TIDMABF
RNS Number : 5009O
Associated British Foods PLC
01 June 2020
1 June 2020
Associated British Foods plc
Covid-19 Update - Re-opening of Primark Stores and Improved
Group Cash Flow
Associated British Foods plc, the diversified international
food, ingredients and retail group, is issuing the following
statement which includes the likely timetable for the re-opening of
Primark stores, early trading indicators from the recently
re-opened stores which have been both reassuring and encouraging,
and a group forecast with an improved cash flow.
The group trading update scheduled for 2 July will include
Primark sales which will be informed by trading in stores soon to
re-open and an additional four weeks of data.
Primark stores
As a result of the rapid spread of Covid-19 in our markets, all
Primark stores were closed over a 12-day period from 11 March. As
previously advised, this resulted in a loss of sales of
approximately GBP650m for every month that all stores were
closed.
We took a number of actions in Primark to substantially reduce
the cash outflow resulting from this loss of sales. These mainly
comprised cancellation of future orders for goods where the
handover date from the supplier was after 17 April and a range of
measures to reduce operating overhead while the stores are closed.
The most significant contributor to the reduction in overheads has
been access to government employment retention schemes across
Europe, assisted by a temporary voluntary reduction in salaries for
all Primark employees not covered by a government scheme. We
continue to make progress in our discussions with landlords to
renegotiate some of the terms in our lease arrangements. In April
and May, we exceeded our previously advised estimate of a 50
percent reduction in Primark overheads.
As European governments have begun to ease restrictions on
clothing retailing we have been able to re-open stores. Safety has
been our highest priority in our detailed preparations to welcome
our customers and employees back to stores. We are following
government safety advice in all markets. Importantly, we will apply
the valuable experience gained from more than 100 stores which are
already open as we open the remainder of our estate, including
stores across the UK. Social distancing protocols, hand sanitiser
stations, perspex screens at tills and additional cleaning of high
frequency touch points in the store are among the measures we are
implementing. Personal protection, including masks and gloves, are
being made available to all employees. These measures are designed
to safeguard the health and wellbeing of everyone in store and to
instil confidence in the store environment. Feedback from customers
and employees in those markets where the stores are open has been
positive.
The table below sets out those Primark stores that have already
re-opened, those with a confirmed re-opening date and expected
dates for the remaining stores where we still await
confirmation.
As at today, Primark is trading in 112 stores which represent 34
percent of our total selling space. Primark is now working to
re-open all its stores in England on 15 June, following the recent
announcement by the UK Government. At that date we expect to be
operating from 281 stores representing 79 percent of total selling
space. We await further guidance for the stores in Northern
Ireland, Wales and Scotland and anticipate openings in late
June.
By 15 June, we will also have opened three new stores which were
originally planned for opening in our financial third quarter: Mons
in Belgium and Gropius in Berlin, Germany have already opened; and
a store in the Trafford Centre, Manchester in the UK will open on
15 June. When the remainder of our stores are re-opened, we will
then be trading from 15.9m square feet of retail selling space
across 378 stores.
Space
Status Country Re opening Date Stores m sqft
------------------ ------------------------- ------- ----- -------------------
Opened
Austria 4 May 5 0.2
Netherlands 6 May 20 1.0
Belgium 11 May 8 0.4
Italy 18 May 5 0.3
Germany 15-19 May 32 1.8
Slovenia 18 May 1 0.0
France 22-30 May 9 0.5
Spain 28 May 25 1.0
US 22 May 1 0.0
Portugal 1 June 6 0.2
At 1 June Subtotal 112 30% 5.5 34%
------------- --------------------------------------------- ------- ----- ------------------- -----
15 June inc
England Trafford 153 40% 6.3 40%
Spain by 4 June 10 0.4
France 5 June 6 0.3
By 15 June Subtotal 281 74% 12.5 79%
------------- --------------------------------------------- ------- ----- ------------------- -----
June - August
ROI phased 36 1.1
Known dates Subtotal 317 84% 13.6 85%
------------- --------------------------------------------- ------- ----- ------------------- -----
Balance
Expected late
US June 8 0.4
Portugal " 4 0.1
Scotland, Wales,
NI " 37 1.2
Spain " 12 0.5
------------------ --------------------------------------- ------- ----- ------------------- -----
Total 378 100% 15.9 100%
--------------------------------------------- ------------ ------- ----- ------------------- -----
At the start of the re-opening of stores, Primark had GBP1.5bn
of stock on hand, and had also made commitment to our suppliers for
a further GBP0.4bn of stock. This compares to a typical
stockholding of GBP0.9bn. This higher level of stock is due to
having taken possession of all finished goods in transit at the
time our stores closed and a further commitment to our suppliers to
take all products that were planned for handover by 17 April, both
finished and in production.
