Business Analysis: Crunch time for Weston as he aims to make ABF less sweet

Just 12 days after taking the hotseat at Associated British Foods, George Weston has been handed a golden opportunity to stamp his mark on the retail-to-food conglomerate his father built up and his family still controls.

Just 12 days after taking the hotseat at Associated British Foods, George Weston has been handed a golden opportunity to stamp his mark on the retail-to-food conglomerate his father built up and his family still controls.

Should he splash the rest of the group's dwindling cash pile on buying Littlewoods in a deal that would transform Primark, its budget clothing chain? ABF is one of a handful of bidders trawling through Littlewoods' books after tabling an indicative bid for the 120 high street stores the Barclay brothers have put up for sale.

Pressing the button on the deal could potentially double Primark's size overnight - depending on whether the group opts to team up with New Look, its privately owned rival, to carve up the Littlewoods estate.

It would also help to speed its quest to shrink the contribution it gets from British Sugar, which is under attack from the European Union's pang of conscience about Third World sugar farmers. ABF's piecemeal acquisition strategy, which has seen it bolt on such businesses as Burns Philp's yeast, herbs and spices operations, and Capullo, a Mexican oil brand, in the last 12 months, has seen British Sugar's UK profit contribution fall to one quarter from one third during the past year.

Mr Weston, an ABF lifer who most recently ran its Australian subsidiary, was insistent yesterday that his arrival would not mark any seismic shift in the group's modus operandi. "Over time the shape of the group will change as it has in the past year. We always review the portfolio but the essence of what we do won't change," he said. Long-term progress over short-term gains will remain at the heart of the group's tactics.

As well as sugar and discount fashion, the group's interests span grocery brands such as Twinings' tea, Ryvita crisp bread and Blue Dragon noodles, an Australian bakery and an animal feeds business.

But it is Primark that is grabbing all the headlines - not least for the court case it is embroiled in with Monsoon, which has accused it of stealing its designs. The clothing chain, developed in Ireland in the late Sixties, outshone its high street rivals during the 24 weeks to 5 March, with a 6 per cent increase in like-for-like sales. Operating profit from its 121 UK stores surged 18 per cent to £59m on sales up 12 per cent at £448m.

Mr Weston declined to comment specifically on Littlewoods, but he did not try to hide his ambitions for Primark, which is also trying to break into Spain. "We only cover about half of the UK market. We have made it quite clear we'd like to get more stores. But they've got to come at a price that we can make money from. New stores aren't worth anything to us if we can't make a return on them," he said.

Primark, which trades as Penneys in Ireland, bought six former Allders stores earlier this year, putting the group on track to increase its square footage from 2.4 million sq ft to 3 million sq ft by this time next year.

Although there are plenty of potential acquisition opportunities around, such as Danone's HP Foods arm, home to the iconic HP and Lea & Perrins sauces, analysts do not expect ABF to suddenly change its spots and gear up massively to do a deal.

David Lang, at Investec Securities, said: "It will be more of the same from George. ABF will not suddenly become some highly geared acquisition vehicle. It will retain a conservative financing strategy."

That said, Martin Adamson, the chairman, did signal the group's substantial headroom, emphasising that "our financial resources remain strong and will enable the group to support new investment initiatives".

Interim results from ABF yesterday showed its net cash funds had fallen to £464m from £1.03bn a year ago, after it bought the international yeast business and stepped up its investment in Primark.

Pre-tax profits, excluding any losses or gains from disposals and goodwill amortisation, rose 16 per cent to £268m on sales up 10 per cent at £2.6bn.

With due diligence on Littlewoods expected to take a further two to three weeks, Mr Weston does at least have a little breathing space to make his decision.

He might like to bear in mind his father's premonition, expressed to Mr Lang in the mid-Nineties on the sale of its Stewarts Supermarkets to Tesco: "One of these days we're going to be very big in retailing."