Can Associated British Foods (LSE: ABF) unlock value through a Primark spin-off after earnings slump?

Associated British Foods plc (LSE: ABF) reported annual results for the 52-week period ended 13 September 2025, revealing a sharp divergence in performance across its retail and food segments, as well as signs of a possible strategic shake-up that could reshape the company’s future. While adjusted operating profit declined 13 percent to £1.73 billion and basic earnings per share fell 27 percent to 141.6p, the British multinational maintained a total dividend of 63.0p and announced a new £250 million share buyback programme ahead of the 2026 financial year.

The most significant forward-looking development is the ongoing board-led review of the Group’s structure. The review, conducted in consultation with Associated British Foods plc’s largest shareholder, Wittington Investments, may lead to a separation of Primark from its diversified food businesses. Rothschild & Co is advising on the process.

Despite a challenging macroeconomic environment, Primark delivered a modest 2 percent profit increase and achieved a return on average capital employed of 19.1 percent. In contrast, Sugar operations swung to an adjusted loss and dragged down Group performance due to weaker European pricing and elevated input costs.

What caused the profit decline at Associated British Foods in FY25 despite stable revenue and retail resilience?

Group revenue decreased by 3 percent to £19.46 billion. Retail remained the largest contributor, delivering a 1 percent year-on-year revenue increase to £9.5 billion, driven by 23 new Primark store openings across Europe, the United States, and the Middle East. However, adjusted earnings per share dropped by 11.2 percent to 174.9p, largely due to operating weakness in Sugar, where adjusted profit turned negative, and increased exceptional charges totaling £188 million.

Exceptional items included £154 million in non-cash impairments, primarily within the Azucarera business in Spain and the shuttered Vivergo bioethanol plant in the United Kingdom. Restructuring costs accounted for a further £34 million, affecting segments such as Ryvita in Grocery and elements of the European retail footprint.

Despite the profit decline, the Group generated £648 million in free cash flow, invested £1.2 billion in capital projects, and maintained a low leverage ratio of 1.0x.

What is the rationale behind the potential separation of Primark and ABF’s food businesses?

Chairman Michael McLintock and Chief Executive George Weston confirmed that the board is evaluating whether a simplified corporate structure could better reflect the distinct strategic and financial profiles of Primark and the Group’s food operations. While no decision has been made, the review is exploring whether a separation could unlock shareholder value and improve market understanding of the food businesses, which have historically received less investor attention despite consistently strong returns.

Institutional investors are closely watching the outcome of this process, as it could result in the unbundling of a highly cash-generative portfolio that spans Twinings, Ovaltine, Mazola, AB Mauri, and African sugar assets. Analysts suggest that a demerger could result in a more focused valuation framework for Primark, whose margin performance and digital expansion could be better appreciated as a standalone entity.

What were the financial results of each ABF business segment in FY25 and what growth trends are expected in FY26?

Retail (Primark) saw adjusted operating profit rise to £1.13 billion. The profit margin was 11.9 percent, supported by cost savings and supplier efficiencies, although slightly flattered by a one-time £20 million benefit. Primark opened 23 stores during the year, including its first franchise outlet in Kuwait. Click & Collect service was expanded to all 187 UK stores, and the company launched its mobile app in Ireland and Italy. Overall like-for-like sales declined by 2.3 percent, though UK second-half trading improved as the value proposition and womenswear offering were strengthened.

Grocery posted stable revenues of £4.13 billion, but adjusted operating profit declined by 4 percent to £478 million. International brands Twinings and Ovaltine drove growth in wellness and health-oriented beverages, while US oils and Allied Bakeries remained under pressure. The acquisition of Hovis Group Limited is expected to support bakery consolidation in the UK. Capital investment of £206 million was allocated to expand capabilities in markets such as Nigeria, Poland, and Australia.

Ingredients delivered robust profit growth, with adjusted operating profit rising 16 percent to £257 million. AB Mauri’s yeast and bakery operations saw good volume traction, and the specialty ingredients business ABFI grew in areas like enzymes and health nutrition. The segment also benefited from prior year acquisitions and supply chain productivity improvements.

