The owner of budget fashion chain Primark said it should ultimately benefit from Brexit as it predicted rising profits despite a squeeze from the plunging pound.
Associated British Foods (ABF) said like-for-like sales at Primark dropped 2 per cent in a “challenging” year ending 17 September 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.
However, shares rose as the group posted a 5 per cent increase in overall underlying pre-tax profits to £1.1 billion and said it expected another hike in earnings for the coming year.
ABF 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.
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But chief executive George Weston said the pound’s fall brings “benefits and challenges” to the group. He 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.
ABF added it hoped to gain overall from Brexit in spite of uncertainties.
It said: “Changes 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 per cent higher to £689 million with currency movements stripped out.
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 per cent to £34m, but surged 55 per cent with currency movements stripped out.
Its grocery arm saw underlying operating profits rise 4 per cent on a constant currency basis to £304m.
Analysts at Liberum said ABF had delivered “solid results” for Primark despite the pound’s weakness.
A final dividend of 26.45p a share was proposed, to be paid on 13 January, lifting the full-year payout by 5 per cent to 36.75p.