Northern says price increases have overcome rises in costs

Northern Foods, the own-label specialist, said that it has managed to increase its prices in line with increases in costs but warned that it faced continued increases in the costs of protein ingredients and of energy and other utilities.

The group claimed that recent recovery measures had begun to deliver results. It has restructured its board and has embarked on a group-wide business review in response to difficult retail market conditions, particularly pressure on prices from its major customer Marks & Spencer.

In July the latter unveiled a cost-cutting strategy likely to affect many processors. Northern's chairman Peter Blackburn said: "The UK market undoubtedly presents challenges to all food manufacturers as retailer consolidation increases and competition grows ever more intense."

However, Northern is still looking for someone to fill the key position of manufacturing director, following a shake-up of the group by Pat O'Driscoll, the new chief executive. She has formed the group into two chilled, one ambient and one frozen division, each headed by a board member.

Big savings of £15m a year by March 2006 are planned by centralising purchasing, finance, administration and IT functions.

Capital expenditure has been cut to £71.3m this year from £79.4m last year, up until April 3. However, this year's "strategic spends" included the re-opening of a savoury foods factory in Nottingham to meet growing chilled pizza demand, the second phase of Solway's new Manton Wood sandwich factory, and continuing investment on SAP IT systems.

Blackburn said that last year had been "difficult and disappointing". Pre-tax profit before goodwill amortisation and exceptional items was down 11.8% year-on-year at £86m on sales of £1,542.1m, which were up 8.5%.

The convenience food business performed particularly poorly, with profit of £56.1m, down from £72.9m. Chilled convenience business was badly affected by rising raw material costs. Northern was also hit by the loss of a big savoury contract with Sainsbury and disruption by last year's hot summer.

The biscuit business recovered, Green Isle expanded its share of the frozen pizza market and Dalepak benefited from a good summer barbecue season.

Northern bought sandwich maker Solway and sold Fox's confectionery, Batchelors, Emile Tissot and Eden Vale.