Northern Foods has moved back into profit after raising selling prices to offset the higher cost of cheese and wheat.

Net profit increased to GBP34.5m (US$68.4m) in the year to 29 March, up from a net loss of GBP22.5m a year earlier.

Responding to surging commodity costs, the maker of Goodfella’s pizza and own-label ready meals said that it had successfully raised prices by 2.8% during the year. The company added that it hopes to continue to pass on further increases this year.

“The current trading environment remains challenging, with continuing commodity cost pressures which we are committed to recovering,” chief executive Stefan Barden said. “Despite some caution, we expect the underlying business to continue to make good progress in 2008-09.”

Profits at the company’s frozen unit slumped 38% to GBP11.4m as sales rose 0.4%. Margins were hit by currency conversion, as the Euro gained against the pound, and marketing spend increased. Operating margins at the division narrowed by 2.9% to 4.6%.

Sales of chilled foods, including ready meals, rose 7.8% while operating profit increased 51% to GBP22.1m.

Bakery sales rose 3.9%, boosting profit by 17% to GBP14.9m. During the year, Northern stopped production of less-profitable cookies and cakes and ended unprofitable own-brand baked goods contracts.

Northern also completed the disposal of businesses representing 40% of total annual revenue to make it a “leaner” and “more competitive” business. The disposals led to one-time costs of GBP55.4m.

Barden said that the company had made good progress on its strategic plan. “Our chilled business has again achieved strong revenue and profit growth, and the progress made in our bakery performance has been particularly pleasing. We continue to take forward our plans to improve profitability in our frozen division,” Barden said.