NORTHERN FOODS
CHAIRMAN'S STATEMENT
During six months of intense activity under our new Chief Executive, we have
made real progress in establishing a firm base from which to realise the full
potential of Northern Foods. We have simplified our operating structure,
strengthened management and taken action to leverage our scale as a leading UK
food producer, and significantly reduce the £1.4 billion cost base of the group.
These actions are essential to equip us to compete effectively in a very
challenging retail environment, and will continue with added impetus as we
implement the conclusions of our business review.
Results
I am pleased to report strong underlying sales growth in the first half of our
financial year. Sales from continuing businesses increased by 6.1 per cent to
£699.3 million (2003: £659.1 million), including underlying sales growth
(excluding the impact of currency, acquisitions and divestments) of 3.4 per
cent. Performance improved in the second quarter as we passed the anniversary
of last year's loss of savoury products business with Sainsbury's. We enjoyed
particularly strong sales growth with Tesco, Asda and Morrisons, but
disappointing trading with Marks & Spencer as that business undergoes major
change.
Operating profit before goodwill amortisation and exceptional items rose by 3.3
per cent to £43.6 million (2003: £42.2 million). Our Ambient division made very
good progress following the restructuring initiatives announced last year, and
our Frozen division also increased its contribution. However, Chilled profits
fell primarily as a result of the disappointing trading with Marks & Spencer and
last year's business loss.
After a 5.0 per cent increase in interest charges to £10.6 million, mainly
reflecting our continued share buyback programme, profit before tax, goodwill
amortisation and exceptional items improved by 1.5 per cent to £33.0 million
(2003: £32.5 million).
Earnings per share before goodwill amortisation and exceptional items increased
by 5.0 per cent to 5.28 pence (2003: 5.03 pence), reflecting the continued
benefit of share buybacks.
Exceptional items during the half totalled £66.9 million (2003: £4.9 million),
comprising an operating exceptional charge of £34.8 million relating to group
restructuring and two proposed factory closures, together with a net loss on the
sale of businesses of £32.1 million after goodwill previously written off to
reserves of £27.5 million. After these items and goodwill amortisation of
£2.0 million (2003: £1.8 million), the group recorded a pre-tax loss of £35.9
million (2003: profit of £25.8 million). On the same basis there was a loss per
share of 6.27 pence, compared with earnings per share of 3.72 pence in the first
half last year.
Dividend and share buybacks
The board has declared an increased interim dividend of 3.35 pence per share
(2003: 3.30 pence), a rise of 1.5 per cent. This increase reflects the growth
of earnings per share before goodwill amortisation and exceptional items, and is
consistent with our commitment to a progressive dividend policy while gradually
improving cover from last year's level of 1.6 times.
We also continued to make market purchases of our shares when appropriate
opportunities arose, acquiring 15.6 million shares at a cost of £24.2 million
during the first half. These will also continue, though at a lower level than
in recent years when we have had the benefit of substantial cash inflows from
disposals. We have returned a total of £167.8 million to shareholders through
buybacks since we began our share buyback programme in February 2000.
Net debt as at 2 October 2004 was £387.6 million (2003: £413.4 million). EBITDA
interest cover before exceptional items remained high at 7.2 times.
Business review
We have recently completed a comprehensive business review, which has confirmed
that Northern enjoys many strengths in its markets, assets, products and people,
but has also identified a number of challenges which we must address to reverse
our recent underperformance and enhance our capacity to deliver earnings growth.
These findings and our future plans are outlined by Pat O'Driscoll on pages 6
to 11.
We have already simplified the structure of the group, which now comprises four
divisions - two focused on Chilled products and one each in Ambient and Frozen
food - headed by members of the operating board whose formation we announced in
June 2004. We are already seeing real benefits from the greater clarity and
accountability that the new structure was designed to create.
We have also announced proposals to close two factories and to relocate our head
office from Hull to Leeds in 2005. In addition, we have made further progress
in the disposal of non-core assets, selling the Emile Tissot frozen foodservice
and Eden Vale Minsterley fresh chilled dairy products businesses during the
first half. On 3 November 2004 we agreed to sell the Cavaghan & Gray Seafood
chilled and frozen fish business. Further information on these divestments is
contained in the Operating and Financial Review.
