Primark owners expect brand's operating profit to drop by two thirds

The owners of Primark have reported today that the brand’s operating profit for this year will be down by two thirds.

Associated British Foods (ABF), which also owns labels such as Twinings and Kingsmill, is expecting a £600m drop in operating profit for the clothing brand.

It predicted that Primark’s profits for the year would total £300 - £350m, compared to £913m for 2019.

This comes off the back of the closure of all 375 stores closing due to the pandemic, costing the company a loss in sales of approximately £650m per month.

ABF also reported today that it expects Kingsmill production to rise, as independent bakeries “decline”. Kingsmill will also be ending its relationship with Co-op, saying that it has “not been able to agree a way forward that makes financial sense”.

The company said: “For the full year we continue to expect strong progress in the aggregate adjusted operating profit of our sugar, grocery, agriculture and ingredients businesses.

“This will be mainly driven by a material increase in profit at AB Sugar and another year of good margin and profit growth in grocery.

“Nearly all Primark stores are now trading again and we estimate that, absent a significant number of further store closures, adjusted operating profit for Primark, excluding exceptional charges, will be in the range £300-350m for the full year compared to £913m reported for the last financial year.

“The full year effective tax rate for the group is expected to be in the region of 30 per cent, higher than the 22.6 per cent reported for the half year due to much lower taxable profits in the UK and Ireland this year.

“After the cash outflow in the third quarter, we expect the group to return to cash generation in the final quarter.

“With Primark trading again, our current expectation is that the year end net cash balance, before lease liabilities, will be in excess of £750m.”