Elaine Watson takes soundings on which assets will have to go
A tacit ‘for sale’ sign has been hanging over a clutch of its non-core businesses ever since the sale of Ski last year. Yet management has, until this week, skirted around the issue of a major restructuring, instead blaming its problems on everything from festive forecasting errors to bad weather, rather than its own unwieldy structure.
Northern Foods bosses have finally conceded publicly what everyone else has been saying privately: the business is too big and too unwieldy, and large chunks of it will have to go.
But that all changed last Thursday when the company issued its third profit warning in 18 months, said farewell to its chief executive and finally admitted non-core businesses were up for sale.
First to go was Fox’s Confectionery - a profitable business, but too small to get the attention it deserves, says finance director Sean Christie.
Next on the block, predict analysts, are probably chilled distribution arm NFT, Smiths Flour Mills and the Batchelors baked beans business in the Irish Republic. Biscuits could also get the chop if the company really means business when it talks about “readjusting its portfolio”.
Whether private equity companies are paying more attention to Northern following last week’s revelations remains to be seen. However, many analysts predict the venture capital buyers will sit tight until the company has completed its painful asset shedding in public before looking to take it private.
Combine the fact that the share price has not reacted violently to the news - dipping from 160p to 134p last week and stabilising at about 140p - with the fact that the business is highly geared and “not hugely cash generative,” and many venture capital buyers could be giving Northern Foods a wide berth anyway, adds one City analyst.
“It’s probably going to be a slow and painful sell off.”
Northern’s Christie is not pulling any punches either. “We can’t afford to be distracted by businesses [like Fox’s Confectionery] that represent less than 1% of group turnover. We’ve got bigger fish to fry,” he says.
So what criteria will govern the restructuring? The issue is not branded vs own label, says Christie, but focusing on core sectors that are going somewhere. “We have some very successful branded businesses that are kept separate from own label. Goodfella’s is the number one frozen pizza brand - hardly an also ran.”
Investment, he says, is simply being spread over too many disparate companies and products when cash could be better spent ensuring core businesses - cakes, puddings, bread, chilled savoury, frozen, biscuits and recipe dishes - were firing on all cylinders. In the meantime, more work needs to be done to tackle the “decentralised culture” at the company, which has just hired David Oxland to help drive some economies of scale, he adds.
“We have a great business and great, well invested assets. We just need to get more focus and cut our costs.”
The message went down well in the City, although it comes about three years too late, says one analyst. “This is really long overdue. Management has consistently failed to translate sales into profit and completely destroyed shareholder value. They need to cut out swathes of management, and do a Uniq - sell off the bits - however profitable, that don’t make sense.”
Northern’s biggest customers meanwhile, say greater focus on own label is probably the way forward. A source close to Marks and Spencer, which buys 25% of its food from Northern, says the branded businesses should go - which means Fox’s, Dalepak and Goodfella’s.
As for candidates to fill departing chief executive Jo Stewart’s shoes, there will be no shortage of applicants, say analysts. “We’re talking about a fundamentally attractive company supplying some great products to retailers that are seeing strong sales growth. Yet profits have hardly budged in six years,” claims one. “Someone will relish the challenge.”
A tacit ‘for sale’ sign has been hanging over a clutch of its non-core businesses ever since the sale of Ski last year. Yet management has, until this week, skirted around the issue of a major restructuring, instead blaming its problems on everything from festive forecasting errors to bad weather, rather than its own unwieldy structure.
Northern Foods bosses have finally conceded publicly what everyone else has been saying privately: the business is too big and too unwieldy, and large chunks of it will have to go.
But that all changed last Thursday when the company issued its third profit warning in 18 months, said farewell to its chief executive and finally admitted non-core businesses were up for sale.
First to go was Fox’s Confectionery - a profitable business, but too small to get the attention it deserves, says finance director Sean Christie.
Next on the block, predict analysts, are probably chilled distribution arm NFT, Smiths Flour Mills and the Batchelors baked beans business in the Irish Republic. Biscuits could also get the chop if the company really means business when it talks about “readjusting its portfolio”.
Whether private equity companies are paying more attention to Northern following last week’s revelations remains to be seen. However, many analysts predict the venture capital buyers will sit tight until the company has completed its painful asset shedding in public before looking to take it private.
Combine the fact that the share price has not reacted violently to the news - dipping from 160p to 134p last week and stabilising at about 140p - with the fact that the business is highly geared and “not hugely cash generative,” and many venture capital buyers could be giving Northern Foods a wide berth anyway, adds one City analyst.
“It’s probably going to be a slow and painful sell off.”
Northern’s Christie is not pulling any punches either. “We can’t afford to be distracted by businesses [like Fox’s Confectionery] that represent less than 1% of group turnover. We’ve got bigger fish to fry,” he says.
So what criteria will govern the restructuring? The issue is not branded vs own label, says Christie, but focusing on core sectors that are going somewhere. “We have some very successful branded businesses that are kept separate from own label. Goodfella’s is the number one frozen pizza brand - hardly an also ran.”
Investment, he says, is simply being spread over too many disparate companies and products when cash could be better spent ensuring core businesses - cakes, puddings, bread, chilled savoury, frozen, biscuits and recipe dishes - were firing on all cylinders. In the meantime, more work needs to be done to tackle the “decentralised culture” at the company, which has just hired David Oxland to help drive some economies of scale, he adds.
“We have a great business and great, well invested assets. We just need to get more focus and cut our costs.”
The message went down well in the City, although it comes about three years too late, says one analyst. “This is really long overdue. Management has consistently failed to translate sales into profit and completely destroyed shareholder value. They need to cut out swathes of management, and do a Uniq - sell off the bits - however profitable, that don’t make sense.”
Northern’s biggest customers meanwhile, say greater focus on own label is probably the way forward. A source close to Marks and Spencer, which buys 25% of its food from Northern, says the branded businesses should go - which means Fox’s, Dalepak and Goodfella’s.
As for candidates to fill departing chief executive Jo Stewart’s shoes, there will be no shortage of applicants, say analysts. “We’re talking about a fundamentally attractive company supplying some great products to retailers that are seeing strong sales growth. Yet profits have hardly budged in six years,” claims one. “Someone will relish the challenge.”
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