July 7, 2016 / 6:18 AM / 2 years ago

AB Foods to press ahead with Primark expansion despite Brexit

LONDON (Reuters) - Associated British Foods (ABF.L) will stick to expansion plans for its Primark clothing chain across Europe and the United States, buoyed by expected earnings growth despite uncertainty created by Britain’s vote to leave the European Union.

Shoppers carry bags of Irish clothing retailer Primark in a commercial district in central Madrid, Spain, May 26, 2016. REUTERS/Susana Vera/File Photo

The company, which also has sugar, grocery, agriculture and ingredients businesses, upgraded its annual earnings guidance on Thursday, reversing a previous forecast for a marginal decline, as it starts to benefit from a weaker pound.

Sterling has taken the brunt of market concern since Britain’s EU referendum on June 23, falling to a 31-year low on Wednesday below $1.28, against the $1.50 level the day before the vote.

Exchange rates will have mixed results on profits of its different businesses, the company said, but it expects overall earnings to increase.

“I am comfortable that we will grow earnings per share next year,” Finance Director John Bason said in an interview.

For the group’s new financial year, which starts in September, Bason said that Primark would continue its expansion with at least 20 new stores, focusing on the United States, Italy, France and Britain.

“Those expansion plans are very, very much in place,” he said.

RATING UPGRADE

Shares in AB Foods jumped 8.8 percent to 27.78 pounds by 0846 GMT (9.46 a.m. BST). They are still below the 28.29 pounds at which they closed on June 23 before the Brexit vote result but have recovered much of the following day’s 30 percent plunge.

Numis analysts upgraded their rating to “add” from “hold” after Thursday’s update.

The Brexit vote has thrust Britain into its worst political crisis in modern times and rendered its economic prospects uncertain, leading to worries about consumer and business spending, but Bason said it is too soon to see the impact at Primark stores.

“I think it’s too early for me to say,” he said, adding that Primark, known for its low cost clothes, had proved resilient in the past.

Primark, which generates half its sales in Britain, will take a profit hit if sterling weakness persists into next year, given that the company buys in dollars and sells in pounds.

Conversely, AB Foods would achieve stronger margins at its British sugar business, where it primarily sells in euros but has a cost base in pounds.

For this financial year, the company said it no longer expects adjusted earnings per share to decline from the 102 pence made in 2014-15, helped by improvement in the sugar business.

Editing by Kate Holton and David Goodman

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