- Alleged inappropriate behaviour probed
- Primark boss departs with ‘immediate effect’
- Investors disappointed by leadership change
Primark parent company Associated British Foods (ABF) was the FTSE 100’s biggest faller on 31 March following the shock news Paul Marchant has resigned as the cut-price clothing chain’s chief executive ‘with immediate effect’.
The unexpected departure of Primark’s long-standing boss follows an investigation into alleged inappropriate behaviour towards a female colleague ‘in a social environment’.
Investors were clearly rattled by the surprise leadership change at the retail jewel in the foods-to-fashion conglomerate’s crown, sending shares in Associated British Foods down 3.4% to £18.75 in early dealings.
WHAT DID ABF SAY?
Associated British Foods said Marchant, who joined Primark back in 2009, has ‘cooperated with the investigation, acknowledged his error of judgement and accepts that his actions fell below the standards expected by ABF. He has made an apology to the individual concerned, the ABF board and also to his Primark colleagues and others connected to the business.’
The company also stressed it would ‘continue to offer support to the individual who brought this behaviour to its attention’.
George Weston, CEO of Associated British Foods, said he was ‘immensely disappointed. At ABF, we believe that high standards of integrity are essential. Acting responsibly is the only way to build and manage a business over the long term. Colleagues and others must be treated with respect and dignity. Our culture has to be, and is, bigger than any one individual.’
Scheduled to report first-half results as planned on 29 April, Associated British Foods’ group finance director Eoin Tonge will act as Primark chief executive on an interim basis.
Joana Edwards, financial controller at the FTSE 100 group, will fill in as Associated British Foods’ interim finance director.
‘Both executives have the experience to perform these roles well’, insisted Associated British Foods.
Shore Capital said: ‘It is indeed, a very disappointing, to say the least, end for Mr. Marchant and all at Primark and ABF, where he has overseen the development of a fine value-based retailer with strong prospects for growth. That said, we concur with the views of Mr. Weston around the bigger factor of dignity and respect being more important than any one person, no matter how senior.’
On 23 January, Associated British Foods delivered a disappointing first quarter trading update with weak UK sales at Primark driving a sales growth guidance reduction for the budget clothing chain.
Analysts downgraded their group profit forecasts on news of subdued sales at Primark over the Christmas quarter.
Nevertheless, with the first-half update looming, Shore Capital expects Primark to be ‘progressing well at a group level, not being immune from a rather subdued British clothing market in the first quarter of the year, albeit the recent sunny weather perhaps helping its H1 exit, with ongoing progress with self-improvement being evident in Germany and The Netherlands, plus growth-on-growth in the rest of Europe and the USA.’
WELL-OILED MACHINE
Russ Mould, investment director at AJ Bell, said Weston’s comments on improper behaviour by the head of Primark ‘implies he is furious at what’s happened. He makes it perfectly clear: everyone in the business needs to be treated with respect and senior managers must uphold high standards, with no exceptions.’
Mould continued: ‘The situation involving Primark CEO Paul Marchant and his departure will cause some temporary disruption to the business as finance director Eoin Tonge will be running the show until a new CEO is appointed.
‘However, Primark is a well-oiled machine and Tonge is no stranger to thinking on his feet and adapting to different roles, having previously held a range of finance and strategy positions at Marks & Spencer (MKS) and Greencore (GNC).’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
