AB Foods Regulatory News (ABF)

For release 21 April 2020

Associated British Foods plc

Interim Results Announcement

24 weeks ended 29 February 2020

a personal message from the chief executive

Today, Associated British Foods is announcing its financial results for the first half. However, before we turn to the details of those results, I'd like to set out some personal reflections on how our group is responding to this unprecedented pandemic.

Two of our employees, Mario Marioli who worked for forty years in our Italian yeast plant, and Claudio Maini who worked at Acetum for twenty years, have lost their lives to COVID-19 in the last three weeks, and we have another employee currently in intensive care in the USA. One of our ABF head office colleagues lost her partner to the disease last week. Many of us have vulnerable relatives and friends we must protect and I am sure we all know people working under huge stress in the NHS and in health and care services around the world.

Much as I would love to be allowed to reopen Primark stores across the UK, Continental Europe and the USA soon, because lockdown has so harmed our business and our supply chains, I know that we must not do so until we have suppressed this disease. And when we are allowed to reopen we must make our Primark stores safe for our staff and our customers, even if that means ensuring there are fewer people shopping at any one time and so accepting lower sales at least until the remaining risk is minimal. In time we can rebuild the profits. We can't replace the people we lose.

ABF has been squarely in the path of this pandemic. At Primark we have 68,000 of our people receiving furlough payments from governments across Europe, without which we would have been forced to make most redundant. From making sales of £650m each month, since the last of our stores closed on 22 March, we have sold nothing. One of the world's great clothing retailers is entirely shut. We have paid for in full, and taken delivery of, very large amounts of completed stock which we can't sell for now and we have established a fund that will ensure everyone in a vulnerable country who worked on a Primark garment, whether completed or not, is paid for that work. And we are supporting suppliers with commitments to buy garments that are as yet unfinished. But not until shops reopen and we can place new orders, will the economic hardship that COVID-19 has caused to all those in our supply chain begin to reduce.

I am in awe of the Primark teams for their care, good judgement and immense hard work as they have managed this crisis.

Our food businesses, and in particular our food factories and depots and drivers, have equally been put under intense pressure since this pandemic began, but in very different ways. ABF businesses produce more food in the UK than any other organisation and we are significant producers of food in other countries too. It has been essential that they all keep fully running. Indeed, during the weeks of panic buying, they had to produce more than ever before. They have had to do so whilst reconfiguring factory layouts to ensure safe working for our staff, whilst suffering inevitably from higher than normal absence and whilst often being isolated from outside sources of technical support. The willingness of thousands of our people to come to work whilst so many of the rest of us sit this disease out safely at home has been humbling; and the ingenuity, hard work and leadership of dozens and dozens of frontline managers has been amazing. Our factories are full of people who know how vital their work is and who are skilled and committed. Our success in keeping the nation fed is testament to the robustness of the modern food chain; it is also testament to the reality that you don't need to tell most people how to behave well, you just need to allow them to do so; and it is the finest thing I have seen in a career in business.

George Weston

Chief Executive

Associated British Foods plc results for the 24 weeks ended 29 February 2020

Encouraging first half results

Resourced to respond to the challenges of COVID-19

Financial headlines

Statutory operating profit is stated after exceptional charges of £309m. We have carefully reviewed the inventory on hand at Primark and, to reflect an expected lower net realisable value on some inventory when our stores reopen, this charge includes a £284m provision.

George Weston, Chief Executive of Associated British Foods, said:

"The group delivered an encouraging trading performance in the first half. The rapid spread of COVID-19 has impacted all of our lives and the human tragedy that continues to unfold has shocked and saddened us all. We are a strong, diversified and resilient group. Our people are working hard to maintain supply from our food businesses. Primark is managing through an extraordinarily challenging period after all of its stores closed in March and our management response to mitigate the cash outflows was swift and proportionate. Although uncertainty remains, we have the people and the cash resources to meet the challenges ahead."

Adjusted operating profit is stated before the amortisation of non-operating intangibles, profits less losses on disposal of non-current assets, transaction costs, amortisation of acquired inventory fair value adjustments and exceptional items. These items, together with profits less losses on the sale and closure of businesses, are excluded from adjusted profit before tax and adjusted earnings per share. References to operating profit in the Operating Review are based on this adjusted operating profit measure.

