Allied Bakeries has been hit by “significant margin decline” as a result of low prices and cost pressure, according to parent company Associated British Foods (ABF).
Allied had been boosted by the relaunch of Kingsmill earlier this year that had seen the introduction of new lines and packaging, ABF reported in a trading update ahead of a close period for its full year results for the 52 weeks to 16 September 2017.
While stating the Kingsmill relaunch had been well received by consumers, ABF added: “However, a very competitive market with low retail prices, a resurgence of lower-margin own-label as retailers sought to differentiate their bakery offering, and inflationary cost pressures combined to result in a significant margin decline”.
Meanwhile, ABF reported that its ingredients division revenues and operating profit would be ahead of last year, with a further increase in margin.
AB Mauri delivered another year of significant improvement, said ABF, with growth in both yeast and bakery ingredients. The EMEA ingredients region delivered profit growth despite a mature European market, while Asia’s results improved following last year’s rationalisation of production facilities in China. Ingredients business in North America benefited from new bakery product launches, although ABF said the market for bakery yeast remains highly competitive.
Referring to the overall ABF business, which also includes Primark and grocery brands such as Twinings and Jordans cereal, the group stated: “In our third quarter trading update on 6 July we reported an improvement in our expectation for the group’s full year underlying operating performance as a result of a stronger profit delivery from Primark. Since that time we have experienced an even lower level of markdown which has further improved our full year outlook. Adjusted operating profit for the group will be well ahead of last year.”
“In summary, we expect to report good growth in adjusted operating profit and adjusted earnings per share for the group for the full year.”
ABF’s full-year results are scheduled to be announced on 7 November 2017.