Apr 21, 2015
owner Primark says currency moves to dent profits AB Foods
Apr 21, 2015
Associated British Foods, owner of budget fashion retailer Primark and British Sugar, warned on Tuesday that earnings for its current financial year would be hit by major currency moves and could be damaged even more next year if current exchange rates persist.
The U.S. dollar/euro exchange rate has moved by more than 20 percent over the last year as the U.S. currency has appreciated and the euro has weakened.
The impact on AB Foods' adjusted operating profit from the translation of overseas results into sterling was a loss of 11 million pounds ($16.4 million) in the first six months of its financial year ending this September.
If current rates persist it said the hit for the full year would be about 25 million pounds.
However, the group cautioned that currency movements will potentially have a greater impact where it manufactures or purchases in one currency and sells in another.
AB Foods' sugar business has a sterling cost base but most of its sales are denominated in euros, while Primark buys a substantial proportion of its garments in dollars and sells in euros and sterling.
"If the current euro weakness against sterling and the U.S. dollar persists this will have an impact on the group's operating profit for the remainder of this financial year and a greater impact next year," it said.
Shares in AB Foods, majority-owned by the Weston family, were down 4.3 percent at 2,740 pence by 0931 GMT, the biggest faller in Britain's FTSE 100 index of blue chip companies and taking gains in the last six months down to 8.6 percent.
Chief Executive George Weston told Reuters the firm's working assumption had to be that current exchange rates continue.
"We have to mitigate the financial effects of it to the extent that we're able to and we have to, in Primark's case, protect our consumers from the effect of it," he said.
Analysts at Barclays cut their earnings per share forecast for the 2014-15 year from 98.8 pence to 97.5 pence and their forecast for the following year by 13 percent to 98.1 pence.
Weston said there was no change to AB Foods' outlook on trading performance with the change in forecast all down to currency.
AB Foods made an underlying operating profit of 474 million pounds in the six months to Feb. 28, in line with analysts' forecasts but down from 497 million pounds in the previous corresponding period.
Underlying earnings per share rose 1 percent to 46.1 pence and the firm is paying an interim dividend of 10 pence, up 3 percent.
The group said Primark's plans for its entry into the northeast of the United States in the autumn were well advanced.
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