The 2019 results have been provided on an IFRS 16 pro forma basis in addition to the results previously reported under IAS 17 in order to provide a better understanding of comparison between the 2020 results and the 2019 results. These IFRS 16 pro forma figures have been prepared using the same data and assumptions as those used for the transition adjustment.

Constant currency figures are derived by translating the 2019 results on an IFRS 16 pro forma basis at 2020 average exchange rates, except for Argentina and Venezuela where consumer price inflation has escalated to extreme levels, in which case actual exchange rates are used.

For further information please contact:

Until 15.00 only

Associated British Foods:

John Bason, Finance Director

Catherine Hicks, Corporate Affairs Director

Tel: 020 7638 9571

Citigate Dewe Rogerson:

Tel: 020 7638 9571

Chris Barrie Tel: 07968 727289

Jos Bieneman Tel: 07834 336650

Elizabeth Kittle Tel: 07720 498455

After 15.00

John Bason, Finance DirectorCatherine Hicks, Corporate Affairs Director

Tel: 020 7399 6545

Interim Results Announcement

For the 24 weeks ended 29 February 2020

CHAIRMAN'S STATEMENT

The rapid spread of COVID-19 has impacted all of our lives in ways we could not have imagined just a few weeks ago. The human tragedy that continues to unfold has shocked and saddened us all. It has affected every facet of life. The restrictions on the movement of people and trading activity applied by most governments to contain the spread of the virus have had an immediate and severe effect on economic activity.

The most significant challenges we are facing are maintaining the production of essential food and food ingredients and the cash flow impact arising from the closure of all Primark stores in March until further notice. The operational challenges faced by our food businesses, and our responses to these, and the management actions taken to mitigate the consequential and significant profit and cash flow impacts arising from the loss of Primark sales are set out in the Operating Review. There was very little effect of COVID-19 on our underlying first half results but trading in our second half will be radically different.

Turning then to the first half results, this is the first period in which we report following our adoption of IFRS 16 Leases using the modified retrospective approach. This does not permit us to restate comparatives but, to provide a better understanding of the underlying performance of the businesses, comparatives in the Operating Review are on a pro forma, lease-adjusted basis.

Revenue for the group of £7.6bn was 2% ahead of last year at actual exchange rates and 3% ahead at constant currency. Adjusted profit before tax of £636m was 1% ahead of last year at actual exchange rates. Adjusted operating profit of £682m was 7% ahead of last year at actual exchange rates and benefited by £28m as a result of the adoption of IFRS 16. Net finance expense increased by £32m and included lease interest for the first time which more than offset the decrease in interest on reduced debt. Adjusted earnings per share increased by 1%.

The statutory operating profit for the period reduced by 35% to £349m as a result of exceptional items of £309m charged in this half year compared to £79m in the same period last year. Following the closure of its stores the level of inventory at Primark increased significantly as sales ceased immediately and the inbound supply chain continued for several weeks with goods in transit. An assessment of the carrying value of this inventory has resulted in an exceptional charge of £284m. Our Speedibake Wakefield factory was destroyed by fire on 1 February. Following an evaluation of replacement options we have regretfully announced that this factory will be closed and this has led to an exceptional charge of £25m. As a consequence statutory profit before tax decreased by 42% to £298m and basic earnings per share decreased by 44% to 27.5 pence.

We were pleased with much better underlying trading at Primark. Performance in the Eurozone was particularly encouraging, with increased like-for-like sales in France and Italy and an improved like-for-like sales trend in Northern Europe. We increased our market share, measured by value, in a weak UK market. The operating profit margin decline was much less than originally expected given the adverse effect of the stronger US dollar on purchases this half year compared to last year. This was achieved with lower cost of materials, another strong performance from our buying teams, improved sourcing and tight stock management.

AB Sugar saw the initial benefits from increased EU sugar prices and delivery of further cost reduction. Our European sugar prices are contracted for the remainder of this financial year which underpin our expected material improvement in Sugar profit for the full year. The progress of our Grocery businesses continued, with an increase of 13% in reported adjusted operating profit and much higher margins.

