: Right, the SCO's help. We have a big project underway on the way we run our stores, the way we get the relevant stock into place in the right -- at the right time. There is opportunity in both of those. Eoin, do you want to. . .
Eoin Tonge: Yes. I mean, I think -- actually, Primark had a pretty good history of cost management over the years, as you'd expect it would do. So I think it's probably taken a bit of a hiatus through the kind of challenges of COVID. But it's store operating model is always a place where you -- just how you manage the store model in an effective way. SCO's a part of that, but there's kind of other aspects of that. And that's a kind of a continuous improvement program. We talked about the supply chain. There will be the cost savings coming out of automation through supply chain. And I would say, just going back to store, I would say, store optimization, particularly in the UK, as we've -- UK is a more mature market. So are you going to have a lot more kind of updating of the store portfolio and with that comes a more effective way of lying out -- laying out the stores in some ways. So like, for example, we did 23 refits in the year just gone in the UK and that not -- doesn't just help with how the store is set up for sales, but also helps it for sales -- for costs as well.
Warwick Okines: Got it. Thank you. And my last question is just on the gross margin and whether anything has changed since your assessment in September? So anything from sort of freight negotiations that you're seeing? And then just sort of relating back to the cost piece, are you expecting the gross margin will need to rise a little bit in '25 in order to achieve broadly stable operating margins?
Eoin Tonge: Yeah. Well, first thing -- firstly, not really, not much has changed. I mean it's -- I wouldn't say it's a normal world out there, but it feels more normal than what it's been for a good bit of time. We've been able to sort of, like - pardon the pun - navigate through the freight sort of volatility well. And, look, currency is moving around a bit, as we know. But other than that, there isn't huge movements in gross margin. But yes, you are right in saying that if we're to have a flattish margins into next year, there's a little bit more in gross margins, offsetting the inflation and investment in overheads.
Clive Black: Clive Black from Shore Capital. Two areas really. Not with Primark, related, you'll be relieved to know. Firstly, on sugar, quite struck, George, by what you said around Africa. Does that mean that on a five-year view, looking forward rather than five years looking back, it's not unreasonable to think that ABF Sugar business could break out of that GBP100 to GBP200 EBIT range? I'm not suggesting it gives a forecast, but conceptually, does Africa provide the potential for that? Maybe start with that.
George Weston: Yes, I think so. I think so. I -- There's a significant amount of cost opportunity and cheap volume growth opportunity in the work, in the cane field project, and also in factory improvement. You don't need capital or don't need much capital for any of that. And as I showed in that first slide, we've got the market demand. So we're just supplying markets there. And then, look, the Tanzania project is an important one. It more than doubles our capacity in that market where, again, there's growth is a deficit market. And we have the leading brand and really good routes-to-market. There is then secondly, beyond sugar, and we have to be careful with this, there are opportunities in investing in adding value to co-products in Tanzania. Right now, for example, we're a major supplier of portable ethanol with the factory expansion there's an opportunity to produce more portable alcohol. Africa is not short of things that you could do with large slugs of capital. We just need to be very disciplined about it. But yes, absolutely, I think growth there.
Clive Black: Thank you. And that's a nice segue actually into my second area, which is about capital in the Grocery arena. And two areas really. Firstly, across the piece, payroll is probably more challenging, not just the UK. How is that influencing your CapEx decisions? And is it evolving in terms of capital replacement -- labor replacement, sorry, with capital? And then just -- while I'm on, just in relation to that, across Grocery and Ingredients. I mean, you talked about areas of investment, Ingredients. But where in Grocery would you see, say, category or geographically, where you may want to add on additional acquisitions? I think you said you did a couple in Ingredients in H2, but where do you feel about Grocery on that front? Thank you. And that will be enough for me then.
