Northern Foods profits jump to £50m as it passes on costs to customers

The food producer Northern Foods delivered a 25 per cent increase in full-year pre-tax profits yesterday, despite the soaring cost of some ingredients and energy used at its factories.

The company said it had been hit by increases of about 60 per cent in the cost of gas and electricity, which it uses to make products such as ready meals.

Northern's chief executive, Stefan Barden, said: "[Fuel costs] were not insurmountable, but these are issues we have to address. We have now got fuel inflation to lay on top of commodity inflation."

Gas and electricity prices are closely linked to the price of oil, which has rocketed to more than $135 a barrel this month after being about $80 last year.

For the 52 weeks to 29 March, Northern Foods delivered pre-tax profits up 25.3 per cent to £50.1m. Group sales grew by 5 per cent to £931.9m.

Mr Barden forecast that food price inflation for Northern, Britain's largest maker of ready meals, would be between 2 per cent and 2.5 per cent this year, compared to 2.8 per cent for the year to 29 March. Where it cannot mitigate the impact through recipe changes, it will have to pass on the higher cost of ingredients to retailers, who will in turn pass them on to shoppers.

In terms of its material costs, Mr Barden said that the price of cereals, dairy, cocoa and fats had risen by nearly 5 per cent – equal to £40m – last year, partly driven by the awful summer weather in 2007, but he said: "At the moment, we are recovering all the commodity increases, and we hope that will continue through the year."

Overall, Mr Barden was bullish about its prospects for the year ahead. "The key point is that we have delivered the first year of the three-year recovery plan and we believe we are set up for steady top- and bottom-line growth [this year]."

Northern Foods's frozen food division delivered lower profits, partly as a result of disappointing sales of meat grills, as consumers avoided barbecues during the wet summer last year. However, Northern Foods' chilled and bakery operations delivered a strong performance. Shore Capital analyst Darren Shirley said: "After a challenging period, the recovery in bakery sales and profits was encouraging."

Mr Barden moved to dismiss speculation that it may consider selling its Fenland Foods facility in Grantham, which makes ready meals for Marks & Spencer.

This month, Northern Foods said it was "mothballing" the facility after it failed to come to an agreement with the retail giant. "It is absolutely not for sale," he said. Northern Foods decided not to yield to M&S's demands for discounts, as part of its Project Genesis supplier review programme. Mr Barden added that retailers such as M&S review their network constantly. He said: "I don't think M&S is doing this as a result of the downturn."

Tomorrow, Northern Foods will launch its first TV advertising campaign for its Fox's biscuits for a decade. The ads will air with Coronation Street.