Net cash flow improved compared to the corresponding period last year driven by the higher adjusted operating profit and lower capital expenditure in our food businesses following the completion of a number of major projects last year. The usual, seasonal working capital outflow in the first half was consistent with last year. The net cash balance for the group, before lease liabilities, was £801m. This compared to net cash of £386m at this time last year and net cash of £936m at the end of the last financial year. Including lease liabilities of £3,552m, net debt at the half year was £2,751m.

Over the years, prudent financial management has been a cornerstone for the group and is demonstrated by the strong balance sheet at the half year. This has positioned us well as we have developed our response to the cash flow challenges resulting from the effects of COVID-19.

COVID-19

The board recognises that a group of our scale and significance has responsibilities to many stakeholders. We intend to meet those responsibilities as fully as we can in the months ahead.

Our food businesses have continued to operate fully, providing safe, nutritious, affordable food to customers, and have in recent weeks seen a significant increase in demand.

The rapid closure of Primark stores has presented a major challenge to the group to manage and mitigate the profit and cash flow impacts arising from the loss of sales. The Operating Review sets out the detailed actions taken by management and, at the same time, we have taken steps to confirm the availability of existing, and to agree new, borrowing facilities.

There is substantial financial headroom between our cash flow forecast and the cash available to the group over the next year. At the half year, the group had net cash of £801m and had an undrawn, committed revolving credit facility (RCF) of £1,088m. As a precaution to avoid any possible illiquidity in the banking market, funds were drawn down in full on the RCF on 18 March 2020. We saw no need to seek a waiver for the covenant test for September 2020 but it was considered prudent to seek a waiver for February 2021, which was confirmed on 8 April 2020. The group's headroom was increased further following the confirmation by the Bank of England of our eligibility to access funding under its Covid Corporate Financing Facility on 15 April 2020. As at the date of these interim results, the group has available central cash on hand of £1.5bn.

Our assessment of going concern shows that, even though this is a time of unprecedented uncertainty, the group has ample cash liquidity to deal with the likely challenges in the year ahead.

I'd like to pay tribute on behalf of the board to every one of our employees for their hard work and determination in these exceptionally difficult times. So many have gone beyond the ordinary call of duty. I am proud of the many examples of the contribution of our employees to support local communities at a time of such need.

The board is acutely aware that many of our employees will see their livelihoods affected by COVID-19. With this in mind, the board has accepted the proposal by the executive directors to reduce their base pay temporarily by 50% and that no bonuses relating to the current financial year will be paid to them. In addition, the non-executive directors of the board, including myself as chairman, have decided that their fees should be reduced temporarily by 25%. These steps are appropriate given our expectation that full year earnings for the group will now be much lower than we anticipated at the start of the financial year.

Dividends

The board has decided not to declare an interim dividend. The directors consider that this is prudent given the focus on managing the group's cash outflow in the second half of this financial year.

We will consider the declaration of a dividend at the year end in the light of trading for the full financial year and the financial circumstances at that time.

Outlook

Our expectation for the aggregate operating result for our Sugar, Grocery, Ingredients and Agriculture businesses in the second half is unchanged.

We have good visibility that we will be able to mitigate half of the operating costs of the Primark business while the stores remain closed. The timing of the reopening of the stores however remains uncertain; moreover, the process of reopening, once it begins, is likely to be complex. As a result, it is too early to provide earnings guidance for the remainder of the current financial year.

I am confident that, with our strong management team and the financial resources at our disposal, your company will emerge from the difficulties of this period well positioned to return to growth.

Michael McLintock

Chairman

Operating review

COVID-19

Our management focus since the half year has been to tackle the immediate operational challenges which have resulted from the spread of COVID-19.

Our top priority has been to protect the health and safety of our employees by implementing social distancing, providing personal protective equipment and sharing experiences. To support seamless home-working, we have modified our IT infrastructure, increased bandwidth with our telecommunications partners, and made extensive use of collaboration software.

Our food businesses have continued production at all facilities, maintaining their essential output to support the food, animal feed and pharmaceutical supply chains. This has been and remains a key priority for us.