George Weston: Clive, look, acquisitions in grocery have tended to be - in the last couple of years - quite small, but quite nice. World Foods, in particular, has added a couple of small -- has bought a couple of companies that have taken us into new cuisines, it's taken us into Arabic, North Africa, and also has given us a way into sort of premium Italian. That's a very big category at telling you need to find your chunk of it. Is there more potential there? Probably, although the opportunities in World Foods, now having got those two acquisitions under their belt, maybe in kind of leveraging them rather than adding another one. Australia is the big place where I think a couple of things. The -- it's both acquisition and also CapEx, giving us finding our ways into more premium parts of the market, faster growing parts of the market. It wouldn't surprise me if we found another equivalent of TAG, The Artisanal Group, to acquire. They're not very big acquisitions, but they are very, sort of leverageable, through the assets that we've currently got. UK, I think we're okay.
Eoin Tonge: US is the other obvious place. We're executing very well in the US in grocery, across a number of our businesses. So it definitely gives us the opportunity. We don't want to overpay, and that's been a problem for the last number of years, but it certainly is in a market that we're executing well, we could build on. Yeah.
Clive Black: [Technical Difficulty]
Eoin Tonge: Yeah. I mean I don't think -- like I don't think necessarily the recent labor moves has necessarily changed the game per se. I think labor inflation has been a challenge for manufacturers for, what, 10 years now? So automation has become part of the DNA of manufacturing.
George Weston: And I think the driver in the last couple of years has been more about labor availability. We've just commissioned an automated warehouse in Poland, where the labor shortage is every bit as acute as it is here. The payback is good but it's much more about securing supply chain really than it is about labor. Australian automation projects, labor cost -- again, it's more labor availability. So we're signing -- we are signing off labor efficiency projects more than previous years, really only about the automation of those sheds. That's why the…
Clive Black: Thank you very much.
George Weston: Sorry, appreciate it.
Richard Chamberlain: Thanks. Good morning. Richard Chamberlain, RBC. Probably one for you Eoin. Do you mind commenting on the outlook for working capital in the coming year, I guess, particularly in light of any expectations on sugar and sugar inventories, how you should see the overall picture as well? Thanks.
Eoin Tonge: Yeah. I mean, we've got -- we've sort of come off a couple of years now of sort of working capital normalizing across the group. Most notably, I would say, in Primark and I think next year is probably a bit more of a normal year, I would say, with the exception of sugar as you've rightly pointed out, where we've sort of ended the year with relatively high stocks. So you would expect some of that to normalize into next year. But we're back to a little bit more outside of that, a bit more normal. And I think I've said it before, I think there's still opportunities across the group to improve working capital. So, yeah, we'll be working on them. I'd hope that we'll get some improvement in that, in those through the year. So that's the -- that's sort of the aim.
Richard Chamberlain: Primark. I guess, historically, it's been a business that's been known for not spending very much at all on marketing and then obviously, being able to then keep prices very low versus -- or the lowest in the market, and that's been one of the reasons. The marketing you're planning in markets like Germany and the US Is that specific to those markets? Or is that going to be a sort of precursor to now a change in sort of group-wide thinking or marketing? Or you think actually should be doing more in some of the other markets as well?
George Weston: It's a very good question. We start off in those two markets with a job to do, and we'll see where we get to. At the same time, we are investing, really, in trials of digital paid content. We'll be very pragmatic. If we end up richer as results of doing it, we'll keep doing it. I've got a -- I would speculate that in Germany, we're going to have a layer -- a level of ongoing brand marketing. And in the States, again, it's pragmatic. It drives sales and great, we'll do more of it. In the States, I think we're probably going to be doing more digital because as we showed you from - what is it? As you can see we've got a couple of clusters of stores but in a lot of other areas we're miles away from and to get efficient TV coverage, it's just not going to happen. So I think we'll go digital and quite focused. In that New York area, we'll see what this does.
Richard Chamberlain: Easier with -- and one follow-up. Is it easier with more digital marketing to sort of see the positive returns on that? Because I guess the risk is you don't really know what customers would have bought anyway, right?
