First-half profits in Associated British Foods‘ grocery business have risen on the back of market share growth in its UK bakery business and cost efficiencies in other parts of the unit, despite a fall in sales.
The Kingsmill owner said operating profit from its grocery unit for the period ending 27 February increased to GBP130m (US$186.9m) from GBP128m year-on-year. Sales however fell to GBP1.52bn from GBP1.58bn.
The UK bakery market is one where ABF has experienced challenges in recent quarters, stemming from increased competition and promotional activity. However, ABF said it had seen its Kingsmill brand grow market share “with a substantial increase in sales volumes and strong consumer demand for alternative bakery products”, especially its Sandwich Thins product.
Elsewhere, Dorset Cereals “continued to perform very well”, while the Jordans and Ryvita brands “both made further progress internationally”.
The company’s AB World Foods unit saw margin pressure on the back of “significant cost inflation” on spices and dhal flour. However its Elephant Atta volumes bounced back with higher volumes in the six-month period, following a weaker performance last year.
ABF also said operating profit in North America was “maintained despite a very competitive market for vegetable oils”. In Mexico, ABF’s Stratas Foods business saw “strong volume growth”.
Trading at George Weston Foods in Australia was “much improved” with revenues ahead of last year across all businesses. ABF saw “particularly strong progress” made by the Don KRC meat business and further factory improvements and lower procurement costs drove the improved result. Tip Top also continued to drive a more efficient cost base.
Darren Shirley, analyst at Shore Capital, said he was “encouraged” by the ongoing improvement in grocery margin which increased by 50 basis points to 8.6%.
Group-wide, ABF booked increased profits for the period thanks to the absence of one-off items booked in the same quarter last year.
Net profit came in at GBP360m from GBP124m and operating profit increased to GBP477m from GBP353m.
Revenues however, fell to GBP6.1bn from GBP6.2bn, resulting from continued challenges in its sugar business, as well as lower sales in its ingredients and agriculture units.