Associated British Foods plc

George Weston - CEO John Bason - CFO

Warwick Okines - Deutsche Bank Richard Chamberlain - RBC Jeremy Fialko - Redburn Geoff Ruddell - Morgan Stanley Simon Irwin - Crédit Suisse Andy Hughes - UBS Georgina Johanan - JPMorgan Charles Pick - Numis Alex Smith - Barclays

Okay. Thank you all very much for coming to this review of our interim results for the 24 weeks ended the 4 of March 2017.

The financial highlights are these: group revenues are up 7%; adjusted operating profit on a constant currency basis are up 23%; adjusted profit before tax is up 35%; adjusted earnings per share is up 30%; and the interim dividend the board has declared, will rise by 10% to 11.35 pence. Another period of large capital investment, £416 million, and yet we end the period with net cash on the balance sheet for the first time in a while of £190 million, so strong cash flow characterized the period too.

The business highlights for us, are these: excellent progress really across the group; strong underlying growth that's the consequence of a lot of hard work by a large number of people now over a good many years; and of course we have benefited as well from currency translation. In Primark, UK trading has been good.

Our sales were up 7%. Like-for-likes are up 2%; and the selling space expansion, particularly in Continental Europe and U.S.

has if anything accelerated, where we think now that we will open 1.5 million square feet of new space this year. I think the number previously we were stating was 1.3 million square feet.

Since the end of the period through the 4 of March, our trading in the UK actually across all our markets has been strong as well. Late Easter has helped.

We think the ranges in stores are very strong, and I blamed weather enough in the past to give it credit this time, it's been nice and warm leading up to Easter, late Easter, and that's undoubtedly been a help, so trading has been good these last four weeks. We've seen a step change in the Sugar profits in this year.

We said it was coming, and it is. And then Grocery, Ingredients, both profits and margin, have progressed once more.

And then last but not least, just repeat my point about the strong cash flow in the period. And with that, and for more detail, I pass it to John.

Okay. Thank you very much, George.

Good morning, everyone. Moving on to the income statement.

The 2016 half year numbers have been restated. The restatement reflects last year's change of accounting policy for sugarcane roots, following adoption of the amendment to IAS 41 in the second half, which permitted the replacements of the fair value of Illovo's cane roots with their depreciated historic costs.

I've provided a schedule at the back of your slide pack, you'll be relieved to hear, showing the effects of this on the income statement and balance sheet line items for reference. It only had a small impact on the Sugar segment and the group numbers, reducing adjusted operating profit by £5 million and adjusted earnings per share by 0.3 pence.

So coming on to the slide now. Revenue of 7.3 billion was 19% ahead of last year at actual exchange rates, benefiting from last year's devaluation of sterling on the translation of our overseas results.

Underlying growth was strong, with revenue at constant currency 7% ahead. The table of average and period end exchange rates is also included at the back of your slide pack.

Adjusted operating profit was 36% ahead at 652 million. Of the 171 million year-on-year increase, 51 million was the result of translation.

At constant currency, we were 23% ahead. The adjusted profit measure excludes amortization of non-operating intangibles, profits less losses on disposal of noncurrent assets and transaction costs.

Following the buyouts of Illovo's holding company minorities last June, we moved Illovo's financial yearend to August. The effectiveness in this half year is beneficial, so on the profit line, of some 20 million, with the inclusion of the Illovo profit for September, which seasonally is a high profit month.

This year's unadjusted or statutory operating profit was 640 million, 36% ahead of last year. This year's income statement includes the pretax profit of 255 million on the sale of businesses, which comprised the disposal in November of our U.S.

herbs and spices business for 294 million, resulting in a gain of 72 million, and the sale of the South China sugarcane business in December, realizing a gain of 183 million. Total proceeds from the disposal in China, including debt assumed by the purchaser, were 297 million.

Net interest expense is in line with last year at 25 million, with the adverse effect of the translation of interest on our U.S. dollar denominated private placement debt.

Profit before tax increased by 92% to 867 million and by 35% to 624 million on an adjusted basis. Last year's tax charge, you'll remember, benefited from the revaluation of deferred tax liabilities to reflect announced reductions in the U.K.

corporation tax rate. In addition, a change in the mix of profits by tax jurisdiction has increased the underlying rate this year to 22.7%, and that compares with the 21.3% reported last year.

Tax charges on the gains on disposal of businesses increased the reported rate to 25.5% this year. Adjusted profit before tax was 35% ahead.

But with the higher underlying tax rate and higher earnings attributable to non-controlling interests, adjusted earnings per share increased 30% from the restated 45.8 pence to 59.7 pence. Perhaps surprisingly, following the buyouts of Illovo's holding company minority interest last year, adjusted earnings attributable to non-controlling interest increased, and that was from 1 million last year to 10 million this year, and that reflected the significant improvement in Illovo's profits.

