Earnings Transcript for ASBFY - Q2 Fiscal Year 2021

Operator: Hello and welcome to the Associated British Foods plc Interim Results Presentation. My name is Rosie, and I’ll be your coordinator for today’s event. Please note, this call is being recorded. I will now hand you over to your host, George Weston, Chief Executive Officer, to begin today’s conference. Thank you.

George Weston: Thank you, Rosie and thank you everyone for joining this review of our interim results for the 24 weeks ended the February 27, 2021. I so hope this is the last time that we host call virtually. I so hope that it’s the last – these are the last set of results, which are dominated by the consequences of COVID-19. And even more so, I hope this is the last time I have to put this first slide up. We have now lost 30 people across the group to COVID-19. The last 2 were just last week, one in Peru, one in Wisconsin, U.S.A. I think the part of the business, there’s a sense that we’re getting the pandemic, the consequence of the pandemic behind us, but there’s so much of ABF, we really are still in the midst of all the difficulties and pain and tragedy.

John Bason: Okay, great. Thanks, George. So let’s turn to the income statement. Group revenue was £6.3 billion. That was a decrease of 18% on last year at constant currency. The most material impact on these results of COVID-19 is that most of the Primark stores were closed for more than half of the period that we’re looking at. The decline in the group’s adjusted operating profit was a consequence of these closures and at £369 million that was 46% lower than last year. Exchange movements had a minimal effect on the adjusted operating profit in the first half, and we had a very small loss on translation of £2 million. However, if exchange rates remain at current spot levels, we expect a more significant effect for the full year with the translation loss of probably some £30 million. This period’s unadjusted or statutory operating profit was £320 million, reduced by 8% on last year, a much lower reduction than the decline in adjusted operating profit. And the reason for that is statutory operating profit is stated after a number of things, but after exceptional items. And they decreased from a charge of €309 million last year to £25 million this year.

George Weston: Thank you, John. Let me start this time with some comments about the reopening last week of Primark stores in England and Wales. The stores opened safely and successfully firming on the left-hand side, delighted customer with a big basket – a big bag full of gear on the right. That store – the safety of the stores is paramount. And we have invested significantly in hand sanitizers, in extra cleaning and people to manage queues outside the stores in physical plants to keep staff isolated from one another as they run all our tills. And that work has been good, and I have yet to see or hear about any difficulties in maintaining proper separation of our customers from one another. Or actually then there’s very little reporting on people not adhering to our standards around the wearing of masks. Let me turn then – what’s a) the length of queue and b) how distanced everyone is from one another. If you run that now, please, okay. Last week, well, we had a record sales week in and Wales. In 6 days, sales were higher than they had ever been in any previous 7-day period. Monday was a record week by some – record day by some distance as well. We saw big basket cycles. We saw good performance in the categories that have performed well last time reopened. We reopened, so good sales of nightwear, loungewear, underwear. But we also saw a big improvement in footfall on previous reopenings. So the total footfall was back to pre-COVID-19 levels, and it was improved significantly in our city center stores as well as our out-of-town ones and even in the destination stores of – in Manchester, Birmingham and the 2 Oxford Street stores, big difference in footfall in those destinations. And then whereas last time, as I indicated, we sold a lot of lockdown gear this time, fashion – women’s fashion in particular, had a fantastic first week, not only in clothes but also in accessories, handbags, jewelry and then lipstick and makeup also had a good week. We really do think that our customers are thinking differently this time that they come out of lockdowns. If that was then last week, let me turn back to the period as a whole. Obviously, severe impact of store closures across Europe and the UK, minus 15% like-for-likes compared with last year for the stores – for the periods that the stores which were able to trade were open. I would call out the agility and I’ll demonstrate some of it of the management team, both at the store level but also in the center in Dublin, to be very agile through this period to do a good job also in reducing costs down some 25%, not including the furlough monies. It’s – I’ve got a few slides to show you on the progress of the American market even through lockdown. We’ve developed fast and well. And again, we’ve added 6 new stores in the first half ranging from Miami to Rome. Here is the profile of the store closures right from the beginning of COVID. So we only had, in this first half that we’re talking about, 4 weeks when all the stores were open. But whereas in the first wave of COVID, we had a period of all stores being closed, at no time at this time, did we have all stores closed but the period where we had most shut was longer than the first time. And we also saw, and I’ll come on to some of them, restrictions other than total lockdown employed by many of European – Continental European governments. So let’s look at those like-for-likes, minus 15% across the group. In the U.K., when we were open, we were trading essentially without restrictions other than self-imposed one. The like-for-likes were minus 6%, if you take out through the period, the 4 major city center stores that gives an idea of just how important they are in the sales mix, we traded at minus 1%. Given that women’s fashion was well down, I think that was a very, very good performance in the period. In the EU, we were off 20% in the stores that were open, but severe government restrictions on trading whilst we are open in a moment. And then in the U.S., we were at minus 3%, if you exclude Boston which is a heavily tourist-focused store and also a store with a lot of student business and the universities in Boston were shut through the program. We think that, that number 3% is – that minus 3% is an indicative underlying number and again, during a pandemic, we think that is a very credible performance indeed. So what were some of these restrictions in European countries? Well, reduced trading hours and days, a number of markets, at times we couldn’t trade at the weekend. We couldn’t trade beyond 5

