Primark-owner ABF to repay £121m in furlough money as profits dive

Saleha Riaz
·4-min read
People queue outside a shop on the rue Neuve, in Brussels on December 1, 2020 as shops selling non-essentials goods are allowed to reopen under strict conditions amidst the new coronavirus pandemic.
The economic effects of the measures taken by governments to restrict the pandemic were evident in the financial results, the company said.

Primark owner Associated British Foods (ABF.L) said it will return the money it borrowed from governments to put its staff on furlough, as it remains positive about its outlook now that lockdown restrictions are lifting. 

Despite this, recent figures show its profit and revenue for the first half of its financial year slumped.

“The economic effects of the measures taken by governments to restrict the pandemic were evident in the financial results for our last financial year and in the results for this financial half year,” said chairman Michael McLintock.

Shares in the company fell roughly 3% on Tuesday morning extending losses in the afternoon to trade 4.2% lower. 

ABF stock slumped on Tuesday morning. Chart: Yahoo Finance UK
ABF stock slumped on Tuesday morning. Chart: Yahoo Finance UK

The group’s revenue fell 17% to £6.3bn ($8.8bn) and operating profit was down 8% to £320m.

Adjusted operating profit was 46% lower, at £369m, because of the majority of Primark stores around the world closed for a big chunk of the period.

CEO George Weston said: “With most of the Primark stores closed for more than half the period, the management team demonstrated operational agility in response to the measures employed by governments to tackle the pandemic.”

“Looking ahead, with stores reopening and Primark once again becoming cash generative, our confidence is reflected in our decisions to repay the job retention scheme monies in respect of this financial year and to declare an interim dividend,” he added.

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Queues in England and Wales to get into the discount store as stores opened on 12 April have reportedly been very long.

"Human pythons are once again snaking around its huge stores, as loyal customers queue up to get their hands on styles drip-fed to them on social media over recent weeks," said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

"It’s a repeat of the release of pent-up demand witnessed following the easing of restrictions during lockdowns 1 and 2 and why Primark has been so bullish despite the hole in its revenues caused by the closures," she added.

Meanwhile, revenue in ABF's grocery, sugar, agriculture and ingredients units was ahead of the first half last year at constant currency.

Adjusted operating profit in each of these food businesses was well ahead of both expectations and last year, and in aggregate was 30% up on last year.

The group's net cash before lease liabilities was £705m, compared to £801m at the same time last year.

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"The cash outflow as a result of the periods for which Primark's stores were closed over the last year has been substantially offset by higher cash generation by our food businesses, targeted cost control initiatives and the non-payment of dividends for our last financial year," it said.

ABF will repay the £121m it borrowed from governments, including £72m from the UK government, for its furlough scheme and does not plan to make any further claims.

“Although uncertainty remains, a large proportion of the UK adult population has now been vaccinated and last week we saw the successful reopening of Primark's English and Welsh stores which represent some 40% of our total retail selling space. On the assumption that our English and Welsh stores remain open, Primark will return to cash generation," the company said.

But Street said "social distancing requirements in stores and the continued closure of shops in some markets are still likely to be a drag on sales. The continued suspension of international travel and office working is likely to hit revenues at large city centre stores, reliant on spending by tourists and lunch time splurges by workers."

Meanwhile, ABF's board has declared an interim dividend of 6.2 pence per share, totalling £49m. This will be paid on 9 July to shareholders.

Looking forward, the company expects the profit for Primark to be somewhat lower than last year as the repayment of the job retention scheme cash will be treated as an expense in adjusted operating profit in the full year.

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