Northern Foods’ results for the last year have shown falling profits despite rising sales.

A rise in sales has failed to offset a decline in pre-tax profits for UK food manufacturer Northern Foods.  New chief executive Patricia O’Driscoll plans to streamline the business and concentrate on core activities, but ongoing consolidation in the retail industry is likely to further squeeze supplier margins.

Northern Foods has released mixed preliminary results for the 12 months to 3 April. The firm, which produces biscuits, frozen food and chilled products for major UK retailers such as Marks & Spencer, Tesco, Asda and Sainsbury, has experienced what chairman Peter Blackburn described as a “difficult and disappointing year”. Pre-tax profits slumped 28.7% to £75.4m despite a sales increase of 8.5% to £1.54bn. Of greatest concern is the convenience sector, where profit before interest fell almost 34% to £44.8m.

The group cut 500 jobs in 2003 and has issued three profit warnings in the last two years, the last of which in September 2003 led to the departure of chief executive Jo Stewart. However, a new chief executive, Patricia O’Driscoll, joined in March 2004 and plans to radically restructure the company to make it more streamlined and focused on core activities. O’Driscoll plans to turn 15 decentralised businesses into four larger business units to enhance purchasing power.

Northern Foods has already sold several of its non-core units, including Batchelors, Emile Tissot and Eden Vale. This will enable greater focus on core activities including the Goodfella’s pizza and Fox’s biscuits units.

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Despite this restructuring, further uncertainty lies on the horizon. Marks & Spencer, whose business provides over 30% of Northern Foods’ sales, is the subject of a takeover bid from retail tycoon Philip Green, owner of BHS. A successful bid could jeopardise Northern’s existing supply contract as Green reviews his supply options. Ongoing consolidation in the UK retail industry, highlighted by the recent cases of Safeway and Londis, is also sure to pile further pressure on all suppliers to cut prices.

While O’Driscoll’s attempts to streamline Northern Foods will no doubt strengthen the company’s position to some extent, much of this good work could yet be undone by factors beyond Northern’s control.

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