Operator: Thank you, sir. Our first question comes from the line of Anne Critchlow from Société Générale. Please go ahead.

Anne Critchlow: Good morning and thanks for taking my questions. I have got two, please. The first one is about Primark space. In the pipeline for next year, do you still have about 1 million square feet of space planned, please? And then the second question on the Primark margin. So, I think it was a 190 basis point improvement to the operating margin in the first half, was most of that coming through at the gross margin level due to currency and lower markdowns? Thank you.

George Weston: Okay. Let me have a fast go, and then John will connect me. Primark space, I think will be – what we can see now is slightly 100 million square feet, but will probably be higher than the 700,000 that we expect to open this year. There is always a little bit of uncertainty, particularly about re-openings that are scheduled towards the back-end of the year. In terms of margin, actually, in gross margin, the following wind of currency is offset by – largely by increased costs of fabric, both cotton and man-made fabrics, and also freight increases, so not much change really in gross margin.

Anne Critchlow: Great. Thank you.

Operator: The next question comes from the line of Clive Black from Shore Capital Markets. Please go ahead.

Clive Black: Thank you. Thank you, George and John. I will ask two questions, if I may. Firstly, it was interesting, John’s comment about Primark margins going forward. And I just wondered with all the learnings you had in – through the pandemic whether there were grounds for cautious optimism that you would have a more efficient base to allow positive operational gearing to come through if there is a period of uninterrupted trading over the next 6 months to 18 months really. And then just secondly, George, you are clearly in a much brighter mood today, which is good to hear, I just wondered, could you give us an updated thought process on the USA in terms of where that – where the potential for Primark is there, now that it’s a profitable business? Thank you.

George Weston: Yes. Clive, hi. Let me just answer the second question first. We think what we believe now that whereas – we started in the Northeast. We started our learnings in the Northeast to think that the brand is relevant anywhere east of the Mississippi, which is I think, something like 65% of the U.S. population. The success in Florida, success in Chicago, recent though it is, I think gives us confidence that the brand will – is relevant really throughout the East United States. And from that distribution hub in New Jersey, , we believe we can service anywhere east of the Mississippi for now. So that is – that feels great, really, when you combine it, in particular, with the profitability of stores at individual store level. These 35,000 square feet stores just do work very well for us. And then some of the brand measures, which I wanted to share, are also looking good. I wanted to turn to John for questions of leverage and margin. There will be some. But equally, there is some new fixed costs that we are going to put into the business, particularly around the sustainability communications, I think, particularly around online communications. And we are likely also to put some costs into sustainable ranges themselves. So, I wouldn’t model an increase in margin coming from, I suppose, just sales growth in the medium-term, in the short-term, absolutely. As we come back to sort of near normal levels of sale, we will see that leverage coming through. We are still building aspects of our total cost base.