Unadjusted earnings per share, which includes the profit on sale of businesses, increased 79% to 80.5 pence. I think when looking at percentage increases like these for the first half, it's appropriate for me to set a context for the second half.

We do not expect growth in the second half to be at the same rate as that in the first half, and it's for the following reasons. The translation benefit in operating profit, if exchange rates remain at current levels, although slightly moved over yesterday, after yesterday's result but nevertheless at these sort of levels, will be less in the second half.

We expect the full effect of sterling weakness against the U.S. dollar on Primark's purchases to result in a greater margin decline in the second half, because our currency hedges were at more advantageous exchange rates than the first half.

As already explained, last year's change in Illovo's financial year end benefited the first half by some 20 million, and 2016 was a 53 week year for the group; and so the second half last year covered 29 weeks and that compares to a normal 28 weeks this year. The board has declared an interim dividend of 11.35 pence per share, an increase of 10% on last year.

Moving on to the balance sheet. Equity shareholders' funds increased by £1 billion to 7.8 billion over the last 12 months, so a really good strong increase.

The main drivers of that were the benefits of currency translation, profit from operations and then also the profit made on the business disposals. Intangible assets were marginally higher, with additions and gains on translation being almost offset by reductions arising from business disposals and the annual amortization.

The drivers of the 678 million increase in PP&E and other non-current assets were translation and fixed assets additions ahead of depreciation. The lower working capital this year is largely the result of the business disposals.

Working capital expressed as a percentage of sales, which as a management team is the KPI that we look at for continuing businesses, is much improved. And the thing I would highlight there is that it does reflect tight stock management at Primark, and we've obviously felt the consequences from markdowns at Primark, which are well within control.

The increase in the current tax liability is due to the higher profits and tax still to pay on the disposal of the U.S. herbs and spices business.

I've talked before about the requirement to adopt the new lease accounting standard by our 2020 year end. We estimate that adoption would add some £3 billion of lease obligations for the current Primark estate to the balance sheet.

And just to ward off any questions like I had last time there Richard, I must emphasize that our financial strength is such that this will not change our approach to investment. Our lease obligations clearly outweigh our bank obligations.

I'll put into context the improvement in our net debt from 421 million last year to net cash of 190 million this year. The increase in provisions primarily relates to the business disposals and various reorganization costs.

Bond yields fell to very low levels at the time of our last financial year end. On the pension asset of 16 million last half year moved to a deficit you may remember, to a deficit of 290 million at the year end.

A small increase in yields over this half year has reduced that deficit to the deficit of 203 million that we see at the half year. The reduction in non-controlling interests reflects the buyouts of the minorities in Illovo's South African holding company and the sale of the Sugar businesses in South China.

The remaining non-controlling interest here relate to Illovo's other operations outside South Africa. Cash flow in the half year was strong.

We generated a free cash flow of 259 million in the first half, and that compared with 14 million last year. The biggest drivers of this improvement were the higher profit and lower working capital outflow.

Capital expenditure for the group was GBP 62 million higher than last year, driven by a big increase for Primark. The tax paid to date on the business disposals was the main reason for the increase in the group tax paid.

Dividends from joint ventures and associates was substantially higher this year, with a £35 million dividend from Stratas Foods, our U.S. vegetable oil joint venture, which is now very cash generative.

And indeed, it was able to fund from its own resources the acquisition of Supreme Oil in the half year. Disposals less acquisitions comprised the cash proceeds from the two business disposals net of costs and £86 million spent on the acquisition of two small U.K.

sports nutrition businesses and a specialty ingredients business for AB Mauri in North America. So coming on to the segmental analysis.

On all measures, these are strong results. So on the continuing businesses line, first of all, revenue for our continuing businesses, up 21%.

Profit from continuing businesses, up 36%. Moving on to the margin and the return on capital employed.

We've taken to effect into account the effect of the disposals. The group margin was 7.9% last year, moving to 9.0% this year.

And the group return on capital employed on an annualized basis rose from the 17.6% last year to 21.2%. Clearly, the disposals had a benefit in both margin and return as well as the underlying improvements in both measures.

Grocery profit and margin improvements were driven by Twinings Ovaltine and a further recovery at George Weston Foods in Australia. The profit at Sugar has recovered to deliver an annualized return of 16.6%, clearly more acceptable.

And Ingredients has improved, generating an annualized return of 14.9%. So I think when you look at the return numbers, you can see that there's a very strong set of return numbers in each of the segments.

The margin contraction of 170 basis points at Primark results, as expected, from the transaction effect of the U.S. dollar.

For the full year, I continue to expect a margin decline of some 200 basis points, so no change in that outlook for the full year for Primark. And as a consequence of the tight stock management that I mentioned before, markdowns are expected to be marginally below the level of last year.