People
A number of people have left Northern through disposals or redundancy since the
beginning of this financial year, and we expect further job reductions as a
result of our proposed factory closures. Many of these people have given years
of loyal service to Northern Foods, and we naturally regret the uncertainty they
have experienced. However, I have no doubt that all the actions we are taking
are absolutely essential to equip the group to compete effectively in a very
demanding retail environment. I am grateful to all our staff for their
understanding of what we are trying to achieve and for their co-operation in
implementing these necessary changes.
The Board
Sean Christie resigned as Group Finance Director by mutual consent on 22 October
2004, after eight years in this role and a total of 25 years' service with
Northern Foods. We are grateful to him for his valuable contribution to the
business and wish him every success in the future. The search for a new Group
Finance Director is already under way and, in the interim, Ian Ellis has been
promoted from Group Finance Executive to Head of Finance.
Outlook
We are now entering the Christmas trading period, which is always critical to
our results for the year. Our markets remain extremely competitive, and we face
significant additional uncertainty over the trading performance of Marks &
Spencer where much change is taking place, making our performance this Christmas
particularly difficult to predict.
Following completion of our business review, we are confident that we have the
right structure and plans in place to enable Northern Foods to realise the full
potential of its scale and product expertise in growing segments of the UK food
market. We are committed to ensuring that this delivers value for our
shareholders and customers alike.
Peter Blackburn
Chairman
BUSINESS REVIEW
Over the last six months we have undertaken a comprehensive review of Northern's
business with the aim of identifying and exploiting its core strengths and
developing effective programmes to address its weaknesses. We now have a clear
three-year plan to create and capture value for shareholders by developing a
business with a winning culture that will be the supplier of choice to retailers
in added value convenience foods.
Background and methodology
The business I joined in March this year had a good history of creating value by
growing sales, but a poor track record of capturing that value for shareholders
by translating sales progress into earnings growth. The objective of our
business review has been to test our instinctive assumptions on what Northern
has been doing right and wrong, and to develop a business plan for the next
three years. This has included agreeing our business focus and direction,
identifying value creation opportunities, and creating clear and deliverable
proposals to improve performance.
For our work over the last six months we have adopted an 'outside in'
perspective, looking at Northern's market context, examining trends in consumer
behaviour, obtaining extensive input from customers on our past performance and
their future needs, and evaluating our competitive position.
Market and industry background
The dynamics of our market are positive, fuelled by growing consumer demand for
convenience food solutions. Demographic changes towards smaller households, the
decline in traditional cooking skills, growing demands for choice and the trend
towards 'on the move' snacking all favour product categories in which Northern
has real strength. Retailers also see convenience foods as the flagships of
their own brands, helping to define their points of difference, and as key
traffic builders. The ability to lead both product innovation and category
development is therefore increasingly critical, along with the ability to drive
down costs: a mix which will increasingly favour industry leaders such as
Northern Foods. In developing our plans, we have also recognised the need to
address the risks posed by continued intense price competition between the
retailers, potential market volatility, and possible further changes in consumer
buying habits driven by factors such as growing concerns about health.
What's right at Northern Foods
I am pleased to confirm that the review has identified many inherent strengths
and advantages in our current position. Northern has a strong base business
with real scale as one of Britain's largest food manufacturers. In chilled
food, we are the leading producer in the UK and one of the largest in Europe as
a whole. We have a justified reputation as a manufacturer of quality products,
and we also have well-invested assets and great people, with a genuine
commitment to the business. The group has an impressive history of innovation,
including the original development of the chilled ready meal with Marks &
Spencer and a number of more recent technological and product 'firsts'.
Northern occupies leading market positions in a number of key growth categories,
including ready meals, chilled savoury pastry products, sweet snacks and frozen
pizza and pastry products. In addition to strong own label market shares, we
have leading brand positions in frozen deep pan and premium pizzas, premium
biscuits, vegetable grills and pork pies with Goodfella's, Fox's, Dalepak and
Pork Farms Bowyers respectively. The group has consistently generated good
overall sales growth, and our market share increases and recent profit record in
both biscuits and frozen food demonstrate our ability to deliver good business
performance under testing market conditions.
We have extensive consumer reach and already address all the major UK retailers
in virtually all our chosen product categories, having made real progress in
improving the balance of our customer portfolio in recent years. With sales
of around £1.5 billion, we are one of the largest UK purchasers of food
ingredients and packaging in a number of categories, and our £1.4 billion cost
base affords significant scope for improvement.