George Weston: That is precisely -- that is precisely right. You can see it with a great deal more precision in digital marketing. I think in a place like Germany, you've just got to chase brand metrics. That -- We know that we have an issue there. That's what we're trying to fix. So, actually, the specific returns can only be inferred from how much like-for-like was a result of the improvement on views about quality. But we're off the brand metrics.
Eoin Tonge: I mean we're way -- I mean, obviously, we measure any type of marketing, whether it be conventional or digital. So it's all to be measured and determined from a returns perspective. So, yeah.
Gary Martin: This is Gary Martin here from Davy. They're both Primark-related questions.
Eoin Tonge: Okay.
Gary Martin: [Technical Difficulty]
George Weston: I suspect the problem in those growth markets is there are a number of fairly big drivers of the like-for-like and some of them are negative. Two of them, at least, are negative. The first one is that we -- our experience over the last few years has been fantastic first three-month sales performance which then, a year later, you're anniversarying and there's no way you're going to achieve those. That brings year two like-for-likes -- drives the negative and then you sort of typically start to grow from there. But given that we're opening stores reasonably quickly, you've got quite a lot of that sort of complexity going on. The second one is that -- and I sort of hesitate to use the word cannibalization, but we've always believed there's good cannibalization in some of these growth markets. The second store in -- when we opened the second store in Milan, we got a whole lot richer, but we had negative like-for-likes in the first store. As we look -- when we sign them off, we look at the expected cannibalization. We then compare with what we said we were going to do, but it is a drag on like-for-like. On the other hand, a brand that is reasonably new to a market should see good sales progression years three, four, five. So net-net, I think those markets are going to have lower like-for-likes than we would hope to see in the established markets where all this sales generating work, whether it's digital, whether it's new categories, whether it's new products, et cetera, et cetera, et cetera, should be allowing us to keep on growing same-store sales.
Eoin Tonge: But obviously, they would have the higher growth in total because that's where the growth is coming from. So I mean, I think next year, look, we -- mid-single-digit growth. I mean, I think we said in September that we'd expect the non-like-for-like to contribute more to the lower end of the range, 4% to 5% and will -- that's kind of calling for some modest underlying growth. I think the metric is more relevant, as George says, in the mature markets. And we are targeting like-for-like growth in the mature markets, including in the UK, I think we're well set up for that. I think our product set is never -- is as good as it's ever been. Consumer is -- we'll have to see how the consumer is post budget. I think our kind of hope would be that the consumer is in okay nick but -- and certainly, our demographic will be in okay nick, but we'll have to see.
Gary Martin: Makes sense. And then just maybe another one just on the store rollout, just more broadly, it's another two-part question. Just firstly, I guess, if we kind of discuss again maybe some of the growth markets. So we're talking in Italy, Iberia, France. Can we get a reminder of the white space opportunity to kind of further grow your store count in those geographies? Like what do you see the overall opportunity set in those geographies to be? And then maybe just as a second part. Obviously, you've done good work in Germany, you've done good work in the UK in terms of store resizing, kind of change in the dimensions to kind of better suit the kind of demand levels there. Is there more store dimension or store size changes kind of planned into the future? Thanks.
George Weston: Why don't I take the second one first, why don't you take -- I mean I think store optimization becomes -- is an important part of retail, right? I don't -- every good retailer does store optimization, particularly as you get more and more mature in your markets. And I think the UK, we will -- we've done a few already actually where we just relocated to slightly better pitches or we've done small resizings and so on. So I think that will be -- it should be a good part of your arsenal in terms of continued productivity, et cetera, and so on. So we did -- we've done some in the US previously of some of the older stores. So I think we have to keep on that, actually, agenda to make sure that -- like we're optimizing what we got as well as opening new stores. So that, yes, is the short answer. The first one or do you want to…
Eoin Tonge: I think France, Italy, Spain, Portugal, these -- the success of these smaller store formats does open up a fair number of markets. And I don't want to give a specific number. But in Spain -- it's unlocked Portugal, for instance, where we have a fantastic business. We haven't managed to open a new store in years and years and years because we can't find big enough sites under the old model. These smaller stores allow us -- I would imagine that we could double our participation in the Portuguese market. Spain, I think, a smaller number, but still reasonably significant. Italy, I think, is still more -- is -- it hasn't reached that stage yet. It's still got big locations to go after. France, I think we're up to 28 stores or so. We're beginning to look at some smaller stores in particular. We have to be so careful in France to make sure that we keep footfall levels high.