John Bason: I mean I think to – I’m hoping – complementing what George has said that he’s right to highlight what those costs have come through. I think when you are – when you’ve taken a lot of costs – discretionary costs out of the business, the Primark management have been very careful which elements you add back. So probably focus of those costs that you add back. And I think as – like any great retailer, they will constantly look at how they operate in terms of labor costs and so forth going ahead. So that’s really how I think I would look at it.

Clive Black: Okay. Thanks guys. George, can I just ask a quick follow-up in terms of – is your thinking about the potential of the U.S. opportunity, has that adjusted over the last 12 months?

George Weston: Yes, it has. And it’s come from three places, really, my increased confidence. The first one is just a longer period of good trading. You still look at good results for a while. And will it last? Well, it’s lasted. The second one is in the robustness of the sales levels through COVID and also the maybe short-term response in sales to government checks landing on everyone’s letter box. We’ve had a very strong period of sales in the immediate aftermath of that. And then it’s the relevance in different geographies that – well, okay, maybe we’re not just a brand for the Northeast. So, yes, it feels like that we’re at the early stages of a multi-multiyear development journey.

Clive Black: Great to hear. Thank you.

Operator: The next question comes from the line of Aneesha Sherman from Bernstein. Please go ahead.

Aneesha Sherman: Hi. Good morning. I have two questions as well, George and John. The first one is on Primark. So you say in the release that Primark profit should be somewhat lower than last year. Does that include the £121 million furlough repayment? Is that going on Primark’s P&L, meaning the underlying profitability should actually exceed last year or is that last year’s guidance ex the furlough repayment? And then – yes, go ahead.

George Weston: Hold that one. Yes, we could. No, I think the guidance is that if we had not – even if we had not repaid the furlough monies. Then I think you’ll be a bit below last year. And then obviously, the £121 million takes it somewhat below last year. Okay. So I don’t think the profitability would have been ahead of the £350 million, £360 million that we had last year anyway. So that’s – if that’s clear.

Aneesha Sherman: Yes. That’s very clear. Okay. And then my second question is, given the strong performance in the English and Welsh stores and the optimistic tone we heard this morning, are you expecting all the English and Welsh stores to make a profit in H2?

George Weston: Yes. Yes, we would.

Aneesha Sherman: Okay. Thank you very much.

George Weston: The important change from the last time is the much better improvement of those four destination stores. Yes, absolutely.

Aneesha Sherman: Yes, okay. Thank you.

John Bason: And I think, to second George, I’m looking at somewhere into the fourth quarter, we will be getting a much better field, depending on whether like-for-like settle out, where the margins look. But the – I would say the UK stores has been a very good guide for that.

Aneesha Sherman: Okay. Thank you.

Operator: The next question comes from the line of James Grzinic from Jefferies. Please go ahead.

James Grzinic: Thanks. Good morning George and John, I had two quick ones as well. The first one is, are you already looking to change the supply chain. I thought that fades into Primark U.S. Are you already looking at changing it from an extension of the European supply chain? And the second one, George, can you perhaps talk about how the Oracle program and the rollout is progressing at Primark? Presumably, it is generating or will generate considerable efficiency savings to then reinvest in some of the areas that you touched on?

George Weston: Yes. We are looking to change the supply chain in the United States, but that work hasn’t really begun yet. We just can’t do much during COVID. But it will change. It’s on our list of ways of improving the profitability of the American business. Oracle really is a driver more of better, more relevant information than it is a cost-saving program. It’s also an enormous enabler for all sorts of things, not least, multicurrency operations become so much easier with Oracle financials. With any IT program, my experience is particularly towards the end of them. You’re very ill advised to say, yes, it’s brilliant. We will tell you when it’s done. So far, so good, but there is some perilous waters to cross still before we can sort of sit back and say, well, that was hard, but it’s done.

