Associated British Foods PLC (LON:ABF) has pulled its interim dividend as it reported a fall in half-year profits from the effects of the coronavirus (COVID-19) pandemic.
With its interim results announcement, AB Foods' chief executive George Weston delivered a sober statement detailing the deaths of two employees in Italy from COVID-19, with a third in intensive care and the loss of one staff member’s husband.
This put some perspective on the closure of all 376 of the FTSE 100 group’s Primark stores around the world since 22 March, with the consequent loss of around £650mln of normal sales each month, he said.
“In time we can rebuild the profits. We can't replace the people we lose,” Weston added.
As a diverse conglomerate, AB Foods’ sugar and grocery production businesses have continued to operate through the coronavirus outbreak, with Weston noting that the UK businesses combined produce “more food than any other organisation”, with significant food production in other countries too.
There was very little effect of coronavirus on AB Foods' underlying first-half results - covering the 24 weeks to February 29 - which showed revenue up 2% year-on-year to £7.65bn, adjusted profit before tax up 3% to £636mln and statutory pre-tax profit down 41% to £298mln.
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Statutory profits were hit by an exceptional charge of £284mln from the carrying value of Primark clothing, as the store closures meant levels of inventory increased significantly as the inbound supply chain continued for several weeks with goods in transit.
The company has committed to pay for all stock-in-transit, worth £600mln, and has agreed to pay Asian suppliers £370mln after an uproar when it initially refused payment.
The effects of the pandemic on the second half will be significant, the group said, but the food businesses continues to operate fully and are seeing increased demand.
Primark's monthly cash burn is estimated to be around £100mln as a result of government support and cost-cutting measures already put in place.
Weston said AB Foods “has ample cash liquidity to deal with the likely challenges in the year ahead”, with £1.5bn as of 21 April, thanks to a pile of net cash, a fully drawn bank facility and access to the UK coronavirus corporate financing scheme.
However, the board has decided not to declare an interim dividend and said it will consider the declaration of a dividend at the year-end.
Shares in the company fell 4% to 1,873p in early trading on Tuesday.
Analysts at broker Liberum said the half-year results were “solid” and they agreed that AB Foods has enough liquidity to work through an expected over £1bn working capital outflow between March and May, “and should have a trough liquidity of no less than £927mln in May 2020 as per our analysis”.
Shore Capital analysts added that the dumping of the interim dividend does not comes as a surprise.
“We see Primark as an undoubted fixture of apparel retailing in the future when casualties sadly abound around the world,” they added.
“The label's strong value credentials should also stand it in very good stead for what we believe will be tough economic conditions, maybe on a sustained basis too. We also note management guidance as to the likely gradual nature of lockdown easing, making for shallower operating metrics at Primark, and we suggest retailing in general, for some time to come.”
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