Northern Foods: posts sales drop in first quarter

Leeds / UK. (nf) Northern Foods PLC said it is trading as expected despite witnessing a slight dip in sales over the past three months. The Leeds-based group has seen its like-for-like sales fall by 1,6 percent in the 13 weeks to July 03. But it highlighted its range of chilled foods, ready meals and sandwiches and salads as star performers with sales increasing by 14,3 percent – the company said in its latest Interim Management Statement for the first quarter 2010/2011. Overview:

• Trading as expected in challenging conditions
• Q1 Group like for like sales* 1,6 percent lower, reflecting:
  • Chilled like for like sales* up 14,3 percent, with Sandwiches + Salads continuing to perform strongly and Ready Meals performance showing steady progress
  • Bakery like for like sales* down 5,6 percent as expected, as a result of our planned reduction in promotional activity; margins remain strong
  • Frozen like for like sales* down 24,9 percent following the planned exit of marginal business and of the Birds Eye contract in Frozen; and the transition to our new Goodfella´s pizza brand
• Increased investment in the current half year:
  • Automation: continued investment in technology for Fox´s Biscuits
  • Brands: major relaunch for Goodfella´s pizza
• With a strong financial position (net debt reduced by approximately six percent over the prior year) the Group is well positioned going forward

Performance

Northern Foods is continuing its investments to position the business for growth, despite the challenging trading conditions. The first half year will see incremental investment, principally in its Goodfella´s pizza brand, and in automation at Fox´s Biscuits which is progressing well to enhance future earnings and strengthen our competitive position.

• Chilled grew its underlying revenue* by 14,3 percent, with a continuing strong performance in Sandwiches + Salads. Ready Meals performance showed continued steady improvement in the first quarter and the wind-down of the Swansea site is progressing smoothly. The phased introduction of the ten year contract to supply British Airways commenced in March 2010 and this short haul contract is now fully operational.
• Bakery underlying revenue* reduced by 5,6 percent, reflecting the decision to materially reduce promotional activity this quarter due to the World Cup. Normal promotional activity will continue in Q2 and margins remain strong. The major investment in new automated technology within Fox´s Biscuits is progressing well and this programme is expected to complete early in the 2011/2012 financial year.
• In Frozen, as expected, underlying revenue* declined by 24,9 percent in the first quarter, following the year on year impact from exiting the Birds Eye co-pack business in June 2009. The company will lap the exit of this contract in Q2 and the brand investment in Goodfella´s commenced during the first quarter, with the transition to a new brand, new product recipes and new packaging. The company continuing the roll out of the McDougalls pie brand.

The financial position remains strong, Northern Foods said in its statement. Net debt is lower than the prior year quarter, whilst increasing modestly from the year end to reflect the start of seasonal working capital build and the investments in the business. The replacement revolving credit facility (RCF) commenced this month, with a 250 million GBP facility, maturing in July 2012. 84 percent of the company´s debt is at fixed rates, maturing in tranches between 2012 and 2020.

Stefan Barden, Chief Executive of Northern Foods: «We expect to see continued challenging trading conditions. We are focused on a range of initiatives to enhance the competitive position of the Group and to drive growth, with increased investment in brands, talent and technology in the first half year. With a strong financial position, Northern Foods remains well positioned going forward».

*): Excludes the impact of currency rate changes, product categories no longer manufactured, acquisitions and discontinued operations and the 53rd week.