John Bason: George is always right to point out the risk, and I will be with him on that. I think I would say, however, is that in terms of ordering to right the way through to the stock management in the stores, the – I’m pleased to say that our fully operating is order through to the stock into the warehouse. So the last bit then is taking Oracle into the stores themselves for the stock management on all of that. And that’s really what we’ve been looking at over the next 6 months.

George Weston: And that last bit is really important in terms of telling us where we’ve got stock and where we don’t. We get so much more clarity of what the stock holdings in store actually are once that last piece is done.

James Grzinic: And so just to reiterate, all that piece of work is supposed to be completed within the next 6 months?

George Weston: Yes. I hate targets, but looking at me James, look, we’re a number of years into this. I’d really complement the work that’s gone on by the Primark team. It’s not done until it’s done, but that’s the sort of time frame that we’re looking at.

James Grzinic: Okay. Thank you.

George Weston: Thanks.

Operator: The next question comes from the line of Richard Chamberlain from RBC. Please go ahead.

Richard Chamberlain: Thank you. Good morning guys. A couple from me, please, from on Primark. I wondered maybe, George, you can give us an update on the composition of Primark’s inventory just in terms of how much is being carried forward, your balance between home-related stuff or occasion, going-out wear. And that’s the first one. And then on Ingredients, can you just talk through why you expect the profits to fall in the second half and to be stable for the year? I mean I presume it’s mainly a tougher comparable issue, but anything else to mention there on Ingredients for the second half? Thanks.

George Weston: Let me tackle the second one first. Yes, this time last year, customers stocked up on the sort of ingredients that we supply. So the sales level saw a great surge in the first half of last year, and we don’t expect that to be repeated this time. So we think that sales will drop simply because...

Richard Chamberlain: It’s a tough comparable, yes.

John Bason: Yes, it’s a tough comparable.

Richard Chamberlain: Okay, thanks.

George Weston: Moving across to Primark inventory, we’ve got about £150 million of spring/summer inventory that we put away last year and about £200 million...

John Bason: £260 million.

George Weston: £260 million, I beg your pardon, of autumn/winter that we have just put away. Now we were very careful as we selected what to put away and what to try to clear that we only put away either items where the fashion component was low. So you put away sweatshirts and T-shirts and things, which were this year as they are last year. And we only put away ranges which have not been brought out and shown to customers last time around.

Richard Chamberlain: Okay.

George Weston: So one of the things that we are particularly pleased about in this first week of opening is almost – we’ve had almost no reports of people saying, "We’ve seen it before. This was out on the shelf last year." Even though a better amount of what we’re selling now is put-away stock from last spring/summer. The customer just doesn’t.

Richard Chamberlain: Yes, yes. Thanks very much.

George Weston: Okay. Thanks, Richard.

Operator: The next question comes from the line of Warren Ackerman from Barclays. Please go ahead.

Warren Ackerman: Good morning, George and John. Warren here at Barclays. A couple of questions from me as well. So on Sugar, we haven’t touched on that one, it was a strong H1. I was wondering whether you could say where spot EU prices are because obviously, on your chart, I think €390 a ton, that’s – I guess that’s an EU commission number that’s lagged. And what that means going into next year, I suppose, on Sugar? And then sort of related to that, the Illovo point, it sounds like you’re saying that some of the profit recovery is being phased from H2 into H1 pull-forward. Just wondering whether you can confirm that, and any kind of moving parts around Illovo timing would be useful? And then just secondly, on Grocery, I mean you are striking a more cautious tone. Just wondering how much of a margin impact do you expect from kind of higher corn oil for brands like Mazola. It sounds like that’s where the pressure point is in the U.S. I also know weak Australia, George Weston Foods, particularly the meats business. And where do you think kind of Grocery might kind of end up for the year? Those are my two. Thank you.

