Primark boss: ‘No need to tell most people how to behave well’

In an emotional message to investors, Associated British Foods chief executive George Weston said the conglomerate and its employees have been “squarely in the path of this pandemic”. He added that their response was “testament to the reality that you don’t need to tell most people how to behave well, you just need to allow them to do so”.

His comments prefaced the group’s interim results for the six months to February, in which it confirmed that Primark has taken a £284 million write-down against surplus stock following the closure of all 375 of its stores in the UK, Europe and the US. There was further acknowledgement that even after stores re-open, sales will likely remain suppressed.

“Much as I would love to be allowed to re-open Primark stores...I know that we must not do so until we have suppressed this disease,” Mr Weston said.

READ MORE: Primark to close all UK stores after drop in demand

“And when we are allowed to re-open we must make our Primark stores safe for our staff and our customers, even if that means ensuring there are fewer people shopping at any one time, and so accepting lower sales at least until the remaining risk is minimal.”

Primark closed the last of its stores on March 22, which is costing £650m a month in lost sales. Despite the benefit of support schemes across various countries such as furlough – without which Primark said most staff would be redundant – it is still experiencing monthly cash outflows of approximately £100m.

AB Foods generates roughly half of its revenues and two-thirds of its profits through Primark. The remainder comes from its grocery, sugar, ingredients and agriculture divisions.

Lou Montgomery of Fidelity Personal Investing said with no online presence, Primark has yet to count the cost of shutting up shop for the foreseeable future. However, the value of diversity in this seemingly haphazard mix of businesses is now more apparent as significant increases in demand for food ease the blow of retail closures.

There was very little effect from Covid-19 on group trading during the six months to February, with revenues up by 2% at £7.6 billion fuelled by increases across every division. Pre-tax profits fell from £515m to £298m following a hefty increase in exceptional charges, but on an underlying basis, adjusted operating profit was 7% higher at £682m.

READ MORE: How Tesco, Primark, Sainsbury's and other retailers are reacting to Covid-19

Trading results for the second half will be “radically different”, AB Foods said, though it gave no profit guidance for the full financial year.

The group said it currently has substantial financial headroom, with £801m of net cash and undrawn credit facilities of £1.08bn. Despite this, no interim dividend will be declared.

In addition to managing the hit to cash flow from the closure of its Primark stores, the group has also had to handle “intense” pressure on its food factories, depots and drivers since the pandemic began.

The conglomerate’s businesses produce more food in the UK than any other organisation, and are significant food producers in other countries as well. Mr Weston said despite higher absence rates and factory reconfigurations to ensure social distancing, these divisions “produced more than ever before” during the weeks of panic buying.

He also revealed that two long-standing employees of AB Foods in Italy had lost their lives to Covid-19 in the past three weeks, while a third is in intensive care in the United States. He went on to say that he was “humbled” by the “willingness of thousands of our people to come to work whilst so many of the rest of us sit this disease out safely at home”.

“Our success in keeping the nation fed is testament to the robustness of the modern food chain,” Mr Weston concluded. “It is also testament to the reality that you don’t need to tell most people how to behave well, you just need to allow them to do so; and it is the finest thing I have seen in a career in business.”

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