Our sourcing team has recognised the impact that Covid-19 and
the subsequent reduction in orders has had on the garment supply
industry and its employees. The team has maintained frequent and
direct contact with each of our suppliers. We recently established
a fund to ensure that the labour element of certain product
finished and in production for Primark in the most vulnerable
countries was paid to those workers. To date, we have made initial
payments, totalling some GBP10m. Importantly, following
clarification of the timing of store re-openings, we want to ensure
that our stores will offer exciting seasonal product for Autumn
Winter and we are now placing substantial orders for this seasonal
stock with our suppliers.
The excess stock on hand mainly comprises everyday continuity,
non-fashion and non-seasonal, ranges and some excess Spring Summer
stock. The nature of the continuity stock will allow it to be sold
in the normal course of business, albeit at a later date and
without the need for special discounting beyond our normal
practices. The buying team has conducted a detailed review of the
Spring Summer stock on hand and has earmarked certain products to
be held in storage for sale in Spring Summer 2021. ABF remains well
positioned to fund and manage the increased working capital. We
will continue our policy of offering the best everyday low prices
and will seek to avoid any markdown on excess stock.
Trading in our re-opened stores has been both reassuring and
encouraging, with customer queues outside most stores and, once in
store, spending on larger basket sizes. However, the trading
results since re-opening were delivered over a very short period,
will have been influenced by a number of specific factors, and may
not be indicative of a long term pattern. Cumulative sales since
re-opening, on a like-for-like basis, were down on the same period
last year in aggregate. For a number of stores, sales were ahead of
last year. A good number of our regional stores are performing well
and only four stores had initial sales below 50 percent of last
year. This included Damrak in the centre of Amsterdam and our store
in Alexanderplatz, Berlin. Both of these stores are in the centre
of big cities and are suffering from the current absence of tourism
and much lower commuter footfall.
Consumer demand has been strong for children's, leisure and
night wear, along with summer products such as shorts and t-shirts,
reflecting good weather in markets where we are trading.
Primark stores pre Covid-19 had a wide range of aggregate sales
densities, with significant variations in each store during a day
and between days of the week. Compliance with the requirement to
ensure social distancing in our stores has put an effective maximum
on the hourly footfall for every store. For those stores with low
sales densities, the social distancing maximum will not restrict
the sales densities previously achieved, even at peak times. For
those stores with sales densities around the average, this maximum
footfall will restrict sales densities at peak trading times, but
we expect some change in consumer behaviour to help mitigate this
effect. However, as long as social distancing is required, we
expect it to restrict the capacity of our busiest stores from
achieving their aggregate pre Covid-19 sales densities. The extent
of that effect will depend on the social distancing rules adopted
in each country and finding safe operational solutions to improve
customer flow, particularly at checkout which has already been
identified as a bottleneck. Our initial view is that the
implementation of social distancing could only affect sales to some
extent in the higher density stores, which represented some 10-20
percent of pre Covid-19 total Primark sales.
Food businesses
We have maintained production at all of our food business
facilities, despite the operational challenges arising from
Covid-19. This has ensured the continued supply of essential
products for the food, animal feed and pharmaceutical supply
chains.
Grocery operating profit will be ahead of our previous
expectations with stronger sales of branded products sold through
the retail channel, more than offsetting weaker sales in food
service. However, we now expect a lower profit at AB Sugar
following further disappointing performance at Illovo.
The aggregate operating profit for the group's food businesses
is expected to be in line with previous guidance.
Group cashflow forecast
Our review at the half year of the cash flow forecast for the
coming year evidenced the group's strong cash liquidity, with
considerable financial headroom. The cash flow forecast at that
time was based on the conservative assumption that all Primark
stores would not re-open until September. The current schedule
advances the re-openings by some months and should deliver a much
improved cash flow from trading in the second half of this
financial year.
It remains too early to resume earnings guidance for the
remainder of the current financial year.
For further enquiries please
contact:
Associated British Foods
John Bason Tel: +44 20 7399 6545
Catherine Hicks Tel: +44 7974 982 441
Citigate Dewe Rogerson
Chris Barrie Tel: +44 7968 727 289
Jos Bieneman Tel: +44 7834 336 650
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END
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