By Jenny Ruth
Thursday 6th May 2004
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Designer Textiles enjoyed a spectacular year in 2002 when its shares were the best performers on the New Zealand Exchange.
Lately, its performance has come off the boil. While net profit in the year ended June 30 last year rose 5% to $3.4 million, the second-half result fell nearly 8% after a 25% jump in the first half. In the first-half this year, the net result fell 4% to $1.58 million.
Meanwhile, the company has been on the acquisition trail, buying Michele Ann Productions, which designs garments and has them manufactured in China, in mid-December. The clothes are made on behalf of customers, brand owners and retailers, in a factory in Shenzen which is dedicated solely to MAP and specialises in small product runs and quick delivery. Later in December, the company bought the Logan menswear brand from Rodd & Gunn as part of its ambition to develop brands.
ShareChat: Why What is your vision for Designer Textiles' future?
Managing director Mark Bilton: To be a strategic manager of textile-related businesses, to drive growth through more brands, better supply chain management, a growth-oriented culture and a clear vision. The perception from outside is that we're a merino-based business. That's only a very small part of what we do. Two fabric mills and a curtain factory isn't what you want in today's environment. We're a strategic manager of textiles companies, not a maker of merino fabrics. We're unlocking some of the synergies between the divisions, translating expertise between one company (within DTL) and another. We're looking at ways of transferring knowledge around the group. We want to do more exporting. If we're going to have any kind of manufacturing in New Zealand, we have to be export driven.
SC: The company's profits have declined in the last two half-year periods, why?
MB: It was the under-performance of Logan and a decline in sales, particularly in Logan. Sales have stayed at $60 million for four years. There's only so much value you can extract out of the business. With Logan under-performing, unless we have all four divisions working very well, you won't get an increase in profitability. Now we're looking more at growth strategies, to grow both the top line and the bottom line. We're fitting the company for growth. We want to have entrepreneurial, quick-reacting companies with the dynamics of small businesses, but having the benefits of the economies of scale and the resources of the group. To do that effectively, you have to get the IT right. We're right in the middle of doing that. I said I would never do another IT roll-out but we currently have four different systems.
SC: Are you looking at developing your own IT system or buying something off the shelf?
MB: Highly un-modified would be my preference. We're evaluating ERP (enterprise resource planning) systems and looking for ease of use and transparency.
SC: How is Logan Textiles performing currently? Is it still losing money and can it be salvaged?
MB: Logan is still making a loss. There are indications that situation is improving. We've changed the management almost completely and they're re-focusing on their core business, on what they're good at. We've also adjusted the costs of the business to a more realistic level and expect the situation is salvageable.
SC: How does buying Michelle Ann Productions fit into your strategy?
MB: It's part of our balanced growth strategy. They're an importer. We want to increase the proportion of imports. They're a garment manufacturer which adds value to our textile-related businesses. It allows them to own more of the supply chain. They also have a high design component which is part of our strategy. They're very good at designing ranges, working with people like Max and Glassons. Their supply chain out of China is superb. In my opinion, these guys are the best in the industry. I think this model can be duplicated in Australia. I know that's been said by many a New Zealand CEO. The Australian industry is going through what we went through a few years ago. They went for a soft landing by removing tariffs slowly. All they did was delay things. Michelle Ann doesn't do menswear at the moment. We've given them the Logan brand and we now have the guy who started the brand originally.
SC: What are your plans for the Mollers business?
MB: Mollers is very capable in the window covering area. We want to add other homeware-related products to that range so they can be complete category managers. We want to grow the domestic market and the export market in Australia. Basically, if it's made out of fabric and it's in a house, we're interested in it. A lot of it we will be putting down existing supply chains as a co-ordinated category.
SC: Why has Europe been a hard market to get into?
MB: We started later than we did in the US. It's more of a matter of earlier in development rather than it being harder. The only product we're exporting to Europe at the moment is merino. We're taking more of a garment focus to that now. It's better developed in the US. Europe's probably two years behind where we are in the US as far as awareness and product uptake.
SC: How are you going to introduce branding into the company?
MB: The different companies will handle branding in different ways. With merino, we're now branding product MAPP (merino advanced performance program) - we're using the Lycra model of branding associated with a fabric rather than the garments - and we've just secured a co-branding agreement with Nike. We're the first company to co-brand with Nike. They will be putting our swing tags on their shoes. A component is made from merino. We couldn't have asked for a better start than the Nike brand. We will be acquiring brands where appropriate. For example, the Logan menswear brand. We're now marketing into Farmers. With Mollers and the homewares area, we're keen to acquire some brands and a more premium positioning. We are going to re-brand the group. The corporate name is Designer Textiles and the Designer Textiles International division (the merino fabric division). We've got the MAPP brand and Michelle Ann Productions (MAP). And there's Logan Textiles and the (unrelated) Logan brand.
SC: You are looking at further acquisitions? How does the company plan to grow?
MB: We're looking at both acquisitional and organic growth. We would consider a wide range of possibilities within the textile-related area. We're always open and looking for acquisitions. Since the Michelle Ann acquisition, we've had a number of approaches. We want a balance between apparel and homewares-related products, a balance between local manufacturing and offshore sourcing.
SC: Will the company be reporting a breakdown of divisional earnings this year?
MB: I don't know yet. I think transparency is important in all aspects of the business both within the organisation and outside the organisation. I'm quite keen to move towards more transparent reporting over a period of time.
SC: Will there be any impact on the company from a free trade deal with China?
MB: The free trade deal with China just reduces some residual duties. The fundamental strategies behind the business already take into account a deregulated environment. We're moving to more importing and making any existing manufacturing internationally capable. Other strategies in design, branding and adding value all help to deal with that issue. All a China deal will do, if it goes ahead, is to accelerate that process. Duties are expected to come off before 2010 anyway. Most of the market is already polarised between importing or specialising in the added-value part of the market. It may disrupt people who are slightly in the middle.
SC: Are there any opportunites for the company from a free trade deal?
MB: It's a massive market. There are opportunities there as a potential export market, particularly around merino. It's almost like taking coals to Newcastle. The interesting dynamic around trade at the moment is the relationship between China and the US and with quotas coming off in 2005 due to the World Trade Organisation. A large increase in US manufacturing in China may well affect supply to smaller markets like New Zealand and Australia.
SC: How does the company handle the unexpected outside its control?
MB: Part of our strategic planning is around identifying major risks and looking at ways of managing it. For example, reliance on particularly large customers, concentrating supply in one country, in major export markets, currency fluctuations and global issues.
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