Northern is on course to exceed profit expectations

Mar 28 2008 by Peter McCusker, The Journal

FOX’S biscuit maker Northern Foods showed its renewed pricing power yesterday by revealing it was on course for better-than-expected annual profits.

The Leeds-based group which has a branch in Carlisle making own label chilled ready meals and is a major supplier of products to Marks & Spencer, said underlying revenues grew 3.2% in the past year, with 2.4% of that figure coming through pricing.

Northern has sought to bolster its fortunes by ditching lower-margin business and refocusing on faster-growing markets.

It said profits for the year to the end of this week were likely to be stronger than the City’s consensus figure of £47.5m. Shares jumped 8% as the update eased concerns about the impact of rising commodity prices.

Chief executive Stefan Barden, who took the helm in February 2007, said the company remained on the right track.

“We are operating in a volatile trading environment with inflationary commodity prices. However, we are confident that we will continue to make steady progress in realising the full potential of the business.”

Last year, the company sold its speciality bread, chilled pastry, cakes and flour mill operations as it looked to focus on key brands as part of a drive to improve performance. Northern, which employs 11,000 people and has 21 operating sites in the UK and Ireland, is now focused around the markets of pizza, biscuits, ready meals, sandwiches and salads and puddings. Well-known brands include Dalepak and Goodfella’s pizza.

Northern said fourth quarter revenues increased by 3.9% over the same period a year earlier, an improvement driven almost entirely by higher prices.

Sales in the company’s chilled and frozen divisions were up 5.5% and 2.8% respectively, while the bakery arm showed signs of recovery with underlying revenues up 1.1% on a year earlier. Average prices for the arm, which includes Fox’s biscuits, were up 7.5% as Northern recovered costs such as flour.

Unlike rival food group Uniq earlier this week, Northern did not comment on the supplier review currently being undertaken by Marks & Spencer.

Numis Securities said it believed Northern was well placed to secure more work with M&S. The broker added: “The size of plants necessary to compete in ready meals means that new entrants are less of a threat. However, we highlight the supplier review is still ongoing and that the outcome remains uncertain.”