Northern Foods warn of low upcoming profits

14/03/06 Northern Foods’ the UK based producer of Fox’s biscuits and Goodfella’s pizzas has issued its eighth profit warning in five years, and the second in the space of two months.

Northern Foods said in a trading update that the combination of the sales downturn and weak operating margin will significantly reduce fourth quarter profitability, As a result, the Board now expects profit before tax and exceptional items for the current financial year to be approximately £45m (prior year: £62.2m).

Sales in the first two months of the fourth quarter have been very disappointing with underlying sales for continuing operations unchanged on the prior year, the company warned. This compares with growth of over 3% in the first nine months of the year. The Bakery division has been seriously affected by a downturn in the biscuit market. Northern Foods biscuit sales in January and February were 12% lower than the previous year and the market continues to be heavily price promoted.

The Chilled division has also experienced volume and margin attrition. Sales of pastry products in January and February were 11% lower than last year, reflecting changing eating habits in certain product areas. In addition, we continue to encounter delays in securing price increases to offset major energy cost rises. The Frozen division has continued to perform well in very competitive trading conditions.
 
Whilst good progress is being made in addressing the underlying structural issues in the group, this is not yet being reflected in an improving financial performance. The Board is currently undertaking a strategic review to examine the business model, product portfolio and cost base. It will report on the results of this review at the Preliminary Announcement, scheduled for 31 May 2006.

Under fire CEO Pat O’Driscoll blamed continuing competition from United Biscuits, the market leader, as well as the healthier eating habits of British consumers, for her company’s weak performance.