UK bread market remains challenging but ABF sees grocery sales growth

UK bread market remains challenging but ABF sees grocery sales growth

Associated British Foods revealed its grocery sales increased in its third quarter, to 24 June, but confirmed the performance of its bakery business weighed on the unit's margins. 

The Kingsmill maker said the UK bread market "remained very competitive" in the period, which, combined with "inflationary cost pressures" on that part of its business, had a "negative impact" on the overall margins of its grocery division.

Nevertheless, the company was able to flag "continued progress" for its Twinings Ovaltine beverage business and its George Weston Foods unit in Australi, which contributed to "further revenue growth" from its grocery arm, although it did not disclose what sales reached.

On a group-wide basis, including ABF's sugar, agriculture and retail businesses, the company said third-quarter revenue increased 13% at constant currency rates and 20% at actual exchange rates. For the first nine months of ABF's financial year, sales were up 10% and 20% at constant and actual exchange rates respectively. 

"The results to date reflect a material translation benefit from the devaluation of sterling following the result of the UK referendum on EU membership in June last year," ABF said. 

"The underlying operating performance of the group during the third quarter was ahead of our forecast as a result of a stronger profit delivery from Primark which has marginally improved our group outlook for the full year. We continue to expect to report good growth in adjusted operating profit and adjusted earnings per share for the group."

While ABF did not provide further detail on its full-year expectations, Shore Capital analyst Darren Shirley suggested the company's remarks point to "scope for a further modest nudge up to forecasts". 

He wrote: "Another positive update from ABF... with scope for a 2-3% upgrade to our FY2017 EPS forecast of 121.4p."

However, Shirley noted "once again" ABF had reported "margin pressure" in the UK bread market.

just-food interview from November 2016: Associated British Foods finance director John Bason on Brexit, M&A and grocery results