George Weston: Higher cost of service?
Eoin Tonge: Our cost of service is high. I think actually in Germany, we're really interested in these two new stores that we're opening. They're much smaller. We have more freedom to operate. Germany is a very underpenetrated market for Primark. I think there's quite a lot there. Eastern Europe standard stores, we've got so much base. So it's -- I'm aware all of that is a sort of numbers free and telecom has…
George Weston: 4% to 5%.
Gary Martin: Thanks so much, guys.
George Weston: Sure.
Sreedhar Mahamkali: Sreedhar Mahamkali from UBS. Maybe three things, please. Just back to Grocery. You talked about normalization in the US to be felt through the year. We've taken that as a modest step back in the margin for the year. More, if you take a step back, I think you've put some slides there, it's showing the longer-term growth and things like that. You could perhaps talk about midterm growth and margins in Grocery? How should we think about it? There's quite a lot going on in different geographies, different brands. That will be very helpful. Second one is Click & Collect. I know you're extending that into the rest of the UK. Anything incremental to share? Perhaps in terms of basket size, the secondary basket, et cetera, anything that's helpful for us to think about it. Thirdly, maybe sort of big picture, stepping back at group level. Again, your charts have pointed out margins have recovered. Cash generation is strong. When you talked about potentially further opportunities in cash and working capital. How should we think about, again, medium-term shareholder returns? If you could talk through, please. Thank you.
George Weston: That grocery margin is a mixture of a whole lot of things, and let me pick out some of them. The mix change towards higher margin products like tea, that has driven some of that step-up. We still haven't got our net margins in UK Grocery back to where they were pre-COVID. We recovered the cash costs of inflation, but not in the margin. So maybe there's a bit more opportunity there, only maybe. Australia, I think, has a margin opportunity as we shift the portfolio mix. US we'll step back a bit, but still be good. Have I missed out?
Eoin Tonge: That's it, that's a good -- that's a good -- I mean, yes, it's a mixed benefit of international brands, and it's the kind of improvement, I would say, in the UK and Australia. I'm not -- I don't think we're going to be comfortable giving a guidance on it, but there's no reasons why you can keep it at these levels. It might bounce around a bit, but there -- keep it at these levels.
George Weston: I think the -- on Click & Collect, I think the best we can say is that we've seen nothing to undermine the financial case for rolling out Click & Collect following that long test we ran. The basket size, the Click & Collect basket size is good. The attachment rate -- have we given a number on attachment rate?
Eoin Tonge: No -- we have. Yeah, we've said like it's up to…
George Weston: 40%
Eoin Tonge: 40%. Yeah. Which is what you'd expect. Actually, you'd expect people -- if they're going to come in, they'll shop more.
George Weston: The return rate is well controlled. So it hasn't got worse as the rollout has continued. And we're seeing a significant proportion of the Click & Collect shopper being consumers who haven't shopped with us in the last two years. So we're getting new people in. All those were the things that we went looking for in the test. And so it's not dramatically better than the test, but it's -- I think we've done the right thing.
Eoin Tonge: Yeah. I mean the medium -- it's hard for us to give medium-term shareholder returns. I mean, I think we'd just point you, again, to the sort of the capital allocation methodology. Which we've stayed true to in the last number of years, where we've sort of pivoted around the 1x leverage. I think, look, the business has got good cash generation. So I think you've got to look at the two things, the cash generation and the capital allocation policy and then determine as to whether we believe -- but yes, look, I think if we can keep generating cash, we'll be able to keep a healthy shareholder returns.
