Primark owner Associated British Foods warns Brexit-related currency volatility could hurt profit margins in the new year
Primark owner Associated British Foods (ABF) has been feeling the benefits of post-Brexit currency volatility since June – but warned that it may start to see a negative impact in the new financial year.
Shares in the company have dropped by 10.68 per cent so far today.
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The company said in a pre-close trading update today that further weakening of sterling since the EU referendum has resulted in a translation benefit, meaning earnings per share for the 53 weeks to 17 September are expected to be ahead of last year. The group said the benefits came "as a result of forward currency purchases and fixed contracts".
ABF said operating profit will also be ahead of last year's.
However, the firm said: "If current sterling exchange rates continue they will have both positive and negative effects on the group's operating profit next year. There would be an adverse transactional effect on the profit margin on Primark's UK sales."
While the pound has rallied recently, in the aftermath of the Brexit vote the currency plunged to a 30-year low.
Like-for-like sales at Primark are expected to show a two per cent dip – due to unseasonably warm weather pre-Christmas, and a very cold March and April, ABF said.
And Primark's operating profit margin, while unaffected in this financial year, could be hurt in the next 12-month period.
"The transactional impact on Primark's margins from the weakening of sterling against the US dollar, particularly since the EU referendum, will have no effect in this financial year as a result of our practice of taking out forward currency contracts when garment purchase orders are placed," ABF said. "However, at current exchange rates, margin will be adversely affected in the new financial year."
The group expects year end net debt to be a little higher than last year's, partly due to a negative translation effect on non-sterling denominated borrowings.