AB Foods expects £375mln cash burn from Primark temporary closures

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Associated British Foods PLC (LON:ABF) has said it expects to burn through £375mln of cash from the temporary closures of its Primark stores planned for November as a results of the latest UK coronavirus pandemic lockdown.

As of Monday, all the fast-fashion sites in the Republic of Ireland, France, Belgium, Wales, Catalonia in Spain and Slovenia are temporarily closed, which represent 19% of the FTSE 100 group’s total retail selling space. The announced period of closure varies by market.

READ: AB Foods is well set up for a socially distanced world despite Primark’s online absence

The UK Government announced its intention to close non-essential shops in England for one month from November 5 to December 2.

Assuming that this is passed by the UK parliament on Wednesday, 57% of AB Food’s total selling space will be temporarily closed from Thursday.

AB Foods added that trading hours are also restricted in other markets, while there is uncertainty about further temporary store closures in the short-term.

The conglomerate is implementing plans to manage the consequences of these closures and will take action to reduce operating costs, though all orders placed with its suppliers will be honoured.

At the end of the year to September 12. 2020, the company had net cash before lease liabilities of £1.5bn.

Excluding debt, the group had gross cash before lease liabilities of £2bn which, together with £1bn of undrawn committed Revolving Credit Facilities provide £3.1bn of liquidity.

AB Foods is due to post full-year results on Tuesday. Investors will be looking for updates on the pipeline of 14 new Primark openings across Europe scheduled for the current financial year.

As per its last update, the company’s other divisions have been picking much of the slack left by Primark’s closures, with grocery revenues increasing from the first to the second half of the year due to higher retail demand, sugar sales coming in well ahead of last year and agriculture profits also improved.

“The company may well regret its resistance to creating an online presence, as it can’t make up the shortfall in digital sales,” analysts at Hargreaves Lansdown commented.

“It’s easier for the company to assess the potential damage given that Primark sales took a huge hit earlier in the year during the first lockdown. Pent up demand for fashion saw customers flood back in the summer but that profit would be wiped out, if doors are locked during the key Christmas period.”

“The group’s food orientated operations could benefit from consumers being stuck at home again, opting for trusted brands, but ABF’s substantial cash pile will come in very handy if Primark’s business takes this big hit.”

Shares dipped 3% to 1,653p early on Monday.

–Adds analyst comment, shares–

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