Chairman's review
These are challenging market conditions, but our operational and financial strengths position us favourably to address these markets; to continue our good progress; and to build a strong business
Overview
In a tough market and set against a backdrop of a recessionary environment, Northern Foods has continued to grow into a stronger and more effective business, which is well placed in our sector. We are delivering growth in value products alongside our traditional premium ranges; maintaining our drive towards lowering costs and increasing efficiency; and targeting investment and new channels to develop our business.
Performance and dividend
Despite very challenging trading conditions; continued high commodity costs; the impact of the stronger Euro for our non-UK operations; and investment to build our brands, we have reported a profit from operations* of £52.7m, an increase of nearly 9% on the previous year. After a lower pension financing credit (reflecting reduced asset returns), we reported a profit before tax* of £47.5m (2007/08: £50.1m). Underlying profit before tax4 increased by 13% to £39.0m (2007/08: £34.4m). During the year we spent £11.0m on a share buy-back programme which benefited our earnings per share. Adjusted EPS6 was 7.76p (2007/08: 7.88p) whilst underlying EPS2 increased by 15% to 6.45p (2007/08: 5.62p). Profit for the period1 was £2.5m (2007/08: £34.5m), after restructuring items of £35.4m (2007/08: £4.7m) and the withdrawal of tax allowances of £12.5m. Our balance sheet is strong with a new revolving credit facility in place to 2012.
Your Board is strongly committed to enhancing shareholder value and maintaining a strong balance sheet. We have, in this challenging and uncertain economic environment, to be prudent and ensure that we have the capacity to maintain the appropriate levels of organic and acquisition led investments. The Board has considered that the prudent approach is to maintain the dividend at the prior year level of 4.50p per share, giving a dividend cover of 1.7 times from pre-restructuring cash flows. The final dividend of 2.95p per share will be payable in August 2009.
Key to our future success is attracting and retaining the right management talent. We have made a number of important and high quality appointments during the year and enhanced our performance culture. A focus on efficiency and innovation is at the heart of everything we do and is a key building block in our reward structures.
During the year we took the difficult decision to mothball our Fenland Foods site, when we were unable to reach agreement with the main customer of that site which would ensure its financial viability. At our Hull ready meals site, the conclusion of negotiations with our main customer of that site has led to a termination of the supply contracts. As a result, we are consulting with our employees on a proposal to cease production and close the site. Our decision to discontinue supply contracts reflects the need for the Group to eliminate unprofitable, or marginal, business, and ensure that Northern Foods is best placed to succeed in this very competitive environment.
We also continue to evaluate a proposal to invest in a new world class biscuit manufacturing facility. In a highly competitive market, this is a significant initiative for us, but the current volatile and difficult economic conditions mean that the decision process is complex. The Board fully recognises the impact these difficult choices have on our employees and their local communities. Our top priority is to continue our timely communication with all those affected and to ensure that the consequences of our decisions are mitigated as far as possible.
In other initiatives, we succeeded in winning a major contract (jointly with DHL) to supply British Airways with on-board catering for its short haul fleet starting in 2010. This takes us into a new market, which plays to our strength in providing high quality and innovative convenience food. We have also been enhancing our customer base by building strong relationships with discount retailers and developing our range of value products, which are becoming increasingly important in these difficult times.
Our employees
The challenging market in which we operate requires the very best from our colleagues within Northern Foods. Our loyal employees have contributed greatly to our results in this challenging year and I would like to thank them for their continuing efforts.
Your Board
Your Board has continued to benefit from the skills and depth of experience available to support the management team and I thank colleagues for their continued commitment and support. Andy Booker, Group Finance Director, joined the Board in November 2008, replacing Jez Maiden who left the Group to take up a role at National Express Group plc. Jez made a very important contribution during his three years at Northern Foods and we wish him well.
Summary
We have much still to do to realise our potential and deliver value for all our stakeholders. However, we have made good progress over the past few years, in restructuring and repositioning your business for success. We are operationally and financially stronger; have a high quality management team and are a better balanced and more resilient business. These are challenging market conditions, but our operational and financial strengths position us favourably to address these markets; to continue our good progress; and to build a strong business.
Anthony Hobson
Chairman
27 May 2009