The big moves keep coming from Associated British Foods, now with the much-contemplated spin-off of its food assets and clothes retailer Primark into two FTSE-listed companies.
That separation is expected to be completed before the end of 2027 and will create on one side ABF FoodCo, which will become, in group CEO George Weston’s words “the only FTSE-100 pure-play food producer”.
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“This is quite a big day for us,” Weston said as he concluded an almost two-hour-long call with analysts today (21 April) to discuss the demerger and ABF’s latest financial results. “It’s quite a big day and we have to remember that.”
Those numbers for the first half, which showed a decline in sales, operating profit and baseline earnings for the group, and similarly in grocery, were overshadowed somewhat by the split announcement.
The decision to divide up ABF’s business follows a significant deal within the conglomerate’s grocery business announced last August when the company unveiled a deal to acquire UK bread rival Hovis, a transaction currently going through the country’s competition process.
Setting the scene for ABF’s food business today, Weston said: “We built a differentiated, really quite different global food group that operates across multiple parts of the food-supply chain. It gives us resilience. It positions us well for long-term structural growth trends that we see in food demand.
“At the heart of the business are strong brands and ingredients platforms. We inevitably, because we just do, have a well invested asset base. These characteristics will allow us effectively to compete and to grow. In turn, it will enable us to deliver attractive, sustainable returns to shareholders.”
Investor backing
With Primark out of the way, the food-focused business will feature grocery, sugar, ingredients and agriculture assets – namely grains and animal feed – amounting to total annual revenues of around £9.8bn ($13.2bn).
By their nature, those divisions are likely to remain separate reporting entities within the new company post the demerger, although the finer details have yet to be ironed out.
Wittington Investments, ABF’s largest shareholder, has backed the separation and will retain majority ownership in both companies post the split.
Weston gave an essence of ABF’s investor role during today’s Q&A session and what the new set-ups might look like.
“We haven’t said anything officially about balance sheet structure. I think you can look through to the Whittington majority control of both and assume that there’s a degree of conservatism that’s going to characterise the structure, the balance sheets of both companies. But let me not say anything more on that.”
At the moment, the combination of the two hold some investors back
ABF CEO George Weston
Nevertheless, he suggested two separate companies within ABF might be a more attractive proposition for investors than the current business as a whole.
“Individual investors, presented with the biggest international retailer on the FTSE, and the only largely pure-play food company on the FTSE, will have, I think, really interesting things that they might want to invest in, where, at the moment, the combination of the two hold some investors back. That’s really the governance story,” the CEO explained during the Q&A.
Weston also suggested M&A could play a part for the new food business after the split transaction, both acquisitions and disposals, with the Australian meat business singled out as a potential divestiture candidate.
“If you’re going to access, as we want to, new markets, new growth opportunities, M&A has got to be part of it. And then the existing holdings – you’ve got to be sure that it really is a cash cow. Otherwise, there’s no point to it.”
He added: “Australia meat, we still need to do something with. It’s not the biggest thing out there but it neither ticks the cash cow box nor the growth box. So, what are we going to do?”
H1 results
Weston acknowledged ABF was aware the first half of its financial year “was going to be challenging” but he is confident in a pick-up in the second half. Sales revenue for the group in the 24 weeks to 28 February dropped 2%, while grocery was flat, both in constant-currency terms.
Operating profits also declined, with a 9% slide on the net earnings before tax front for the group to £632m.
Pressure points were weaknesses in US consumer spending in bakery ingredients and cooking oils, namely the Mazola retail brand, which was hit by the Hispanic population cutting back spending.
Meanwhile, the Twinings tea brand had “good volume-led growth”, which Weston said will be supported in the second half by new innovation in cold formats.
The Asian food brand Blue Dragon also posted volume growth in the UK and overseas, while Patak’s sauces benefited from product launches. Granola under the Jordans line also helped sales.
ABF’s profits in grocery were partially hit by higher cocoa prices, particularly on the Ovaltine drinks brand, while US tariffs on international products also weighed.
Weston said cocoa prices have now “peaked”, with new hedging positions at lower prices expected to add to the second-half improvement.
The CEO expressed some optimism around brands housed in the World Foods part of the portfolio such as Al’fez and Capsicana cooking aids, and the Anthony’s range of health foods such as seeds, oats and protein powders. The High5 sports nutrition brand also presents opportunities, he said.
“They’re brands that are small but very successfully accessing niche categories of food and niches where there are good growth prospects,” Weston explained.
“If you take all those businesses together, they only have sales of about £100m. Their combined sales growth in half-one was about 20%. We like these categories, and we can manage these sorts of businesses because of how we are organised. So we can be in smaller scale but in fast-growing areas of the food market.”
Weston said ABF is seeing “explosive growth” in the sports nutrition category, with sales up more than 30% in the first half led by hydration products.
Middle East conflict
The Iran war was obviously a topic of discussion as the two-week ceasefire agreement with the US is due to end tomorrow, with talks scheduled to be held in Pakistan today.
Weston said the primary impact for ABF is energy costs, but also from freight, packaging and agri-chemicals and, in the case of Primark, fabrics.
“Given what we know today, and given the hedges that we have in place, we expect to be able to manage the cost impacts that we’re seeing through the rest of 2026,” he explained. “The longer-term cost impact is not yet clear, and we need to remain agile as things evolve.
“We’re not seeing shortages of raw materials. We’re just seeing the likelihood of inflation in them.”
He also singled out Primark’s exposure to the potential for consumers paring back spending as costs in the economy rise, but there, the knock-effect could be more widespread.
“We’re also focused on the impact on consumer spending, particularly for Primark. We’ve seen what we think is an impact in just the last couple of weeks in Primark sales, really across the whole of Europe. And there must be a risk that, if the conflict persists, consumer spending will keep on being subdued.”
Sugar losses
Sugar was the stand-out downside element of ABF’s latest results, where the division booked an operating loss due to what Weston said were “prolonged low average selling prices in Europe”.
Adding some perspective with a touch of optimism, he said: “The crop last year was, sadly, better than we’d expected. Acreage was down but yields were up. The market is still long sugar in Europe.
“We firmly believe that the European sugar businesses are capable of generating a lot of cash in years to come, even in a market with a long-dated trend and volume decline.
“There’s one potential bit of upside. There are some very big sugar refineries blockaded at the moment in and around Dubai and supply well over a million tons of white sugar into the area. But Europe’s got a fair amount of white sugar available if some of these markets want it.”
Looking ahead to the second half of ABF’s year, Weston reiterated the weighting the company has priced in for the remaining six months of the year.
“Despite the damp financial results, we continue to invest in marketing, innovation, technology and capacity, all to drive growth, and this has set us up well, I think, for strong improvements in profit in the second half.”
