Struggling Northern Foods issues profit warning

Struggling Northern Foods has issued a profits warning for the first half of this year.

Struggling Northern Foods has issued a profits warning for the first half of this year, just weeks after announcing it would sell three of its ailing pudding and pie businesses.

At its annual general meeting on 19 July, chairman Anthony Hobson said: "As expected, trading conditions continue to be very competitive and margins remain under pressure. As we already indicated in May 2006, this trading environment and changes in customer delivery preferences from the first to the second half of the year are anticipated to result in first-half profits being behind those of the comparable period."

Park Cakes, Pork Farm Pies and Bowyers, which make up about 40% of the business, are all being sold, leaving Goodfella's pizzas and Fox's biscuits in Northern's portfolio. The company received a further knock with a factory fire at the firm's Fletchers bakery in Sheffield last month. Production at the factory has now restarted, but repairs are ongoing.

Hobson said: "Our focus this year continues to be on restoring margins through our disposal programme, the simplification of our chilled division, centre cost reduction and rigorous capital and cash management."

Meanwhile, this week, the company also announced it had reached agreement for the proposed sale of the business and assets of NFT, its chilled distribution operation, to a new group formed through a management buyout and backed by Phoenix Equity Partners.

Proceeds of the sale will be £51.2m, comprising £44.5m cash on completion, together with a loan note of £6.7m, payable to Northern Foods not later than 12 months after completion.

These will also be subject to a final adjustment for the closing working capital on completion. The new company will assume the name of NFT Distribution Holdings and completion is expected to take place in approximately 14 days, following employee consultation and the issue of new transport operating licences.

NFT was established by Northern Foods in 1979 and provides chilled distribution services to the food sector. The gross

asset value of the transaction at 1 April, 2006 is £44.5m. Turnover for the year ended 1 April, 2006 was £111.4m, with an operating profit of £3.9m.

Approximately 89% of the company's business is with third-party customers. The majority of the proceeds will be used to reduce debt, with a payment of £10m to be made to the Northern Foods Pension Scheme.

The sale is part of Northern's continuing disposal programme. Chief executive Pat O'Driscoll said: "Today's announcement represents a very positive first step in our disposal programme. We are delighted to have reached a successful conclusion to this sale. Distribution is not core to Northern Foods going forward, but this is a great business and we wish NFT and its employees well."

David Frankish, who is current managing director of NFT will

become managing director of the new operating company.

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