Feb 25, 2014
Reading time
3 minutes
Download the article
Click here to print
Text size
aA+ aA-

AB Foods quashes talk of Primark spin off

Feb 25, 2014

LONDON, United Kingdom - Associated British Foods has no plans to separate its high-flying Primark discount fashion chain from its grocery and struggling sugar businesses, despite their divergent performances and lack of overlap, the firm said on Monday.

Primark on Oxford Street in London | Source: Primark

With double-digit percentage sales growth at Primark contrasting with big falls in revenue from sugar, perennial speculation of a possible break up has resurfaced among traders and the media.

But long-serving finance chief John Bason ruled it out. "It will not happen on my watch," he told Reuters on Monday.

"What I don't get from anybody is that Primark is any less of a retailer because of ownership by ABF. I think if anything Primark is the differentiated retailer because of ABF, long may that continue," said Bason, finance director since 1999.

He said Primark had thrived being part of ABF. "There's so much more to do, you'd be mad to change that wouldn't you?"

Bason was speaking after Associated British Foods (ABF), whose grocery brands include Silver Spoon sugar and Twinings tea, published a trading update for its fiscal first half ending March 1, and kept its earnings guidance for the 2013-14 year.

Shares in the firm, which are 55 percent owned by the family of Chief Executive George Weston, have risen 63 percent over the last year, hitting a record high of 3,001 pence on Friday.

That has largely been thanks to Primark, the standout performer in Britain's clothing sector in recent years with its low prices and quick adoption of fashion trends pulling in cost-conscious customers.

But ABF shares fell 2.7 percent to 2,912 pence on Monday, giving a market capitalisation of 23.2 billion pounds, after the firm highlighted headwinds due to the strength of sterling and repeated a weak outlook for sugar.

ABF said adjusted earnings per share for the first half would be "firmly ahead" of last year's 41.9 pence, while adjusted EPS for the full year would be similar to the 98.9 pence made in 2012-13.

The group cautioned that sterling was continuing to strengthen against its major trading currencies and this would have a more significant negative effect on the translation of overseas results into sterling in the second half.

"The translation effect of the strength of sterling is quite a headwind, about 5 percent, and even with that we're keeping our numbers (guidance) the same," said Bason.

ABF said Primark's first-half sales were expected to be 13 percent ahead of last year on a constant currency basis, driven by an 8 percent increase in space and a 4 percent rise in sales at stores open over a year.

Primark's operating profit margin was forecast to be higher than in the same period last year, benefiting from warehouse and distribution efficiencies as well as lower freight rates.

Bason did not think shoppers would move away from Primark as Europe emerges from a prolonged period of economic weakness. "Primark welcomes an improving economy, we think we'll do well in it," he said.

ABF reiterated that lower sugar prices, as the market adjusts ahead of EU regime reform in 2017, would result in a substantial reduction in first half and full year revenue and profit from its sugar businesses.

ABF has also previously stated that it expects Primark's profit will be well ahead of the previous year.

First-half revenue at ABF's grocery business, which also makes Ryvita biscuits, is forecast to be ahead of last year at constant currency, with improved margins.

© Thomson Reuters 2022 All rights reserved.