Northern Foods blames falling M&S sales for profit warning

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The Independent Online

The Domino effect of Marks & Spencer's falling food sales has hit Northern Foods, forcing its biggest supplier to issue a profits warning yesterday.

The country's biggest food manufacturer singled out M&S as the culprit for lower-than-expected sales. It said sales in its chilled division, which makes many of M&S's ready meals, were £7m worse than forecast. Its shares shed 7p to 164.5p.

Pat O'Driscoll, who is approaching her one-year anniversary as chief executive, said: "Our expectations on trading with M&S were not met despite some improvement in December." Northern relies on M&S for about one-third of its sales.

M&S, which has also warned on profits, said its like-for-like sales fell 1.7 per cent over the Christmas period. Its underlying food sales have fallen for four straight quarters.

Northern, which is in the throes of a massive restructuring programme, warned its pre-tax profits would be at least 10 per cent below City forecasts, at about £80m. Last year it made profits before tax of £86m.

Ms O'Driscoll said the impact of lower chilled food sales had wiped up to £4m off its bottom line in the third quarter. She declined to say how much of the shortfall was directly attributable to M&S, and warned a "continuing tough business environment" meant the manufacturer would miss out on a further £4m of anticipated profit during the next three months.

The group's underlying sales growth slowed sharply in the 13 weeks to 1 January to 1.3 per cent. Underlying sales to its five biggest customers - M&S, Tesco, Asda, J Sainsbury and Wm Morrison - rose 2.3 per cent. During its second quarter, total like-for-like sales rose 5.6 per cent.

Andrew Saunders, an analyst at Numis Securities, said: "Despite the change in senior management in 2004 and the apparent turning of a new leaf, Northern Foods once again seems unable to detach its Q3 fortunes from those of M&S. We expect the company has also been impacted by the M&S supplier price cuts implemented by Stuart Rose [M&S's chief executive] and thought to have taken effect in September 2004."

Since Ms O'Driscoll arrived, Northern has announced 1,000 job losses, unveiled two factory closures and sacked 30 senior managers.She said yesterday it remained "committed to a progressive dividend policy" and was working with M&S to help it trim its food ranges.