ABF writes down Primark stock

And that’s not where the problems end. Unsold inventory has piled up at Primark, because the inbound supply chain continued for several weeks. ABF has, thus, taken a £284m write-down on the value of this stock within its half-year results to 29 February – pushing operating profits down by more than a third.  

The other half of ABF’s business – food and food ingredients – has not been immune to the pressures exerted by coronavirus. During weeks of panic buying, the group’s factories had to produce more food than ever before – while simultaneously reconfiguring building layouts to provide safe working spaces. Even so, all of the food divisions have continued to operate fully. Moreover, management’s second-half expectations for the sugar, grocery, ingredients and agriculture divisions remain unchanged.

ABF is taking steps to preserve financial resources, suspending the dividend and implementing management pay cuts. It also estimates that it could recover 50 per cent of Primark’s operating costs via government employment programmes and lease discussions. But this still leaves it with a considerable £100m monthly cash outflow.

The group reckons that it has “ample cash liquidity” to deal with the “likely challenges” in the year ahead. As things stand, it has available central cash of £1.5bn – having drawn down a credit facility and accessed funding under the Bank of England’s Covid financing scheme. The group also confirmed a waiver for its February 2021 covenant test, although it saw no need to seek a waiver for September 2020.

Virus-related disruption overshadowed ABF’s interim numbers, which – on the whole – showed signs of progress. Primark saw much better underlying trading, with a positive Eurozone performance and greater market share in the UK. AB Sugar enjoyed the early benefits of increased European Union (EU) sugar prices.