Finally, our segmental analysis by geography. Revenue was ahead in all regions.

Translation was clearly a major contributor to the strong growth in the regions outside the UK. In the UK, profit and margins saw a modest decline, with the improvements in British Sugar and Twinings more than offset by the reduction in Primark's margin and a decline at Allied Bakeries.

The strong profit improvements in Europe and Africa was driven by Sugar, especially Illovo, but also Azucarera and also by our Enzymes businesses that I think are well worth a mention. In the Americas, ACH, Twinings, AB Vista and both AB Mauri and ABF Ingredients contributed to the profit growth.

The profit improvement in Asia Pacific was driven by strong trading for Twinings Ovaltine in Thailand and China and a much improved performance at George Weston Foods in Australia. On that point, I'll hand over to George.

Thank you.

Thank you very much. Starting with Sugar, as we always do really good improvement in the profitability of this business in the first half.

We are one of the lowest cost producers of sugar globally. We are I think, increasing the gap to others.

The performance improvement savings program keeps on generating tens of millions of pounds every year in new savings. And then the repositioning of the portfolio, the sale of South China cane sugar assets and the buyout of the minority of Illovo has also improved this business.

That second buyout minority of course, was in June last year. We've seen higher sugar prices globally, and I'll show you some charts of them in a second.

And so with those higher sugar prices, the cost reduction, all [indiscernible] operations in our Sugar businesses are now profitable. But really, the improvement in this business over the last few years has been about so much more than simply higher sugar prices.

Here then are Sugar prices, the most commonly traded sugar on the world market, New York number 11, where that's $0.22 is now $0.16, $0.165. We've had two years of deficit production.

I think looking forward into next year, we think that the market will be in about balanced, so we expect to see very reasonable sugar prices continue for another year. EU of course, is coming to the end of the old regime, deregulation of sales, which I think will have an effect on the EU markets in years to come.

It's worth mentioning of course, that as we go into the first stages of the new sugar regime, the stock levels in Europe are going to be very low. I think that will be supportive of price at least for a little while.

Our European operations [indiscernible] are buying beet at a lower cost than previously. We produced less sugar in the year-to-date, 0.9 million tons against the closure of 1.1 million tons, and that was to get through stock levels, which were very high due to high production a couple of years ago.

Those stocks have now gone. We will be increasing the acreage planted to sugar beet this year, but only back to historic levels of about 105,000 hectares.

I think we were around about 70 in the year just gone. Spain also increased production.

We've had a very good campaign in the south of Spain, which is coming to an end of a very successful campaign also in the most northerly Spanish factory, and the Spanish business is doing well. Just turning to some more specific comments about improvements in the cost base.

Once more, it's coming from all areas, agricultural developments. Essentially, it's about getting more yield grown closer to factories to reduced distribution cost and to reduce cost of growing for farmers.

Then we turn to factory. Our process efficiencies are particularly but not exclusively energy; hundreds and hundreds of small projects improving the cost base of our factories across the world.

And then it's worth mentioning there's no such thing as waste in Allied Bakery -- sorry, Allied -- in AB Sugar factory. There are only co-products on which would have value at the moment and which where we have yet to discover the value.

I want to show you just a picture of an investment in co-product processing. This is anaerobic digestion in Bury St Edmunds.

We're just commissioning this plant. Now it just commissioned.

We turned mostly extract the sugar from sugar beet, we're left with pulp, which previously was fed exclusively to cattle in the United Kingdom. We've now put in an anaerobic digestor, and instead of having the cows generate methane, we'll generate ourselves and feed it into the grid.

It gives us good optionality with our sugar beet pulp. Then next to Illovo.

We fully owned it, as I said, since June 2016. Our plan was to accelerate cost reduction.

We're doing that. We're also focusing on regional sales and on domestic consumers.

The African market for sugar is growing. With lower sugar prices in the future in Europe, the value of European exports to the African producing countries will be less.

So let's go about strengthening our regional sales capability. Here are a couple of examples of us doing that.

The pack on the left is how it's the single retail pack in Malawi. We now have four much more colorful and much more carefully considered in terms of size packs for the growing retail market in that country.

And then, again, consumer work in Tanzania, the old pack on the left and then the much more attractive pack on the right. There's also a lot of work on routes to market going alongside this repackaging work, and it's going very quickly.

You need a bit of luck from time to time. Just after we bought Illovo, the rains arrived.

We've recovered from drought in both South Africa and also Swaziland. I look at that I think we look at that as icing on the cake.

The rest of Illovo is a consequence of good management actions. So that's sugar.

Over to Agriculture, where despite revenue growth, higher commodity prices have led to a small decline in the profitability of this sector, particularly the more commoditized parts of this business. We've seen pleasing progress particularly in sales volumes in China.

