AB Foods to split Primark from its food businesses
Associated British Foods will split Primark from its foods business, saying the fashion chain will be stronger as a standalone company with its own board and dedicated investors.
Primark trades as Penneys here.
AB Foods has said the financial markets will better value both the food businesses, which include grocery brands such as Ovaltine, Ryvita and Twinings, and Primark if the retail arm goes it alone.
Over the last three years, Primark, which trades from 486 stores in 19 countries and has annual revenues of about £9.5 billion, has faced intensifying competition from Chinese online giants Shein and Temu, while in January it warned profit would fall, partly due to discounting at the chain.
Illustrating the challenge ahead, AB Foods reported an 18% fall in first-half core profit and said its full-year profit would be below the previous year's outcome due to weak trading at Primark in continental Europe and weaker ingredient markets in the US.
Shares in the group opened down 4%.
But AB Foods said it would be better equipped to deal with the tough markets as two companies.
"This is an important step in the evolution of ABF," chief executive George Weston said, adding that the split would maximise the potential of both units.
RBC analysts said that the split should improve the investability of AB Foods in the medium to long term, but warned: "The consumer outlook and outlook for both sides of the business looks quite challenging to us at the moment."
On completion of the demerger, AB Foods shareholders will hold shares in both listed entities, which are expected to be in the FTSE 100, AB Foods said in a statement.
Shares in the group have fallen 14% over the last year, giving it a market capitalisation of £13.3 billion.
Most analysts' sum of the parts valuations of AB Foods show Primark trades at a significant discount to peers, and analysts say Primark has the scale and growth opportunities to thrive as a standalone company.
The group launched a review of its structure last year, conducted in consultation with its largest shareholder Wittington Investments - the holding company for the Weston family.
The group expects to split before the end of 2027, with one-off separation costs of about £75m.
Associated British Foods' shareholders are supportive of the group's plan to demerge its Primark fashion business from its food businesses, its boss said today.
"They think we're doing the right thing," chief executive George Weston told Reuters.
"One of the reasons we announced back in November that we were having a hard look (at a potential separation) was to allow us to talk to all shareholders, we've done that and they are supportive," he said.
Wittington - which holds just under 60% of AB Foods' equity, according to LSEG data - is committed to maintaining majority ownership of both Primark and the new food entity.
Weston said AB Foods had not considered selling Primark during the review process.
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