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AB Foods expects reduced Primark margins in 2019-20

AB Foods expects reduced Primark margins in 2019-20
FILE PHOTO: Shoppers walk past a Primark store on Oxford Street in London, Britain December 17, 2018. REUTERS/Simon Dawson -
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LONDON (Reuters) – Associated British Foods <ABF.L> stuck to its forecasts for its 2018-19 year but warned that it expected profit margins to fall at its Primark fashion chain in its next financial year.

The group said the strengthening of the U.S. dollar this year and the recent weakening of sterling will increase the cost of goods for its 2019-20 year.

“We anticipate achieving some mitigation from reduced materials prices, the favourable effect of exchange rates in sourcing countries and better buying. Combined with a more typical level of markdown, we expect a reduced margin next year,” it said.

Primark accounts for about half of group revenue and profit.

AB Foods kept its guidance for the 2018-19 year, forecasting that solid profit performances at Primark and its grocery business would offset a decline in its sugar operations.

The group, which also owns agriculture and food ingredients businesses, forecast adjusted earnings per share in line with 2017-18’s 134.9 pence.

It said Primark’s full-year sales are expected to be 4% ahead of last year, driven by increased selling space partially offset by a 2% decline in like-for-like sales.

The group said Primark continued to win market share in Britain, despite a like-for-like sales decline of 1%.

AB Foods said its businesses had completed all practical preparations for Britain leaving the European Union and contingency plans were in place should it experience disruption at the time of exit.

Shares in AB Foods, which is majority-owned by the family of Chief Executive George Weston, have increased 15% so far this year. They closed Friday at 2,354 pence, valuing the business at 18.7 billion pounds.

(Reporting by James Davey, Editing by Paul Sandle and Louise Heavens)

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