Dairy changes hit Northern profits

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The Independent Online

The continuing decline of doorstep milk deliveries has knocked a hole in profits at Northern Foods, the country's largest milkman. Profits fell from pounds 157m to pounds 16.4m due to a pounds 91.4m restructuring charge relating to a radical shake-up of the group's dairy operations.

The announcement comes a day after Unigate, Northern's main rival, announced 2,000 job losses, blaming competition from supermarkets and unfair pricing from Milk Marque, the industry body created last year to replace the Milk Marketing Board.

Northern Foods announced its restructuring in March, with 2,200 job losses and the closure of five of its nine bottling plants, a creamery and distribution depots.

The company went on the offensive yesterday, saying the new milk selling system was unsatisfactory because of the "arbitrary means by which the monopolistic Milk Marque can establish prices".

Northern claims that milk quotas restricting production of milk in Britain prevent a free market. Northern supports the Dairy Industry Federation view that authorities in London and Brussels should investigate the system to ensure there is real competition.

Under the re-structuring, Northern has reduced its bottling capacity by about 40 per cent. The Eden Vale Chillserve van sales business has been closed and the Pork Farms/ Bowyers vans sales network has been rationalised. Northern says the restructuring should produce cost savings of pounds 20m a year.

Operating profits at Northern's dairy subsidiary fell from pounds 89m in 1994 to pounds 57.4m this year, dented by the decline in the doorstep deliveries and the decision not to raise doorstep milk prices. The franchising of the Express milk rounds in London was completed at a cost of pounds 12m.

Profits at the convenience foods division fell from pounds 45m to pounds 34m due to Eden Vale's withdrawal from the Chillserve van sales business, which operates van sales deliveries to convenience stores.

The business was severely damaged by the decision by Kwik Save - which accounted for 20 per cent of its business - to move toward centralised distribution.

Sales of recipe dishes were also affected by warmer autumn weather, though the company says cooler weather in June has provided a boost to sales of dishes such as hot pies and steak and kidney puddings. Northern is a large supplier of ready-made meals and sandwiches to Marks & Spencer and also supplies pies, cakes, biscuits and dairy products to rivals such as Tesco and Sainsbury.

Group sales were down slightly, from pounds 2bn to pounds 1.96bn. The dividend was maintained at 8.8p per share. The shares finished down 7.5p to 184.5p.