The Investment Column: Northern Foods is not cooking yet

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The Independent Online

Pat O'Driscoll has spent 12 months searching for the right recipe to salvage Northern Foods from the City compost bin. The now not-so-new chief executive reckons she's found it.

Pat O'Driscoll has spent 12 months searching for the right recipe to salvage Northern Foods from the City compost bin. The now not-so-new chief executive reckons she's found it.

Take 15 decentralised biscuit-to-pizza making divisions and mix well. Sell some, combine others till you emerge with three separate divisions. (Ambient, which is mainly sweet things; frozen, burgers etc; and chilled, as in the scores of ready meals it makes on behalf of supermarkets.)

Leave for three years to churn out enough cash to trim £333m of debt and fund a £116m pension deficit, while you beat suppliers hard to get better buying terms. In the absence of substantial sales growth, this should help you improve operating margins.

Try to refrain from checking progress too often because you might be disappointed. Should be ready for general consumption by April 2007.

That's pretty much what Northern's turnaround programme, dubbed "Get Fit", comprises. The City, though, isn't betting Ms O'Driscoll can stay head chef unless she manages to get the company through at least one Christmas without a profit warning (she failed this year).

Pre-tax profits were practically wiped out in the year to 2 April, collapsing to £4.3m from £75.4m last year, reflecting losses from disposals, the cost of shutting two factories and sacking 1,000 staff. Its chilled division fared the worst, mainly because it caught a cold from Marks & Spencer, its single biggest customer. Northern's operating margin went backwards, and is now a long way off target.

The group raised its dividend, but with interest cover of just 4.6 times on its unchanged debt mountain, the 6 per cent yield could be under threat. The shares are not ready to put on the menu yet.

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