NAAFI has announced a profit of half a million pounds for the last full financial year.

The £500,000 profit for 2001-2002 was achieved as a result of “a number of positive actions during the year … to improve the company’s performance”, according to a statement from the company.

These included reducing operational costs by £10.6 million, reducing the cost of sales by £5.6 million over the year, and increasing income from NAAFI joint ventures.

Work was also carried out during the period on a strategic review of the business, which was completed in May 2002, and which is expected by the company to reflect a further improvement in performance in the financial year ending April 2003.

According to Chris Reilly, who took over as Chief Executive in May 2002, the results mark a step-change in the business.

“The nature of the Armed Forces means that the NAAFI faces an increasingly challenging business environment,” he said.

“To meet these challenges NAAFI has recently implemented a number of changes and we are now seeing the results of these in the profits achieved in 2001-2 and forecast for this year.

“We are confident that the changes we have made will provide a profitable future for the company and for the Armed Forces who benefit from NAAFI’s welfare dividend.”

The NAAFI strategic review recognised that the company has two distinct businesses, NAAFI GB and NAAFI International, and NAAFI is now focusing on the individual needs of each business.

NAAFI – established in 1921 as the Navy, Army and Air Force Institutes – provides leisure and retail services to the British Armed Forces and their families stationed in the UK, Germany and Cyprus, and its Naval Canteen Service (NCS) provides leisure and shop facilities on a number of Royal Navy warships. NAAFI also supplies films for ships and submarines.

Its Expeditionary Force Institute (EFI) does the same job in theatres of military operations, including Afghanistan, Sierra Leone and Kosovo, and on major exercises such as Saif Sareea in 2001.

NAAFI also ploughs a welfare dividend back into the three Services based on a formula which takes into account the size of each Service and its contribution to the profit by usage.

The most recent dividend of £500,000, based on profit forecasts for the current financial year, was allocated as £92,016 to the Royal Navy, £275,046 to the Army, and £132,938 to the RAF. The dividend for the Navy is allocated to Commanding Officers, who distribute the proceeds – an important source of funding for welfare services and sports sponsorship.

Chris Reilly said: “I am delighted that NAAFI is now able to return £92,016 to the Royal Navy as a result of their use of NAAFI and the NCS both at home and at sea.

“The welfare dividend to the Armed Forces has always been a valuable source of income to the individual units who decide how best to invest the money into their community.”

The NAAFI welfare dividend between 1996 and 2001 has totalled £10.7 million.