Sugar was the weakest performer, with revenue falling 12 percent to £2.05 billion and adjusted operating profit collapsing from £213 million to a breakeven result. Low European pricing, high beet costs, and the closure of Vivergo contributed to a significant drag. Azucarera in Spain underwent restructuring, reducing its beet facility footprint from three sites to one. In Africa, conditions varied by market. While Malawi and Eswatini delivered growth, Zambia and South Africa were hampered by drought. Tanzania is expected to improve following the commissioning of a new sugar mill in 2026.

Agriculture saw a 38 percent drop in adjusted operating profit to £25 million. Frontier joint venture earnings declined due to weather-related headwinds, though performance in specialty feeds and the dairy platform remained resilient.

What key financial and strategic factors are institutional investors watching after ABF’s FY25 earnings decline?

Equity market sentiment remains mixed following the results. While the Group maintains a strong balance sheet and consistent capital returns, the uneven segment performance and high restructuring costs have sparked caution. Institutional investors are particularly focused on whether a structural separation of Primark from the food portfolio could unlock higher valuations, especially as Primark increasingly demonstrates its standalone capabilities through retail expansion and digital transformation.

Additionally, attention is being directed toward whether Sugar can return to sustainable profitability in 2026. Forecasts indicate a small adjusted profit in Sugar next year, aided by lower beet prices and recent rationalisation measures in Europe.

On the capital returns side, the Group completed £594 million in share buybacks in FY25 and plans to execute a further £250 million by year-end FY26. The total dividend was maintained at 63.0p per share. Shareholder distributions are supported by £2.2 billion in available liquidity and continued capex discipline.

What is the outlook for Associated British Foods in FY26 and beyond?

For FY26, Associated British Foods expects adjusted operating profit and adjusted EPS to grow. Primark’s store expansion in Europe, the United States, and the Gulf is projected to contribute approximately 4 percent to retail sales. The Click & Collect rollout and app engagement are expected to further enhance conversion and average basket sizes.

In the Grocery segment, international brands are forecast to deliver profit growth, offset by continuing weakness in US edible oils. Ingredients is expected to hold its profit levels flat due to reinvestment in capacity and innovation. Agriculture is projected to remain stable, while Sugar is anticipated to swing to a modest profit as pricing stabilizes and efficiency gains are realized.

At the strategic level, a decision on the proposed demerger is expected to be announced later in FY26. Any structural changes will be evaluated through the lens of long-term value creation and capital efficiency.

What are the most important financial and strategic takeaways from ABF’s FY25 results and structural review?

• Associated British Foods plc (LSE: ABF) reported a 13 percent decline in adjusted operating profit to £1.73 billion for the 52 weeks ended 13 September 2025, with group revenue down 3 percent to £19.46 billion.
• Basic earnings per share fell 27 percent to 141.6p, largely due to weaker performance in the Sugar segment and £188 million in exceptional charges.
• Retail segment (Primark) was the strongest performer, delivering 2 percent profit growth and expanding its footprint with 23 new stores across the United States, Europe, and the Gulf.
• The Group announced a new £250 million share buyback programme for FY26, following £594 million in buybacks completed in FY25, and maintained a total dividend of 63.0p.
• The board is conducting a strategic review that could result in the separation of Primark from ABF’s food operations, a move being closely watched by institutional investors.
• Sugar swung from a £213 million profit to breakeven due to low European pricing, high beet costs, and restructuring in Spain; the closure of the Vivergo plant also impacted results.
• Grocery delivered stable revenue but lower profit, with growth in international brands like Twinings and Ovaltine offset by weakness in US oils and Allied Bakeries.
• Ingredients segment reported a 16 percent increase in adjusted operating profit, led by performance in AB Mauri and specialty enzymes and nutrition categories.
• Free cash flow dropped to £648 million due to lower operating profit and higher working capital, but the Group ended the year with strong liquidity of £2.2 billion and a leverage ratio of 1.0x.
• FY26 guidance points to adjusted profit and EPS growth, with margin headwinds in Primark, gradual recovery in Sugar, and stable to modestly improving performance in Grocery, Ingredients, and Agriculture.