George Weston: Okay.

John Bason: George, do you want to do that?

George Weston: Yes, John. Yes, let’s do the EU price one. Yes, the – well, the chart that we showed is actually the prices for sugar, right the way across – by the way, across Europe. They do vary. So there are some parts of the EU which are lower. So those prices that are broadly pertaining in the UK are higher than those. There is a bit of the lag, which we’ve always seen in the European Commission reporting of this. So if you’re looking at spot prices, which you know I don’t really like because there are always small volumes and reporting, mid-400s would be the sort of prices that – of euro per ton that we’re looking at. So what is the prospects as we look into next year? Well, you can see that there is not a big increase in EU production. As we look ahead. So the stock position is tight. The production does not look like it’s going to really rebound strongly next year. So what does that mean? But compared to the British Sugar prices that we’ve got at the moment, probably small up, but don’t – but there is no major – the absence of the negative, Warren. There is no major undermining of that. It’s notable that the frost in France, which took out so much of John’s wine crop in that country in the last few months, has also done significant damage to plantings of sugar beet in France. So the best of the best producer may well have some – well, may well produce less sugar on the back of that. Turning to grocery, the impact in Mazola of both volume reductions and also much higher corn oil prices we expect to be in the tens of millions of dollars. If I move to Australia and Don, there is probably – we would see a sort of AUD10 million switch. Now things are actually getting better in Australia with the improvement in foodservice demand, which is a significant part of what Don supplies into. So maybe Don will have a better second half than we feared only a month ago or so. But those give you the shape of the downside there.

Warren Ackerman: Okay. Can I maybe just squeeze one more in, just on Primark and on currency as we think about modeling 2022 given dollar-sterling and dollar-euro? Obviously, it’s an impact for for 2022. But obviously, sterling is moving around, but it does look like quite a notable kind of translation positive for 2022. Are you able to give us, John, any kind of sort of sensitivity around dollar-sterling and sterling-euro just as we think about bought in for next year?

John Bason: Well, I think it’s probably premature to give too much on that other than – well. I mean, when you look at the movement in the exchange rate, they can move pretty quickly. Let me put it this way. The current spots for the dollar and the euro, which are really the two key numbers, they would give a margin upside. If they were to continue for the whole of the year, it will probably be a 3-figure profit number. But we are looking at offsets on that of – particularly sea freight and a number of the other costs that would go there. So I would not be penciling in any sort of major upsides because I think we’re seeing, but at least we do have that tailwind. I mean it’s obviously right. You can see the scale of that currency upside. But we’re looking at some of the other things. So at the moment, the good news would be, we feel that the gross margin is certainly supportive at these levels. And let’s see where we go over the next coming months.

Warren Ackerman: Alright. Thanks, John.

George Weston: I think I’d turn it around and say, if it wasn’t for these currencies, we’d have some really nasty headwinds.

Warren Ackerman: Alright. Okay, thanks.

George Weston: Freight rates are just – I guess we’re simply – the doubling of freight rates would have done a good day’s work.

Warren Ackerman: Okay. Thank you guys.

Operator: The next question comes from the line of Simon Irwin from Credit Suisse. Please go ahead.

Simon Irwin: Good morning. A couple of questions for you. How are you thinking about M&A now? The balance sheet is pretty solid. And obviously, you’re much more confident about the world ahead. Do you see opportunities out there that perhaps weren’t there in a pre-COVID world? And just within the Grocery business, obviously, some of the markets you’re working in, notably Australia, are obviously kind of well past reopening now. What kind of trends are you seeing there? I mean, are you seeing the kind of a total reversal of kind of eating-from-home and out-of-home trends? Or is it much more moderate than that?

