Shares in Associated British Foods (ABF) tumbled over 3% early on Monday (12 September), after the owner of Primark revealed its pension scheme has plunged to a £200m deficit.
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Sales at Primark are expected to be 9 per cent ahead of past year at constant currency although like-for-like revenues will dip by about 2 per cent.
Primark’s fourth-quarter sales and operating margins were a “bit lower” than expected and the very warm weather at the start of autumn will probably have a further negative impact on sales, according to RBC Europe analyst Richard Chamberlain.
A previous small pension surplus has in recent weeks morphed into a £200m pension deficit after the marked decline in United Kingdom long-term bond yields post the Brexit vote, which the company said would result in an increased service cost and a higher interest charge next year.
The group announced the sale of its southern China cane sugar business to a consortium led by Chinese regional producer Nanning Sugar. Primark’s profit margins should get squeezed next fiscal year as hedges taken against the fall in sterling expire.
The company said in a pre-close trading update today that further weakening of sterling since the European Union referendum has resulted in a translation benefit, meaning earnings per share for the 53 weeks to 17 September are expected to be ahead of a year ago.
In a trading statement, the FTSE 100-listed group said the slump of its pension scheme, which recorded a small surplus past year, was largely due to record low gilt yields.
“There would be an adverse transactional effect on the profit margin on Primark’s UK sales, a favourable transactional effect on British Sugar’s margins and a translation benefit on group profits earned outside the UK”, ABF said in a statement.
Food ingredients’ revenues are expected to be ahead of a year ago and operating profit will again be substantially ahead with a further improvement in margin.
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With revenues marginally higher, grocery operating profit at constant currency will be higher than a year ago with a further improvement in margin and benefit from favourable currency translation.
