AB Foods Unveils Plans to Spin Off Primark Amid Profit Challenges

Associated British Foods has revealed its intention to spin off Primark, its fashion retail arm, from the food sector via a demerger. This strategic decision follows a comprehensive assessment of the organization's structure.

The company anticipates that by separating these entities, it will allow financial markets to more accurately assess the value of each. The food division features popular brands such as Ovaltine, Ryvita, and Twinings, while Primark will function independently within the retail sector.

Currently, Primark boasts 486 locations across 19 countries, yet it has encountered fierce competition from e-commerce platforms like Shein and Temu. Earlier this year, the retailer indicated a profit decline attributed to heavy discounting practices.

Post-demerger, shareholders will receive stock in both companies, which are anticipated to be listed on the FTSE 100. Analysts suggest that Primark's current valuation is not reflective of its potential, highlighting its prospects for growth as an independent entity.

The assessment was conducted in partnership with Wittington Investments, the primary stakeholder in AB Foods. The separation is projected to finalize before 2027, with a one-time expense around £75 million.

In tandem with this announcement, AB Foods disclosed an 18% decrease in core profit for the first half. It also indicated that the full-year profit would fall below the previous year's £1.734 billion. For the 24-week period leading to February 28, adjusted operating profit was £691 million, while revenue experienced a 2% dip to £9.47 billion.

This downturn was primarily driven by disappointing sales at Primark in Europe and reduced demand in ingredient markets across the U.S.