George Weston: That’s interesting. M&A opportunity – yes, we’re – the scale of the cash outflow at the height of the closures this year, I think, would give any sign – any sane combination of Chief Executive and Finance Director pause before they committed the rest of their balance to an M&A venture. £650 million of cash outflow in the period because of closure is just an enormous number. And we don’t have anything like the certainty – enough certainty to say that there won’t be another lockdown in the autumn or when those important markets of Germany, France, Italy will – Ireland will come back to normal. So I think we just have to be cautious for the time being. In the meantime, if there are modest expenditure levels – modest levels of expenditure required for particularly strategic M&A opportunities, we will take them. And we’ve been doing so. We bought – I’m not sure we talked to you last – after about a little company in Sweden called Larodan which has great expertise in polar lipids. I was mentioning the pharmaceutical lipids. Well, that’s about improving our capabilities at the R&D end of that. So it’s – I don’t think there are even a dozen people at Larodan, but gee, it was too nice an opportunity to miss to improve our intellectual property and our ability to develop more in that sector. So expect that sort of thing to continue. But the kind of multi-hundred million-pound expenditures, I don’t think we’re in the mood for it. I think another reason, though, for not being in the mood is that – and maybe we will talk about it more next time we’re together. There is a really nice pipeline of business development opportunities based around capital and other areas developing across the portfolio. We’ve mentioned some of these feed mills. There is a lot more beside that we’re looking into at the moment.

John Bason: I don’t think we’ve seen a real uptick and any interest in that. So that’s a good result.

George Weston: Yes. So that would be, I think – my answer is that to the M&A path. And then in Australia, we’re seeing – well, two things, I think, to call out. The first one is to return to much more normal levels of volume in foodservice, led by QSR, quick-service restaurants, in particular, where we have good representation both with Tip Top and Don. So that’s great. And then the second thing that we’re seeing – well, it’s what we’re not seeing, which is recession, we thought that some of our premium brand – sales of Twinings in Australia are very strong. We’re the market leader by value and I think volume as well in the Australian tea market. And the absence of a recession in Australia, which I thought was a nailed-on certainty, I think, is giving us oxygen in our more premium-priced businesses. I think if we were sitting together 6 months ago, I think John and I would have said we’re going to have the mother and father of all recessions around the world, and Twinings, in particular, is going to have a miserable time of it because of that. And we’re not seeing that at all. And I think we’re more likely to have a consumer boom than a consumer recession.

Simon Irwin: Excellent. Thank you.

George Weston: Okay, Simon. Thanks.

Operator: The next question comes from the line of Warwick Okines from Exane. Please go ahead.

Warwick Okines: Yes. Good morning, George and John, two questions back on Primark, please. Firstly, could you say a bit more about Primark’s medium-term strategy in the UK? Before COVID, it had been at store refurb and I think sort of low single-digit space growth story through enlargements. Is that unchanged by COVID? And what sort of rent reductions are you seeing in the – in your end-of-lease discussions? And secondly, can you give us a sense of the proportion that Primark’s goods, which are made from sustainable or recycled fabrics at the moment, please?

George Weston: Okay. The medium-term strategy in the UK has not significantly changed. We’ve got the store portfolio by and large that we think we need in the medium and probably long term, too. I think there is, though, an opportunity with the demise of some of our competitors to expand the ranges we sell in certain categories. And we’re on to that. It’s too early to tell whether we are benefiting from other people’s demise in the week that we’ve been trading so far. But we would hope that there’s room for us to benefit from the loss of some of our high Street competitors. And that’s new, obviously. Sustainable recycled percentages of total, yes. I will get back to you. I know that when we closed, we had something like 60 million items of clothing made from sustainable cotton and I think 20 million from recycled polyester, but I don’t have those numbers as a proportion of everything we sell in my head yet at the moment.

Warwick Okines: Okay. No problem. And just on rent reduction spend?

George Weston: And we don’t. Certainly, the sustainable cotton program is – I think it’s the largest in clothing retail globally.