And then in the more value added parts of our feed businesses, another year of strong performance from AB Vista, which specializes on phytase, enzymes. And then we're excited by the development of specialty proteins, which are also occurring within our agricultural portfolio.

More of that in years to come. If I move next to our Grocery portfolio, another very good performance from the Grocery portfolio.

Twinings Ovaltine again leading the way, pleasing recovery at George Weston Foods continues. Very good sale, we think, of our U.S.

herbs and spices business and also then in stripping cost out of ACH as a consequence of removing complexity that came with U.S. herbs and spices business.

And then we've made a small, 2 small acquisitions actually in sports and nutrition, a business called Reflex, another one called High5. High5 does rehydration.

Reflex is mainly about protein supplements. We're excited because they're 2 good companies, 2 very good brands.

The sector is growing nicely and it's encouraging many of us, John back down to the gym, me onto my bicycle, and all this is good stuff. Looking at, in more depth than at parts of the Grocery portfolio.

Twinings Ovaltine, another year of strong profit increase. Twinings made significant share gains in its major markets, u.K., Australia and also in the United States; and Ovaltine is also growing more strongly than in the prior year, particularly on the back of new product launches in Thailand, which is its, as I remind you, its largest market.

This part of the business is driven by very good marketing, [indiscernible] marketing. I want to show you one example of that in action.

It's in Australia where we have, I think, our highest market share anywhere for Twinings tea. And the question is, how do you drive more sales into Twinings?

Well, you encourage, you try to encourage women to drink more tea in the morning, and you do so by, well, we're attempting to do so by repackaging, relaunching, repackaging a specific morning tea, so a light drinking tea, with packaging designed by well-known Australian women. The packaging that wins the vote from the general public will -- each pack will contribute a sum of money to the charity of choice of the Australian women.

The four finalists, I can't remember which one is hers, four finalists include Nicole Kidman, but also three well-known media personalities, one of which I'm going to show you next, Carrie Blickmore, who is one of the presenters on major morning news and current affairs program. [Audio/Video Presentation] Really good leverage of marketing spend there.

Okay. If that's a highlight, more difficult areas include bread, as it does every year.

We've seen a particularly fierce year, margin decline from competition and also inflation in wheat costs. We think we're doing well in the scraps, so our sales values, the sales volumes have gone up through the period.

We've also redesigned the packaging of Kingsmill to give it more standout on shelf, but it's difficult. And Silver Spoon always struggles in a rising sugar market.

Pricing trends to lag input cost of sugar, so they've also been doing it tough for the last 6 months. Elsewhere in Grocery, Jordans, Dorset, Ryvita are really much better, so good progress in cereals, that's Dorset and also at Jordans.

And then we saw a period of decline of Ryvita crispbread sales. That decline has slowed as a consequence of a good work the team has been doing and that's very encouraging.

World Foods, also another very good year of growth for Patak's and Blue Dragon. It's worth pointing out, and I don't know whether you have it in your goody bags, the repackaging and also new products under the Blue Dragon brand.

Both those brands are in leading market positions now in the U.K. market.

Turning then across the Atlantic to ACH. Mazola has now hit number 1 brand in the consumer oil market in the States on the back of the very successful and long running plant sterols campaign.

Just remind you that corn oil contains more plant sterols than -- no, no, no, the one, the Mediterranean one, olive oil, olive oil, olive oil, my fault. We've also seen good share gains in our home baking portfolio.

These now are the two remaining parts of ACH, so it's had a good first half. So in Australia, we've seen good bread volume growth through the period, not least on the back of what I think is the best gluten free bread product or bread that you can buy, that I've certainly tasted anywhere.

This is Abbott's on the left hand side, very encouraging and still fast growing. And then, cost reductions continue at Don KRC and I think will continue for some while.

Volumes remain good in that business, too. So all in all, much improved margin in Australia and I think more to come.

Turning next to Ingredients. Again, a very another very impressive performance from the Ingredients teams.

At AB Mauri, we've seen good trading in North America in particular. Asia, much improved; both India, Southeast Asia and China as well.

And then despite tough economic times in Argentina and Brazil, which are two very big markets for us, we've traded well in both countries, most notably in Brazil. ABF Ingredients, the more specialty end of our Ingredients portfolio, excellent performances by all five businesses in that portfolio.

Enzymes in particular has been growing strongly, not least on the back of feed animal feed enzymes, but also in bakery and detergent enzymes. And then we've seen another year of good growth in specialty lipids and also now in our protein extrusion business based in California, which, to some extent, have lagged behind the rest of the of ABFI.

Pausing there then, before we go on to Primark. Just to repeat my highlights at the beginning that Primark in U.K.

has had a very good period. I think it's on the back mainly of an improved offer in stores and also some followings.

