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Primark owner warns pound's decline over Brexit will hit its margins

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Tom Belger
·Finance and policy reporter
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File photo dated 11/04/19 of the world's biggest Primark store in Birmingham. Bosses at Primark's owner have promised customers that the fashion retailer will not increase prices, despite seeing costs jump due to Brexit.
Primark margins were hit by Brexit volatility. Photo: PA

Primark’s owner is warning that sterling’s decline over fears about Brexit will hit its profit margins.

Associated British Foods (ABF.L), which owns other brands including Twinings and Ryvita, also reported a 5% decline in operating profit to £1.28bn in its full-year results up to 14 September.

The company issued a warning on Tuesday over how Brexit’s impact on sterling exchange rates would hit its outlook for the first half of the next financial year.

Its finance director John Bason reassured shoppers in September they would not see price hikes in Primark stores, saying it would accept lower margins.

It said in its latest statement the weakness of sterling would see margins decline in the first half and cause a “small reduction” over the next full year, calling the pound “very volatile.”

READ MORE: Pound has its best month in a decade

But currency volatility does not only spell bad news for the company, as it much of its profits are made overseas. Sterling’s fall over the past year meant earnings made in dollars netted it an extra £9m.

The company added: “Our businesses have completed all practical preparations for Brexit and contingency plans are in place should our businesses experience some disruption at the time of exit.”

The pound has faced a particularly volatile year as Britain has edged closer to two Brexit deadlines in March and October, prompting sell-offs as fears grew Britain crashing out of the EU without a deal.

Sterling has recovered in recent weeks against the dollar as UK prime minister Boris Johnson struck a Brexit divorce deal with Brussels, but volatility could continue in the run-up to the latest 31 January deadline.

READ MORE: UK workers face ‘longest pay squeeze in centuries’

Associated British Foods blamed “exceptional” issues for the decline in its profits over the past year.

It took a £65m hit to write down the value of its loss-making Allied Bakeries arm, after it lost its largest private label manufacturing contract and suffered from low bread prices and fierce competition.

It also took a £14m hit to cover increased costs after a high court ruling last year on equality in minimum pensions for male and female staff.

Bason also said in September Primark would become the latest high street giant to look to cut costs through “stern negotiations” with landlords over rent when its leases come up for renewal.