Northern disappointed by Christmas slowdown
third quarter results at Northern Foods, the UK's leading producer
of own label foods for the supermarket sector. But while there is
little sign of improvement in the biscuit sector in the coming
months, the company expects to see gains from its convenience food
unit.
Northern Foods, the UK group which makes own label convenience foods and other products for the country's leading supermarket groups, said that it was disappointed by the sales growth in the third quarter of the year.
"Whilst Christmas seasonal trade was satisfactory and we achieved the expected improvement in factory efficiencies compared with 2001, overall sales growth in the third quarter to 31 December 2002 was lower than we had anticipated and below that achieved in the first half," the company said in a trading statement.
Total sales for the third quarter were 2.9 per cent lower than in the previous year, although underlying retail sales showed a 2.5 per cent increase. More importantly, given the crucial Christmas period, sales to Northern's five largest customers (Marks & Spencer, Tesco, Sainsbury's, Asda and Safeway) were flat compared to the previous year, although they increased 3.5 per cent on a like-for-like basis.
The decline in total sales reflects the sale of the Ski and Munch Bunch brands in April 2002, Northern said, adding that the slowdown in underlying sales was compounded by difficult trading in biscuits. "Third quarter biscuit sales were 6.0 per cent lower than in the comparable period last year, while margins were weaker owing to intense competition in the market place," the company said.
Northern's convenience food operations performed satisfactorily during the third quarter, with good performances from a number of businesses recently restructured by the company. Among these were Park Cakes, into which Northern merged its R&K wise acquisition last year, as well as a new ready meals factory in Hull, which the company said continued to make progress towards break-even, which should be achieved early in the 2003 financial year.
"Following the Ski and Munch Bunch disposal, the remaining Eden Vale business continues to seek additional sales and cost savings in order to achieve profitability," the company said. Northern's frozen pizza facility, which started production in the autumn of 2001, performed satisfactorily in line with expectations.
Commenting on the fourth quarter prospects, Northern said it expected trading in the convenience division to be 'robust', but added that the grocery arm was likely to suffer from ongoing difficult conditions in the biscuit market. "Biscuit margins are expected to remain under pressure, and price increases are necessary to recover significant rises in chocolate input costs," it said.
For the year as a whole, profits per share are expected to be in line with 2001, despite increased pressures on profits and the disposal of the yoghurt businesses.
"During this financial year our convenience operations have performed well, and we have made good progress in realising the targeted returns from our restructuring projects and start-up investments," said chief executive Jo Stewart. "Our recent performance has been affected by a weaker sales trend and poor trading in biscuits but, looking forward, the group remains well positioned in growing sectors with well-invested facilities and proven capabilities in product innovation."
