Associated British Foods has beaten market expectations for the first half of 2012 despite a substantial drop in margins for its grocery business.

Adjusted operating profits increased by 6% to £412m in the 6 months to 3 March, as sales charged ahead by 11%. The growth was achieved thanks to strong performances from the sugar and agriculture divisions.

But in the grocery division, which accounts for just under a third of turnover (31%), sales were up just 4% to £1.8bn.

Restructuring in the Australian business and high promotional activity for the Kingsmill bread brand in the UK contributed to a 31% drop in operating profits to £75m.

However, ABF said it expected grocery margins to improve in the second half of the year.

“We do expect an improving performance in H2, particularly on margins, as commodities ease,” said Bernstein analyst Andrew Wood.

ABF’s management was also more upbeat about the coming months for the business as a whole. It predicted “substantial growth in both adjusted operating profits and adjusted earnings per share for the full year”.