Associated British Foods (AB Foods) has announced its intention to demerge its fast-fashion retailer, Primark, from its food businesses. The demerger, expected to be completed by the end of 2027, aims to create two publicly listed companies, both anticipated to be FTSE 100 constituents. This strategic move is intended to enhance investor understanding and unlock greater value for shareholders, as analysts often sum-of-the-parts valuations show Primark trading at a discount. Shareholders will receive shares in both new entities upon completion.
The decision comes amidst a challenging financial period for AB Foods. The company reported a significant decline in its first-half pretax profit, falling by 8.7% to £632 million, missing the consensus forecast of £710 million. Additionally, adjusted operating profit for the group saw an 18% decrease, with revenue down 2% to £9.47 billion. The sugar division, in particular, has been a major concern, posting an adjusted operating loss of £27 million in the first half due to lower average selling prices in Europe, and is now projected to have an adjusted operating loss for the full year 2026, a revision from previous expectations of a small profit. The ingredients division also saw adjusted operating profit decline by 7% due to soft market demand in US bakery ingredients.
Despite the challenges, AB Foods' full-year outlook remains unchanged, with the exception of the sugar business. CEO George Weston, who will lead the food businesses after the demerger, emphasized that the separation is not a response to trading issues but rather a long-term strategy supported by major shareholders. Primark, with annual revenues of about £9.5 billion and 486 stores across 19 markets, and the food businesses, with revenues around £9.8 billion across 52 countries, are expected to benefit from independent governance and clearer investment propositions. However, analysts note that the consumer outlook and business conditions remain challenging for both parts of the group, with an estimated £45 million in dis-synergies and £75 million in one-off transaction costs associated with the split.
