Dalepak sale as Northern Foods looks to focus on its key brands

NORTHERN Foods is to sell its Dalepak grills and burgers division as it focuses on key areas such as biscuits, ready meals and sandwiches.

The Leeds-based group, which is investing in major brands such as Fox's biscuits and Goodfella's pizza, said Dalepak had become a non-core part of the business.

Dalepak, which is based in Northallerton, North Yorkshire, is expected to fetch 6.4m under the agreement with the Irish Food Processors Group.

Irish Food Processors, which is owned by Irish tycoon Larry Goodman, has a number of meat processing sites in the UK. It supplies major supermarkets as well as catering and export markets.

The Dalepak business employs 143 people and all will transfer over to Irish Food Processors, which plans to invest in the business.

Dalepak, a supplier of frozen foods including meat and meat-free grills, has a number of brands including Dalepak, Ross and Grassington's. It made a marginal loss on sales of 23m in the year to April 3.

Northern will use around half of the proceeds to fund its pension schemes and the rest will be added to the balance sheet.

Dalepak has become a small part of Northern's business, accounting for just two per cent of group sales, making it around one tenth of the size of the ready meals and sandwiches business, which both account for around 20 per cent of sales.

Analysts said they believe this is one of the last non-core sell-offs by Northern.

Analyst Clive Black at Shore Capital said Dalepak represents less than 10 per cent of Northern's frozen division sales.

The frozen division recorded revenues last year of 254m, down from 272m in the prior year.

"From a margin perspective, Dalepak's disposal should bolster the divisional return on sales figure due to its low level losses," said Mr Black, saying that it has been a peripheral business for some time.

"This disposal does not come as a huge surprise to us, with management's attention firmly on driving the pizza brand and the McDougall's' range," he added.

"Put another way, we could not see a strong case within or without the group structure for Dalepak to make a strong claim for new capital."

Northern's tough stance on low margin contracts led to a fall in sales in the first quarter, but the group is confident it can replace the work with better business and be back in growth by the end of the year.

Under the leadership of chief executive Stefan Barden, the company has refused to continue with low margin contracts just to keep its retail and foodservice customers happy.

The most recent example is the closure of a ready meals factory in Swansea in April after Northern failed to agree a new contract with supermarket chain Sainsbury's.

"When it comes to low margin contracts, our policy is we don't do bad business," said Mr Barden. "We expect to win more business than we walk away from. We expect group sales to grow now, we'll be back in growth by the end of the year."

The company, which supplies Marks & Spencer, Leeds-based Asda, Bradford-based Morrisons, Sainsbury's, Tesco and Aldi, said like-for-like sales fell 1.6 per cent in the three months to July 3.

Northern stopped making Birds Eye frozen pies in June last year. The impact of this and the planned exit from some marginal business led to the 25 per cent fall in frozen like-for-like sales. It hopes to improve the trend in frozen food with its 5m 'pizza fairy' advertising campaign to support its Goodfella's pizza brand.

The veggie burger kings

Dalepak was founded in 1976 by local entrepreneurs in Bedale in North Yorkshire and in the 1980s it became the first maker of frozen veggie burgers.

The acquisition of the Ross meat licence from HJ Heinz established the firm as a major player in the UK frozen food market before it was acquired in 1998 by Northern Foods, which has developed the Grassington's meat free brand.

Dalepak's range includes grills, ribsteaks and burgers with no artificial colours, flavours or preservatives.

Dalepak supplies a number of retailers including Sainsbury's, Asda, Tesco, Co-op, Iceland, Nisa Local, Netto and independent stores.

It has also developed its range of meat free grills, burgers and sausages.

Dalepak recently teamed up with social commentator Jenni Trent Hughes to investigate how shopping habits have changed since the credit crunch. She offers shoppers tips on how to save money.