Our group's ethos is to take its responsibilities to its local communities very seriously, and our employees have in many ways made tangible differences on the ground. Primark is donating to staff at London's Nightingale Hospital and other hospitals across Europe so they have fresh clothing available at the end of long shifts. AB Sugar in Africa is preparing and equipping each of its medical facilities on our sugar estates. In Asia we have established a fund in more vulnerable countries to support textile workers who have been affected by the cancellation of Primark orders. We are also working with other clothing retailers to seek help for our suppliers from their governments.

Over a very short period in March, all of the Primark stores closed. We took immediate action across the group to stop non-essential capital and discretionary operating expenditure. At Primark, payment was agreed for the £0.6bn of stock in transit. As a result, in the period up to the date of this announcement, inventory has now reached £1.5bn. With no sales in its stores and with this level of inventory, it was essential to prevent further cash outflows. We have committed to take all product that was both in production and finished, and planned for handover by 17 April. Future orders were cancelled until further notice. We have carefully reviewed stock on hand and, to reflect an expected lower net realisable value on some of this inventory when our stores reopen, we have made a £284m provision.

In each European country where Primark operates it intends to access each government programme for funds designed to provide income for those employees no longer working and to preserve their continued employment. We are also seeking discussions with other counterparties in Primark, in particular landlords, to seek help with our lease payments. We welcome the relief from business rates for the coming year announced by the UK government. As a result of all these cost mitigation measures, we currently estimate being able to recover some 50% of Primark's total operating costs, leaving us with a monthly cash outflow of some £100m, while the stores remain closed.

We have taken steps to confirm the availability of existing, and to agree new, borrowing facilities and we are confident that we have the financial resources to meet the challenges ahead.

Review of the first half

We are encouraged by our performance in the first half. Group revenue of £7.6bn was 3% ahead of the same period last year at constant currency. Adjusted operating profit of £682m was 3% ahead on an IFRS 16 pro forma basis at constant currency. Grocery achieved excellent profit and margin growth, Sugar is on track to deliver a material improvement in profit for the full year and Primark profit was ahead of our expectations. The average exchange rate for sterling against our major trading currencies, other than the US dollar, was stronger in the first half than in the comparable period last financial year leading to a loss on translation in these results of £6m.

Primark performed well. We achieved further market share growth, measured by value, in the UK, with a good contribution from the selling space added over the last year. Underlying performance improved in the Eurozone, including in Germany where it was pleasing to see the initial benefits of the actions taken by our new management team there. Our buying teams delivered an outstanding performance and, combined with lower raw material prices, substantially mitigated the adverse effect of currency on our buying margin.

In AB Sugar, our European businesses benefited from the substantial increase in EU sugar prices, all businesses continued to reduce their cost base and our business in China benefited from an improvement in sugar yield. This was another period of excellent profit and margin growth in Grocery. ACH in the US performed strongly. Twinings Ovaltine launched a wide range of new products in many of its markets and benefited from last year's investment in supply chain simplification. Further significant cost reductions were implemented in Allied Bakeries following its loss of own label volume. Profit at AB Agri improved with strong sales of feed enzymes in international markets. In Ingredients, AB Mauri traded well in the first half driven by its performance in North America and China, although profit was held back in ABF Ingredients by increased competition.

Sales and profit growth commentary in this Operating Review are based on 2019 comparatives on an IFRS 16 pro forma basis and are stated at constant currency. Constant currency figures are derived by translating the 2019 results at 2020 average exchange rates, except for Argentina and Venezuela where consumer price inflation has escalated to extreme levels, in which case actual exchange rates are used.

Note 1 shows the results by segment on a reported basis. The table below shows comparative adjusted operating profit on an IFRS 16 pro forma basis. Revenue is not affected by the implementation of IFRS 16.

Grocery

Revenue in the first half was in line with last year at constant currency. Higher sales at George Weston Foods in Australia, AB World Foods and Silver Spoon offset the expected sales decline at Allied Bakeries and a slow start in Thailand for Twinings Ovaltine.

Operating profit was 12% ahead at constant currency driven by further margin improvement. Margins improved in ACH, Twinings Ovaltine which included a £12m one-time cost for the closure of the tea factory in China last year, and operating losses were reduced at Allied Bakeries.

Twinings revenues were ahead of last year, driven by growth in black teas, excellent sales of herbal teas and new ranges of infusions in the US, UK and France. Ovaltine revenues were held back by a slow start in Thailand, partially offset by foodservice distribution gains in China and new products in Brazil and Switzerland.

