Burns Philp tumble slashes $600m from Hart's wealth

By Nick Stride

Friday 13th February 2004

Entrepreneur Graeme Hart's net worth took a hit this week after a poor result from food group Burns Philp disappointed analysts and investors.

The group's share price fell again, to 53Ac, from a high of 92Ac last August in the euphoria following the Goodman Fielder takeover.

That has chopped the value of the ordinary and preference shareholdings of Mr Hart's Rank Group from almost $1.7 billion to about $980 million.

Analysts at Goldman Sachs JB Were, Credit Suisse First Boston, and ABN Amro slashed their forecasts of Burns Philp's 2004 and 2005 earnings, citing a higher than expected interest bill and disappointing earnings from the North American yeast, herbs and spices, and Australian baking divisions.

The result rekindled speculation Mr Hart had bitten off more than he could chew with the Goodman Fielder takeover.

But analysts said the company's earnings appeared to have troughed and would start growing from next year.

"We are cognisant of the significant equity leverage in Burns Philp, " Macquarie Equities analyst Phillip Kimber said.

"From 2005 onwards [it] should begin to generate strong cash flows."

Mr Hart's highly leveraged takeover created a group with a lot of work to do to keep its bankers happy.

At the December 31 balance date it had net debt of $2.9 billion supported by shareholders funds of only $844 million.

Even that figure includes intangibles of $2.5 billion, meaning the group has negative equity.

Credit Suisse First Boston estimated the ratio of ebitda (earnings before interest, tax, depreciation, and amortisation) to interest would be 1.8 times in the second half and 2.2 times next year.

"This is very thin," analyst Larry Gandler said.

"However, management stated in the analyst brief that it was comfortable with its debt levels with regard to its debt covenants."

CSFB said North American yeast earnings, hit by the entry of French giant Lesaffre's vehicle USA Yeast, would not recover unless USA Yeast left the market or was bought by Burns Philp.

The bread discounting that had hurt GMF Australia would persist but would not worsen. Cost savings from plant closures would help.

Herbs and spices suffered from currency changes and from the loss of two key customers.

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