What's wrong at Northern Foods
Although Northern Foods is a large company, it has been run as a collection of
small businesses. This has led to a failure to exploit the potential of our
scale in procurement, manufacturing and logistics. The fragmentation of
production across multiple sites, often competing with each other for business,
has resulted in some under-utilisation of capacity and varied approaches to
category management, customer service and innovation.
The group's culture has become complacent and this has created obstacles to
change rather than supporting a more performance-based approach. As a result,
Northern has missed some opportunities in its markets, and has adapted its
approach to customer relationships too slowly. This has been underlined by
extensive customer feedback, which has identified areas where we can add
significant value to them.
As a consequence, the business performance has been unacceptable with earnings
growth, lagging sales growth and declining returns on invested capital.
What is Northern Foods about?
Going forward, Northern will be a business clearly focused on added value
convenience foods, serving consumers across the full range of eating occasions
from treats and snacks to full meal solutions. Our target customers will remain
UK and Irish retailers, and we will focus on product groupings where we have a
real knowledge of consumer behaviour, can exploit common manufacturing skills,
and have a natural interface with our retail customers. Our ambition is to be
the supplier of choice to retailers in added value convenience foods.
We have already made significant progress in tightening the focus of the group
by exiting a range of non-core activities including confectionery, canning,
frozen foodservice, fresh chilled dairy products and fish processing. In total,
since September 2003, we have sold five businesses generating annualised
turnover of £179.7 million.
Performance priorities
The fundamental objective over the next three years is to improve the management
of our current businesses to reverse the decline in earnings and returns on
capital. This 'Get Fit' programme will focus on maintaining sales growth,
lowering costs and raising efficiency. At the same time, we will enhance our
commercial approach and organise more effectively for performance delivery.
Sales growth. Our target is to maintain our current rate of underlying sales
growth by focusing on growing product categories and seeking to increase our
market share. We will do this by further improving our customer coverage and
product offer, increasing our share in under-represented categories and using
our consumer insights and customer knowledge to deliver a growing stream of
product innovations, supported by appropriate skills in technology, research and
development.
Lower costs and higher efficiency. We will add impetus to the progress already
made by our new central procurement team in simplifying the purchasing of
ingredients, packaging and other inputs across the group. Further potential
exists to improve efficiency through the adoption of a common, group-wide
approach to improving manufacturing efficiencies and streamlining logistics. We
will also make Northern a leaner and fitter organisation at all levels.
Enhanced commercial approach. We will drive each of our product categories
through deeper market knowledge and focused innovation. This will involve a
reshaped approach to account management to meet customer partnerships' needs and
address specific issues with Marks & Spencer.
Effective organisation. Our two critical needs are clear leadership and
accountability. We are focusing on enhancing key skills across the group,
notably in manufacturing, marketing and sales development, and on creating a new
'One Northern Foods' structure and culture that will encourage cross-group
working, the dissemination of best practice and the establishment of common
business processes. We will ensure motivation through the development of
appropriate targets and incentives. I am determined to build a new group
culture in which the focus is on working as a single team with a winning
performance mindset.
Delivery
The plans we have developed are different from previous efforts to address the
group's problems. There is a real will to make Northern Foods succeed, supported
by a simpler structure and focus on performance which begins at the top and is
shared throughout the organisation. We are getting the right people in place to
make change happen, and have a clear plan of how to get things done. Within the
last six months, we have taken a range of key actions including:
Simpler structure. We radically shortened and clarified our reporting lines in
June 2004 when we created our new operating board, comprising the heads of our
four divisions and functional directors with group-wide responsibilities. This
eliminated 15 former operating companies and a range of duplicated functions,
enabling us to remove an entire layer of 30 senior managers across the group.
The relocation of our head office from Hull to Leeds early in 2005 will further
improve the effectiveness and accessibility of our central functions.
Cost focus and capital discipline. We have already made good progress in
raising profitability in our Ambient division, both with the Fox's business
reorganisation and performance improvement at Park Cakes. Our group-wide factory
rationalisation plans are on track, as is our organisational restructure. The
actions we have already announced are targeted to produce annualised savings of
some £25 million by our financial year to March 2006. Despite necessary
investment to facilitate product transfers associated with the factory closures,
we are maintaining overall capital expenditure at around the level of
depreciation.
Energised management. Initiatives such as the successful senior management
conference we held in September to launch the 'One Northern Foods' team and
approach are encouraging the sharing of best practice and the creation of a
sense of common purpose, while increased accountability and revised targets and
incentives are helping to create a real commitment to success.
