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Greggs says cost pressures to dent margins in short term

A man walks past a Greggs bakery in Bradford, Britain March 1, 2016. REUTERS/Phil Noble

By James Davey LONDON (Reuters) - British baker Greggs said industry-wide cost pressures meant price rises in the market were inevitable this year and would dent its margins, although it would fight to keep the price advantage that helped it to a strong fourth quarter. Greggs, which is transforming itself from a traditional bakery business to a value outlet for food-on-the-go said it expected 2016 results to be slightly ahead of previous expectations, sending its shares 2.6 percent higher by 1100 GMT. Prior to the update, analysts were on average forecasting an underlying pretax profit of 78 million pounds for 2016, according to Reuters data, up from 2015's 73 million pounds. Revenue at company-managed shops open over a year rose 6.4 percent in the fourth quarter, aided by robust festive trading. That compared to third quarter growth of 2.8 percent and took like-for-like sales growth for the full 2016 year to 4.2 percent. However, Greggs warned higher commodity prices as well as a drop in the value of the pound since June's Brexit vote had sent ingredient costs higher. The Newcastle, northern England, based firm was also facing cost pressures from the national minimum wage, business rates and an apprentice levy, which were likely to have a modest impact on margins in the short term. "I don’t think there’s any single facet of our business which is not showing some kind of inflation coming through in one form or another," Chief Executive Roger Whiteside told Reuters. "Some price rises are inevitable in the market place, they're certainly not inevitable in Greggs. Greggs is a value led retailer and we will fight tooth and nail to retain our price advantage over our competitors." Whiteside said the independent sector, which accounts for over half of Britain's cafe and sandwich shop market, would have to raise prices to maintain profit margins as they are less able than Greggs to mitigate the cost pressures. Greggs trades from 1,764 retail outlets in the UK. The CEO also said Greggs faced greater uncertainty in the trading environment in 2017 with increased pressure on real income growth likely to dent overall consumer spending. "We normally fare pretty well relative to others but we still get affected because people drop out of the market - people make more sandwiches at home, people skip breakfast, skip lunch," he said. ($1 = 0.8215 pounds) (Editing by Sarah Young and Alexandra Hudson)