John Bason: Yes. So Warwick, just when you asked about the UK footprint. I suppose it’s after in the context of maybe other retailers.

George Weston: Rent.

John Bason: And on rent, I will just talk about footprint. The – obviously in the context of the people pulling their footprint back, that’s not the intent. And I think George’s comment about, if I can describe as the organic growth certainly in terms of ranges and so forth, I think is really a key going forward. What sort of rent reductions are we seeing? Up to 50%, really quite a significant ones, so – and what we are as keen to get those wherever there is a break or at least coming towards the end in the UK. Obviously, that will give us a tailwind for a number of years. I mean, rather than it being scrunched into the next few years of seeing that, we’ll actually see that probably over a number of years to come. But at least there will be a drumbeat of a number of these coming up, I think, every year as we go forward.

George Weston: So just being facetious at the moment, if we can have the rents and get rid of all the rates, we will be in business.

Warwick Okines: Alright. Thanks very much.

John Bason: Thanks.

Operator: The next question comes from the line of Georgina Johanan from JPMorgan. Please go ahead.

Georgina Johanan: Good morning. Thanks for taking my questions. Two or three from me, please. First of all, perhaps just a follow-up to the last question on the rent reduction. Is it possible just to give us a kind of average of roughly what proportion of the UK portfolio is coming up for renewal kind of each year on average, just to give us a sense, please? The second question was on the U.S. and brand awareness and really whether you feel there’s like a halo effect developing into kind of neighboring cities and so on? And any plans to kind of develop brand awareness in the U.S., perhaps a digital strategy? But just anything you can share there would be helpful? And then finally, just on sustainability. You mentioned that we should be mindful of kind of sort of fixed costs kind of going into the Primark P&L around sustainability. Is that sort of – are you expecting the sustainable fabrics to kind of be more expensive on average or is it around communication or is it something else there that I perhaps haven’t touched on? Thank you.

John Bason: So, I will touch on just the – look, I don’t have an absolute number at all, but I would say a handful of leases in the UK come up for negotiation each year. So that’s the sort of number you should be looking at. And that would be then out of – actually, for the UK number, let’s say, there is probably 18 stores or something. So that’s the sort of the context of it.

George Weston: Just a reminder, two things, firstly, we own a fair chunk of the space in the UK.

John Bason: Yes.

George Weston: And then secondly, we do have some long – a fair chunk of long leaseholds. But I think between 5 and 10 stores a year are likely to come up each year for the next few years. On the sustainability question of extra cost, I think there is some transition costs that we have. So we are – you may see that a number of our ranges are no longer hung on plastic coat hangers. They are on cardboard ones. We pay a significantly higher cost for that cardboard at the moment, but it is the task of the supply chain people to sort out the production levels and also the cost of that new type of coat hanger. But undoubtedly, there is a cost to be born in the meantime. Sustainable cotton, recycled cotton, in time, we hope will come at the same cost as cotton available now, yes. And it’s all really important that we do manage to produce garments at the same price because fundamentally, we believe that sustainable product shouldn’t come at a premium. Going on to the U.S., I don’t have brand measures that I’m willing to share with you at the moment. The marketing has to be very local, whether it is digital or other means. Because if you don’t go local you just waste so much from when we’ve roughly got 12 stores, but certainly, the reopening – sorry, the opening of Chicago and also Florida was accompanied by a good level of digital engagement in both cases.

Georgina Johanan: Great. Thank you.

George Weston: Okay.

Operator: The next question comes from the line of Roland French from Davy. Please go ahead.

