Strong profit gains achieved on dairy operations lifted first-half profits of the Northern Foods group, which is chaired by Irishman, Mr Chris Haskins. But the strength of sterling reduced the group's benefit from higher profits earned in Ireland by Green Isle and Batchelors. Improvements in dairy profitability have reached the stage where the group is willing to engage in a price war with dairy rivals to retain and increase its sales. Any move by market-leader Northern Foods to extend its presence in the supermarket sector could have implications for Avonmore Waterford. The Irish group has an estimated 10 per cent of the supermarket business, behind Northern, Unigate, MD and Milk Marque and ahead of Scottish rival, Robert Wiseman.
Sales to supermarkets continued to decline in the first half as Northern Foods relinquished loss-making turnover. But second-half sales are expected to be broadly unchanged before the group starts to win back business next year.
First-half profits before exceptional items and tax increased 18.7 per cent to £68.6 million sterling on turnover down 3.5 per cent at £908 million. Earnings per share rose 20.6 per cent to 8.78p, more than twice covering the interim dividend, up 11.1 per cent at 4p.
Although the figures were better than expected, Northern Foods shares slipped 5p to 262p on the absence of positive boardroom comment on a group de-merger, splitting the prepared foods and dairy businesses into two listed companies. Dairy operations provided the main impetus behind the first-half profits growth. Operating profits on dairy operations increased 26 per cent to £27.3 million despite a 7.1 per cent reduction in sales to £374 million. The group's diversified dairy business in Northern Ireland achieved a "satisfactory" profit increase. Mr Neil Davidson, managing director of the dairy division, said the divergence between raw milk prices and returns from commodity markets was even larger in the second-half of the group's 1996-97 financial year and in the earlier interim period.
"Accordingly, we expect the recovery in dairy profits to be more pronounced in the second half of the current year," he said.
Operating profits earned on prepared foods in the first half of this year increased 10.2 per cent to £47.5 million on turnover down 0.8 per cent at £534 million. The financial results were materially affected by the rise in the sterling/ pound exchange rate. Mr Jo Stewart, managing director of the prepared foods operation, said: "Green Isle continued to make sales and profit progress in local currency terms with the `Goodfella's' brand consolidating its leadership in the UK frozen deep pan pizza sector."
Mr Haskins, commenting on the results, said: "Prospects for the second half are encouraging.
"Prepared foods continue to benefits from growing demand with the major retailers and we anticipate further substantial recovery in dairy profits based on the reduction in raw milk prices and the strength of four doorstep operations," he said.
