Primark-owner AB Foods posts annual profit jump despite £206M German unit charge By Investing.com

By Scott Kanowsky

Investing.com — Shares in Associated British Foods PLC (LON:) rose on Tuesday after the Primark owner posted a sharp increase in full-year profit despite a large one-time charge stemming from issues at its operations in Germany.

Annual statutory operating profit grew by 46% to just under £1.18 billion (£1 = $1.1474).

Undergirding this uptick was a “significant” post-pandemic jump in customer traffic at its key Primark division, where total revenue surged by 43% year-on-year to £7.7B. The company’s food unit also saw sales grow by 10% at constant currencies thanks in part to elevated sugar prices.

But Primark’s performance in continental Europe struggled, with sales weaker on a like-for-like basis in the region. AB Foods said this downturn was due to shoppers reining in spending in the face of soaring inflation.

Group-wide income was also impacted by an exceptional expense of £206 million from a non-cash writedown of assets in Primark’s business in Germany. The charge was linked to second-half demand failing to help pay for retail spaces in the country, which AB Foods said are much larger than its average Primark locations.

Sales densities in Germany, which had been declining even before a pandemic-induced bout of store closures, are now “unlikely” to recover, the company warned.

“Germany is a high cost-to-serve market for retailers. As a consequence, the discounted cashflow of our revised forecast for our German stores requires the recognition of an impairment which has been charged in these financial statements,” AB Foods said.

Looking ahead, the group flagged that input cost inflation remains both substantial and volatile, saying it will look to recuperate these higher expenses in the “most appropriate way.” However, it pledged not to further hike prices for its items at Primark.

Analysts at Citi said they remained cautious about continued erosion to AB Foods’ in 2023.

But they took note of the firm’s decision to launch an annual share buyback program worth £500M, calling it a “correct” move that will help strengthen the company’s finances.