Penneys and Primark owner AB Foods expects ‘significant growth’ in full-year profit

Primark and Penneys owner Associated British Foods (ABF) has forecast “significant growth” in full-year profit as it reported a 39 per cent jump in the first half of its financial year, partly driven by margin recovery at its clothing chain.

In a trading update on Tuesday, the UK retail giant also said it believed impending changes to Ireland’s corporation tax rate would increase its effective tax rate by less than 1 per cent.

The group, which also owns large sugar, grocery, agriculture and ingredients businesses, said adjusted operating profit – its key profit measure – was £951 million (€1.1 billion) in the six months to March 2nd, on revenues of £9.73 billion, up 2 per cent.

“The group has delivered a strong first-half performance and is on track to deliver significant growth in both profitability and cash generation in advance of expectations at the start of this financial year,” it said.

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It was previously forecasting “meaningful progress” in full-year profit.

Primark’s first-half revenue rose 7.5 per cent to £4.5 billion, with like-for-like sales up 2.1 per cent and margin recovery up to 11.3 per cent, up from 8.3 per cent. The group said trading in the Republic was “only satisfactory” over the period due to a “slower recovery in consumer sentiment” here.

Penneys operated a 37-store network in the Republic over the period to March 2nd, unchanged from the same period in its previous financial year. It occupied just under 1.2 million sq ft (111,483.6sq m) in the first half of its financial year, up slightly from the same period last year due to the relocation of its Dundrum store to a larger nearby unit in June 2023.

In a note attached to the update, ABF also highlighted the impact of the increase in the Republic’s corporation tax rate for large companies from 12.5 per cent to 15 per cent this year, as provided for under the Organisation for Economic Co-operation and Development’s (OECD) so-called Pillar Two agreement.

Having conducted an assessment of the group’s potential exposure to Pillar Two income taxes, the Penneys owner said there were a number of tax jurisdictions where the “transitional safe harbour relief” – a temporary measure aimed at reducing the administrative burden on multinationals in the initial years of the agreement’s roll-out – does not apply.

“Of these jurisdictions, the most noteworthy is Ireland, where the statutory tax rate is 12.5 per cent, but where there will be a local top-up tax to 15 per cent,” ABF said. It means the group will not be exempt from paying its taxes at the top-up rate of 15 per cent in the Republic.

However, it said, “based on a high-level assessment”, using its 2023 results as an example, the impact in 2023 of Pillar Two on its adjusted effective tax rate would have been less than 1 per cent. ABF said the new rules will be effective for its 2025 financial year.

Primark Ltd, the Dublin-registered operator of ABF’s Penneys stores in Ireland, reported profits before tax in excess of €394.2 million in the 12 months to the end of September 2022 on revenues of more than €3.1 billion in its most recently available set of annual accounts. It paid more than €52.4 million in taxes in the jurisdiction in that period.

– Additional reporting: Reuters

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