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Primark owner AB Foods hopes to gain from Brexit as it predicts rise in profits

Published 08/11/2016

Primark owner AB Foods saw shares jump 6% higher as it posted a 5% rise in underlying pre-tax profits
Primark owner AB Foods saw shares jump 6% higher as it posted a 5% rise in underlying pre-tax profits

Primark owner Associated British Foods said it should ultimately benefit from Brexit as it predicted rising profits despite a squeeze on its budget fashion chain from the plunging pound.

AB Foods saw shares jump 6% higher as it posted a 5% rise in underlying pre-tax profits to £1.07 billion for the year to September 17 and said it expected another hike in earnings for the coming year.

The group confirmed like-for-like sales at its Primark business dropped 2% in a "challenging" year and repeated warnings that the fall in the value of the pound since the Brexit vote would knock margins at the retailer over the coming year.

AB Foods has already pledged not to raise Primark price tags, even though it is in line for a hit from the pound's fall this financial year, as it buys a lot of its clothes from Asia in US dollars.

But chief executive George Weston said the pound's fall brings "benefits and challenges" to the group.

It is hoping for a boost to the value of overseas group earnings, which account for around half of the group's total, while the new financial year results will also be driven higher by a strong performance from its sugar business.

AB Foods added it hoped to gain overall from Brexit in spite of uncertainties.

It said: "C hanges in legislation and trade agreements, particularly in the areas of trade tariffs and UK agricultural policy, have the potential to benefit the group, and the current level of sterling offers UK food producers significant opportunities to replace imported food and build export markets."

The firm, which also owns Twinings tea and Kingsmill bread, saw underlying earnings at Primark edge 1% higher with currency movements stripped out to £689 million.

It blamed "unseasonable weather and cautious consumer sentiment" for sales woes in key markets such as the UK and Germany.

But the group saw a turnaround in profits at its sugar business thanks to surging global sugar prices, while it has also been slashing costs in the division.

Underlying sugar earnings lifted 3% to £34 million - a 55% surge with currency movements stripped out.

Its grocery arm saw underlying operating profits rise 4% on a constant currency basis to £304 million.

Analysts at Liberum said AB Foods had delivered "solid results" for Primark despite the pound's weakness.

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