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Goodman Fielder's Fresh Dairy Writedown Slashes Profit

Monday 25th August 2008

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Goodman Fielder, Australia's biggest baking company, posted an 88% slump in full-year profit after writing down the value of its dairy unit in New Zealand.

Profit shrank to A$27.7 million in the year e4nded June 30, from NZ$239.8 million a year earlier, the Sydney-based company said in a statement. Goodman took an impairment charge of A$170 million against its Fresh Dairy division and one-time restructuring costs of A$28 million. Excluding the items, profit fell 8% to A$221 million.

Shares of Goodman fell 4% to A$1.45 on the ASX and have dropped about 24% this year amid surging prices for ingredients such as wheat and canola, which eroded margins and drove up costs. Earnings also suffered as demand in New Zealand weakened, reflecting the nation's economic slump.

"The group sees little improvement in the underlying earnings in 2009 due to uncertainty around commodity costs and future economic conditions in Australia and New Zealand," the company said. It is "more optimistic" for an improvement in 2010, as commodity prices ease and it benefits from efficiency gains.

Goodman's Fresh Dairy unit supplies about 18% of the milk sold in New Zealand supermarkets under its Meadowfresh brand, which it buys from Fonterra, the biggest supplier.

Earnings for fresh dairy and meats fell 32% to A$34 million as its EBIT margin shrank to 7.3% from 12.8% a year earlier.

EBIT also fell at its baking division, the company's largest unit by sales, to A$131 million from A$151 million. Its baking EBIT margin fell to 13.2% from 15.7%.

Earnings at its commercial unity, which supplies oils and other ingredients to food manufacturers, fell 4.6% to A$66 million, with the margin contracting to 11.3% from 12.1%. Its home ingredients unit posted a 14% gain in earnings to A$101 million.

Goodman went public after a A$2.1 billion initial public offering in December 2005. It was formed after Burns Philp, controlled by billionaire Graeme Hart, spun off Burns Philp's baking and spreads business.

By Jonathan Underhill

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