Recruitment. We have recently appointed new group manufacturing and technical
directors with strong food industry pedigrees. External consultants are seeking
a new Group Finance Director, and we will also recruit to ensure that we have
the right functional skills to support our business plans, particularly in
marketing and sales.
The future
Our short term priorities are operational delivery of the critical Christmas
trading period, and completing the planned factory closures and product
transfers. We are also focusing on organisational change to complete the
divisional restructure, fill senior skills gaps and establish a strong platform
for the future by completing the roll-out of shared services in finance,
administration and IT, harnessing the full potential of SAP technology,
accelerating central procurement and developing review processes for
manufacturing and innovation.
Our longer term objectives are to maintain sales growth while arresting the
decline in operating margin and adding at least one percentage point to our
continuing operating margin by 2007. We also intend to reverse the decline in
return on invested capital. Investment will be carefully targeted and contained
at around the level of depreciation overall, though we anticipate additional
expenditure consequent upon restructuring in 2005/06. We intend to maintain our
progressive dividend policy, while gradually rebuilding cover, maintaining
strong interest cover and undertaking a reduced level of share buybacks.
We have a strong base business with leading positions in growth categories,
which gives us the capacity to realise these ambitions, by addressing the issues
we have identified in our 'Get Fit' programme. I am confident that we have the
capability to fulfil both our short term priorities and longer term objectives,
and so meet the expectations of our shareholders.
Pat O'Driscoll
Chief Executive
OPERATING AND FINANCIAL REVIEW
The group's results for the six months to September 2004 are in line with our
expectations. We have continued to achieve real sales growth, despite
challenging first quarter comparatives. Underlying profits have also improved,
with our Ambient and Frozen divisions both demonstrating the benefits of action
to simplify our structure, increase efficiencies and reduce costs.
Sales
Continuing sales are up 6.1 per cent versus the first half last year at £699.3
million. Underlying sales growth (excluding the impact of currency, acquisitions
and divestments) improved after the anniversary of last year's business loss
with Sainsbury's, rising from a 1.5 per cent uplift in the first quarter to 5.5
per cent in the second, giving an average of 3.4 per cent for the half year as a
whole.
Selling price increases of around 1.5 per cent are included in the figures
above, just below the level of input cost inflation experienced in the half.
All three reporting sectors contributed to our sound sales growth. Our cake and
biscuit businesses drove Ambient sales, good progress by Solway Foods and our
ready meal business with Morrisons were highlights of the growth in Chilled,
while Green Isle in Frozen delivered a significant sales increase.
Operating profit
Operating profit before goodwill amortisation and exceptional items was up 3.3
per cent overall at £43.6 million, with continuing businesses also showing an
increase of 3.3 per cent. Good performances were achieved in both Frozen and
Ambient but these were largely offset by a disappointing result from Chilled.
Continuing Ambient operating profit before goodwill amortisation and exceptional
items* increased by £4.4 million as a result of cost savings, improved
efficiencies and increased sales.
Continuing Frozen operating profit before goodwill amortisation and exceptional
items* increased by £0.8 million, with increased efficiencies at Dalepak adding
to the benefit of strong sales growth at Green Isle.
Continuing Chilled operating profit before goodwill amortisation and exceptional
items* was down £3.8 million as a result of declining profit margins.
Relatively weak sales to Marks & Spencer throughout the half year affected
efficiency and profitability, and last year's business loss continued to impact
profits in the first quarter. We also suffered from disruption following a fire
at our Trowbridge plant, overall efficiency levels were below our targets and
there was some further under-recovery of cost inflation.
Divestments and rationalisation
We realised net proceeds of £19.3 million through the sale of the Emile Tissot
frozen foodservice business to Dawn Fresh Foods Limited on 1 May, and the
disposal of the Eden Vale Minsterley fresh chilled dairy products business to
Uniq Prepared Foods Limited on 22 May. Since the beginning of the second half,
on 3 November 2004, we agreed to sell the Cavaghan & Gray Seafood chilled and
frozen fish business to IFP Holdings, a subsidiary of Icelandic Group Plc, for a
cash consideration of £12.6 million. This business comprises two factories in
Grimsby and Aberdeen producing added value fish products and sourcing and
processing fish for food manufacturers. This is an area in which Northern was a
small player, while the purchaser has real focus and scale, plus the capability
to achieve synergies with its other operations.
