Northern Foods to sell off swathe of businesses in response to losses

Northern Foods plans to sell off 40% of its business in response to falling sales and pressure on margins for a wide range of traditional 'mature' products.

Announcing its preliminary results for the year today (Wednesday May 31) Northern said it would concentrate more on branded manufacture, while seeking “high growth defensible own-label positions”. It intends to focus on fewer, higher performing categories.

Northern will sell off its NFT chilled distribution arm and Smiths flour milling operation. The company's cakes and speciality bread operations will also be sold. And it will sell off its chilled pastry products business, which requires major investment in order to turn round. The sales are expected to achieve £200M, which will be used to reduce borrowings, fund pension liabilities and for investment in the businesses retained.

It outlined plans to simplify and reduce costs in its retained chilled business, which, together with bakery, had performed badly over the year due to rising energy costs and stiff competition. An earlier partial decentralisation of Northern's chilled businesses had been criticised by some in the industry. The latest plans are likely lead to further site closures.

Northern said over 50% of the refocused business would be branded manufacture, concentrating in the areas of frozen and chilled pizzas - led by its Goodfella's frozen brand - biscuits, such as its Fox's brand, ready meals, where it would develop more 'ready to cook' variants, sandwiches and Christmas puddings.

Chief executive Pat O'Driscoll said: “The company will be radically refocused to drive improved shareholder returns. The new group will be targeted on fewer, higher performing product categories. This will reduce complexity, drive improved performance, earnings and cashflow, and create a simpler, more competitive and resilient business.

“2006/07 will be a year of change and transformation as disposals are progressed and continuing businesses strengthened and refocused.”

The restructuring plans follow a three- month review of Northern Foods whole activities. Some analysts feared the review had not gone far enough, however.

Northern announced profits before tax, before restructuring costs are included, of £45.1M for the year, compared with £62.4M in 2004/05 on a turnover of £1.43bn (£1.416bn in 2004/05). After restructuring costs for closures - including its chilled manufacturing operations at Evesham and Carlisle - were included, it amounted to a loss of £5M compared to profits of £22.8M in 2004/05.