But let me give you a flavor of what spring looks like, what some of the top sellers are and then we'll move on. [Audio/Video Presentation] And on to current top sellers.

Worth calling out beauty products in the middle. This is a category we really didn't have 2 years ago.

Fantastic quality at unbeatable prices, and we're trading extremely strongly in it. And all the other normal products.

Pool side [ph] is £4. Distressed T-shirts at £9.

Embroidery, which I think will be a characteristic of the summer, at 10. Let me show you another example, the gingham dress, it only stayed in stores for a week, but it's garnered a lot of media coverage.

As I say, it may be coming back into stock, I look at [Flick] at this moment, no, no it's gone, sorry. And yes, this is the Primark buying team back to their very best.

Then summer, kaftans, jersey shorts, Bardot tops are all coming your way, all at unbeatable prices and all driving a very good sales performance in the U.K. as well as across our other 9 markets.

So the retail figures are these: 11% revenue growth at constant currency, 21% at actual FX. 12% sales growth when you take comparable weeks and adjust for this 53- 52-week year.

Extensive new store opening programs, 29 stores through the course of the year, 8 more still to go. I think 16 in the first half and then 5 in the weeks since the 4th of March.

Strong market share gains in all our markets, notably in the U.K. And then, as John has said, 200 basis point decline in the margin, which is no change in the guidance.

We've done good work to mitigate the consequences of the currency changes. We don't believe now is the time to be raising prices for U.K.

consumers. Concentrating on the U.K., sales up 7%, 2% growth.

Total market share, well ahead, and strong offer, I'm just repeating myself. Continental space, Continental Europe, the selling space has increased by 20%.

There remains huge potential in all our markets. Many of our stores remain still over trade.

New stores have been particularly notable for their successful openings in this year. Inevitably, we get some cannibalization.

We're still at that stage of our development in almost all our European markets. And let me show you what's the Hamburg opening back at the end of last year looked like.

These were people queuing just for the new Primark story. So that was in December.

In the U.S., we've now got seven stores trading. The store offering continues to develop and evolve.

We won't sell out of shorts this year, as we did last year. We've extended the Boston store; and Staten Island, which is our seventh new store, has started trading very well.

I'm particularly pleased with that one. Last time I presented to you, I showed you a slide a bit like this one, talking about the digital and social media capabilities of the Primark team.

It is such an important part of our marketing mix now. I wanted to focus on it once more.

I think last time I stood up, we had 8 million followers. We now got 9.5 million followers.

They're growing by about 100,000 a month. They're across all geographies, all languages, so 10 different markets.

And 60% of all digital visits to primark.com now come from a mobile device. That again is well up.

We did anticipate it and prepared for it. When people get on to primark.com, they're spending -- they're visiting 10% more content than they were six months ago.

And we're using a lot more video as part of the marketing mix online, both on primark.com, but you can also access it through the other social media routes in. And let me give you an example of what we're doing, because I think it gives you a flavor of just how commercially focused these videos are.

So let me give you one on that is connected with the beauty ranges in store. Beauty, we know, drives footfall, and our task is to use social media to get people into stores.

Again, let me give you another example of how we're doing this. The Chip mug has been an item of some renown or notoriety, depending on which way you look at it.

This image was the most liked Primark Instagram image in our history. The Chip mug didn't last very long on shelf.

It is back in May, and then I think there's another batch arriving with other ranges, including purses and all sorts of other things in July. But this is then what we did with it.

We told people where they could find it. Again, it is all about driving people into store, and I think we get better and better at doing exactly that.

Okay, selling space expansion then. We've added in the first half, the 4th of March, 800,000 square feet, 12% weighted average increase in the portfolio, 16 new stores in 8 of the 10 countries.

It includes a flagship in Amsterdam. And it also includes the extension of Oxford Street East, which is now up to, I think, 112,000 square feet and is a really magnificent store.

Here is Damrak, the flagship in the center of Amsterdam. It's a wonderful, wonderful store.

And the landlord refurbished the aisle next to it for our opening and that looks quite remarkable. Oxford Street East is an increasingly important store for us.

We've now got over 200,000 square feet of selling space in Oxford Street, with another large store at the other end of Oxford Street and we're getting closer to the day when Crossrail opens in Tottenham Court Road. We think we'll give a further boost to that end of Oxford Street.

So the 300,000 square feet, then we've added a big one. So this is where the store's increase has been year-on-year across the piece.

All countries, now up to 329 stores and 1.5 million square feet since this time last year. Since the half year ended, we've opened in, Charleroi, Grenada, Staten Island, Uxbridge, another store in the Netherlands and then the extension of Downtown Crossing.

And just to reiterate, we expect not 1.3 million, but 1.5 million square feet to be opened this year. Okay.

If I could summarize the group, really good progress and right across the group and flattered as well by the benefits of currency translation. Primark's had a very good half year, particularly in the U.K., and the rollout across Continental Europe continues at pace.

