Northern Foods posts profit increase

By Charlotte Eyre

- Last updated on GMT

Related tags: Cent, Revenue

UK-based Northern Foods said that its leaner business model has
paid off, as the company reported a 5.9 per cent increase in
operating profits for the half year.

"Overall, we have seen a strong six months from out Chilled businesses and a return to revenue growth in bakery,"​ said chief executive Stefan Barden. "In the frozen division, we have initiated plans to restore profitability in the pastry and meat grills operations." ​For the 26 weeks ended 29 September 2007, net sales totalled at £438.6m (€613.6m), a 2.5 per cent increase from £427.8m (€598.6m) in the same period in 2006. Operating profit also went up 5.9 per cent to £26.8m (€37.5m), compared to £25.3m (€35.4m) the year before. Earlier this year, the company decided to sell off the faltering chilled pastry, cakes, speciality bread and flour milling businesses, in a bid to stabilise revenue, said chief executive Stefan Barden. "We are now focused on five key markets; ready meals, sandwiches and salads, pizza, biscuits and Christmas puddings,"​ he said. ​And unlike many companies in the food industry recently, Northern Foods managed to increase margins- up 0.2 percentage points to 6.1 per cent, compared to 5.9 per cent in 2006 - in the face of rising commodity costs. However, the company also increased customer prices over the period, estimating that high prices for cereals, dairy, cocoa and fats will increase Northern Foods costs by five per cent. "Although the extent to which customers pass these onto consumers and the resultant potential impact on future sales volumes remains unclear,"​ Barden said. Bakery Division ​Although bakery operating profit remained at a steady 7.1 per cent, net sales increased 2.8 per cent to £91.4m (€128m), attributed to "intense work" on the biscuits business. After Northern Foods streamlined its operations, market analysts speculated whether it would sell the poorly performing biscuit​ segment altogether. However, the company said it had changed the management structure, and has boosted products by focusing on speciality and premium markets with its Fox brand. "The full benefits of this work will take time to deliver, but the approach has already stimulated a return to revenue growth in the Bakery division,"​ the company said. Chilled Division ​Strong sales of ready meals, sandwiches and salads boosted operating profit to £13.6m (€19m), a massive 61.9 increase from the same period in 2006. Volume sales also grew 5.2 per cent, despite a 0.2 increase in customer prices in an attempt to cover commodity costs, the company said. The company reduced the variety of products on sale, focusing on strong selling brands, such as Goodfella's Signatore pizza, and focused on developing foods for niche markets, such as takeaway sushi, Barden said. Frozen Division ​Although sales of pizza, fish and vegetables remained steady, poor performances in the meat grill and pastry businesses caused a 37.8 per cent decline in profit, from £9.8m (€13.7m) last year to £6.1m (€8.5m), Northern Foods said. Commodity costs pushed prices up 0.9 per cent, which, combined with reduced marketing spend, led to 3.2 per cent decline in sales volumes. By contrast, pizza sales were strong during the period, and the retail value of the Goodfella's brand across the UK and Ireland exceeded £130m (€182m), Barden said. "Our ambition is to be the number one supermarket pizza brand in theUKand range of six chilled pizzas has already achieved listings with major retailers,"​ he added. Looking forward ​Despite overall profit growth, Barden said he retained a "degree of caution" in light of current commodity costs. The company will focus on improving performances in weaker areas, such as meat grills and pastry, and restructuring management, he added, in an attempt to combat the cost pressure. In a survey carried out by the National News Digest, the rising cost of food ingredients is the biggest concern of food manufacturers and food retailers, with more than half saying it was their primary worry. Annual food price inflation has risen to 4.7 per cent in the UK, more than double the overall inflation rate of 2.1 per cent, the digest said.

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