Restructuring cuts Northern Foods’ costs

City A.M. Reporter
food manufacturer Northern Foods saw sales growth accelerate in its second-quarter and said it was changing the structure of its business to save money as it braces for a possible double-dip recession.

“We don’t know whether there’s going to be a double-dip or not but we are planning for it and keeping a weather eye open on it,” chief executive Stefan Barden said yesterday. He said the firm, which makes own-label products for retailers as diverse as premium food seller Marks & Spencer and discounter Aldi, would shift from five business units to two divisions – branded and chilled.

The branded division will comprise Goodfella’s Pizza, McDougalls and Hollands Pies, Fox’s Biscuits and Matthew Walker Puddings, while the chilled division will combine sandwiches and salads with ready meals and the firm’s British Airways supply business.

Northern Foods said the move would mean a restructuring charge of up to £6m, with payback by the end of 2011. Some jobs would go with a consultation programme under way.

Barden said he expected competitive market conditions to continue and forecast a two to four per cent rise in input costs going into 2011.

But he said action taken at the start of the last recession, when the firm increased the proportion of value lines to 20 per cent of sales, meant it was well placed if consumers rein in spending.

“If it happens again we can react very quickly and deliver what the retailers want,” he said.

Northern Foods has lost over a third of its value over the last year, underperforming a five per cent rise in the UK food producers’ index. The stock closed up half a per cent yesterday, valuing the business at £216m.

The firm said underlying sales rose 7.1 per cent in its second quarter to 2 October, having fallen 1.6 per cent in the first quarter. The outcome reflected a rise of 16.4 per cent in the chilled division and a 10.9 per cent increase in the bakery division.