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operating overview strong performance in bakery with sales and margin progression frozen re-focused on core product strengths chilled sales growth driven by sandwiches & salads; change programme in ready meals to strengthen operating position investing for growth: brands: goodfella’s pizza re-launch during h1 2010/11 future cost efficiencies: major biscuits investment (project golden) on track with the majority of spend during h1 2010/11 new customers: commenced 10 year british airways supply contract; secured new costa coffee business stefan barden, chief executive, said: " northern foods has traded solidly in challenging market condtions. we expect these conditions to continue, but we remain well positioned for the future.
“even during these uncertain economic times we continue to invest in brands, cost efficiency and technology to deliver long term shareholder value supported by our strong financial position.
“during the first half of our new financial year, the group will see increased costs from various initiatives including the goodfella’s pizza marketing campaign.”
performance review 2009/10
northern foods continues to trade solidly, in challenging market conditions. with a strong financial position and a stable, cash generative business, we are investing for growth to deliver long term shareholder value.
our increased investment in brands, automation, food science and technology, and consumer insight will position us for continued growth. 2009/10 was a year which continued our transformation and strengthened the group's capabilities. we drove improvements within the business; exiting low margin contracts to enhance profitability, improving operational efficiencies and recruiting new talent to support our development.
we continue to focus on scale customers who value quality and service, and on market segments with attractive growth opportunities. our chosen markets averaged 5.3% value growth this year (acn scantrack 20.03.10 and tns 21.03.10). our product mix is well balanced across the portfolio of branded and own label business we supply. we have established number 1 or 2 positions in ready meals, sandwiches & salads, frozen pizza and pies, biscuits and christmas puddings. we continue to benefit from a better balanced customer mix, with value products complementing sales in our premium product heartland.
we announced a £26.5 million investment to further enhance the competitive position of fox's biscuits and deliver incremental earnings growth. this year also saw the phased start of our ten year supply contract to british airways (ba) on its short haul routes from london heathrow. these two projects demonstrate our focus on growing our business over the coming years.
total underlying revenue increased by 1.0%, with total revenue increasing to £ 977.0m (2008/09: £975.2m). profit from operations* increased by 3.6% to £54.6m over the prior year (2008/09: £52.7m). underlying profit before tax, which excludes the impact of the non-cash net pension financing, rose to £39.2m (2008 /09: £39.0m), despite a foreign exchange headwind of approximately £3m from the stronger euro, impacting our irish based manufacturing operations, and incremental investment of £3m in our brands. as previously communicated, a net pension financing charge this year of £5.2 million (2008/09: credit £8.5m) saw group profit before tax (pbt) fall to £34.0m (2008/09: £47.5m). group operating margins remained solid, with an increase of 20 basis points (bps) to 5.6%. return on invested capital (roic), a key performance metric, improved from 11.7% to 12.4%.
the frozen division has benefited from our planned cost reduction programme, eliminating some lower margin sales to drive profitability. in may 2010 we announced the mothballing of our naas 3 bakery facility to take out additional cost and focus production around our main naas bakery facilities, which have secured incremental capacity. in bakery, a strong biscuits performance drove divisional margins higher, and, despite lower volumes in christmas puddings resulting from new competition in the category, we enjoyed a good christmas and retained market leadership. in chilled, strong sales growth was driven by new discount lines and some new business wins in sandwiches & salads. investment in ready meals, including new systems and processes in our factories, together with slower trading during the wind down of the hull site, has impacted profitability. despite tough trading, we retain a leading position in this market which offers attractive long term prospects. in april 2010, we announced a proposal to cease production and close our swansea ready meals facility, after being unable to reach agreement on a viable joint business plan with the site's main customer.
our recruitment of five scientists - one per business unit - to support our chief scientist and spearhead our food science and technology agenda, will benefit us in the years ahead as we seek to develop protectable technology for our products.
our strong financial position differentiates us from several peers. net debt of £183.0m was lower than the prior year (2008/09: £206.7m), reflecting disciplined cash management. in may 2010, we completed a new us private placement of $100m (usd) to provide long term funding for the group's development. this facility will be used to lower bank debt.
outlook
northern foods has traded solidly in challenging market conditions. we expect these conditions to continue, but we remain well positioned for the future. even during these uncertain economic times we continue to invest in brands, cost efficiency and technology to deliver long term shareholder value supported by our strong financial position. during the first half of our new financial year, the group will see increased costs from various initiatives including the goodfella's pizza marketing campaign.
operational review
key performance indicators
revenue
underlying revenue growth, a key measure for the group, was up 1.0% and volumes increased by 1.7%. group total revenue was £977.0m (2008/09: £975.2m).
northern foods is a better balanced business than three years ago, with a good customer and product mix. sales to top five customers (asda, m&s, morrisons, sainsbury's, tesco) remain at 77%, with value ranges representing around a fifth of our business. we also developed new customer relationships, including ba, during the year.
profit
profit from operations* was up 3.6% on the prior year at £54.6m (2008/09: £ 52.7m).
underlying profit before tax, which excludes the effect of the non cash net pension financing cost, increased to £39.2m (2008/09: £39.0m). the charge for restructuring items before tax, primarily reflecting the closure of the hull ready meals facility following the loss of the site's anchor customer; and the impairment arising from our swansea site, was £26.6m (2008/09: £35.4m), comprising £9.1m in cash and £17.5m in non cash items. statutory profit for the period increased to £13.8m (2008/09: £2.5m), reflecting lower restructuring costs and an adverse movement in the net pension financing.
operating margin
group operating margins showed steady progress, increasing by 20bps to 5.6% (2008/09: 5.4%). margins in bakery remain strong, with our rationalisation programme in frozen showing benefit to the bottom line. the margin mix in chilled reflects higher sales in sandwiches & salads. however, ready meals has impacted divisional profitability.