Northern Foods hit by soaring costs

Northern Foods has forecast a £32M full-year rise in its commodity costs and utility bills, according to information released today.

In an interim management statement, covering the 13 weeks to June 28, the firm’s first financial quarter, it said: “Commodity costs have continued to rise in line with our expectations, as set out in May 2008. We anticipate full year commodity costs to increase by approximately £20M, together with a £12M increase in utilities.”

The company said it was recovering these costs through pricing negotiations, delivery of ongoing efficiency programmes and work with suppliers.

In addition, the company said it was reviewing the future of its biscuit factories in Uttoxeter, West Midlands, and Batley, Yorkshire, where Northern Foods first branched out into biscuit making. The decision is part of a plan to improve operating costs for its biscuits division by moving from three manufacturing sites to two world class facilities. The plan is expected to be finalised by the year end, with investment to be completed by 2011.

Two major ideas under consideration are developing an existing site, probably its Kirkham facility near Blackpool, and creating a completely new plant. The Kirkham factory is the most automated and efficient of its biscuit operations, according to head of communications Andrew Hanson.

Group underlying sales volumes were down 2%, mainly as a result of volume declines in frozen food (-8.6%) and chilled food (-0.9%). Northern Foods said the drop partly reflected a move away from unprofitable own-label business, particularly in frozen.

Northern’s restructuring was far from over, said Hanson. “Last year has been one of transition and we are still very much in transition, moving towards looking to move out of some areas.” He refused to make further predictions about volume decreases.

Average sales prices for the business rose by 5.5% during the quarter.

The company said it continued to develop plans to transform its Fenland Foods ready meals facility into a leading state of the art chilled food site.