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

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

The British 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 hikes. The stock fell as much as 6.6 percent in London, nearing its lowest level in a decade.

Rising energy costs are putting pressure on the group, while a stronger dollar is particularly impacting Primark, which buys most of its apparel inventory in US dollars. AB Foods is reporting earnings in sterling terms, near their lowest level since 1985.

The company has a “retail business that’s experiencing volatility and cost increases like I’ve never seen before,” John Bason, AB Foods’ outgoing finance director, said in a call, adding that the group’s energy costs are very high ” fleeting and very high.”

Supply chain difficulties increased Primark’s spending by more than £200m ($230m) and general disruption and inflation resulted in a £750m increase in working capital.

In a sign of the pressure Primark’s customers are under, the group said it will not raise prices any further as consumers are likely to have less disposable income next year. It said it will work to remove costs from the deal.

The British conglomerate said year-to-date sales and profits are on track. Primark owner AB Foods warns profits will fall next year as energy costs rise

Fry Electronics Team

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