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Primark owner ABF declares £500m share buyback scheme

ABF declares £500m share buyback scheme after shoppers flood back to Primark outlets and profits surge

  • Primark’s revenues in the UK and the Republic of Ireland both grew by 48%
  • There was robust demand for Primark’s nightwear and loungewear products 
  • ABF hiked its final dividend to 43.7p per share – worth £236million to investors

Associated British Foods has revealed a £500million share buyback programme following an exceptionally strong recovery in trade at Primark stores.

Annual sales at the company’s fast fashion subsidiary surged by over £2billion from the previous year to £7.7billion in the 12 months to 17 September, as loosened Covid-related restrictions drove a significant rebound in customer footfall.

There was high demand for Primark’s nightwear and loungewear products, especially novelty prints and thermals, as well as for its collaborations with reality television stars like Love Island’s Kem Cetinay.

Popular goods: Primark saw high demand for its nightwear and loungewear products, especially novelty prints, thermals and the ‘Snuddie’, a blanket with hoodie and sleeves

On an adjusted basis, Primark’s revenues in the UK and the Republic of Ireland grew by 48 per cent.

Sales increased by 42 per cent in Continental Europe, although they still remain lower than pre-pandemic levels in the region.

This helped the Primark’s adjusted operating profits more than double on a constant currency basis to £756million, which in turn boosted ABF’s total full-year earnings by 45 per cent to £720million.

The company has declared a £500million share repurchase scheme alongside a hike in its final dividend to 43.7 pence per share – worth £236million to investors.

George Weston, the chief executive of ABF, said the firm ‘delivered strong revenue and profit growth this year in a clear demonstration of the benefits of our diversification, brand strength, and of our commitment to disciplined financing and investment’.

He added: ‘The performance was achieved despite pandemic-induced disruption being followed by high and volatile input cost inflation.’

Soaring energy prices, partly resulting from Russia’s full-scale invasion of Ukraine, an appreciating US dollar, and rising staff wages have contributed to much higher costs for the business.

It has passed some extra costs on to consumers, particularly in its food business, or offset them through measures like hedging gas prices or cutting energy usage.

But given the effect current cost-of-living pressures are having on disposable income, ABFhas decided not to increase prices in Primark shops until summer next year beyond those already planned.

‘We believe this decision is in the best interests of Primark,’ ABF told investors, adding that it would help keep prices affordable and boost market share over the longer term.

Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, thinks the move could work to ABF’s advantage, as price hikes would mean Primark ‘loses almost all its bargaining power’ and pushes away core customers.

She added: ‘Heading into the Christmas season, it’s highly likely that customers are going to trade downwards and shop in places like Primark, when they may have previously been more of a middle-market consumer.

‘This should ultimately benefit Primark, but might not necessarily be enough to offset the loss of existing customers who hold back on frivolous spending.’

Associated British Foods shares were up 5 per cent to £15 in early trading, although their value has declined by around 28 per cent so far this year.

Hilton Food Group also reported today that it expected its annual operating profits would be below forecasts due to weaker economic conditions and problems within its seafood business.

The company said its seafood division has been impacted by ‘unprecedented inflationary costs,’ which are set to last into early 2023.