AB Foods profits slump 40% as Covid-19 hits Primark

(Sharecast News) - Full-year profits at Associated British Foods fell by 40% as store closures at its Primark clothing chain due to the coronavirus pandemic offset better performances at its sugar and food ingredients units.
The conglomerate, which produces, Twinings tea, Silver Spoon sugar and Allinson flour, on Tuesday reported pre-tax profits of £810m compared with £1.2bn a year ago on a 12% fall in revenue of £13.9bn. No dividend was declared.

Profits at Primark slumped to £362m from £969m as the Covid-19 lockdown in March forced the closure of all its stores. Adjusted operating profits at the company's grocery, sugar, agriculture and ingredients units rose 26%, with each segment growing profits.

"So far COVID-19 has cost the group some £2bn of sales, £650m in lost profit and a cash outflow of £800m," ABF said. The company does have an online presence.

The company on Monday estimated the temporary closure of its Primark clothing stores in European markets due to new Covid-19 restrictions would cost £375m in lost sales with at least 19% of its European retail space closed and the UK set to enter a second lockdown on Thursday expected to lift this to 57%.

However, the company said it expected Primark full-year sales and profit in the next fiscal year to be higher than 2019-2020. First-half sales were expected to be lower before improving in the second half.

It said sugar was expected to deliver a higher profit in 2020-21 with improvements in Europe and in the performance of its Illovo operation in Africa.

AJ Bell investment director Russ Mould said the results were "somewhat irrelevant given the new restrictive backdrop" and the company would now have to play a waiting game and hope the current lockdown conditions ease by early December "so it can shift all the Christmas-themed products currently sitting on the shelves".

"Retailers are highly dependent on the last few months of the year to sell products and those like Primark with no internet presence are going to be left out in the cold. It all comes down to the ability to survive a bleak winter and ABF seems confident it has the financial resources to come out the other side intact," he said.

Richard Hunter at interactive investor also said the company's lack of an online offering would hinder progress in the face of the new lockdown, but a diversified business model would pick up some of the slack, meaning prospects "are brighter than they have been for some considerable months".

"As such, the market consensus of the shares as a 'buy' will likely remain intact," he said.