[Step change] in Sugar, good performance across almost all the rest of the business, Grocery and Ingredients, with margin increases, profit increases and then this very strong cash flow. We expect the underlying revenue momentum to continue into the second half.

As John has explained, the second half rate of profit growth will be lower than the first, but our expectation for the full year has improved and that we now expect to see good growth in adjusted earnings per share. So thank you very much, indeed.

Okay, great. So we can take some questions.

Should we start with Warwick Okines?

It's Warwick Okines from Deutsche Bank. Just wondering if we could start with Germany and Primark there, which I think it's been one of the more challenging markets.

Do you think you've been losing market share? And what's the strategy over the next couple of years?

I don't think we've been losing market share. I think we've been increasing it.

We have lost some same-store sales to two things really. The first one is obviously cannibalization, and that's just inevitable.

It's happened in all our markets. And then I think there has been some reduction in footfall on some German high streets.

And I think it's a response to terrorism and very large levels of immigration. So we're not without our challenges in Germany, which I think we're on top of them and the market is still growing.

And the average sales densities in Germany, I remind you, is still well ahead of the group average. So still a really good business for us.

And secondly, could I ask about, more generally, margin protection, let's say, in the second half of the year? Are you finding any areas of mitigation in the supply chain on top of the markdown reduction that you've been aiming at to try and limit that margin decline?

Yes. We've done some very good work making sure the store costs are properly under control.

That's the largest area of discretionary spend, is essentially labor in store, our scheduling. We've done good work there.

We will begin to see the benefits -- some of the benefits of the -- going back into the supply chain into the increase in the number and location of depots. So we've now got the Czech depot open.

We've got Roosendaal in Holland open. So mileages, distribution mileages are coming down, too.

And then we keep a very tight control, I think as we always have, but with renewed emphasis on head office costs, both in Reading and in Dublin.

Okay. Shall we go with Richard Chamberlain in the front?

Richard Chamberlain, RBC. Yes, a couple more on Primark, please.

I wonder if you can just say where the increase in space guidance has come from? Which stores are opening this year?

It sounds like a few are opening a bit earlier than expected.

We have a list.

In September.

Yes, we do have a list there, Richard, yes. So it really is stores that we were expecting to open probably in September or October really coming just a little earlier.

And actually, the range is Italy, so Verona in Italy; another one in Holland; and we've got a few in the U.K. as well.

And just a question of the US I mean, it sounds -- I think you said that the latest one in Staten Island's trading very, very well, and I just wanted to -- I haven't had a chance to see it yet. But I just wondered why you think that is.

Is that a particularly good location? Or are you starting to learn from the earlier openings and you found the right sort of format now and you're adjusting the format more for the local market?

I think it's elements of both. It is a very good location.

It's a very high footfall location, number one; and number two, yes, the ranges are getting more and more appropriate and better timed. Last -- in our first year, we probably -- there was probably as much harm done inevitably by selling out of the top sellers early, not having enough of them and then too much of stuff that didn't sell, and I think we've corrected a lot of that this year.

Okay. Next one, Jeremy Fialko here.

Jeremy Fialko at Redburn. So a couple of non-Primark questions, first one on Sugar and sort of 2017, '18 and onwards.

Perhaps you could just elaborate a little bit more about what you're seeing as the sort of quotas come off in terms of your production and pricing. Then the second thing is on your Enzymes business, which is something you have singled out this time.

Can you talk about, first of all, how big it is? And what the main -- a bit more detail on how it's grown so successfully and what your main priorities are for that business?

Right. So sugar pricing, we are at the very, very early stages of the next negotiating round.

I think one of the characteristics of the future is this, the set piece -- looking forward the set piece negotiating round will become a much more fluid sort of a thing. I think some contracts will get longer, some will get shorter.

I think we're dominated still by the reality that there's not a lot of sugar around in Europe at the moment and it will be a while until there is, and also by the fact that the world market is underpinning prices to some extent as well. One hears and sees various statements about increases in acreage.

A lot of the increases just all of us getting back to where we were before we cut our acreages after the year of surplus. I think there will be some more acreage in France, but I'm not sure that there will be a lot more elsewhere, at least in the short run.

So I think some of the comments about Europe being awash with sugar are slightly overstated. We, for example, yes, we got -- we're up by 30%, but only back to where we were.

And then the Enzymes?

And then the Enzyme business. Enzymes are used in many different markets.

We have a particular strength in animal feed and in phytase in particular. We've also got very relevant products in bakery, wine and fruit juice, essentially clarification.

Pulp and paper production and textile isn't so important for us anymore, but detergent is. So very widespread business.

The market is growing. We do think we have the best phytase enzymes available.