* analysed in the analysis of activities
We have announced proposals to close our Evesham Foods factory and the London
Road, Carlisle facility of Cavaghan & Gray during 2005. The transfer of their
production to other group factories will eliminate unnecessary duplication and
enhance plant utilisation and productivity. We also announced plans to relocate
our head office from Hull to Leeds early next year.
Exceptional items
The group reorganisation and the proposed factory closures resulted in a £24.7
million post-tax operating exceptional charge with the cash element in the first
half being relatively low at £2.6 million and the balance falling mainly in the
second half.
The losses on the sale of Eden Vale Minsterley and Emile Tissot were £26.0
million and £6.1 million respectively. The total post-tax loss was £30.4
million, of which £27.5 million relates to goodwill previously written off to
reserves.
Pre-tax profit
Profit before tax, goodwill amortisation and exceptional items was £33.0
million, being 1.5 per cent higher than last year. After the exceptional group
reorganisation costs and losses on the sale of Eden Vale Minsterley and Emile
Tissot, there was a pre-tax loss of £35.9 million compared to a profit of £25.8
million last year.
Earnings per share
The benefit of the share buyback programme appears in the 5.0 per cent increase
in earnings per share before goodwill amortisation and exceptional items to 5.28
pence. The basic loss per share was 6.27 pence compared to earnings per share
of 3.72 pence last year, again reflecting the exceptional items noted above.
Distributions to shareholders
We are increasing the interim dividend by 1.5 per cent to 3.35 pence per share,
which will be paid on 24 March 2005 to those shareholders on the register at 21
January 2005.
We have continued to buy back shares as suitable market opportunities arose,
acquiring 15.6 million shares at a total cost of £24.2 million in the first six
months of the year.
Capital expenditure
We have held capital expenditure to below the level of depreciation in the half
at £27.3 million and aim to keep the figure in line with depreciation for the
full year despite additional capital requirements in those sites to which we
will be transferring production following our two proposed factory closures.
Cash flow and balance sheet
We always have a cash outflow in the first half as we build working capital
ahead of the Christmas season. This year's increase in net debt of £55.2
million is lower than the £89.8 million increase reported in the comparable
period last year, primarily due to the net cash inflow from acquisitions and
disposals of £18.2 million this year compared to an outflow of £19.9 million
last year.
A total of £51.7 million was returned to shareholders through dividends and
share buybacks.
Net debt as at 2 October 2004 was £387.6 million (2003: £413.4 million). EBITDA
interest cover before exceptional items remained high at 7.2 times.
International Financial Reporting Standards
We have developed a framework for the implementation of International Financial
Reporting Standards, which become effective for accounting periods commencing on
or after 1 January 2005. Our analysis indicates that the most significant areas
of difference from UK GAAP concern the treatment of pensions, our convertible
bonds, deferred tax, and share-based payments. We recognise the issues
surrounding the pension deficit which would be shown on an FRS 17 basis, as
disclosed in our year-end accounts, and are currently investigating ways to
address these over the long term.
Ian Ellis
Head of Finance
CONSOLIDATED PROFIT AND LOSS ACCOUNT
26 weeks to 2 October 2004 26 weeks to 27 September 2003 53 weeks to
(unaudited) (unaudited) 3 April 2004
Before Before
goodwill Goodwill goodwill Goodwill
