ABF Considers Separation of Primark and Food Businesses

Associated British Foods (LON: ABF) is evaluating a potential separation of its Primark and Food divisions, a move aimed at maximizing long-term shareholder value.

The announcement came alongside the release of the company’s annual results for the 52 weeks ended September 13, 2025, which revealed a mixed performance across its segments.

Group revenue saw a slight decrease of 1% to £19,459 million, while adjusted operating profit declined by 12% to £1,734 million. Adjusted earnings per share (EPS) also fell by 11% to 174.9p.

Despite the revenue dip, ABF continued to invest heavily in its operations, allocating £1.2 billion towards capacity, capabilities, and new technology.

Free cash flow decreased significantly to £648 million, reflecting lower operating profit and increased working capital needs. The company's return on average capital employed (ROACE) stood at 15.5%.

Shareholder returns remain a priority, with a total dividend of 63.0p per share maintained, in line with the prior year. ABF completed £594 million in share buybacks during the year and announced a further £250 million buyback program. The company's leverage ratio is a healthy 1.0x.

Retail, primarily driven by Primark, saw sales growth of 1% to £9.5 billion. Store rollouts in Europe and the US contributed significantly to this growth. Adjusted operating profit in the retail segment increased by 2% to £1.1 billion.

The Sugar division experienced a decline in operating profit, contributing to the overall group's profit decrease. Grocery and Ingredients businesses performed as expected, with international brands in the Grocery segment delivering good sales growth.

Meanwhile, the Board of ABF believes a separation could unlock greater value for both Primark and its Food businesses.

Primark has achieved significant scale, while the Food businesses, despite their strong portfolio and global expertise, may be undervalued within the current structure.

Wittington Investments, ABF's largest shareholder, is involved in the review and remains committed to maintaining majority ownership of both businesses.

George Weston, Chief Executive of Associated British Foods, said: “Within ABF we have two great businesses but one strong culture of long-term value creation driven by the dedication and excellence of our people. Our unique and exceptional Food business has historically been less well understood by the financial markets than Primark, yet it has a highly attractive portfolio, deep global expertise and much potential.

“Primark has an incredibly strong international brand, a powerful customer proposition, and substantial growth opportunities.”

ABF anticipates growth in adjusted operating profit and adjusted EPS in 2026. Primark's focus will be on strengthening its value proposition and expanding its store network. The Sugar division is expected to improve profitability, while the Grocery and Ingredients businesses are projected to maintain stable performance.

AskTraders Takeaway

The potential separation of Primark and Food businesses introduces uncertainty but also opportunity. Markets will be closely watching for updates on the strategic review. Investors should consider both the potential upside from a successful separation and the risks associated with restructuring.