November 3, 2015 / 7:19 AM / 2 years ago

Primark owner AB Foods says currency effects to dent profit

LONDON (Reuters) - Associated British Foods, owner of the Primark fashion chain and AB Sugar, warned on Tuesday that currency moves will dent earnings in its new financial year if current exchange rates persist.

The company, which also has major grocery, agriculture and ingredients businesses, reported a 2 percent fall in 2014/15 earnings and forecast that currency pressures would lead to a “modest decline” in 2015/16.

The strengthening of sterling and the U.S. dollar, and a weakening of the euro and emerging market currencies, has a negative effect on the translation of AB Foods’ overseas results but also on transactional exposures, such as sourcing costs.

Primark, for example, buys clothes from Asia in dollars before selling them increasingly in euros as it expands in countries such as France, Germany and Spain.

At current rates, AB Foods estimates a translation impact in 2015/16 similar to 2014/15’s 31 million pounds ($47.8 million) but a greater transactional impact.

The price of shares in the group, majority owned by the family of Chief Executive George Weston, has risen by a quarter over the past year but fell by up to 2.9 percent on Tuesday.

Analysts at Credit Suisse forecast a 4 percent fall in 2015/16 adjusted earnings per share (EPS).

AB Foods made adjusted EPS of 102 pence in the year to Sept. 12, beating analysts’ average forecast of 98.4 pence, according to Reuters data, but below the previous year’s 104.1 pence.

Revenue fell 1 percent to 12.8 billion pounds, while adjusted pretax profit dipped 6 percent to 1.03 billion pounds. The dividend was increased 3 percent to 35 pence.

While operating profit at Primark rose 2 percent to 673 million pounds it slumped 77 percent to 43 million pounds at AB Sugar because of weak prices.

PRIMARK STRENGTH

“We’re actually really pleased with these results,” Weston told Reuters.

“The well-flagged reduction in sugar prices took 146 million pounds off our profit. In EPS terms we recovered almost all of it. Primark continues to grow strongly and the rest of the group was ahead by 17 percent.”

After three years of profit decline in sugar, the group expects greater stability in 2015/16 ahead of EU quota removal in 2017.

Primark entered the U.S. market in September with a store opening in Boston and plans another seven openings in 2015/16.

“It’s trading well. But it is only one store and only eight weeks,” Weston said.

“Once we’ve got experience of trading eight different locations then we’ll have a much better steer on how the U.S. has gone.”

The CEO said that Primark has traded well across all its markets so far in its new financial year.

Editing by Sarah Young and David Goodman

Our Standards:The Thomson Reuters Trust Principles.
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