AB World Foods achieved good sales growth driven by strong sales for Blue Dragon in the UK and increased Patak's sales in Europe and North America. The business also acquired Al'Fez, a fast-growing Middle Eastern food brand with sales in the UK and Europe. Silver Spoon increased revenues with improved sugar pricing and the launch of a range of flavoured inclusions for home bread making under the Allinson's brand.

Further significant cost reductions were implemented by Allied Bakeries in the first half to mitigate the contribution shortfall from lower own label bread volumes. In February, our Speedibake Wakefield factory was destroyed by fire and, following a review of options, we have announced that the factory will permanently close and some products will transfer to the Bradford site. This resulted in an exceptional charge of £25m in the first half. We have comprehensive insurance and have made significant progress with our insurers regarding receipt of compensation for the entire effects of the fire.

Acetum performed well in the period, with increased sales in Italy, the UK and France and margins ahead of last year. ACH delivered further market share gains through higher US sales of Mazola corn oil. We benefited from the first contribution from Anthony's Goods, the California-based online speciality baking ingredients business acquired in September 2019, which continued to deliver strong sales growth.

Revenue continued to increase at George Weston Foods in Australia. Tip Top achieved sales growth in packaged bread and broadened its Thins range with new burger and sourdough products. The Don meat business benefited from a successful back-to-school advertising campaign, while Yumi's continued to grow strongly with particularly good trading over Christmas.

Sugar

AB Sugar revenue was 8% ahead of last year in the first half due to higher EU sugar prices and increased export sales at Illovo more than offsetting a decline in sales volumes in Spain. The increase in adjusted operating profit in the first half was a result of these higher EU prices, a much-improved crop in China and reductions in the costs of sugar production. This was partially offset by Illovo, following a reduction in high margin domestic sales in South Africa and later profit phasing with weather curtailing the end of the processing season. Most of the improvement in Sugar profit this year will be delivered in the second half as a result of this phasing of Illovo profit and a larger proportion of our contracts reflecting the higher EU sugar prices.

The world market sugar price has fallen in recent months. This, however, only reverses price increases over the last six months and the world sugar price is now at a similar level to that which prevailed when this year's European sugar contracts were struck. Our UK and Spanish businesses have completed contracting sales for this financial year. Looking ahead, more importantly we expect European demand to be in excess of production in the next campaign.

UK sugar production of 1.18 million tonnes compared to 1.15 million tonnes last year, with a recovery in sugar yield more than offsetting the reduction in crop area. Adverse winter weather delayed beet harvesting, but strong collaboration between growers, contractors and our own operations teams enabled us to successfully process all of the crop. Our forecast for the next year is that we expect sugar production to be in line with this year, as we expect an increase in crop area to be offset by lower beet yields.

In Spain, the operating loss was significantly reduced due to the lower beet prices contracted with growers last year, coupled with higher sugar prices. Beet sugar production will be lower than last year at 220,000 tonnes. Through the excellent cooperation and flexibility of our people, all our factories have continued operating as planned in spite of the challenges presented by COVID-19. We expect crop area in the north to partially recover for the 2020/21 campaign.

Our China sugar business benefited from a much better quality crop which, combined with the linking of some grower payments to the sugar content of their beet, resulted in a significantly reduced operating loss in the first half. The effect on sales of lower production this year at 125,000 tonnes was partially offset by higher domestic sugar prices. Next financial year we expect to benefit from an increased crop area and the linking of the majority of grower payments to the sugar content of their beet.

At Illovo, revenues were ahead of last year, however this was driven mainly by export sales which had a much lower margin. Our higher-margin domestic sales in South Africa fell in the first quarter due to increased imports and a decline in consumption in that developed market, which was primarily driven by product reformulations by our customers. Sugar production and operating costs in the first half were impacted by heavy rains in a number of countries. We expect some recovery in production in the second half which will result in a later phasing of profit this financial year.

Germains increased sales to the growing US horticulture market which largely offset a reduction in sales in a more competitive UK beet seed treatment market.

Agriculture

AB Agri revenue increased by 5% in the first half but was marginally lower on an underlying basis, as last year was a shorter accounting period for our UK feed businesses. Operating profit improved due to higher sales of feed enzymes, partially offset by lower margins in UK feed.

