Cake manufacturer Finsbury Food Group has reported a 4% slump in UK bakery revenue in the face of retail price deflation and rising costs.

In a trading update for the first four months of its financial year, Finsbury said input costs priced in dollars or euros had increased “substantially” as a result of sterling’s weakness following the Brexit referendum.

Reporting total group sales revenues of £101.5m in the period, the business said there was an “established trend of UK retail food market deflation”.

The company – which makes licensed and own-label cakes and breads – said it had responded to this by modifying promotional activity and reviewing opportunities for reformulation changes to minimise passed-on costs.

Finsbury added that consumer confidence had remained stronger than anticipated.

In contrast to the UK performance, sales in the Overseas division – the group’s 50%-owned European business – grew 36.5%

Finsbury said the Overseas business was “continuing to demonstrate the strengths of our strategic diversification”.

In its trading statement, the business added it was benefiting from strong cash flow that enabled it to invest in product innovation and increase efficiency and productivity throughout the group.

“The directors see this as a fundamental part of our long-term competitiveness, as well as enabling the group to continue to deal with known headwinds such as sterling-induced commodity inflation and the planned national living wage increases.”

“Our larger, more diversified speciality bakery group is a strong multi-channel business, which the board believes is well equipped to deliver growth and improved shareholder value over the coming years.” 

In its full-year results announced in September, Finsbury reported 3% year-on-year growth in its UK bakery division, with sales from the Overseas division up 25%.