Northern lights down

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Related tags: Northern foods, Generally accepted accounting principles

UK food processor Northern Foods has blamed a drop in pre-tax
profit on tough trading conditions in the first half of the year.
The group is taking stock of the situation and a full review of the
company's structure is being carried out to ensure a return to
healthy profitability.

UK food processor Northern Foods​ has blamed a drop in pre-tax profit on tough trading conditions in the first half of the year. The group is taking stock of the situation and a full review of the company's structure is being carried out to ensure a return to healthy profitability.

Operating profit, which dropped by nine per cent to £42.2 million on sales of £722.1 million, has been affected by cost under-recovery, a lost contract and exceptional weather conditions. The company said it is also busy restructuring to increase focus on core operations and reduce costs.

The one ray of light has been underlying sales in the first five weeks of the second half, which were up three per cent.

."As we warned in our September trading update, performance in the first half has been disappointing,"​ said Northern Foods' chairman Peter Blackburn. "However, it is important that these difficulties should not divert attention from the fundamental strengths of Northern Foods. We have begun a restructuring programme designed both to concentrate on our core abilities and to reduce our cost base across the group."

Turnover did increase by 6.5 per cent to £722.1 million. This includes the benefit ofacquiring full control of Solway Foods at the end of June. However a 22.8 per cent reduction in convenience operating profit before goodwill amortisation and exceptional items reflected the under-recovery of raw material cost inflation, the loss of amajor savoury products contract, and the impact of record summer temperatures.

Following an 11 per cent increase in interest costs as a result of the group's continuing sharebuyback programme and the acquisition of Solway Foods, pre-tax profit, before goodwillamortisation and exceptional items of £6.7 million, was 16.2 per cent lower than in theprevious first half at £32.5 million. Earnings per share before goodwill amortisation andexceptional items were 8.5 per cent lower at 5.03 pence, with the profit reduction mitigatedby a lower tax charge as well as share buybacks.

Blackburn also said that recent operating performance of the business has been unacceptable. Action is being taken to improve the firm's profitability and return on capital all aspects of the group's structure are being examined.

Measures currently being implemented include the introduction of a new grouppurchasing structure. Shared services are being developed to increase efficiency in suchareas as finance, administration and information technology and capital expenditure is alsobeing rationed and targeted.

At the end of the first half the group amalgamated its two biscuit businesses, Fox's and Elkes,under a single management team. Northern Foods expects to see benefits fromboth cost savings and a more integrated approach to the market place as the year draws to a close.

"The recent operating performance of the business has been unacceptable,"​ said Blackburn. "Urgent action is being taken to improve our profitability and return on capital and to ensure that there is a solid platform for our new chief executive. We are examining all aspects of our structure to ensure that our costs are minimised, the benefits of our scale are realised, and that we are totally focused on needs of our customers."

Related topics: Processing & Packaging

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