NF: Lower biscuit sales and bad weather slow progress

Leeds / UK. (nf) «The Group´s trading performance in the first 13 weeks of the current financial year (covering the period 01 April to 30 June) has continued in line with the board´s expectations», comments Northern Foods (NF) chairman Anthony Hobson the period in an Interim Management Statement:

Group underlying revenue increased by 2,6 percent on the prior year. Underlying revenue performance by division was consistent with recent trends, with Chilled growing by 5,2 percent, Frozen up 1,1 percent and Bakery declining by 2,6 percent. In Chilled, stronger Ready meals sales offset slower growth in Sandwiches and salads, the result of unseasonable weather. In Frozen, Goodfella´s pizza brand continued to perform well. In Bakery, actions have stabilized revenue in NF Biscuits business, by better targeting of promotional activity and withdrawal from unprofitable segments. Northern Foods says that the overall margin for the period was ahead of the corresponding prior year period and the Group continues to benefit from lower interest expense due to reduced debt.

Facts in detail:

Trading conditions have remained challenging at Northern Foods, but there are no plans to sell the struggling bakery division or its best known brand, Fox´s biscuits. 2006 the group sold 40 percent of its business for 211 million GBP – specialty bread, chilled pastry, cakes and flour milling.

But chief executive Stefan Barden says that although bakery product sales were down in April, they were flat in May and June and he wants to build the business not sell it. Bakery margins have improved because unprofitable lines have been cut, promotional backing has been withdrawn from some products and lower sales have eliminated the need to pay staff overtime.

The group is also dealing with the increased cost of raw materials, commodities, wages and overheads. Although costs overall are up by between three to 3,5 percent, this is no more than expected. Where possible the group is using cheaper ingredients and has been talking with some success to its customers, the largest of which is Marks + Spencer followed by Tesco and Sainsbury, to pass on cost increases.

Operating margins, the ratio of profit from operations before restructuring to revenue for the continuing businesses, is ahead of what it was a year ago, and having reduced its debt the group is benefiting from lower interest charges. Analysts are expecting profits before tax of around 48,3 million GBP for the current year. Barden won´t say whether or not he is comfortable with that, but says he is not doing anything to change the forecast one way or the other.

Barden says the first quarter is the group´s quietest so there is as yet no sign of the new products that are expected, notably a Christmas pudding. Group underlying revenue, which excludes currency changes, discontinued businesses and products no longer produced, increased 2,6 percent in the first 13 weeks of the current financial year to June 30, in line with expectations.

Chilled produce sales were up 5,2 percent, greater demand for ready meals like shepherd’s pie and lasagna offsetting slower growth in sandwiches and salads which were hit by the unseasonable weather. Frozen food sales were up 1,1 percent driven by the continued success of the Goodfella´s pizza brand, but the bakery division suffered a 2,6 percent decline. Continuing profits in the year to March 31 were up 21,2 percent to 40 million GBP, but the group has lost 22,5 million GBP on sales of 888 million GBP.