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Goodman Fielder returns to full-year profit; baking, NZ dairy units improve

Wednesday 14th August 2013

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Goodman Fielder, the biggest food company in Australia and New Zealand, has returned to annual profit after two years of restructuring aimed at streamlining its range of brands, exiting unprofitable businesses and paying down debt.

Net profit was A$102 million in the year ended June 30, from a loss of $146.9 million a year earlier, the Sydney-based company said in a statement. Sales fell 11 percent to A$2.23 billion. Earnings from continuing and discontinued operations before items were A$200.2 million, down from A$233 million but at the top end of guidance in June of A$195 million to A$200 million.

The maker of household brands including Vogel's bread, Meadow Fresh, Edmonds and Ernest Adams resumed dividends with a final payment of 3 Australian cents a share payable on Nov. 1, having abandoned dividends during restructuring that saw it record impairments, restructuring costs and foreign exchange losses of A$267 million in 2012 and A$300 million against goodwill in its fresh baking division in 2011.

Net debt fell by 40 percent to A$434.5 million in the latest year. Goodman still faces tough markets and rising input costs, saying retail trading conditions, particularly in Australia and New Zealand "remains challenging with continuing pressure on product volumes and pricing", meaning its focus is on cost control and capital management.

It gave no specific guidance for 2014, while noting that it expects "further progress."

The shares last traded on the ASX at 77 Australian cents and have gained 58 percent in the past 12 months. The stock is rated a 'hold' based on a Reuters survey of 11 analysts, with a median price target of 80 Australian cents.

Earnings in the latest period were "impacted by challenging retail markets and volume declines as a result of the company leading on price (in Australia) and also from a disappointing result from Fiji Poultry," it said.

"The company is now financially stronger with a much clearer focus on the core categories where there is capacity to leverage the company's leading brands and market positions to restore acceptable earnings growth," it said.

Earnings did pick up in the second half, with EBIT from continuing operations climbing 21 percent on a turnaround in its baking business and improved performance from NZ Dairy.

The company's Project Renaissance project to cut annual costs by A$100 million by 2015 achieved annualised savings of A$65 million in the latest year.

Goodman's largest division by sales, baking, recorded a 3 percent drop in sales toA$897.8 million and a 9 percent drop in normalised EBIT to A$49.5 million. Its EBIT margin shrank to 5.5 percent from 5.9 percent.

The baking category, particularly in Australia, "remains challenging from the continued impact of private label, competitor and in-store baking competition on proprietary brands," it said. Private label are typically in-house brands used by supermarket chains.

Grocery sales fell 7 percent to A$502.8 million and normalised EBIT dropped 12 percent to A$63.4 million. The EBIT margin fell to 12.6 percent from 13.4 percent. The company cited subdued consumer sentiment in Australia, increased rivalry from proprietary and private label brands "which continued to put pressure on volumes and price."

Dairy sales fell 4 percent to A$395.3 million though normalised EBIT jumped 18 percent to A$37.7 million and its margin widened to 9.5 percent from 7.8 percent. The company said margins improved thanks to a more profitable product mix and "ongoing effective cost management."

In its outlook statement, it said the impact of higher farmgate milk pricing and aggressive competitor pricing is expected to have an impact on margins in NZ Dairy in the first quarter of the current year.

Its Asia Pacific division had a 1 percent decline in sales to A$331.8 million and a 9 percent drop in normalised EBIT to A$56.4 million. Its margin narrowed to 17 percent from 18.7 percent. It had already flagged problems at its poultry processing plant in Fiji and said stockfeed volumes fell in Papua New Guinea.

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