Northern's faltering rescue plan signals more changes

More radical changes could be on the cards at Northern Foods after its chief executive admitted that it "simply cannot carry on producing products that make little or no margin"

Speaking as the company posted its second profit warning in two months after biscuit sales nosedived and after "volume and margin attrition" in chilled food, the chief executive Pat O'Driscoll admitted that strategic changes she introduced after joining in 2004 were "not yet being reflected in an improving financial performance"

Profits were being further dented by a failure to pass cost increases on to customers, added O'Driscoll, whose position looks increasingly insecure.

She has launched a review of the business model, product range and cost base, for completion by May 31.

Insisting that she had the "full support of the board", O'Driscoll said that disposals and job losses could not be ruled out.

Her attempts to simplify Northern by cutting jobs and the number of units and centralising functions like buying seemed sensible, said Andrew Saunders, an analyst at Numis Securities, but had not filtered through to the bottom line. "With O'Driscoll's position now looking increasingly untenable, the strategic review must surely recommend a break up of the long-standing, but ineffective portfolio," he said.

Panmure Gordon analyst Justin Scarborough said: "Operating margins in frozen and biscuits are not that bad. It's in chilled where they are behind the competition, with margins of less than 3% compared with the average of 6%."

Another analyst said: "It's always jam tomorrow with Northern Foods."

Northern's full year profit is now expected to be about £45M, compared with £62.2M last year.