George Weston: The -- I don't think -- you shouldn't think that the CapEx bill is going to drop much over the next few years.
Eoin Tonge: Yeah.
George Weston: We've had a lovely reversal, at least some of that working capital build that went into a balance sheet during inflation that's made this year particularly good. I think the dividend policy really hasn't changed. All that's changed is what we do with surplus is the policies that have come on beyond that. Who's up?
Ashton Oaks: Ashton here from Redburn. Firstly, as a Kiwi, I should congratulation -- congratulate you on the purchase of Dad's Pies. I've got two questions. I suppose my first one just on like the European sugar recovery. And I suppose just the moving parts into FY '26, and I appreciate lots of things can impact the sugar price. But to you, is the main determinant the acreage, like how much is dedicated to sugar? And I suppose in that scenario, does your volume decrease? And does that have a -- seek an order impact? And that's my first one. And then I guess, just secondly, just to square the circle on some of the smaller store formats, in Iberia, for example, is the reason that you can do that now just because the brands at a scale whereby you can get the right level of store density. Just -- can you talk through that?
George Weston: I think -- sorry, let me start with sugar recovery. We -- I think twice now, since deregulation, the sugar industry has chased volume at dramatic cost and margin. If there is a volume reduction in the UK or in Europe, I think financially, the European industry will benefit from that. When you go from being at kind of import parity prices to export parity prices, which we've sort of done this time, you get a great step down in margin. So I think that -- look, acreage is only one thing. Yield is another one. The yields looking into next year are good, not least because most of Europe is allowed to use neonicotinoids to prevent fungal infection. That's -- has been part of their recovery in yield, which I think hasn't been expected to quite the same extent. So I think that sugar, we would much rather see a smaller crop in Europe. And we think we'll get it because that acreage will come off by a fair amount. You can't force it out, but I think it will come down. Smaller store format. In that very Primark way, we took a couple of sites, and we tried it. We spent years increasing the range of what we were selling in stores. The stores were getting bigger and bigger. And to some extent, we have been driven by that. The ultimate manifestation of that was booming about 150,000 square feet. We didn't exactly forget that we had lovely businesses, particularly in Ireland, all the way down to 8,000 square feet, which would -- have traded for 60 years profitably. But anyway, we started looking, particularly in that Spanish market where you go -- where you fill in the geography of Spain implies that people often -- there a lot of Spanish consumers who couldn't get to us or we're never going to get to us. So we have to go to them and how do we do it profitably? Well, you look back at some of the Ireland experiences of how you trade a much smaller store. You have the advantages of Spain of lower labor costs. So let's give it a go. I think the first one was Leon, it's been great. So, in that very Primark way, well, let's do that again. And then that takes you around. So the confidence built with the experience.
Unidentified Analyst: Good morning. Hi, it’s Mandy [indiscernible] from Citi. Just one on Primark. You've helpfully called out the sort of revenue mix. Is there anything to call out in terms of varying levels of profitability in those segments? And I guess linked to that, you've also said that 85% of your SKUs are sort of below GBP10. Is that in the UK? Or is your mix -- the stock pretty consistent throughout the markets?
George Weston: The second one is pretty consistent. Yes, the margins very between markets based on occupancy costs, labor cost, in particular, sales density to some extent. And no, that's not -- that's a number we've never shared.
Eoin Tonge: Other than the US and Northern Europe because of -- we've talked about it a few times are below the average. Are we done?
George Weston: I think we're done.
Eoin Tonge: Sorry, we have question on the…
George Weston: There's online questions, I always forget, sorry, [indiscernible].
Operator: [Operator Instructions] And it comes from the line of Warren Ackerman from Barclays. Your line is open. Please ask the question.
