Associated British Foods (ABF) has announced plans to split its fashion chain Primark from its food businesses by the end of 2027. The company stated that both entities will be stronger as standalone companies with their own boards and dedicated investors.
Key Takeaways
Associated British Foods (ABF) plans to split its fashion chain Primark from its food businesses by the end of 2027. Both entities will operate independently with their own boards and investors. The demerger aims to maximize shareholder value, though ABF reported an 18% fall in first-half core profit due to weak trading at Primark in Europe and weaker U.S. ingredient markets.
- ABF plans to separate Primark from its food businesses by the end of 2027
- One-off separation costs estimated at £75 million
- ABF reported an 18% fall in first-half core profit due to weak trading
- Shares opened down 4% reflecting market concerns about recent performance and future challenges
The demerger will separate Primark, which operates 486 stores in 19 countries and has annual revenues of about £9.5 billion, from ABF's food businesses, including grocery brands such as Ovaltine, Ryvita, and Twinings. The split is expected to be completed by the end of 2027, with one-off separation costs estimated at £75 million.
ABF reported an 18% fall in first-half core profit and indicated that 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 U.S. Shares in ABF opened down 4%, reflecting market concerns about recent trading performance and future challenges.
Primark has faced intensifying competition from Chinese online giants Shein and Temu, while in January it warned that profits would fall partly due to discounting at the chain. The company also reported a 2% fall in group revenue and a 9% drop in pre-tax profits for the six months to February.
ABF chief executive George Weston stated that the split is an important step in the evolution of ABF, enabling greater understanding of both businesses' strengths and growth opportunities. Analysts have suggested that the demerger could improve the investability of ABF in the medium to long term but warned about challenging consumer outlooks for both sides of the business.
According to Reuters Breakingviews, AB Foods’ lowly valuation boosts the case for a breakup. The group trades at just six times 2026 EBITDA, per Visible Alpha estimates, a steep discount to Zara-owner Inditex which is on over 13 times and H&M on eight times.
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