UK food group Finsbury Food has given a fairly positive trading update, saying that although the trading environment continues to be challenging, it also presents many opportunities.

"We are continuing to invest and reorganise, sometimes at the expense of short-term profitability, in order to be in the best possible position to address these opportunities," said chairman Lord Saatchi at the company's AGM.

"We are therefore well placed for the start of our Nestlé development next month as well as for our ongoing new product developments with our large own label customers," he continued.

Saatchi said that, like many others in the industry, Finsbury Food was seeing significant supply cost increases, with a further increase in flour costs announced only last week.

"However sales price increases are coming through. We have already achieved price increases in our bread business and increases are expected in the New Year in the cake sector. The combination of these factors will inevitably change the balance of profitability from the first to second half of the year," he added.

In September the company announced that it had signed an exclusive five-year tie-up with the UK arm of Swiss food giant Nestlé.

Under the agreement, which will start on 1 January 2004, Finsbury Food is to acquire the exclusive rights in the UK to create, manufacture, promote and sell cakes and muffins under Nestlé's confectionery brand names, such as Smarties, Nestlé Double Cream, Milky Bar, Rolo and After Eight.