UK food producer Northern Foods has unveiled plans to radically refocus the business in order to drive shareholder value through the sale of a number of businesses – which currently account for 40% of the group’s revenues.
“The main brand we propose to sell if Pork Farms , the sausage roll and pork pie brand in the pastry division. The other businesses for sale primarily produce own label goods for retailers,” a spokesperson for Northern Foods told just-food this morning (31 May).
Its Smiths flour milling operation, its cakes and speciality bread bakeries and chilled pastry businesses, including Pork Farms, will all go on the block. The disposal of its NFT logistics arm is already under way.
The Leeds-based group undertook a business review following poor sales, which forced the company to issue two profit warnings earlier this year.
Releasing its preliminary results for the year to 1 April, Northern Foods revealed that profit before tax and exceptional items slipped from GBP62.2m (US$116.71m) in FY 2004/05 to GBP45.1m this year. The company reported a loss for the period, after restructuring items, of GBP5m. Consequently, Northern Food’s full year dividend was rebased at 4.25 pence per share, down from 9.05 pence per share last year.
The group hopes to make GBP200m from the disposal of non-core businesses and believes that the refocusing of the company on branded goods will increase profitability, a representative for the firm told just-food. “The business is being refocused on braded products. Once this process is complete about 50% of revenues will be generated by brands,” the spokeswoman said.
Proceeds from the sales will be used to reduce borrowings, reduce the pension deficit and to invest in future growth, the company said.
Northern intends to concentrate its business in five key categories – pizza, biscuits, ready meals, sandwiches and Christmas puddings. These categories have been selected, the company indicated, because they are high-growth segments that Northern already has a strong presence in with leading brands.
Commenting on the findings of the business review 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.”
Looking to the short-term future, O’Driscoll warned that the first half of 2006/07 will be weaker than the comparable period of 2005/06, reflecting the weak trading conditions at the end of this fiscal year. “Businesses to be sold will continue to impact trading performance, requiring near term investment and restructuring to improve their competitive position,” he said.