AB Foods hit as costs take toll on profit

PRIMARK owner AB Foods yesterday saw its shares tumble as it warned that its full-year profit would be dented by soaring costs.

The company said it expected full-year profits to be similar to those last year, as it announced its half-year results.

It had previously expected annual earnings to rise.

Profit for the six months to 5 March dropped 0.3 per cent to £319m, on revenue of £5.2bn.

Chairman Charles Sinclair said: “We continue to expect good revenue growth for the full-year although adjusted earnings are now expected to be similar to last year’s very strong result.”

Its clothing chain Primark has been particularly badly hit as cotton prices have been soaring, fuelling price rises on the high street.

However Primark is absorbing the costs which are instead hitting its profit margin. Primark accounted for 38.7 per cent of AB Foods’ profit in the first-half, although margins have already fallen.

The rise in VAT in the UK from 17.5 per cent to 20 per cent in January has also squeezed margins.

Shares in AB Foods, which also owns the Twinings tea brand, Ovaltine and Kingsmill bread, closed 5.8 per cent lower at 984p after the announcement.

The company’s sugar business, Silver Spoon, has gained from world sugar price rises. But UK sugar profits for the full-year will be hit by £20m of extra costs for processing sugar beet damaged by freezing weather in Britain before and after Christmas.

Sinclair, alluding to the tough market, added: “Much has been reported in the media in recent weeks about the contraction in the personal disposable income of the UK consumer due to higher fuel costs, food inflation and fiscal tightening.”