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Associated British Foods (ABF) has officially confirmed today (21 April) it will proceed with a demerger of its Primark retail business from its food operations, which is expected to incur a one-off separation and transaction cost of £75m.
Following a review of the group structure, the board decided to create two separate listed entities, currently referred to as Primark and FoodCo.
The company reached the decision after evaluating the financial and legal consequences of the split. Wittington Investments, the largest shareholder in the group, supports the proposal and intends to maintain majority ownership of both businesses.
On completion of the demerger, the food business will retain the name Associated British Foods. Both companies are expected to be listed on the London Stock Exchange and qualify as constituents of the FTSE 100 index.
Primark currently operates 486 stores across 19 markets and employs more than 83,000 people. The retail division reported annual revenue of approximately £9.5bn, while the food business operates in 52 countries with revenue of £9.8bn and 55,000 staff.
The group expects one-off separation and transaction costs to reach £75m. Estimated dis-synergies resulting from the split are expected to be below £45m. The demerger is scheduled to become effective before the end of 2027.
Chief executive George Weston will lead FoodCo, while Eoin Tonge will serve as chief executive of Primark. Current chair Michael McLintock will remain in his role until the demerger is finished to ensure a smooth transition.
In its interim results, which were announced separately, the group reported a 2% decrease in revenues for the 24-week period ended 28 February and an 18% decline in adjusted operating profits. It is thought that performance was impacted by the sugar segment, which saw an operating loss of £27m.
However, retail sales grew 2% as new store openings offset a 5.6% decline in European like-for-like sales. The company attributed softer trading in April to the impact of the Middle East conflict on consumer spending.
McLintock said: “The board has now completed its in-depth review of the structure of ABF and has concluded that a demerger of Primark is the best way to maximise long-term returns for shareholders. The opportunities ahead for both Primark and FoodCo are considerable and the board firmly believes that each will thrive as an independent entity.”
Weston added: “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.”
