Bakery
The progress made in our Bakery performance has been particularly pleasing
The focus in the Bakery division is to sell premium indulgent Fox’s biscuits and Christmas puddings which meet consumer desires for quality, taste and enjoyment
The Bakery division delivered a strong performance over the year, building on the improvement from the prior year. We further increased our investment in the Fox’s brand through the Vinnie campaign, driving improved national awareness and distribution. Revenue increased by 5.4% to £216.0m (2007/08: £205.0m). Selling prices increased by 1.5% as we successfully recovered commodity inflation and volumes increased by 3.9%, despite exiting some unprofitable or low margin retailer own brand contracts. The premium nature of the Fox’s brand and increased focus on higher margin retailer own brand business helped drive operating margin improvement, with profit from operations* increasing by 37.6% to £20.5m (2007/08: £14.9m), and operating margin* improving to 9.5% (2007/08: 7.3%).
Competitive pressure in the puddings market will bring challenges to improve profitability, yet we are focused on retaining our market leadership. In the biscuits market, there is potential to continue profit improvement over the medium term. The sweet biscuit market grew by 8.0% in 2008/09 (ACN Scantrack 52 w/e 21/03/09), with the Fox’s brand share increasing to 9.3%.
Biscuits
Biscuits represents a significant growth opportunity for Northern Foods, with our commitment to invest in the Fox’s brand showing real benefits. Our increased spend, by £1.8m, in the new ‘Vinnie’ TV advertising campaign helped increase the number of households buying Fox’s biscuits during the period. As with all our businesses, Fox’s has focused on its ‘Power 5’ (its top five best selling products), with our top five products driving incremental sales and margins. Our most popular product, Rocky, is set for re-launch in the autumn.
Reducing complexity has helped our overall performance and, whilst our exit from a number of low profit own label contracts has helped us to focus on higher value business, we continue to work with our retail customers to develop new propositions. Examples include the Oatland Oaties range, which is targeted at cash conscious consumers. We have seen further growth with our ability to adapt products for customers such as Aldi and Netto helping us to increase orders for retailer own brand business.
We announced in July that we would evaluate a project to streamline our biscuit manufacturing operations and reduce costs by transitioning from three production sites to two world class facilities, building on recent investments in greater automation. We are continuing the feasibility phase of this project to ensure that we rigorously assess all the options in view of the extremely volatile and recessionary environment. This project offers the potential to improve efficiency. Whilst we recognise the uncertainty for our employees, we have to evaluate all the options comprehensively. We are working towards concluding the feasibility at the end of 2009. In the meantime, we remain committed to open communication with our employees throughout this process.
|
2008/09 |
2007/08 |
|---|---|---|
Revenue |
£216.0m |
£205.0m |
Operating margin* |
9.5% |
7.3% |
Profit from operations* |
£20.5m |
£14.9m |
Puddings
In Puddings, a market where we have leadership, our Christmas trading period was successfully delivered. All of the Christmas pudding stock we made at our Matthew Walker site was sold and once again we received excellent feedback on the quality and taste of our products, which derives from a unique steaming process, built on 110 years of experience. Our unique pressurised steam cook process and range of different recipes, from extra-matured to nut-free, saw our products featured across all of the major retailers, from the traditional discount supermarkets to the premium end of the market.
A new competitor to target mainstream retailers in the puddings market for Christmas 2009 emerged during the year. The necessary investment to maintain our leadership in this market will reduce short term profitability. However, we believe that the quality required by consumers in this market will keep us well placed across our customer base. We also continue to manage the complexity within this business, whilst ensuring that our quality is undiminished. Elsewhere in our Puddings business, we launched a range of sponge puddings, including a new brand, ‘Scrummie’, to help support our all year round business. In four exciting flavours, Scrummie evokes memories of childhood with its innovative ‘sticky fingers’ packaging design. Our belief is that our main retailer own brand and branded ranges continue to offer attractive opportunities for further development.
Vinnie
Our increased spend in the new ‘Vinnie’ TV advertising campaign helped to increase the number of households buying Fox’s biscuits during the period
Unique
Our unique pressurised steam cook process and range of different recipes saw our puddings featured across all of the major retailers, from the traditional discount supermarkets to the premium end of the market
Fox’s premium indulgence sales grew during the year
We made over 18 million Christmas puddings for our customers during the year
Our proposal to integrate our biscuits manufacturing and develop a new world class facility would improve efficiency
The delicious Scrummie sponge pudding was launched to develop our all year round Puddings business
* Prices correct at time of publication,
27 May 2009