Unlucky Northern Foods issues profit warning

By Anita Awbi

- Last updated on GMT

Related tags Northern foods

After six months of sliding sales, rising production costs and now
a devastating factory fire, Northern Foods' chairman has warned the
year's first-half profits will be dented.

Speaking at the firm's annual general meeting last week, Anthony Hobson said profit margins look set to fall, counselling employees and shareholders to prepare for some rigorous cost-cutting.

He said the current "trading environment and changes in customer delivery preferences from the first to the second half year are anticipated to result in first half profits being behind those of the comparable period."

Earlier this month the ailing British food manufacturer announced a drastic plan to sell around 40 per cent of its business in a bid to refocus efforts on core brands.

Stamford Partners investment bank was called in to oversee the sale of its pudding and pies operations, including Park Cakes, Pork Farm Pies and Bowyers - leaving the firm to concentrate on Goodfella's pizzas and Fox's biscuits.

Together, the three pudding and pie businesses have an annual turnover of £300m (€433.3m) and could fetch between £70-80m for the company.

Hobson said the divestures will form part of the firm's recovery programme, which will also bring operational change in the chilled division and rigorous savings across all aspects of the business.

However, Northern's ongoing cost-cutting strategies may have been set back by last week's fire at the firm's Fletcher's bakery in Sheffield.

It is thought the fire caused around £4m (€5.8m) worth of damage to property and loss of business, which produced speciality bakery goods such as muffins, doughnuts and buns.

Although the plant is insured, Northern Foods owns the insurance company and will have to absorb the restoration costs and loss of business.

This comes as the firm recently announced a £5m loss for the financial year ended 1 April 2006.

The manufacturer said it is struggling amidst sliding sales and margins as its supermarket clients adopt tough bargaining positions on prices and consumers change preferences.

Higher costs, particularly for energy, combined with weak pricing, in a number of what the company calls "increasingly discounted and promoted markets"​ also hit results. About 75 per cent of the company's revenue comes from the five largest retailers in the UK.

Earlier this year the company announced profit before tax and restructuring items was £45.1m, compared to £62.2m in the previous financial year. The loss after accounting for restructuring was £5m, compared to a profit of £22.8m the previous year.

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