ABF poised to reveal result of Primark and food business demerger plan | Associated British Foods

Primark could get rid of Kingsmill, Twinings and its sugar business, with Associated British Foods announcing plans for a controversial spin-off this week.

The potential split comes at a difficult time for the group, controlled by the billionaire Weston family, whose fashion and food arms face stiff competition and rising costs.

ABF, which sells brands such as Patak’s spice flavors, Blue Dragon sauces and Jordans cereals, as well as supplies to bakeries, candy manufacturing businesses and the restaurant trade, announced in November last year that it was considering leaving its fashion arm Primark. The strategic review, carried out with the help of consultancy Rothschild & Co, had a “perspective of maximizing long-term value”, it said.

This was followed by a light statement about Christmas trading in January; The company acknowledged that annual sales would likely remain flat from year to year and profits would decline.

Now the conflict in the Middle East is expected to only increase business pressures, with City bracing for the company to announce disappointing results for the first half of the year on Tuesday.

“We wouldn’t be surprised if the group faces additional trade and cost headwinds following the start of the Iran conflict and its potential long-term impact on petrochemical prices around the world,” said Darren Shirley, an analyst at Shore Capital.

ABF’s third-generation CEO, George Weston (whose grandfather founded the company), will have to make up his mind about the potential split of the family empire.

The company may be tempted to stick to its formula of steady cash flows from its food business to help fund discount fashion’s international expansion in a challenging environment.

To complicate matters further, the ABF is involved in an investigation by the competition watchdog into a planned merger between Allied Bakeries, owner of Kingsmill and rival Hovis.

ABF has offered to put its Northern Ireland business up for sale to address concerns about competition issues in the UK that could block the deal.

Despite the problems, some analysts believe the spin-off from Primark remains likely.

The appointment of experienced former ABF, M&S and Greencore finance director Eoin Tonge as Primark’s new boss last month also hints that a split is likely.

RBC Capital Markets retail analyst Richard Chamberlain said the split “still makes sense given the lack of synergies between the two companies.” [parts of the businesss]But he added: “We think the growth outlook looks challenging for both sides of the business.”