In the UK, increased sales volumes to the pig sector partially offset reduced demand and pricing for ruminant feed due to higher than usual levels of forage stocks. Frontier Agriculture experienced lower grain trading and reduced crop input sales during unusually wet weather in the UK which delayed the planting of autumn crops.

Speciality Nutrition, our premix and starter feed business, gained new business in Spain, however sales in Eastern Europe and to the pet sector declined.

Sales and profit at AB Vista increased significantly in the first half. Feed enzymes sales were exceptionally strong in the Americas where sales of Signis, our new and innovative animal digestion aid, continue to exceed expectations.

Ingredients

Ingredients revenues in the first half were 2% ahead of last year. There was a small reduction in adjusted operating profit due to lower sales at ABF Ingredients.

AB Mauri delivered sales and operating profit growth. The US business performed well, with strong sales growth in yeast and operational efficiencies. Italmill, the specialist bakery ingredients business acquired in May last year, was successfully integrated. Sales of our high-quality bakery toppings from our new facility in Brazil were ahead of expectation. Following regulatory clearance, we expect the completion of the Chinese yeast and bakery ingredients joint venture with Wilmar International in the second half of the financial year.

At ABF Ingredients, Abitec and SPI Pharma experienced lower sales volumes as a result of increased competition. This was partially offset by continuing sales growth in the enzymes business to the feed, food and technical markets. We continued to invest in capacity and capability with new production capacity at SPI Pharma's facility in Grand Haven, Michigan and progressing the construction of a new state-of-the-art pilot plant for enzymes and formulations in Rajamaki, Finland.

Retail

Sales at Primark were 3.9% ahead of last year at constant currency and 2.2% ahead at actual exchange rates, driven by increased retail selling space partially offset by a 0.5% decline in like-for-like sales. With the smaller than expected decline in margin, operating profit was only marginally down on last year on an IFRS 16 pro forma basis at constant currency.

In the UK, we delivered a further increase in our share, measured by value, of the total clothing, footwear and accessories market. Sales were 2.7% ahead of last year, driven by a good contribution from new selling space added over the last year partially offset by a 1.7% decline in like-for-like sales. Although trading was particularly good over November and December, like-for-like sales weakened in January and especially February against very strong comparatives in the prior year.

Sales in the Eurozone were 5.0% ahead of last year at constant currency with particularly strong sales growth in France, Belgium and Italy. Our new store in Milan traded ahead of expectation and our store in Ljubljana, Slovenia continued to trade strongly. There was a marked upturn in like-for-like sales performance for the Eurozone which was 0.2% ahead in the period, continuing the improvement reported in the final quarter of last financial year. This was driven by excellent like-for-like sales in France and Italy and, at this early stage, a notable improvement in Germany which was delivered through a series of operational changes made by the new management team.

Our business in the US continued to perform strongly, delivering like-for-like sales growth, with particularly strong trading at the store in Brooklyn, and recording a break-even operating result in the period.

Over the half year, our following across all our social media channels increased from 20 million to 22 million. This was driven by a combination of innovative social media campaigns featuring collaborations with celebrity influencers and our exciting product collections.

Operating margin in the first half was 11.9% which was down on the same period last year when margin, on an IFRS 16 pro forma basis, was 12.4%. Purchases in the first half were contracted at a much stronger US dollar exchange rate than for purchases in the comparable period last year, but the effect was substantially mitigated by both reduced markdowns and reductions in the costs of goods, primarily lower materials prices.

Retail selling space increased by 0.2 million sq ft since the financial year end and, at 29 February 2020, 375 stores were trading from 15.8 million sq ft compared to 15.1 million sq ft a year ago. Three new stores were opened in the period: Seville Lagoh in Spain; Kiel in Germany; and Milan Fiordaliso in Italy. In addition, we relocated to larger premises in the Norte shopping centre in Porto, Portugal and the Norwich store in the UK was extended. Selling space was reduced in two stores in Germany and a small store in Rathfarnham, Ireland was closed.

