Primark could be spun off as AB Foods reviews group structure
The owner of Primark has said it is considering spinning off the retail chain from its food business after revealing a drop in its annual profits.
Associated British Foods (AB Foods) announced a review of the structure of the group alongside its full-year financial results.
The company reported an adjusted pre-tax profit of £1.7bn for the year to September 13, a decline of 13 per cent compared with the prior year.
Sales across Primark grew by 1 per cent year-on-year to £9.5bn, with stronger trading over the second half of the year helping to balance out a weaker first half.
It flagged “particularly weak shopping activity within elements of Primark’s customer base” as people were more cautious to spend, with sales in the UK and Ireland slipping by 3.1 per cent compared like-for-like with last year.
But spending improved over the second half which AB Foods attributed to a stronger product offer, especially its womenswear ranges, and an increase in digital engagement – having recently launched a mobile app in some of its markets.
But overall retail sales growth was offset by sales within its sugar business dropping by a 10th, the firm said.
AB Foods also operates a grocery business, which includes brands Kingsmill, Blue Dragon, Jordans, Twinings and Ryvita, as well as an ingredients arm.
Sales were broadly flat year-on-year for both divisions.
The company told investors that no decision had been made, but its review may result in the board deciding to separate Primark from the food business.
Chief executive George Weston said: “Our unique and exceptional food business has historically been less well understood by the financial markets than Primark, yet it has a highly attractive portfolio, deep global expertise and much potential.
“Primark has an incredibly strong international brand, a powerful customer proposition, and substantial growth opportunities.”
However, the company said it was expecting Primark’s consumer environment to remain “subdued” in the year ahead.
But it was planning to focus on its prices to drive sales while continuing to roll out new stores.
Richard Hunter, Head of Markets at interactive investor, commented “The overall performance was disappointing as the group had previously forewarned, but the headline news is a strategic review which could lead to the separation of the Primark and food businesses. The rationale for such a move is that management consider that the food business has long been misunderstood by the market, despite its portfolio, expertise and potential. In addition, Primark is reaching a size where it perhaps requires laser focus to capitalise on its own growth prospects.”