amortisation amortisation amortisation amortisation
and and and and
exceptional exceptional exceptional exceptional
items items Total items items Total Total
£m £m £m £m £m £m £m
Group turnover
- continuing 699.3 - 699.3 659.1 - 659.1 1,426.0
- discontinued 8.8 - 8.8 63.0 - 63.0 116.1
Group turnover 708.1 - 708.1 722.1 - 722.1 1,542.1
Operating profit
- continuing 44.0 (36.8) 7.2 42.6 (2.3) 40.3 87.4
- discontinued (0.4) - (0.4) (0.4) (0.1) (0.5) (2.4)
Operating profit 43.6 (36.8) 6.8 42.2 (2.4) 39.8 85.0
Share of associated - - - 0.4 (0.2) 0.2 0.2
undertakings
(Loss)/profit on disposal of - (32.1) (32.1) - (4.1) (4.1) 11.6
businesses
Profit/(loss) before interest 43.6 (68.9) (25.3) 42.6 (6.7) 35.9 96.8
Net interest payable (10.6) - (10.6) (10.1) - (10.1) (21.4)
Profit/(loss) before taxation 33.0 (68.9) (35.9) 32.5 (6.7) 25.8 75.4
Taxation (6.9) 11.8 4.9 (6.5) (0.1) (6.6) (10.0)
Profit/(loss) after taxation 26.1 (57.1) (31.0) 26.0 (6.8) 19.2 65.4
Equity dividends (15.9) - (15.9) (16.7) - (16.7) (44.6)
Retained profit/(loss) for 10.2 (57.1) (46.9) 9.3 (6.8) 2.5 20.8
the period
Earnings/(loss) per ordinary share
- before goodwill amortisation and 5.28p 5.03p 13.77p
exceptional items
- basic (6.27)p 3.72p 12.78p
- diluted (6.27)p 3.70p 12.56p
Dividend per ordinary share 3.35p 3.30p 8.90p
Average number of shares (million) 494.5 516.5 511.8
Analysis of earnings before interest, tax, depreciation and amortisation (EBITDA)
Operating profit before goodwill 43.6 42.2 107.0
amortisation and exceptional items
Add: associate - 0.4 0.4
depreciation 33.2 32.0 65.9
EBITDA before exceptional items 76.8 74.6 173.3
CONSOLIDATED BALANCE SHEET
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
(as restated) (as restated)
£m £m £m
Fixed assets
Intangible fixed assets 64.7 67.5 64.3
Tangible fixed assets 629.3 687.8 672.4
694.0 755.3 736.7
Current assets
Stocks 92.5 97.0 78.2
Debtors 260.1 254.3 230.0
Investments 11.5 16.3 14.9
Cash at bank and in hand 40.3 18.4 35.0
404.4 386.0 358.1
Creditors: amounts falling due within one year 271.7 290.6 296.9
Net current assets 132.7 95.4 61.2
Total assets less current liabilities 826.7 850.7 797.9
Creditors: amounts falling due after more than one year
Convertible subordinated bonds 2008 90.7 90.5 90.6
Loans and other creditors 339.7 340.4 281.5
430.4 430.9 372.1
Provisions for liabilities and charges 79.4 69.7 69.5
Net assets 316.9 350.1 356.3
Capital and reserves
Called-up share capital 127.2 128.4 127.1
Share premium account 60.5 57.6 60.0
Revaluation reserve 3.6 3.8 3.7
Capital redemption reserve 23.6 21.6 23.6
Reserve for own shares (38.6) (4.4) (14.4)
Other reserves 6.7 6.7 6.7
Profit and loss account 133.9 136.4 149.6
Equity shareholders' funds 316.9 350.1 356.3
CONSOLIDATED CASH FLOW STATEMENT
26 weeks to 26 weeks to 53 weeks to
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
£m £m £m
Operating profit per profit and loss account 6.8 39.8 85.0
Goodwill amortisation 2.0 1.6 3.5
Depreciation 33.2 32.0 65.9
Exceptional provision for impairment of fixed assets 15.1 - 10.5
Profit on sale of tangible fixed assets (0.2) (0.1) (0.5)
Government grants (0.9) (0.8) (1.4)
Other non-cash items 0.1 0.1 0.1
Working capital and provisions movement (38.9) (44.2) (8.2)
Net cash inflow from operating activities 17.2 28.4 154.9
Return on investments and servicing of finance - net interest paid (11.2) (9.8) (20.3)
Taxation (0.3) 3.0 2.1
Purchase of tangible fixed assets (29.6) (39.7) (76.9)
Sales of tangible fixed assets 0.4 1.0 1.3
Grants received 0.8 0.1 0.5
Net cash outflow from capital expenditure and financial investment (28.4) (38.6) (75.1)
Cash outflow on acquisitions (1.1) (29.3) (32.7)
Cash inflow on disposals 19.3 9.4 50.9
Net cash inflow/(outflow) from acquisitions and disposals 18.2 (19.9) 18.2