And we've got a very nice, well-resourced, well-led business that provides some welcome alternatives to the very big guys.

I think behind your question is, obviously, it's a, I think it's a very high-quality business, and the profit is obviously high margins. So the profit resides in both AB Agri and also in the Ingredients segment.

I will give you a feel. If you combine the profit for the 2, then the profit, the combination is well over 40 million on an annual basis.

So it's a very profitable business for us and has grown significantly over the years. So it's worth highlighting, as I think, because sometimes you can get lost in it.

Fenton, right, just on over there.

I was wondering if you could elaborate a bit more on the sports nutrition acquisitions that you've done within the Grocery business in the first half, and is this part of a broader strategy to move into sports nutrition? And could we expect to see further acquisitions as you build out this business?

Sure. We liked the fact that it's specialized.

There's both science in it and marketing. We like the fact that the sector is growing.

We like the fact that the sector is still, to some extent, nascent. There's still a lot of players in it.

We are going to combine those 2 businesses to begin with, try to offer the management teams, some of which come from us and some of which are still coming from those 2 businesses, technical support, marketing know-how, routes to market support, but keep their credibility in the sectors. High5 in particular in rehydration is a well-respected product in endurance athletics, running, cross-country, skiing, bicycling, and we don't want to lose reputation that they have built up over a number of years.

As to whether we can make further acquisitions, too early to tell.

And just as a follow-on, given that the margins have continued to deteriorate in the Allied Bakeries business, is this something that could be put under review in the foreseeable future?

We have to improve it. We have to improve it, and we'll work to do that.

Great. Take Geoff at the front.

Geoff Ruddell, Morgan Stanley. Just the one question, please, on Primark, which is, should we be seeing its profits this year as rather its margins this year as temporarily depressed?

I mean, I'm sure you're not ready to give us guidance for next year, but on a 3- or 4-year view, should we be going back to the traditional sort of 11%, 12% EBIT margin? Or is now 9.5%, 10% the new normal?

The margin moves around a lot over a number of years, and we don't target it. So it's combining that fact, it's the consequence of everything else we do rather than the goal.

With what you say, we don't want to give guidance with all the uncertainties that's still -- there are still about next year. Leaves me to want to say nothing, really, about the longer term, it is, I share your observation, that it's the lower end of where we've been, but...

Should we view there as sort of having been any kind of structural change, I guess?

No, I don't think so. I think that the -- I think there are a number of powerful headwinds in retail.

The continued movement of some of that market online is one of the headwinds. The currency adjustment and the difficulty in a very fragmented market to get prices for people -- for prices to rise is another headwind, but who knows where currencies are going.

And there's also been a quite marked trend in women's fashion away from clothing into other things. Women's fashion has declined quite strikingly.

Now whether that is a long-term trend or just the absence of powerful motivators in the sector, I think it's hard to tell.

Should we go up front to Simon?

Simon Irwin at Crédit Suisse. Just two questions for you.

Just within the overall comments around cost mitigation and through Primark, can you just talk particularly about transport costs and just how significant they are and what the trend is going on there? And then can you also talk a little bit more about Italy and France in terms of the availability of space and your expansion plans in those two markets?

I think on those two, they are very good markets for us and space availability is quite limited. So I think we'll expand there gradually as space becomes available.

We won't chase it. We won't chase locations that in the long run we wouldn't want to be in.

But I think the expansion will be gradual as a consequence of the difficulty of finding appropriate space with both those two markets. Freight costs, I would expect to rise over time.

They've been very, very depressed. Just as a bit of useful -- useless information, we had a lot of containers on Hanjin around about Christmas.

We got them all back in time for their appropriate season. But there were some dramatic moments through some of that.

Freight costs are low at the moment, and I think we will see, over a couple year period, freight raises, freight rates.

Yes, freight costs.

Yes, going back to more normal levels.

But I don't think it's something that's going to have a massive effect on the margin, Simon. And then the other thing that George, I think, mentioned earlier is, obviously, it isn't just the freights coming into the port, but then it's obviously the distribution costs actually in market.

And as he said, they're opening a couple of those other warehouses just to make sure that those distribution costs are kept very much under control.

And how much should we think about as freight costs? Is it mid-single-digit percentage of overall cost?

I'd really not go there in terms of giving you a percentage. You won't be surprised.

It was a good try though. Yes, Andy Hughes?

Yes, Andy Hughes from UBS. Just on the assumption that your hedge rates at Primark are quite a lot worse in the second half than the first half, why is it that we're not seeing a more marked split between the H1 and the H2 margin at Primark?

You're down 170 in the first half and 200 for the year. You're not seeing that much of a deterioration into the second half.

I think what you are seeing in the second half is a greater impact from the mitigation from suppliers. And so, and if you think about it, it takes time to sort of get going on that, so we're seeing that.

