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21 April 2021

Primark Revenues Hit Associated British Foods Earnings

Associated British Foods PLC (ABF) reported its results for the first half of fiscal year 2021 on Tuesday. The British conglomerate is well-known for its ownership of fashion retailer Primark, as well other household names such as the UK’s best-selling sugar brand Silver Spoon. ABF’s main brands operate within consumer-facing industries, so the company’s core business suffered as prolonged lockdowns affected consumer buying behaviour, but with restrictions easing and the queues outside Primark longer than ever, a strong re-opening could be on the cards for ABF.

Figures for the first half of fiscal 2021 reflected the pandemic’s effect on the business. Revenue fell 17% to £6.31bn from £7.65bn, mainly due to a £1.1bn fall in revenue for Primark as store closures led to declining sales throughout the second half of 2020 into 2021. Although revenue declined significantly, Primark beat analysts’ expectations when comparing earnings before interest and tax (EBIT) against other revenue streams. Adjusted EBIT for Primark was £43m versus the £17m forecasted; grocery EBIT was £199m versus £204m forecast; sugar EBIT was £66m against the £50m estimated; ingredients EBIT was £78m versus the £67m forecasted, and agriculture EBIT was £19m versus the £18m estimated. Comparisons against analyst estimates do not paint the whole picture, however, as adjusted profit before tax decreased 50% from the previous year to £319m.

ABF highlighted that business from its other sectors performed stronger than Primark in the first half of fiscal year 2021 but are expected to lag behind in the second. Already, Primark stores have seen an influx of customers since April 12th as the company’s minimal online presence has left customers craving its extensive in-store low-cost product range, which should increase footfall despite the digital offerings of online competitors. In addition to the re-opening of stores making the business cash generative once again, Primark’s success in a number of new markets such as Poland and Florida bodes well for future expansion, and with the UK’s lockdown restrictions yet to ease further, the fashion retailer looks set for a strong recovery.

Looking ahead, Primark could be one of the main drivers of a gradual return to pre-COVID levels of revenue and profitability for Associated British Foods. Its remaining businesses are not insignificant, however, as their first half performance has left ABF in a better-than-expected position and aided the reinstatement of a 6.2p dividend for the first half of 2021.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Primark Revenues Hit Associated British Foods Earnings

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