Roland French: Hi, good morning George. Good morning, John. I hope you are keeping well. I have got three questions if I could, two on Primark and on the food business. So the first on Primark is just in relation to the U.S. I just want to get a sense around the U.S. customer and I guess how that customer differs from a typical British or European customer. What’s he or she buying? I know you alluded to more licensed goods, and that’s the feature of the U.S. market there, but what’s the basket mix looking like? Maybe some color around densities just to give us a sense of customer or even per unit economics there. And then kind of similarly, around sales mix in the UK, and this is somewhat of a longer-dated question. Like you called out some of the NPD verticals that you might be focusing in on over the couple – next couple of quarters around maternity, around baby wear, homeware, I think some licensing deals there as well. Do you see that basket mix evolving over the next 12 to 18 months from kind of traditional clothing apparel? And then just finally, on commodity inflation, clearly, there is several pockets across the food businesses, but maybe you might remind us how you typically deal with that either through pricing or natural, even synthetic hedging? Thanks.

George Weston: Sorry, just – the U.S. customer – our best U.S. customer is less affluent on average, I think, than our European, including English and Irish customer at the moment. So if you look at the sites that we are going into, we are chasing, I would call it, the Brooklyn customer. And a significant proportion of for business at the moment is made up of less affluent people of Hispanic origin. So, fewer fashion-led visits at the moment, it’s exactly what we saw when we went into Spain. It took us longer to develop fashion credentials, and I think that’s inevitable, than it did to excite less affluent people around the value for money that we – that a trip to a Primark store will unlock. In the UK, yes, we will continue to develop maternity, baby and home. We think there’s really good opportunity in all. There is obviously a space constraint in all this, but we think that there are opportunities. Now if they turn out to be smaller than we think, then we’ll do something else. The flexibility of Primark commercial teams is notable. But we think that there are – we really do believe that there are good opportunities in all three areas. I think the baby area will only strengthen as we get later on this year towards the autumn/winter collection. Commodities and how we manage them. Well, it’s very much up to the individual businesses in the group to manage, a, the commodity position, obviously, with central oversight. But it is for Tip Top in Australia to work with our mills on hedging strategies rather than for the center to do it. And the same is true around all the rest of the group.

John Bason: George, if I could add maybe just a bit of guidance. We are very unlikely to go long. That is the point. So, there is hedging around the group, but it would normally be of a much shorter duration. So you won’t find us often really going massively out of the money because we are taking a view on our long term. That’s actually got some away from us. And so as a result you asked what’s the strategy in terms then of pricing? By and large, it is pricing that we would react to. Unless we felt that there was a mountain and then we’ll burrow through it, and we wouldn’t respond. So that’s the way we would look at. So we are not about taking long positions. They vary by month. And – but then certainly, pricing is a major lever that you do want to be able to pull. Then you have the lag or whatever effects of when the prices come through compared to the commodity cost.

Roland French: Yes. Thanks.

Operator: We now have time for one final question, and this is a follow-up question from the line of Aneesha Sherman from Bernstein. Please go ahead.

Aneesha Sherman: Hi, thank you for taking my quick follow-up question. It’s just going back to the point around rents. And I was just wondering, as you open new stores, both within the UK and outside and you renegotiate rents, what is your typical lease length on the newly signed leases? And are you also putting in some variable sales-linked portion into those leases? Thank you.

John Bason: Typically, we now want 5-year break clauses. It will be an exceptional store that where we will accept anything that doesn’t have a 5-year break in it. And no, we don’t put variable sales levels into any of our leases.

Aneesha Sherman: Okay, thank you.

John Bason: Okay, thank you.

Operator: We have run out of time, so I will now hand back to George Weston for any closing remarks.

George Weston: No. I think we have had a very good session and I don’t think I need to repeat things I’ve said before, other than to say I hope that the world is gradually returning to normal, at least in the lives of all of us on the call, even if it’s going to take a while longer for many of our colleagues. So, thank you very much for coming, and look forward to seeing you. I’m reminding myself what you all look like, maybe when we next get together in 6 months’ time. So thank you all very much.

John Bason: Yes. Goodbye all. Thank you.

Operator: Thank you everyone for joining. That concludes today’s conference and you may now disconnect.