So I think for me, that also is at least encouraging in terms of the positive for next year. So just to be clear, we're not giving any guidance overall on Primark margins for next year, but we know we've got the flow-through effect and to a smaller extent of currency.

But actually, we'll probably have a bigger effect of mitigation coming through. So it's the mitigation really from suppliers, that's the bigger point.

It's still not based on any price increases in the second half?

There is, the margin guidance here does not assume price increases in the second half.

And your comments, just one other thing on markdown, you said markdowns would be lower year-on-year. Was that in your guidance at the start of the year, or is it...

It's actually marginally, that is marginally better as well, which is a help. So I think just given where the market is, I think it's important that we do call it out.

I think Primark has done really a very, very good job in terms of its management of stock, and so we don't have a markdown problem. If anything, it's marginally positive for us.

One last one on the U.S., given that we're in the midst of a spate of department store closures. Do you see that as a sort of positive or a negative?

Because I presume trying to second-guess where to put stores, you don't want to put a store where there might be a raft of closures?

It's a very good point. What looked like good malls 2 years ago may not look like good malls in the future.

And we do want clusters of great retailers around us all working to draw consumers, and that's what a mall is. I think, as we've said from the start, we have to maintain our discipline, because space availability in the States has never been an issue.

It's, that's not the game we're in. We're trying to get an offer that works profitably for us and then we can roll it out much more easily than we would be able to in Italy or France, for example.

I see another question, I think, on the left. Yes, Georgie, Georgie, yes?

It's Georgina Johanan from JPMorgan. Just two quick ones for me, please.

And first of all, just to be absolutely clear, and I appreciate you're not giving guidance, but for fiscal '18 on the margin, where you talk about a bigger effect from mitigation, you mean a bigger mitigation effect year-on-year? You don't mean that actually the margin should be up year-on-year based on your current view of mitigation and FX hedging?

That's right. I mean, there two things that roll into next year: the full year effect of currency changes and the full year effect of mitigation.

Great, thank you. And then, secondly, just online, sorry to ask about that.

But you've kind of -- it feels to me like you've been increasingly talking about your digital strategy in terms of marketing and so on. So if you could just give us an update on your thinking on online.

Would you sort of consider doing any trials again with perhaps a third-party platform or anything like that? Any comments will be great, please.

We haven't got any plans to trade online. Okay.

I need to find a -- yes, Charles? Charles Pick.

Charles Pick of Numis. Three questions, please.

With Illovo's year-end, you've given the profit impact. Can you give a rough point to the sales, please, what that 16% at constant FX growth rate might have been but for that year-end change?

A second one is, I think you've talked in the past about Primark buying more garments in non-dollar currencies. You've mentioned, for example, the Turkish lira.

What sort of percentage of its garments is it now buying in non-dollar currencies? And finally, on the space expansion at Primark, you've given a rough benchmark of about 10% per annum in the past.

With the extra square footage that you're bringing on-stream this year, will that 10% for next year be impaired to any extent?

Let's take the last one first. I think 10% is still fine for next year, okay?

So I'm not -- there was a bit of pull forward, but I still think that even from the larger estate, Charles, I think 10% is a good number even though we've outperformed that for this year. Non-dollar, I don't think I've got an exact number, but I would say maybe about a quarter is non-dollar purchases for Primark.

And then the Illovo revenue, I'm going to be honest, I don't know the answer to that one, but it's -- we'll get back to you. It's probably a couple of percent or something like that.

Okay. And just one final one.

Any CapEx guidance pointers for the full year?

I think around the high 700 to 800. Alex at the front.

Alex Smith from Barclays. Where are we in sales densities in the US?

It's kind of gone a little bit quiet. Are we still sort of in line with the group average?

Yes, pretty well.

I think pretty much so. A bit early in the year to tell, and it is a law of small numbers.

We think Staten Island, a month in, could be quite high, but we've got a couple which are below average. So it's just -- I think group average isn't a bad place to be.

Should we think of Staten Island as a bit like Boston? And is King of Prussia still holding that average?

Yes, King of Prussia's still holding that average.

And do you want to talk about Spain? I guess it's one big market you haven't spoken about.

Feels like like-for-likes have slowed a little bit in the last year or so. Are they still positive?

It's -- they are still positive, yes, small positive, yes, absolute. And that's lapping from high positive from the year before.

It's worth mentioning Portugal is also nicely positive. It's a smaller market, but a good market for us.

A reminder of the scale of Spain. Sales will exceed €1 billion this year.

Still more space to go for?

A lot of space still to go for, absolutely. And you'll look at some of the store openings in Spain and, but they really are incredibly crowded, so they're very, very popular.

Grenada being the most recent one.

Yes. Right, absolutely.

Great. Any more questions?

Okay. Thank you very much indeed.

Thank you very much. Thank you.