Primark owner AB Foods warns profits to fall next year as energy costs rise

Primark owner AB Foods warns profits to fall next year as energy costs rise

Associated British Foods Plc warned profit in the next fiscal year will be lower as rising energy costs and the strengthening of the dollar weigh on its Primark value fashion chain.

The UK conglomerate said Primark, which generates most of the group’s profit, is experiencing unprecedented volatility and its operating margin will fall next year, despite recent price increases. The stock fell as much as 6.6pc in London approaching the lowest level in a decade.

Soaring energy costs are putting pressure on the group while a stronger dollar is particularly impacting Primark which buys most of its clothing stock in US dollars. AB Foods reports its earnings in sterling which is near the lowest level since 1985.

The company has a “retail business that is experiencing the volatility and cost increases the likes of which I’ve not seen before,” John Bason, the outgoing finance director at AB Foods said in a call, adding that the group’s energy costs are very “volatile and very high.”

Supply chain difficulties added more than £200m ($230m) to Primark’s expenses and overall disruption and inflation led to an increase of £750m million in working capital.

In a sign of the pressure that Primark’s customers are under, the group said it won’t raise prices further given that consumers will probably have less disposable income next year. It said it will work to remove costs from the business.

The UK conglomerate said sales and profit in the current year are on track.