(April 21): Associated British Foods plc will separate budget clothing chain Primark and break up one of the UK’s biggest conglomerates after more than three decades.
In a move many in the market believed the billionaire controlling Weston family would never consider, Primark will become one of Europe’s biggest standalone clothing companies, facing up to rivals like Inditex SA and H&M. The separate food arm will span from groceries to sugar plantations.
“Primark will be probably the only — or certainly by some way the biggest — international retail clothing business on the FTSE 100, and food will be the only food pure-play in the FTSE 100,” AB Foods’ CEO George Weston said in an interview. “We are setting up two big, significant businesses with the governance that is appropriate for both.”
Shares of AB Foods fell as much as 7.1% in early trading in London, as the company also reported a drop in first-half operating profit. They were down 11% so far this year through Monday’s close.
Weston will continue to lead the food business — which will retain the AB Foods name — at a time when manufacturers are facing inflationary pressure from the war in Iran. Eoin Tonge, currently the CEO of Primark, will remain in his role.
It marks the biggest change in the history of the group, which can be traced back to 1935 when Garfield Weston — grandfather of the current CEO — set up a bakery in the UK.
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The split will take place via a dividend demerger, meaning current AB Foods shareholders will be issued an equal amount of shares in the newly listed Primark.
The company said it was considering the move in November as Primark grew to sales of nearly £10 billion across 19 markets. The aim is to improve understanding of the food business, which spans groceries to sugar plantations and includes the Twinings tea and Jordans cereals brands. It also has close to £10 billion in annual revenue.
With Primark accounting for the majority of operating profit, the group has been largely followed by retail analysts rather than food specialists.
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Still, the timing surprised analysts given AB Foods has long lauded its conglomerate structure. After years of dominating the budget clothing market, especially in the UK, Primark is now being squeezed by online rivals including Shein and Temu, and saw weaker sales over the key holiday period.
Primark’s like-for-like sales in the UK rose 1.3% in the first half ended Feb 28, in what AB Foods called a “difficult retail environment". The company also warned it faced “softer trading” in April due to the impact of the Middle East conflict on consumer sentiment.
Overall, the group’s adjusted operating profit fell 17% to £691 million, and it is now forecasting a full-year operating loss in its sugar business.
AB Foods expects the split to be completed by the end of 2027. The founding Weston family will keep a majority stake in both Primark and the separate food business via its Wittington Investments vehicle.
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