Shares in Associated British Foods (LON: ABF) experienced a notable decline following the announcement of its intention to demerge its Retail (Primark) and Food (FoodCo) businesses, despite releasing interim results for the 24 weeks ended February 28, 2026.
The demerger news, while intended to unlock long-term value, appears to have introduced short-term uncertainty, contributing to market apprehension.
Group revenue saw a slight decrease, coming in at £9,470 million compared to £9,509 million in the same period last year. Adjusted operating profit also took a hit, falling 17% to £691 million. The adjusted profit before tax declined 19% to £663 million.
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Adjusted earnings per share (EPS) decreased by 15% to 70.7p. The company highlighted that these results reflected continued investment in growth and certain cost impacts, more weighted to the first half of the year.
The company’s balance sheet shows a total net debt of £3,027 million. Despite the profit decline, ABF maintained its interim dividend at 20.7p per share, signaling confidence in the group’s long-term prospects.
ABF plans to list both Primark and FoodCo on the London Stock Exchange, with the aim of both entities becoming FTSE 100 constituents.
The demerger is expected to be completed before the end of the 2027 calendar year, subject to necessary approvals and tax clearances. The company anticipates dis-synergies of below £45 million and one-off separation and transaction costs in the region of £75 million.
Key Drivers Behind the Demerger:
- Strategic Alignment: Aimed at enabling boards directly aligned with the industry dynamics of each business.
- Investor Proposition: Designed to create a clearer investment proposition and enhanced investor understanding.
- Accountability: Intended to enhance accountability to shareholders invested in either FoodCo or Primark.
AskTraders Takeaway: The market’s initial negative reaction suggests that the demerger’s benefits are not immediately apparent to all investors. The complexity of separating two large, integrated businesses and the potential for unforeseen costs may be weighing on sentiment. Investors might also be adopting a wait-and-see approach until more details about the standalone strategies and financial targets of Primark and FoodCo are revealed.
George Weston, Chief Executive of ABF, stated, “This is an important step in the evolution of ABF. For our Food business, the separation will enable greater understanding of the breadth and strength of our differentiated portfolio and its long-term growth opportunities as the only FTSE100 pure play food producer. For Primark, it enables the creation of appropriate governance to maximise the future potential offered by Primark’s powerful brand, strong customer proposition and opportunities in existing and new markets.”
Analyst Summary: Bull and Bear Cases
Bull Case:
- The demerger enables boards to be directly aligned with the specific industry dynamics of the Food and Retail businesses.
- It creates a clearer investment proposition for each entity, potentially enhancing investor understanding and attraction.
- The separation is intended to enhance accountability to shareholders invested specifically in either FoodCo or Primark.
Bear Case:
- The market’s negative reaction suggests investors are uncertain about the immediate benefits of the demerger.
- Separating two large, integrated businesses is complex and carries the risk of unforeseen costs and operational disruptions.
- Investors may be hesitant until more concrete details on the standalone strategies and financial targets for Primark and FoodCo are provided.
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