Chilled
The Chilled division delivered improved performance, growing revenue, operating margin and profit
The focus for the Chilled division is on making fresh, short shelf life products which meet consumers’ desires for convenient, high quality food that reflects the demands of busy, healthier lifestyles
The division delivered a robust performance over the year. Revenue increased by 1.1% to £486.8m (2007/08: £481.5m). Ready Meals growth offset slightly lower volume growth in Sandwiches and Salads due to the poor summer weather. Underlying revenue7 increased by 5.6% as a result of average selling prices being 2.9% ahead, as we increased prices to recover commodity inflation, and volumes were 2.7% ahead.
We worked closely with our customers to develop new value and discount products in Pizza, Sandwiches and Salads, alongside our premium ranges. Improvements in underlying performance were offset by start-up costs of £1.2m in commissioning our chilled soup plant at Grimsby. Divisional profit from operations* increased to £22.9m (2007/08: £22.1m) and operating margin* increased slightly to 4.7% (2007/08: 4.6%).
With constrained capacity in the industry for producing ready meals, sandwiches and salads profitably and with the high quality that consumers demand, we are well positioned in markets which offer good long term growth prospects.
Ready Meals
Sales growth outperformed the market, with underlying sales increasing by 6.6% in a market which fell by 2.0% (TNS data 52 w/e 22/03/09). This emphasised the importance we place on repeat purchase rates as a key success driver across all of our businesses. We are committed to driving improvements in profitability across Ready Meals and we saw a good performance. Three specific products – Melt in the Middle Fishcakes, Sweet & Sour Battered Balls and Prawn Primavera – performed strongly during the period and were featured in TV advertising by Marks & Spencer. Our Accompaniments range for M&S also saw strong growth, helping provide products for the time poor consumer. In the run up to Christmas, we saw over one million Ultimate Mash products supplied to M&S, a great example of the high volume we can deliver from our modern, automated sites. We are continuing to ensure that we utilise capacity at our sites in the best way possible.
In May 2008 we announced the mothballing of our Fenland Foods facility in Grantham, which produced Italian based cuisine for M&S. We were unable to reach agreement to return Fenland to profitability, consistent with our stated strategy to continue with business only where terms generate an adequate return for the Group’s shareholders. The Fenland mothballing has resulted in restructuring items of £22.9m which includes impairment of fixed assets of £18.1m and other costs of £4.8m, net of a retirement benefit obligation curtailment gain of £0.4m. Cash costs associated with the Fenland mothballing were £5.2m and non-cash costs were £17.7m. We continue to discuss the potential re-opening of Fenland in the future with new customers.
|
2008/09 |
2007/08 |
|---|---|---|
Revenue | £486.8m | £481.5m |
Operating margin* | 4.7% | 4.6% |
Profit from operations* | £22.9m | £22.1m |
Following the conclusion of negotiations to seek mutually acceptable and commercially viable terms for business supplied from Northern Foods’ Hull ready meals facility, Northern Foods and its main customer served by the site have agreed to terminate the existing supply contracts. As a result, we will be commencing consultation with employees on a proposal to cease production and close the site, in accordance with our strategy to continue with business only where terms generate an adequate return. The proposal includes consultation to move a proportion of production to other facilities. The net profit impact in 2009/10 will be minimal and the Company will incur a one-off cash restructuring cost in the 2009/10 financial year which is expected to be less than £5m. Our 2008/09 accounts include a non-cash impairment of £5.9m.
Promotional activity increased during the period as retailers sought to deliver better value for hard-pressed consumers. Whilst we worked closely with all of our major customers, we are less reliant on promotions to drive sales.
Sandwiches and Salads
In Sandwiches and Salads, revenue growth was ahead by 6.0% against market growth of 0.7% in Sandwiches (ACN 52 w/e 18/04/09) and 1.1% in Salads (ACN 52 w/e 18/04/09), but slower than anticipated due to the poor summer weather. The business performed creditably despite the difficult market conditions. We successfully introduced sandwiches for our major customers, including Wiltshire Ham & West Country Cheddar for the Tesco Finest range, and a range of sandwiches for M&S in its ‘Best of British’ range.
Our prepared Salads business delivered a commendable performance. Investment to expand capacity at our Corby salads site was successfully completed during the first half, providing us with additional capacity in this market.
Chilled pizza continues to operate in a challenging and promotionally driven competitive environment, although we have been able to secure new business to capitalise on the downturn and consumers looking for healthy yet convenient products. Our chilled pizza sales remained stable during the year, supported by premium and value ranges for several of our main customers. In line with other areas of our business, we launched products under two new tertiary brands for Tesco, Pizza Americano and Trattoria Verdi, focused on a specific price point.
+6.6%
Ready Meals sales growth outperformed the market, with underlying sales increasing by 6.6% in a market which fell by 2.0%
One million
In the run up to Christmas, we supplied over one million Ultimate Mash products to M&S
Sainsbury’s Taste the Difference Moroccan Cous-Cous
Sandwich fillers for retailers including Morrisons
Melt in Middle Fishcakes were one of three products featured in M&S adverts during the year
The Chicken Fajita forms part of the American range launched exclusively in Sainsbury’s
* Prices correct at time of publication,
27 May 2009