City Focus: Primark key to a family fortune

By Manfreda Cavazza
Updated: 04:06 EDT, 5 November 2008

Just like the shoppers who have kept the tills ringing at fast-fashion chain Primark, Associated British Foods plans to spend its way through the recession.

Fast fashion: Primark is wiping the floor with rival retailers

It can afford to, even if it means next year's profits will be flat.

The clothes and food conglomerate is 55% owned by Canada's second-richest family the Westons, who are happy to bankroll the company's long-term future.

ABF's chief executive, George Weston, great-grandson of the company's founder, admitted heavy investment in Primark and in its sugar businesses in Africa and China would wipe out the expected rise in operating profits in 2009.

This has clearly vexed investors keen to make quick gains, with the shares closing down 9½p to 698p last night.

However, they have little to complain about considering ABF's track record over the years.

The company has outperformed the battered FTSE 100 by 11% so far this year. And its chain of Primark stores, which accounts for a third of profits, continues to wipe the floor with its retail rivals.

Underlying sales were up by 4% in the year ending September 13, defying the gloom that has gripped the rest of the High Street.

Its share of the £36bn clothing market has grown to 4.3% in 2008, up from 3.9% last year, according to Verdict.

Analyst Maureen Hinton reckons Primark is stealing sales from the likes of New Look and Dorothy Perkins as well as some mid-market retailers such as Next, M&S and Debenhams.

She said: 'They are targeting a younger customer and they're doing it very well. Young people are not likely to be hit by what is happening with the credit crunch. They don't have the calls on their income that older people do.'

Weston is confident Primark can continue to tempt shoppers through its doors even if consumer spending deteriorates further.

He said: 'It has been tough for a year and yet we have done a good job. We have proved that we can trade through a downturn. It could get worse, but it just means we will have to work harder.'

He insisted that investing in the business was the 'right thing to do'. He said: 'We think that if we can, we should. We have got balance sheet strength.'

The company has debts of £791m, up from £480m last year. It plans to secure further borrowings to fund a spending spree over the next 12 months. ABF will splurge close to £600m this financial year, up from £545m. Much of that will go on new Primark stores.

It recently started trading in Spain, where it has four stores, and initial results are so promising ABF reckons it could have at least 40 outlets there.

It is also planning to expand to Portugal, Germany and the Netherlands in 2009. Meanwhile, British shoppers can expect more new stores in the UK, where there are 135 shops. Plans are already in place to open outlets in Cambridge, Corby, Edinburgh and High Wycombe.

It hinted it could even pick up stores from rivals should they go bust. Meanwhile the rest of the ABF empire, which spans 44 countries, posted a robust set of annual results.

Pre-tax profits came in at £527m, from £508 a year ago, boosted by a strong performance at its Twinings Tea and Ovaltine grocery unit. This offset a decline in the sugar division, which has been hit by the reform of European regulations covering the industry.

ABF's revenues were £8.2bn, up from £6.8bn in 2007. The final dividend was 13.5p, making the total dividend of 20.25p for the year, a rise of 4%.

The Westons have been in the food and retail business since 1882, when George Weston started a bakery business in Canada.

His son Garfield expanded the business into the UK, creating what eventually became ABF. The family business is now split into two mini-kingdoms. George's grandson Galen heads up the Canadian side, which as well as owning Canada's largest supermarket chain Loblaws, also controls up-market department stores Selfridges, Brown Thomas and Holt Renfrew.

The British side is headed up by Galen's nephew Guy. His company Wittington Investments owns Fortnum & Mason's and homewares chain Heals, as well as the 55% stake in ABF.

Having been around for many decades, and with interests in such a wide range of businesses, ABF could do well in an economic downturn. But as the pressures on consumer spending pile up there is no room for complacency.