“Maybe it’s time to do something different” – ABF split could prove positive for food

Core Viewpoint - Associated British Foods (ABF) is considering a potential demerger of its food operations from its retail business, Primark, to enhance long-term governance and focus on maximizing value for both segments [6][9][25] Group 1: Financial Performance - ABF reported an operating profit of £1.48 billion for the year, with the retail segment, Primark, contributing £1.12 billion [4] - The group generated total sales of £19.46 billion, with Primark accounting for £9.5 billion (approximately 48%) of this total [5] - Primark's sales increased by 1% year-on-year, while like-for-like sales fell by 2%, indicating challenges in the UK and continental European markets [14] Group 2: Strategic Review and Potential Split - The management is conducting a strategic review that may lead to the separation of Primark from its food interests, which include grocery brands, sugar refining, and agri-food businesses [6][7] - George Weston, ABF's CEO, expressed hope to continue leading the food businesses if a split occurs, emphasizing the need for better scrutiny of the food segment [3][9] - Analysts have noted that there is compelling logic behind a potential split, although questions remain about the timing amid current trading conditions [12][13] Group 3: Food Business Outlook - ABF's food division has experienced mixed results, with revenue and operating profits from the grocery segment declining, while brands like Twinings and Ovaltine have shown consistent performance [16][21] - The company anticipates holding adjusted operating profits in its grocery and ingredients segments at similar levels to the previous year, with a cautious outlook for the sugar business [18][19] - Management sees potential for growth in its food assets, particularly in international grocery brands and the ingredients sector, with significant capital investment directed towards food [20][21][23] Group 4: Market Perception and Analyst Insights - Analysts have raised concerns about whether the consideration of a split is driven by strength or weakness in the business [13] - There is a belief that separating the food and retail segments could allow each to pursue more focused growth strategies, as the current conglomerate structure may not be optimal [24][25] - The potential split is viewed as a strategic move to enhance operational focus and capitalize on the strengths of each business segment [25]