The store opening programme planned for the third quarter was strong with 0.5 million sq ft of retail selling space planned to be added. However, these openings have been delayed pending the reopening of existing stores. These planned openings comprised: Trafford Centre, Manchester in the UK; American Dream in New Jersey, US; Lens, Strasbourg, Paris Plaisir and Paris Belle Epine in France; Maximo in Rome, Italy; Mons in Belgium; Barcelona Plaza de Cataluña in Spain; Gropius Passagen in Berlin, Germany; and Warsaw, Poland.

George Weston

Chief Executive

PRINCIPAL risks and uncertainties

The delivery of our strategic objectives is dependent on effective risk management. There are a number of potential risks and uncertainties which could have a material impact on the group's performance and could cause actual results to differ materially from expected and historical results. Details of the principal risks facing the group's businesses at an operational level were included on pages 62 to 66 of the group's statutory financial statements for the 52 weeks ended 14 September 2019, as part of the Strategic report.

The COVID-19 pandemic has become a worldwide crisis and at the date of this report the situation was still evolving. We have considered the impact of this on our businesses and reassessed our principal risks and uncertainties. The closure of Primark stores presented an immediate cash flow challenge to the group. Our response is detailed in the Operating Review and the work done to ensure adequate cash liquidity for the group for the next year is included in the note below in the assessment of going concern. Looking forward, the greatest uncertainty is the timing, phasing and nature of the reopening of Primark stores. We are confident that we have the necessary resources to meet even the most pessimistic of our forecasts.

In the financial markets, there has been increased exchange rate volatility and sterling has weakened against the US dollar and euro since the end of February. Primark covers its currency exposures on the purchase of merchandise denominated in foreign currencies at the time of placing orders and this is the most material currency transaction risk in the group. Following the cancellation of future orders by Primark, there is no need for further foreign currency hedges until orders resume. As a result, the currency transaction risk to movement of exchange rates for the group has reduced significantly, leaving currency translation risk for the group, which is not hedged.

The world market sugar price has fallen in recent months. This, however, only reverses price increases over the last six months and the world sugar price is now at a similar level to that which prevailed when this year's European sugar contracts were struck. Our UK and Spanish businesses have completed contracting sales for this financial year.

The significant increase in employees working at home has had an impact on the delivery of IT services and increased our IT and information security risks. To support seamless home-working we have modified our IT infrastructure, increased bandwidth with our telecommunications partners and deployed collaboration tools.

The extent of remote working has increased the risk of users falling victim to phishing attacks because users rely primarily on email communication. We have an ongoing phishing testing regime and there is regular communication with all users to remind them of the risks. We have raised the level of monitoring for phishing attempts and other security threats. In addition, we have issued security awareness advice on secure home-working best practices.

We have also increased disciplines to ensure that user devices are regularly patched and upgraded to reflect changing IT security threats. Revised guidance for laptop and desktop patching has been issued to all businesses to ensure that systems are up to date and secure.

Going concern

After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

The directors have taken into consideration that, since the balance sheet date, restrictions on trading activity and the movement of people applied by most governments to contain the spread of COVID-19 have had a severe effect on economic activity. The closure of Primark stores in Italy on 12 March was followed rapidly by closures in other countries. The whole estate was closed once UK stores shut on 22 March. Measures, both immediate and planned, were taken across the whole of the group to mitigate the consequential and significant profit and cash flow impacts arising from the loss of Primark sales. The directors have reviewed a detailed cash flow forecast to the end of the 2021 financial year which takes into account these mitigating actions. The Primark supply chain has many weeks of stock which is in transit and, after agreement to pay for that stock, all future orders were cancelled until further notice. We are in the process of accessing the emergency funds made available by European governments, and the UK government in particular, to safeguard employment. The forecast also includes conservative judgements where there is continued uncertainty. Having reviewed this forecast for the coming year, and having applied reverse stress tests, we consider it a remote possibility that the financial headroom could be exhausted.