Warren Ackerman: Good morning, George, Eoin. It's Warren here at Barclays. Hope you can hear me okay. A few from me. First, on Grocery, George, can you give us an update on Allied Bakeries, losses narrowed. What's happened to improve the situation? Do you see a scenario where you can actually get back into the black in the UK bread business? That's the first one. And then secondly, just on Primark. I've been reading more and more recently about mix. You're talking a lot about licenseware, vintage denim, cosmetics, accessories. Can you maybe talk a little bit about mix as a like-for-like driver. I know it's mainly volume, but it does seem to be more of a feature. Any particular countries you'd call out where you are seeing kind of a bit more premiumization in some of the more -- slightly more expensive ranges? And then finally, just one for Eoin. I'm wondering whether you could help us a little bit on finance costs for 2025, any kind of ranges we should be thinking about from a marketing point of view. Likewise, anything on net debt, free cash flow would be great. Thank you.
George Weston: Okay. Starting with Allied Bakeries. The improvement was both the consequence of input costs coming down, so energy and wheat. And price -- eventual price recovery, we didn't manage to get pricing increases out of our retail partners for a long time, and we -- the year before the one that we're reporting on, the margin hit was very significant. But we got those price rises. We've enjoyed them all year. We've had a little bit of extra volume manufacturing for another competitor who suffered a fire. We've lost, subsequently, a little bit of trade in Tescos that stings. And can we get back into the black, certainly cash positive, yes, that's -- that's the first goal. Mix within Primark, curiously, but quite comfortingly, the best mix, I think, is Germany, biggest participation of licensed of some of the more premium basics, the Kem ranges, The Edit range is doing very well in that market. Yeah, it -- we've been chasing mix very deliberately. We have to keep reemphasizing the value that we offer at the bulk of what we sell that pre GBP10 and we also have to emphasize the value of the more premium products. They are fantastically good value for what they are, but we must never forget the people who come into our shops for the cheapest best value basics. Yeah, unless you want to do financing comment free cash flow?
Eoin Tonge: Yeah, unless you want to do financing comment free cash flow? No, I mean, I -- sorry, I'll just add to that. I think it is a kind of helpful tailwind mix actually, but we've got to be very careful how we manage it, Warren, as George says. So just on finance costs, I keep it relatively simple. I think as it stands today, I think we're sort of broadly neutral year-on-year in terms of finance income. Where we'll have a bit of a -- you'd expect it go because we're going to have a little bit lower cash and potentially rates coming down, we're going to have less of a benefit on interest income. But as it stands today, we don't have a repeat of the FX losses on non-currency balances. So they kind of net each other off, as such, as it stands today. And then on free cash flow, as I said before, I'm not expecting a material move in working capital in the year. So -- but we are expecting a repeat of cash tax to be low and also for us to have the benefit of the pension contributions. So they do repeat into FY '25. And then, as George said before, CapEx is -- we think should be at a similar level to FY '24.
Warren Ackerman: Cool. Thank you.
Operator: Thank you. Now we'll go to our next question. And the question comes from the line of Georgina Johanan from JPMorgan. Your line is open. Please ask the question.
Georgina Johanan: Hi, thank you very much for taking my question. I missed the start of the call, so apologies if I am asking anything that you've answered already. Please feel free just to ignore if that's the case. Just three quick ones from me, please. First of all, just in terms of the Click & Collect and the continued rollout and you're sounding sort of quite constructive on that, I was just wondering if you could share where that is now, as a proportion of sales. Perhaps in the UK or maybe it would make more sense to share it kind of as a proportion of sales in the stores where it's actually been rolled out already, that would be really helpful. The second one, just in terms of the budget and what we've learned on sort of plans for business rates. If we think about your store portfolio, how should we be thinking about split in terms of ratable value of above and below the 500,000 threshold, please? And then finally, just if you could share anything on trading into the new year so far, I know the weather hasn't been sort of super helpful. Are you actually sort of still -- are you in positive like-for-like territory in terms of the year so far, please? Thank you very much.
