Northern Foods: sees profits in line despite conditions

Leeds / UK. (nf) Northern Foods PLC issued a trading statement for the 26 weeks ended 27 September 2008 («first half year») ahead of its unaudited financial results for the first half year on 11 November 2008.

Group trading performance in the first half year showed consistent progress in a challenging external environment, with total revenue up 6,5 percent and underlying revenue up 3,9 percent on the prior year. Underlying revenue was driven by continued progress in recovering input cost inflation through selling price increases averaging 5,6 percent, which offset lower volumes of 1,7 percent, partly reflecting marginal contracts which the company has exited during the last financial year. In branded and profitable own label business, it continues to see growth.

Revenue by division saw sales in Chilled up 4,5 percent, with underlying revenue 2,4 percent ahead of last year, driven by continued growth in ready meals of 4,5 percent. This demonstrates the company´s superior product offering against a backdrop of a decline in the ready meals market of
2,5 percent. Mothballing of the Fenland ready meals facility, announced in May, was completed on schedule in August. In respect of Fenland, the first half will see a restructuring charge of approximately 25 million GBP, of which cash costs are approximately six million GBP. Northern foods has commissioned its recently acquired chilled soup site at Grimsby in August, in readiness for the traditional peak winter sales period. Revenue growth in sandwiches, salads and chilled pizza, at 1,0 percent, was slowed by the poor summer weather.

In the Bakery division growth has continued, with underlying revenue up 6,7 percent on the first half of 2007/2008, reflecting the early benefits of the company´s ongoing investment in the Fox´s biscuits brand with its «Vinnie» advertising campaign. At the end of the campaign another 1,6 million GBP households were buying Fox´s biscuits. In Puddings, retailer orders for Christmas are good.

Frozen division revenue was up 10,2 percent, or 4,1 percent on an underlying basis. Sales were supported by higher selling prices, while, as forecast, margins in Northern Food´s Irish business are being impacted by the stronger Euro. The market leading Goodfella´s pizza brand has maintained a strong share in the category, with a number one position, and further cost efficiencies will be delivered following transfer of production from the company´s Poldys site to its scale pizza facility at Naas. Northern Foods continues to drive improvements in its other Frozen businesses, in particular following the successful integration of last year´s McDougall acquisition into the Portumna pastry site.

As expected, commodity price movements and a stronger Euro have provided challenging operating conditions. However, the company´s food propositions continue to be well received by the market, it is achieving a full recovery of higher input costs and we continue to drive cost efficiency improvements. As indicated earlier this year, profits will be weighted to the second half of the current financial year, reflecting normal seasonality of our business, a lower pension financing credit and substantial investment in the company´s brands and business development, which is starting to show early benefits.

Stefan Barden, Chief Executive of Northern Foods, said: «Northern Foods continues to make good progress in the development of our business, despite the challenging environment. We have excellent products, a strong balance sheet and are making very good progress in strengthening our core business, which will enable us to take advantage of the opportunities which this environment provides. Although profits are weighted to the second half of the year, at this stage we remain on schedule to deliver profit before tax and restructuring in line with expectations» (source).