NORTHERN Foods yesterday unveiled higher-than-expected profits after successfully recovering significant" cost increases.

The group, which employs about 300 people at its Dalepak factory in Leeming Bar, North Yorkshire, and supplies various retailers including Marks and Spencer, benefited from improved trading in its chilled foods and bakery divisions as profits from continuing operations increased £10m to £50.1m.

Shares in the group increased on the back of its annual results, rising 0.29 per cent to close last night at 86.25.

Northern, which makes brands including Fox's biscuits and Goodfella's pizzas, said the trading environment remained challenging, but the firm said it is committed to recovering continued commodity cost pressures.

Northern said material costs in the year to March 29 were nearly five per cent higher than a year earlier, representing an annual impact of £40m.

The pressure came as Northern undertook the first phase of a three-year strategic plan aimed at boosting profitability.

It has stopped poor-selling products, exited some retailer own-label contracts and ditched unprofitable promotions.

Chief executive Stefan Barden said: "This disciplined, performance- orientated approach has improved profitability."

The company, which employs 11,000 people, said an area of concern remained its frozen foods division - which includes Dalepak - which saw profits fall to £11.4m from £18.4m a year earlier.

Northern said poor summer weather, rival promotional activity and a strong Euro combined to create a difficult year for the division.

Its Goodfella's brand held its market position, but overall pizza profitability was lower than last year, while the company's pastry and meat business also underperformed.

It hopes to revive the meat business through a new grill range, under the George Foreman's Lean Mean Grillers brand.

The company's bakery division entered the year with declining revenues and margins, but reversed the performance by concentrating on Fox's and Matthew Walker puddings and ditching unprofitable private label contracts. Underlying revenues for the division were ahead 3.9 per cent for the full year, with average selling prices up 6.6 per cent following the recovery of significant cost increases, particularly in chocolate and flour.

Profits from bakery operations increased by 17.3 per cent to £14.9m.