At the half year, the group had net cash of £801m and had an undrawn, committed revolving credit facility (RCF) of £1,088m for the coming year. As a precaution to avoid any possible illiquidity in the banking market, funds were drawn down in full on the RCF on 18 March 2020. Our cash flow and EBITDA forecasts were used to assess the possibility of the RCF covenant being breached in both September 2020 and February 2021. Our forecasts did not indicate breach on either date. We saw no need to seek a waiver for the covenant test for September 2020 but it was considered prudent to seek a waiver for February 2021. The agent acting for the participating banks in the RCF confirmed on 8 April 2020 that the waiver had been granted. The group's headroom was increased further following the confirmation by the Bank of England of our eligibility to access funding under its Covid Corporate Financing Facility (CCFF) on 15 April 2020. The directors have satisfied themselves that the RCF is available for at least the next 12 months and the CCFF for 12 months from the date of drawing, having assessed the group's projected compliance with the remaining terms and covenants of these facilities. As at the date of approval of these interim results, the group has available central cash on hand of £1.5bn.

In reviewing the cash flow forecast for the coming year, the directors reviewed the trading of the non-Primark businesses and the cash outflows for Primark while the stores remain closed. The directors have a thorough understanding of the risks, sensitivities and judgements included in these elements of the cash flow forecasts and have a high degree of confidence in these cash flows. The main uncertainties in the year ahead were considered to be the length of time for which the Primark stores will remain closed and the strength of their trading as they reopen. In this regard, the forecast has taken the conservative view that the stores will remain closed until the end of this financial year and their sales will then take some time to re-establish the levels achieved before their closure.

There is substantial financial headroom between this forecast and the cash on hand and facilities available to the group over the next year. A number of extreme, adverse assumptions were considered and the likelihood of the headroom being exhausted was considered remote:

Brexit

Our businesses have completed all practical preparations for Brexit and contingency plans continue to be in place should our businesses experience some disruption at the end of the transition period.

condensed CONSOLIDATED INCOME STATEMENT

For the 24 weeks ended 29 February 2020

condensed CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 24 weeks ended 29 February 2020

condensed CONSOLIDATED BALANCE SHEET

At 29 February 2020

condensed CONSOLIDATED CASH FLOW STATEMENT

For the 24 weeks ended 29 February 2020

Condensed cONSOLIDATED STATEMENT of changes in equity

For the 24 weeks ended 29 February 2020

Condensed cONSOLIDATED STATEMENT of changes in equity continued

For the 24 weeks ended 29 February 2020

NOTES TO THE condensed consolidated interim financial statements

For the 24 weeks ended 29 February 2020

1. Operating segments

The group has five operating segments, as described below. These are the group's operating divisions, based on the management and internal reporting structure, which combine businesses with common characteristics, primarily in respect of the type of products offered by each business, but also the production processes involved and the manner of the distribution and sale of goods. The board is the chief operating decision-maker.

Inter-segment pricing is determined on an arm's length basis. Segment result is adjusted operating profit, as shown on the face of the consolidated income statement. Segment assets comprise all non-current assets except employee benefits assets and deferred tax assets, and all current assets except cash and cash equivalents, current asset investments and income tax assets. Segment liabilities comprise trade and other payables, derivative liabilities, provisions and lease liabilities.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets and expenses, cash, borrowings, employee benefits balances and current and deferred tax balances. Segment non-current asset additions are the total cost incurred during the period to acquire segment assets that are expected to be used for more than one year, comprising property, plant and equipment, right-of-use assets, operating intangibles and biological assets. Businesses disposed are shown separately and comparatives have been re-presented for businesses sold or closed during the period.

The group is comprised of the following operating segments:

Geographical information

In addition to the required disclosure for operating segments, disclosure is also given of certain geographical information about the group's operations, based on the geographical groupings: United Kingdom; Europe & Africa; The Americas; and Asia Pacific.

Revenues are shown by reference to the geographical location of customers. Profits are shown by reference to the geographical location of the businesses. Segment assets are based on the geographical location of the assets.

NOTES TO THE condensed consolidated interim financial statements continued

For the 24 weeks ended 29 February 2020

1. Operating segments for the 24 weeks ended 29 February 2020 (IFRS 16)

Geographical information

NOTES TO THE condensed consolidated interim financial statements continued

For the 24 weeks ended 29 February 2020

1. Operating segments for the 24 weeks ended 2 March 2019 (IAS 17)

Geographical information

NOTES TO THE condensed consolidated interim financial statements continued

For the 24 weeks ended 29 February 2020

1. Operating segments for the 52 weeks ended 14 September 2019 (IAS 17)