Brexit blows £200m hole in Primark’s pension fund

Since Britain voted to leave the EU, the country’s pension deficit has swelled and now stands at over £400bn

Ben Chapman
Monday 12 September 2016 16:47
Primark blames poor weather for a fall in profits
Primark blames poor weather for a fall in profits

Primark owner, Associated British Foods (ABF), announced its pension fund has plunged into a £200m deficit from a surplus only last year. The fast fashion retailer also said full-year sales had been hit by unseasonable weather, adding that currency movements following the Brexit vote will have both positive and negative repercussions for the group.

The company said the hole in its pension scheme emerged due to a “marked decline in UK long-term bond yields”. Last month the Bank of England lowered its benchmark interest rate to 0.25 per cent, its lowest ever level, in an attempt to stimulate the economy after the nation voted for Brexit. The move resulted in lower returns on government debt, billions of pounds of which is owned by pension funds.

Since Britain voted to leave the EU, the country’s pension deficit has swelled and now stands at over £400bn.

ABF said that like-for-like sales at Primark are expected to fall by 2 per cent over the year as warm pre-Christmas weather and a “very cold” March and April dampened its performance.

However, the fashion chain still expects overall annual sales to be 9 per cent ahead of last year, driven by a 9 per cent increase in selling space, which saw a net addition of 22 stores, bringing the estate up to 315 shops.

ABF said that the collapse in sterling against the dollar since the Brexit vote will have “no effect” on Primark this year because of the firm’s practise of taking out forward currency contracts. However, it warned that its margins will be squeezed as a result of a weaker pound.

“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 practise of taking out forward currency contracts when garment purchase orders are placed.

“However, at current exchange rates, margin will be adversely affected in the new financial year,” it said.

The company added that, as a result of the weaker pound, there would be a favourable effect on profit margins at its sugar operations and on profits earned outside the UK.

ABF added that across its businesses it expected group operating profit to be ahead of last year, partly due to the weakness of sterling.

On the value chain’s foray into the US, where it has five stores, ABF said that it has received “very positive customer feedback” and will open three more stores in the country next year.

Additional reporting by Press Association

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