Allied Bakeries’ margins fall in competitive bread market

Intense competition in the UK bread market has taken its toll on margins at Kingsmill owner Allied Bakeries.

Although volume sales from the bakery business have been strong, margins have declined, reported Allied Bakeries’ parent company Associated British Foods (ABF) in a trading update ahead of entering the close period for its interim results to 4 March 2017.

The company added that the new Kingsmill pack design rolled out at the start of this year had been well received by customers and consumers.

Data from retail analysts IRI showed Kingsmill’s sales performing ahead of the brand’s major rivals, with value sales static and volumes up 1.8% year on year in the 52 weeks ending 31 December 2016. In contrast, Warburton’s value sales were down 11.2% on volumes down 12.4%, and Hovis was down 1.9% by value and 6.8% by volume.

In its trading update, ABF said it expected first-half revenue and operating profit for its grocery division – which includes Allied Bakeries, Twinings, Jordans, Dorset Cereals and Ryvita in the UK – to be ahead of last year.

At George Weston Foods in Australia, first-half revenues will be “close to last year”, with market share gains in its bakery and meat. Volume sales of Tip Top mainstream bread brand The One had grown, and the launch last September of Abbott’s gluten-free loaf has been well received, it reported.

Ingredients business

Revenues from ABF’s ingredients business in the first half were expected to be ahead of last year, said the company, with recovery in yeast and bakery ingredients.

“At AB Mauri, this has been achieved despite challenging economic conditions in a number of countries especially its important markets of Argentina and Brazil,” reported ABF.

“The trading performance in Europe has been in line with last year, with notable success for the recently opened UK Technical Centre, which enables the development of new bakery ingredient solutions and provides technical support and training to customers.”

ABF added that Asia was delivering a stronger performance this year, and that margin improvement in Australia had been achieved by reducing overheads.

“Trading in North America has been good and in January we completed the acquisition of Specialty Blending, a bakery ingredients business located in Cedar Rapids, Iowa. The combination of this high-quality and well-positioned ingredients blending operation with AB Mauri’s global technology capability will strengthen our North American business.”

Sugar business

AB Sugar revenue from continuing operations will be “well ahead” of last year, reported the company, while higher sugar prices, increased production in Africa, and a performance improvement programme will deliver a “substantial” increase in profit.

“With 2016/17 forecast to be the second year of global sugar deficit, world prices are higher than last year,” it said in the trading statement, adding that a tightening of EU stock levels has strengthened domestic prices across the region.

“In the UK, the beet crop is smaller than the prior year and, with marginally lower yields, production is projected to be just under 900,000 tonnes. The UK campaign was delayed in order to maximise the growth of the crop, with production at Newark running into late February.

“With sales fully contracted for the year, firmer prices have been confirmed which, combined with lower beet costs and a weaker sterling/euro exchange rate, will drive substantial improvement in British Sugar’s operating profit.”

ABF said it expected “excellent” first-half progress in adjusted operating profit and adjusted earnings per share for the overall group. It said the trading outlook for the group for the full year was unchanged, with progress expected in adjusted operating profit and adjusted earnings per share.

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