George Weston: Okay, budgets on ratable value, we're still looking at the numbers. There is a period of consultation where we will be making the point that -- to penalize the anchors of high street is not the best way of regenerating high street and city centers. So we hope that, that message will be listened to. As best we can see, we are probably more or less neutral. Probably, but I think there's more to be uncovered. Trading into the new year is exactly as you say, it's this funny time of year where it can go cold and it can go warm. Our sales have never been more sensitive to weather than they've been over the last 12 months. And we're okay. There's another point that Eoin rightly makes, which is that you have to look at what was happening with the weather last year as well to look at the comparison, period too. So October/November was one of our best periods because September had been very warm and then it suddenly went cold.
Eoin Tonge: I think the last couple of weeks of the last financial year demonstrated just a little bit of the volatility here you're seeing actually strong performance that we had in the UK. So yeah, Click & Collect share of UK, do you want to?
George Weston: Yeah. I mean, we said before, we think it could contribute 1% to 2% of like-for-like and I think that's probably what we're seeing in the stores. So it's still -- we've only got a couple of months under our belt where -- not a few months in our belt where we're into a broader set of stores. So I think -- but that's the type of kind of numbers we're looking to target with it.
Georgina Johanan: Thank you. That's really helpful. So just -- sorry, I can't do the math off the top of my head right now, but if it's contributing 1% to 2% of like-for-like in those stores where it's present, what is that representing as a proportion of sales in the stores where it's present, please?
George Weston: Well, we've only just gone up to 87 in GB, which is under half of the total of the state. We were sitting on about 30, I think -- no, slightly more than that.
Eoin Tonge: No it was 55, yes.
George Weston: It was 55, beg your pardon, which was, give or take, a quarter of what we had.
Eoin Tonge: I mean it's -- Georgina, it's just not material at this point in time yet until we roll it out.
Georgina Johanan: Okay. That’s really helpful. Thank you very much.
Operator: Thank you. Now we're going to take our next question. And the question comes from the line of Adam Cochrane from Deutsche Bank. The line is open. Please ask the question.
Adam Cochrane: Good morning. Thanks, guys, for taking my question. I've got a question on the US business. I'm assuming if there's any tariffs that get introduced from the US as most of your Grocery business will be domestically produced? Just confirm that. And secondly, on the Primark side, how much of the Primark manufacturing that goes into the US would be made in China? If you can answer that. Thanks.
George Weston: Yeah. Okay. I suspect the proportion in Primark would be rather less than proportion in Walmart. I think consumers have just no idea how much their bills will go up if Trump puts 100% tariff on everything produced in China. But yes, I mean, we're not far short of 50% of what we sell in Primark coming from China. And if that all doubles in price, well, you can sort of do the math. But as I say, we will be in the very small roundings of the problem that the US consumer will face.
Eoin Tonge: Yeah. And then in terms of grocery, we -- obviously, our US focused brands, they're all domestic yes. So that's pretty much all within country. But then our international brands, things that people -- like Twinings, et cetera, would be imported in from Europe.
Adam Cochrane: And in terms of the Primark manufacturing, is it feasible to manufacture the products that you make in China in other regions that are just going to the US? So you might actually change it for Europe, but you can produce it in Bangladesh or something just for the products that you're selling?
George Weston: Yeah. I mean there's a whole heap of things. Look, I think we'll cross that bridge when we come to it. I think there's a whole heap of things you can do. I mean a large percentage of what comes currently from China is in non-apparel. So you'd obviously -- people would do mix changes. They would -- they will kind of adapt to it. And then you're right, you would look at alternative sourcing. But again, we'll be following the pack on that one.
Eoin Tonge: I think in the long run, only the development of the -- of India's manufacturing base will serve as a global alternative to China's. But you're looking out 10-20 years, I think, for that.
Operator: Thank you. Speakers, there are no further questions for today. I would now like to hand the conference over to George Weston for any closing remarks.
George Weston: Thank you.