Operating profit at Allied Bakeries has improved despite a fall in revenue owing to the loss of its largest private label bread contract earlier in the financial year.
The business has delivered a ‘substantial cost reduction’, owner ABF revealed in its annual results for the year ending 12 September 2020. It also noted that further restructuring of the bakery and associated logistics operations are planned for the next year.
Allied Bakeries is part of ABF’s grocery division, which reported revenue of £3.53bn during the period. Adjusted operating profit, which hit £437m, was up 15% on the previous year and was driven by cost efficiencies and lower promotional spend.
This, ABF added, more than offset a one-time non-cash write-down of £15m against Allied.
“Allied Bakeries revenues declined this year following the termination of our largest private label bread contract earlier in the financial year. The business implemented a significant cost reduction programme during the year. Combined with a Covid-19 related uplift in sales the underlying operating result improved,” ABF stated in its results.
“Following our announcement in July of our exit from the Co-op contract, the carrying values of some of our distribution assets have been reviewed, resulting in a write-down charge of £15m.”
Hull-based Jacksons is to manufacture own label bread for Co-op from next spring, while Warburtons will handle the distribution.
Kingsmill owner Allied also exited its own label bread contract with Tesco this year.
Elsewhere, ABF said it received £30m in the second half of the year for the insurance claim relating to a fire at its Speedibake factory in Wakefield, which happened in February. This, ABF said, more than offsets the £25m exceptional charge taken in the first half.
On the ingredients side, AB Mauri experienced a ‘rapid and substantial’ increase in retail demand for yeast and bakery ingredients as a result of Covid-19 restrictions, ABF said.
“Sales were also strong to industrial bakery customers but demand from foodservice and craft bakers was lower,” it stated in its results.