Equity dividends paid (27.5) (28.1) (44.9)
Cash (outflow)/inflow before use of liquid resources and financing (32.0) (65.0) 34.9
Management of liquid resources 3.4 (5.7) (4.3)
Revolving credit facility 70.0 120.0 70.0
Repayment of other borrowings (29.1) (47.1) (58.6)
Capital element of finance lease rental payments - (3.3) (6.7)
40.9 69.6 4.7
Purchase of own shares (24.2) (15.8) (37.1)
Issue of equity share capital net of costs 0.6 0.3 3.4
Net cash inflow/(outflow) from financing 17.3 54.1 (29.0)
(Decrease)/increase in cash (11.3) (16.6) 1.6
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
26 weeks to 26 weeks to 53 weeks to
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
£m £m £m
(Decrease)/increase in cash in the period (11.3) (16.6) 1.6
Movement in liquid resources (3.4) 5.7 4.3
Revolving credit facility (70.0) (120.0) (70.0)
Repayment of other borrowings 29.1 47.1 58.6
Capital element of finance lease rental payments - 3.3 6.7
Changes in net debt resulting from cash flows (55.6) (80.5) 1.2
Loans acquired with subsidiary - (7.4) (7.4)
Loan notes issued on acquisition of subsidiary - (2.0) (2.0)
Exchange adjustments 0.5 0.2 (0.5)
Amortisation of bond and financing costs (0.1) (0.1) (0.1)
Movement in net debt in the period (55.2) (89.8) (8.8)
Net debt at start of period (332.4) (323.6) (323.6)
Net debt at end of period (387.6) (413.4) (332.4)
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
26 weeks to 26 weeks to 53 weeks to
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
£m £m £m
(Loss)/profit attributable to equity shareholders (31.0) 19.2 65.4
Currency translation differences 3.6 0.9 (2.7)
Total recognised net (losses)/gains for the period (27.4) 20.1 62.7
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
26 weeks to 26 weeks to 53 weeks to
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
(as restated) (as restated)
£m £m £m
(Loss)/profit attributable to equity shareholders (31.0) 19.2 65.4
Currency translation differences 3.6 0.9 (2.7)
Total recognised net (losses)/gains for the period (27.4) 20.1 62.7
Equity dividends (15.9) (16.7) (44.6)
New share capital subscribed (net of costs) 0.6 0.3 3.4
Repurchase of own shares (24.2) (15.3) (37.1)
Vesting of own shares - 1.6 1.6
Goodwill previously written off included in retained 27.5 - 10.2
profit for the period
Movement in equity shareholders' funds (39.4) (10.0) (3.8)
Opening equity shareholders' funds (as previously reported) 360.7 366.1 366.1
Prior year adjustment - UITF Abstract 38 (4.4) (6.0) (6.0)
Opening equity shareholders' funds (as restated) 356.3 360.1 360.1
Closing equity shareholders' funds 316.9 350.1 356.3
ANALYSIS OF ACTIVITIES
26 weeks to 26 weeks to 53 weeks to
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
Turnover £m £m £m
Continuing operations
Chilled 388.5 367.0 788.1
Frozen 174.8 170.0 352.0
Ambient 136.0 122.1 285.9
699.3 659.1 1,426.0
Discontinued operations
Chilled 8.3 27.7 58.5
Frozen 0.5 4.2 8.7
Ambient - 31.1 48.9
8.8 63.0 116.1
Total group 708.1 722.1 1,542.1
Operating profit before goodwill amortisation and exceptional items
Continuing operations
Chilled 13.3 17.1 44.0
Frozen 17.0 16.2 36.1
Ambient 13.7 9.3 26.3
44.0 42.6 106.4
Discontinued operations
Chilled (0.3) (2.7) (3.8)
Frozen (0.1) (0.1) 0.2
Ambient - 2.4 4.2
(0.4) (0.4) 0.6
Total group 43.6 42.2 107.0
26 weeks to 26 weeks to 53 weeks to
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
(as restated) (as restated)
£m £m £m
Operating assets
Chilled 396.0 432.8 429.9
Frozen 208.0 219.1 202.0
Ambient 198.5 214.6 171.5
Total group 802.5 866.5 803.4
As previously announced, the group has restructured its businesses into Chilled,
Frozen and Ambient divisions. All prior period comparatives have been restated
in line with this.
