Associated British Foods (ABF) yesterday forecast that profits from the grocery division, which includes bakery products, will be much higher than the £20m loss posted last year.
Finished bakery products
In the interim trading statement for the period up to 1 March 2008, the UK-based firm said that the Allied Bakeries division in particular will demonstrate a much stronger performance when the financial results for the first half of 2008 are published in April.
"The UK bakery business benefited from the continued improvement in operational performance, higher volumes and achievement of price increases that recovered the higher wheat costs," the company said.
ABF also said it has offset commodity costs by increasing prices in Australia.
The results are projected to be much stronger than in 2007, when disappointing bakery sales dragged the company's grocery operating profit down from from £84 million (€123.6m) to £64 million (€94.2m).
The company, whose bakery operations make up around 16 per cent of the firm's total business, blamed a highly competitive UK bakery market for the downturn. The company also suffered from illegal tampering of their Kingsmill bread at a UK plant last year.
The company acquired the European assets of Gilde Bakery Ingredients last year, projected to be a profitable division over the coming months, and has launched several new enzyme products.
Enzymes launched specifically at the bakery market include Vernon HPP and Vernon S50, launched by ABF earlier this month.
For example, Vernon HPP can reduce resting times and improve dough extensibility and handling. The finished products therefore has a better appearance in terms of colour and shape, the company claims.
Although profits are expected to be higher in the grocery division, this growth is projected to be partially offset by a poorer performance from the sugar division, the company said.
As announced earlier this year, the effect of the EU sugar regime changes will continue to adversely affect ABF. The company will permanently renounce 191,000 tonnes of sugar in the UK and Poland, as the European Commission moves to renounce a total of 2.6 million tonnes across the bloc.
Profits were also affected by bad weather conditions of rainfall in the UK and frosts in Southern China, the company said.
Other ingredients and enzymes
ABF said it is now prioritizing its core ingredients business following last September's decision to demerge its sugar and ingredients operations. One move it recently effected to this end is the sale of the emulsifier business Abitec to Danisco.
The protein business has been negatively affected by higher dairy costs, but growth in enzymes has been achieved by "a combination of increased sales resources with a wider geographical reach and the introduction of new products," the company said.
In terms of ABF's yeast operations, the company indicated that South America and China will be important expansion areas over 2008.