ANALYSIS OF NET ASSETS
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
(as restated) (as restated)
£m £m £m
Fixed assets 694.0 755.3 736.7
Stocks 92.5 97.0 78.2
Debtors 260.1 254.3 230.0
Creditors and provisions (244.1) (240.1) (241.5)
Net operating assets 802.5 866.5 803.4
Current taxation (15.0) (16.5) (17.3)
Deferred taxation (66.7) (69.7) (69.5)
Dividend payable (16.3) (16.8) (27.9)
Trading capital employed 704.5 763.5 688.7
Net borrowings (387.6) (413.4) (332.4)
Net assets 316.9 350.1 356.3
NOTES TO THE INTERIM FINANCIAL INFORMATION
1 Accounting policies
The interim financial information has been prepared on the basis of the
accounting policies set out in the accounts for the 53 weeks to 3 April 2004,
except for the accounting treatment of the Employee Share Ownership Trust which
has been changed in accordance with UITF Abstract 38 'Accounting for ESOP
Trusts'. This requires a company's own shares in an ESOP Trust to be shown as a
deduction in shareholders' funds rather than as an asset. Prior period
comparatives have been restated to comply with UITF Abstract 38. The effect of
this is a reduction in fixed asset investments and net assets of £4.4m at both
27 September 2003 and 3 April 2004. There has been no impact on the profit and
loss account in either period.
2 Operating profit
26 weeks to 26 weeks to 53 weeks to
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
£m £m £m
Operating profit before goodwill amortisation and exceptional items 43.6 42.2 107.0
Exceptional operating charges
- continuing (34.8) (0.8) (15.6)
- discontinued - - (2.9)
Goodwill amortisation
- continuing (2.0) (1.5) (3.4)
- discontinued - (0.1) (0.1)
(36.8) (2.4) (22.0)
Operating profit 6.8 39.8 85.0
3 Exceptional items
26 weeks to 26 weeks to 53 weeks to
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
Exceptional items before taxation £m £m £m
Operating exceptional items
Restructuring costs (34.8) (0.8) (18.5)
Non-operating exceptional items
(Loss)/profit on disposal of businesses (32.1) (4.1) 11.6
The restructuring costs relate to the group reorganisation and the proposed
factory closures at Evesham Foods and London Road, Carlisle, including fixed
asset impairment of £15.1m. The loss on disposal of businesses relates to a
£26.0m loss on the sale of Eden Vale Minsterley and a £6.1m loss on the sale of
Emile Tissot. This includes £27.5m of goodwill previously written off to
reserves.
4 Goodwill amortisation
26 weeks to 26 weeks to 53 weeks to
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
£m £m £m
The charge for the period is analysed as follows:
- subsidiaries (2.0) (1.6) (3.5)
- associates - (0.2) (0.2)
5 Taxation
26 weeks to 26 weeks to 53 weeks to
2 October 27 September 3 April
(unaudited) (unaudited)
2004 2003 2004
£m £m £m
Corporation tax
Ordinary 3.6 3.5 8.2
Exceptional (5.6) 0.1 (2.4)
Deferred tax
Ordinary 3.3 3.0 7.3
Exceptional (6.2) - (3.1)
(4.9) 6.6 10.0
The taxation charge before goodwill amortisation and exceptional items for the
26 weeks to 2 October 2004 has been calculated on the basis of the estimated
effective tax rate for the full year of 21.0 per cent. The reduction in the tax
rate reflects the impact of lower tax on Irish profits and tax efficient
funding.
6 Interim report
The figures for the 53 weeks to 3 April 2004 have been extracted from the
accounts which have been filed with the Registrar of Companies and which contain
an unqualified audit report and did not include a statement under Section 237
(2) or (3) of the Companies Act 1985, nor a report under Section 235 of the
Companies Act 1985 in respect of the financial year.
The interim report for the 26 weeks to 2 October 2004 was approved by the
directors on 16 November 2004. The interim report is not the company's statutory
accounts and has not been audited.
The group's auditors have reviewed the interim report and the review report of
the auditors is set out below.
The interim report will be posted to all shareholders and will be available on
request from The Secretary, Northern Foods plc, Beverley House, St Stephen's
Square, Hull, East Yorkshire, HU1 3XG.
INDEPENDENT REVIEW REPORT TO NORTHERN FOODS PLC
Introduction
We have been instructed by the company to review the financial information for
the 26 weeks to 2 October 2004 which comprises the profit and loss account,
balance sheet, cash flow statement, statement of total recognised gains and
losses and related notes 1 to 6, together with the reconciliation of net cash
flow to movement in net debt, reconciliation of movements in equity
shareholders' funds, analysis of activities and analysis of net assets. We have
read the other information contained in the interim report and considered
whether it contains any apparent mis-statements or material inconsistencies with
the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law we do not accept or assume responsibility to anyone, other than
the company, for our review work, for this report or for the conclusions we have
formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
polices and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the 26 weeks to 2
October 2004.
Deloitte & Touche LLP
Chartered Accountants
Leeds
16 November 2004